Permuta: Currency Exchange in Venezuela's Parallel Market Where can I find additional information on the permuta? "Moving Money North: Currency Exchange in Venezuela via the Permuta" was the first publication to identify, describe, document, and assess the compliance and money laundering risks of the Venezuelan permuta bond swap. The article was published in the January/February 2009 edition of ACAMS Today in the United States. In March 2009, the article was updated and republished in Money Laundering Bulletin in the United Kingdom. Both articles are available for download on this site. In addition, local Venezuelan Laws (Code of Commerce and Civil Code) outline requirements to formalize a generic permuta contract, thus it is applicable to bond swaps. What is a permuta? The permuta is a currency exchange method in Venezuela that uses offshore corporations to swap bonds denominated in Bolivares Fuertes (Bs.F) and U.S. dollar. As a result of the swap in the parallel market, Bs.F from Venezuela is converted into USD, which subsequently benefit accounts at U.S. financial institutions. The process can also be used to convert USD into BsF. In a June 16, 2009, interview with Moneylaundering.com, Brian Stoeckert discussed how a permuta is conducted in the parallel market, the associated risks, and the current regulatory outlook of the market. Is the permuta process involved in the Rosemont case? Yes, on March 18, 2009, a grand jury in the U .S. District Court of Massachusetts indicted Rama K. Vyasulu, owner of Rosemont Finance Corp., Doral, FL on money laundering charges for transactions transmitted in Venezuela's parallel market. The indictment is available for download on the Permuta Money Laundering page. Did Rosemont operate and process transactions through numerous shell companies? The corporate formation and transaction method used by Rosemont to process transactions was first identified in "Moving Money North: Currency Exchange in Venezuela via the Permuta.” The article was published several months before the indictment. For more information on Rosemont Finance Corp. and Rosemont P, please visit the Permuta Money Laundering page. What can a financial institution do to identify and monitor permuta transactions? For Customer Identification Programs (CIP), U.S. financial institution should effectively utilize a risk-based approach to manage customer accounts engaged in transactions that appear to be permuta activity. The accounts should be classified as higher-risk, subjected to enhanced due diligence and continuous transaction monitoring. The permuta is an esoteric process playing an increasing role in the international financial system. If you would like more information on recent permuta developments, please contact Brian Stoeckert at brian@stoeckertconsulting.com. Does a complete picture of the transaction activity exist? Yes, the first diagram to demonstrate the entire permuta process appeared in the March 2009 edition of the Money Laundering Bulletin. Where are the offshore corporations located? The offshore corporation used in the permuta is most likely established in a high-risk offshore financial center with strict secrecy laws. Common offshore locations include Antigua and Barbuda, Bahamas, Barbados, British Virgin Islands, Cayman Islands and Netherlands Antilles. Also, many have been located in Panama to benefit from the stable financial system in that country. Is the permuta legal in Venezuela? Yes, under Venezuelan law the permuta is a legal method to convert Bs.F into USD. Specifically, bond transactions were exempt under the Foreign Exchange Crime Law (Gazette No. 38,272 of 2005; revised by the National Assembly in December 2007). The law created criminal penalties for foreign currency transactions conducted outside the CADIVI. What is CADIVI? On February 5, 2003, President Chavez utilized the Law Governing the Foreign Exchange System (Gazette No. 4897 of 1995) to create the Comisión de Administración de Divisas or CADIVI. CADIVI is the government entity managed by the Venezuelan Finance Ministry with authority to regulate and impose restrictions on foreign currency exchange rates and the procedures used to obtain foreign currencies. Does CADIVI sell U.S. dollars? CADIVI has the authority to sell USD to individuals and corporations for limited purposes that include, among others, the purchase of products or imports for certain industries like automotives, commodities, food, healthcare; personal trips up to US $2,500 per year, medical reasons, and graduate studies conducted abroad. Note: In January 2009, the amount for personal trips was reduced from $5,000 to $2,500. What is the exchange rate for U.S. dollars purchased from CADIVI? U.S. dollars sold by CADIVI have a preferential exchange rate of Bs.F 2.15 per U.S. Dollar. How can an individual or corporation obtain the CADIVI rate? CADIVI maintains tight control of the outflow of USD from the Central Bank of Venezuela(BCV). As such, the certification process to exchange Bs.F to USD is strict and requires an exhausting amount of documentation, including licenses, permits, invoices and receipts. If CADIVI sells U.S. dollars at the best rate, then why do individuals and corporations engage in the permuta? The CADIVI process can take several months to process the exchange. In addition, CADIVI requires a broad disclosure of the submitting company's financial records. For numerous reasons, many companies are hesitant to share this information with the Venezuelan government. The permuta method can exchange currency within minutes to several days. Therefore, individuals and corporations utilize the parallel market to engage in the permuta because it is the most common and effective legal method for individuals and corporations to exchange Bs.F to USD. Do U.S. companies that conduct business in Venezuela use the CADIVI or the permuta? According to the U.S. Department of State, in 2008, CADIVI authorized approximately USD 1.7 billion for repatriations to foreign companies doing business in Venezuela. However, many companies did not receive full repatriation from CADIVI or waited six months or longer for payment. As such, it is common for companies to engage in the permuta to avoid the lengthy CADIVI process. What is the difference between the Bolivar and Bolivares Fuertes? The Bolivar (Bs.) is the former currency of Venezuela. The Bolivar was adopted by the monetary law of 1879. In March of 2005, the Central Bank of Venezuela (BCV) linked the Bolivar to the U.S. dollar at the official exchange rate of 2,150 bolivares per U.S. dollar. On January 1, 2008, the BCV issued a redenominated bolivar known as the "Bolivares Fuertes" (Bs.F). At that time, the official exchange rate was changed from 2,150 to 2.15 per U.S. dollar. What is the exchange rate in the parallel market? The exchange rate constantly fluctuates in the parallel market. For example, in January 2007, the rate was approximately 4,400 Bs./USD. In January 2008, the rate was approximately 5.25 Bs.F/USD. For June 2009, the rate is around 6.60 Bs.F/USD. Why am I unable to locate the parallel market exchange rate? In January 2008, the Venezuelan government amended the Foreign Exchange Crime Law to prohibit the publication in Venezuela of the parallel market exchange rate. Unofficial or reference sources include www.venezuelafx.blogspot.com and www.veneconomia.com. What is Venezuela's predicted rate of inflation for 2009? Venezuela's Finance Minister predicted 15% inflation for 2009. However, this piggybacked last years’ 11-year high of 30.9%. In 2007, inflation was 22.5% after rising 5.5% from 2006.