How Crypto Ended Up at the Center of a Potential $20 Billion Internal Corruption Scandal in Venezuela — Bitcoin Mining Shutdown Results

The establishment of sanctions by the Trump administration towards PDVSA, the state oil company in Venezuela, reportedly forced the hand of the government in the country to find alternative means of payment for crude oil. According to reports, more than $3 billion are missing from these payments that were brokered by Sunacrip, the national crypto watchdog. However, documents reviewed estimate that the hole might be closer to $20 billion. As a result of this, Oil Minister Tareck El Aissami stepped down and Sunacrip’s former chief, Joselit Ramirez, has been arrested as part of a corruption probe. Further, Sunacrip is enacting a nationwide bitcoin mining shutdown “while things calm down.”

How Venezuela Used Crypto to Sell Oil, Sidestepping U.S. Sanctions

In January 2019, when PDVSA, the state oil company in Venezuela, was included among the entities sanctioned by the U.S government (as part of measures Washington took to torpedo efforts of Venezuelan president Nicolas Maduro to keep the country afloat), crypto emerged as an alternative for living with these sanctions.

While the usage of crypto to sidestep sanctions at a large scale was rumored to have happened in the country, recent statements by Alejandro Teran, a member of a local oil consulting firm ICM Proyectos 2021, confirm that PDVSA did use crypto as a way of sidestepping these sanctions.

In statements given to the local newspaper Ultimas Noticias, Alejandro Teran explains how these deals were conducted. PDVSA allegedly used middlemen, who were responsible for dealing with payments and finding interested third party buyers for Venezuelan oil. He explained:

The government’s strategy was correct; that is, to look for private operators to place the oil on the world market, circumventing the blockade.

Hever Castro, a local analyst, explains that selling the oil involves using these middlemen that broker the oil with international companies, which receive the oil in deep ocean movements that resort to ship-to-ship unloading maneuvers. According to him, this is the reality that countries selling sanctioned goods must face. Castro says that the oil is sold at a heavily discounted price, and that the middlemen pay after the oil is delivered.

Castro states these middlemen paid “in different ways, mainly in crypto for its high liquidity, autonomy, and easy storage.” And this is where the role of Sunacrip is important, using different accounts and cryptocurrency wallets to obfuscate the source of the funds and exchange it for U.S. dollars in cash in countries like Colombia, also at a discount.

There is already evidence that supports the usage of third-party brokers to sell Venezuelan oil to foreign countries and companies. In October, five Russian nationals and two Venezuelan oil brokers were indicted on money laundering and sanctions evasion charges. The indictment shows that the involved parties brokered a 500,000-oil-barrel deal using USDT, a dollar-pegged stablecoin.

However, analysts agree that this is where the system failed, with these funds not being exchanged for cash to pass to Venezuelan accounts. Teran believes that Sunacrip acted as a sort of Trojan Horse, and resources did not reach the Venezuelan coffers. The situation blew up in December when the government finally found out these resources were not registered.

Not only oil was subject to these maneuvers, with oil derivatives like coke being also part of the resources brokered to European countries, which needed them due to the complicated situation they are facing as a consequence of the Russia-Ukraine conflict.

While initial reports suggest that $3 billion was lost in these sanction-sidestepping maneuvers, Teran explained this figure might be closer to $5 billion.

The Hole Grows Bigger — Potentially $20 Billion

However, other sources indicate even bigger figures related to the use of middlemen. Documents allegedly reviewed by Reuters indicate that 84% of the deals brokered were not paid by these intermediaries. This represents losses by the order of $21.2 billion in invoices, with almost $4 billion being potentially unrecoverable as the tankers that received the crude did not pay even a portion of the oil received.

The situation is supposedly the consequence of PDVSA using a lesser-known network of intermediaries after having to drop deals with Rosneft, a Russian oil firm, after it was also sanctioned by the U.S. Treasury Department in 2020, and also a series of Mexican brokers who were also sanctioned.

The Venezuelan government has conducted a series of arrests and destitutions, with several high-profile individuals in PDVSA being arrested. Antonio Perez Suarez, former vice president of supply and trade of the company, has been arrested along with 20 other executives that worked with him.

Tareck El Aissami, oil minister of Venezuela, stepped down on March 20, vowing to collaborate with the ongoing probe. The investigation and detentions are being handled by the Anticorruption Police, created in 2014, led directly by Maduro, to “dismember these mafias that have become entrenched in sectors of the economic, political, and judicial apparatus of Venezuela.”

One of the first arrested as part of this corruption probe was Joselit Ramirez, former head of Sunacrip, captured on March 18. Also, at that time, Maduro organized a full restructuring of the Venezuelan cryptocurrency watchdog, naming a new board that will review the previous management of the organization.

El Aissami and Ramirez are part of a group of 14 high-ranking individuals of the Venezuelan government indicted on narco-terrorism, corruption, and drug trafficking charges by the U.S. government in March 2020.

A Nationwide Crypto Mining Ban

This whole situation has resulted in a nationwide mining ban that is being enacted by the new administrative board of Sunacrip, as part of the investigation and restructuring of the organization. According to reports from Beincrypto, this week Sunacrip has been shutting down all of the registered bitcoin mining operations using Corpoelec, the state power company, which is disconnecting them from the power grid.

The biggest crypto mining operations in several key states in Venezuela, including Lara, Carabobo, Miranda, and the Capitol District have already been disconnected from the national grid. This is reportedly causing mining companies to lose from $40,000 up to $1,000,000 each month that passes without operating. Miners are being compelled to wait for the restructuring of Sunacrip and turn off operations “while things calm down,” without being given an estimated date for restarting.

What do you think about the involvement of crypto in oil sales in Venezuela and its importance in the corruption probe being handled by President Nicolas Maduro? Tell us in the comments section below.