BANESCO PRESIDENT CONCERNED OVER ALLEGATIONS OF

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001266 SIPDIS HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR MKACZMAREK NSC FOR DRESTREPO AND LROSSELLO USDOC FOR 4332 MAC/ITA/WH/JLAO E.O. 12958: DECL: 09/29/2019 TAGS: ECON EFIN VE IR SUBJECT: BANESCO PRESIDENT CONCERNED OVER ALLEGATIONS OF BANESCO'S INVOLVEMENT WITH IRANIAN BANKS REF: 2008 CARACAS 1613 Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b) and (d). ¶1. (C) In a September 28 meeting with the Ambassador, Banesco president Juan Carlos Escotet expressed concern that allegations in the blogosphere of Banesco's involvement with Iranian banks, although they were false, could damage Banesco's reputation. (Note: Banesco is privately held and by some measures is Venezuela's largest bank. It has subsidiaries in Puerto Rico, Panama, and Miami. End note.) The primary source of these allegations, Escotet continued, was an article by Kenneth Timmerman of Newsmax, which claimed, "Newsmax has learned from independent researchers who specialize in financial crime in Latin America that the Iranian regime is using several other banks in Venezuela to clear financial transactions. These include Banco Occidental de Desevento (Banesco),which has ties to Bank Saderat in Iran (also sanctioned by OFAC)..." (Note: Newsmax is an online news site that bills itself as "America's news page." Timmerman's article referred to Manhattan District Attorney Robert Morgenthau's recent speech to the Brookings Institution in which he expressed concern about the growing financial ties between Iran and Venezuela. There is no such bank as "Banco Occidental de Desevento" in Venezuela; there is a Banco Occidental de Descuento, which is different from Banesco. End note.) ¶2. (C) Escotet said Banesco's U.S. lawyers would be raising Banesco's concerns and emphasizing the falseness of the allegations in Timmerman's article with appropriate government agencies in the U.S. In the interests of transparency, Escotet offered that Banesco did business with one Iranian entity, namely Veniran Tractor, a tractor assembly company in Ciudad Bolivar owned jointly by the Tractor Company of Iran (51 percent) and the Venezuelan state-owned Corporacion Venezolana de Guayana (CVG, 49 percent). Banesco offered basic corporate account services to Veniran Tractor as an extension of its existing relationship with CVG, Escotet continued, and judged the size of Veniran Tractor's account to be consistent with its business functions. ¶3. (C) Escotet left a summary of Banesco's relationship with Veniran Tractor which states, "(Veniran Tractor also) works with Banco Canarias, Banco Provincial, Banco Agricola, Banco Internacional de Desarrollo, and Banco Industrial; to these last two are sent the funds received as a product of sales to Bolivia and Nicaragua, for which Banesco receives the funds. All of these transfers are done with a Sworn Declaration of Transfer." (Note: Banco Industrial is a state-owned bank. Banco Internacional de Desarrollo is an Iranian bank on OFAC's Specially Designated Nationals list. The text of the summary is somewhat ambiguous, but we interpret it to mean that Banesco receives initial payment from Nicaragua and Bolivia on behalf of Veniran Tractor and then transfers this money to Banco Internacional de Desarrollo and Banco Industrial, perhaps after converting the payment to bolivars at the Venezuelan Central Bank. End note.) ¶4. (C) Speaking of the Venezuelan economy more broadly, Escotet painted a grim picture. He claimed government institutions were not working and there was corruption on a scale never seen before in Venezuela's history. He said the Venezuelan government (GBRV) had destroyed value "dramatically" in Venezuela's Guayana region, home to a cluster of largely state-owned companies working in basic industries such as aluminum and steel production. He claimed New York financial analysts were "naive" in their generally optimistic assessments of Venezuela's ability and commitment to pay its debt, claiming that using a more realistic exchange rate made Venezuela's debt to GDP ratio far worse than it initially appeared using the official exchange rate. (Post will analyze Venezuela's debt situation in more detail septel.) ¶5. (C) Comment: This visit represents the second time in 12 months Escotet has raised concerns about the impact of allegations or potential investigations on Banesco's image (reftel). As Escotet pointed out to the Ambassador, even the most upstanding and conservative Venezuelan bank may find its international reputation increasingly tainted given the GBRV's ties with Iran and the presence of Banco Internacional de Desarrollo in the Venezuelan banking system. Interestingly, the summary of Banesco's relationship with Veniran Tractor left by Escotet appears to represent the first time we have seen or heard any evidence of what Banco Internacional de Desarrollo is actually doing in Venezuela. Banco Internacional de Desarrollo is not a member of the Central Bank's check clearance system, and most of our banking contacts either have said they have no idea what it is doing or that they presume it is financing the activities of Iranian companies operating in Venezuela. End comment. DUDDY