Morgan Stanley and Interactive Brokers Under Federal Review in Venezuela Investigation
Morgan Stanley, Interactive Brokers LLC and several financial advisory firms have managed important accounts for Venezuelan businessman Luis Mariano Rodriguez Cabello, who is under investigation for his alleged role in covering up a party of the $ 2 billion in question in the American financial system for its cousin. , the former Venezuelan oil minister Rafael Ramírez, according to the population as well as government documents examined by the Wall Street Journal.
U.S. and international agencies are investigating whether Mr. Rodriguez helped Mr. Ramírez raise funds on Venezuelan state accounts through fraudulent insurance contracts with the country’s national oil company, then laundered the money via accounts abroad, including in the United States, depending on people and documents.
As part of the investigations, the Federal Bureau of Investigation, the Securities and Exchange Commission, and other federal agencies are trying to determine why U.S. companies managed more than $ 100 million in securities and other assets for Mr. Rodriguez when the accounts indicated what the authorities listed. as red flags for possible money laundering activities, according to people familiar with the matter.
These red flags include close scrutiny by regulators and law enforcement officials and the fact that the source of the funds was Venezuela, which has been classified for more than a decade by the US government as a high-risk jurisdiction for money laundering.
Federal banking laws require brokerage houses and other financial institutions to prevent their businesses from being used for illicit purposes by monitoring their clients and client relationships and by evaluating client funds and transactions, largely on the basis of the basis of detailed criteria disseminated by the government.
The rules give institutions flexibility in assessing risk and thus allow new customers or accounts that can bear a certain degree of risk. Failure to detect, report and prevent money laundering exposes banks and brokerage firms to civil penalties and criminal charges, even if investigators determine that an institution was unaware of it. illegal activity, but should have been.
MM. Rodriguez and Ramírez have not been charged in the United States with any violation. Morgan Stanley and Interactive Brokers, as well as Mr. Rodriguez’s financial advisers, have not been charged by the government with wrongdoing.
The SEC and the FBI declined to comment. Morgan Stanley declined to comment. Interactive Brokers LLC has stated that it “is committed to complying with all applicable laws and regulations. We cannot comment on specific customers or accounts. “
Neither MM. Rodriguez and Ramírez did not respond to requests for comment made through their companies and business associates. Mr Ramírez, the former petroleum minister, dismissed the accusations as baseless and politically motivated.
Mr. Ramírez was Chief of Petróleos de Venezuela, SA, or PDVSA, then Minister of Energy under former President Hugo Chávez and his successor, Nicolás Maduro, and represented Caracas at the United Nations until 2017, when Mr. Maduro accused him and several accomplices of corruption. Former US officials say the accusations, whether true or not, are a diversion from domestic political turmoil and criminal charges leveled against Mr. Maduro by Washington and other governments. Mr. Maduro, in turn, said the US allegations were lies and aimed at removing him from office.
PDVSA officials have long dismissed corruption allegations involving the conglomerate. Several former executives and associates at the firm have been convicted or pleaded guilty in the United States on charges related to the misuse of funds.
Former U.S. officials and financial security analysts say the Rodriguez investigation highlights critical flaws in a U.S. financial and regulatory system that relies heavily on financial institutions to monitor the system against fraud.
While a whistleblower complaint filed with the SEC in 2019 sparked interest in the roles financial firms play in Mr. Rodriguez’s business, the origins of the investigation can be traced back nearly a decade.
Mr Rodriguez was one of many men, including Mr Ramírez, who was accused by prosecutors and a court in the European principality of Andorra in 2012 of using the Banca Privada D’Andorra, or BPA, to launder $ 2 billion allegedly earned through fraudulent insurance. contracts with the national oil company PDVSA. U.S. officials said Venezuelan officials approved inflated contracts with trading partners to secure energy projects, dividing the proceeds. Mr. Ramírez disputed the allegations and a lawyer for Mr. Rodriguez and other defendants denied the money laundering charges. The case in Andorra is still pending.
The suspected money laundering program in Andorra was among the justifications cited for the US Treasury Department’s sanctions against BPA in 2015. That sanction has since been lifted, although the action forced the bank into disbandment.
The allegations should have dissuaded US financial institutions from handling Rodriguez’s accounts, say anti-money laundering compliance officials and former Treasury officials.
Venezuelans’ BPA funds were frozen by the Andorran court, but $ 200 million was released, according to a November 2016 Treasury intelligence report, a copy of which was reviewed by the Journal. Shortly after, Mr. Rodriguez and several of his associates transferred $ 107.5 million to his corporate account at Morgan Stanley, according to the intelligence report.
Morgan Stanley came to suspect that those funds – received in 15 wire transfers between October 2014 and November 2015 – were from released BPA funds, according to the report.
Mr. Rodriguez transferred the Morgan Stanley account in 2017, placing it with Capital Guardian Wealth Management, a US brokerage firm partially owned by a French businessman and long-time partner of Mr. Rodriguez, Jean François de Clermont-Tonnerre, according to some people. and financial and corporate records.
In 2018, Capital Guardian was kicked out of Finra, the financial sector’s self-regulatory authority, for failing to pay a fine of $ 125,000 imposed for facilitating what Finra called suspicious Venezuelan transactions in a separate case of the Rodriguez investigation. The eviction meant that the company lost its license to provide brokerage services.
Mr. de Clermont-Tonnerre has contracted with Interactive Brokers, the largest online brokerage firm in the United States, to manage Mr. Rodriguez’s business account, according to these people and the records.
A spokesperson for Mr de Clermont-Tonnerre said the French businessman “is not aware that (Mr Rodriguez) is laundering money” and said he and his companies are not had broken no laws.
Federal investigators are exploring why Interactive Brokers, the nation’s largest online brokerage firm, accepted the account despite mounting red flags, people familiar with the matter said.
They are also investigating the role of Capital Guardian, its owners and a successor financial advisory firm, Avenir Private Advisors, according to several people familiar with the matter.
Mark Coffey, who was head of compliance for Capital Guardian and Avenir, filed a whistleblower complaint with the SEC in 2019 following an internal investigation, two attorneys representing him, Phil Brewster and Patrick Mincey, said.
In his complaint, Mr. Coffey provided financial statements, emails, texts, company records and other evidence that he said document multiple violations of federal securities anti-fraud laws.
Justin Lowe, founder and CEO of Avenir, said the SEC conducted a semi-annual review of the company last year, but that “there had been no substantive issues” and his companies had failed. violated any law.
Shortly after the SEC review, the US regulator registered the company’s registration status as terminated, meaning it could no longer act as a financial advisor.
Mr Coffey said he initially raised concerns with the owners of the financial advisory firm managing the account in 2019, Avenir Private Advisors, about the fees Mr Rodriguez paid to his financial advisers who were two to three times higher than market rates for the size of their account.
Around the time Mr. Coffey began asking questions about the activity he found suspicious on the account, the owners of the financial advisory firm began liquidating the remaining $ 70 million in the account. Mr. Rodriguez’s company at Interactive Brokers.
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