Report of the National Assembly: The case against Rafael Ramirez and PDVSA

THE NATIONAL ASSEMBLY OF VENEZUELA: THE CASE AGAINST RAFAEL RAMÍREZ AND OTHER EMPLOYEES OF PETROLEOS DE VENEZUELA

This is a digest of a report generated by the Comptrolling Committee of the Venezuelan National Assembly, in which some of the negligence and irregular actions of Rafael Ramirez and his accomplices in Petroleos de Venezuela are analyzed. It is written for the benefit of english speaking individuals and organizations that would like to know its contents and conclusions. The report is far from complete but it serves as an introduction to the world of corruption in which the Venezuelan oil company has lived since Rafael ramirez took over its presidency.  

I.         INTRODUCTION

Rafael Ramirez was president of Petroleos de Venezuela and, simultaneously, Minister of Energy and Hydrocarbons of Venezuela, from 2004 to 2014. During this period he was responsible for the irregular management of the company. Some of these irregularities, which amount to some U.S. $11 billion, are detailed in a report prepared by the Comptrolling Committee of the Venezuelan National Assembly. As a result of this investigation the report concludes that Rafael Ramirez was the main responsible for the mismanagement of the amounts mentioned above  and was charged with Political Responsibility, a figure that carries sanctions, according Article 222 of the Venezuelan Constitution. In parallel, the current president of the company, Eulogio Del Pino, and the Member of the Board, Asdrubal Chavez, were both given a Voto de Censura, a Vote of Censure, for their manifest negligence in the contracting of Chinese Drilling Rigs for the amount of US.$ 43 million  and for the violation of the laws and regulations regarding this contract.  Asdrubal Chavez was also assigned political responsibility for this contracting. Javier Alvarado Ochoa, a former president of Bariven, an affiliate company of Petroleos de Venezuela in charge of acquisitions, was also assigned political responsibility for his participation in administrative irregularities amounting to U.S. $ 56 million.  

The report by the National Assembly Committee points out some of the main cases of corruption which came to the attention of the Committee. These findings can be compared in significance to the rather minor transgressions by Al Capone of the Income tax Law that allowed the U.S. government to prosecute him. This is so because the extent of the mismanagement of Petroleos de Venezuela, the size of the administrative and political corruption that characterized its history during the years mentioned above and in the years hence, vastly surpasses the specific findings of this report by the National Assembly.

II.        THE CASES INVESTIGATED BY THE COMMITTEE

The cases investigated by the Committee were:

The Pension Fund of the Employees; irregular deposits made by PDVSA employees in the bank of Andorra; irregular financial relationship with the Portugal Bank Spirito Santo; mismanagement of funds related to the maintenance of the Amuay refinery and several cases of  irregular contracting by the company. The cases are summarized in the report as follows:

Employee Fund: A Ponzi scheme that generated a loss of some $20 million to the fund, money unduly appropriated by PDVSA Financial Adviser Francisco Illaramendi and by some PDVSA employees. Mr. Illaramendi is now in prison in the U.S.A.

Explosion at the Amuay Refinery.  A 2012 explosion, which took many lives and caused significant financial losses to the nation, due to poor maintenance and to operational negligence by the company.

Money laundering in Andorra. Deposits made in the Bank of Andorra, the product of kickbacks paid to PDVSA employees.

Bank Spirito Santo, Portugal. Irregular deposits amounting to some 800 million Euros made to the Bank by PDVSA and other government agencies during a period in which the bank was already bankrupt.

Several contracts, using the company as a vehicle for kickbacks, extortion and bribes involving PDVSA contractors and members of the company

III.      THE TEXT OF THE REPORT

The report has an extensive discussion of the legal background that supports its investigation. It starts with the Article 223 of the Constitution that allows the national Assembly to conduct any investigation that are considered to be required and demands full cooperation with these investigations from public employees. In this connection it is important to know that such cooperation from public employees never materialized. No member of the government bureaucracy ever complied with the requests for appearance. This bureaucracy is guilty of violating multiple laws, decrees, regulations and Constitutional provisions that demanded their cooperation.

III A. DOCUMENTS ANALYZED BY THE COMMITTEE

The report lists a long series of documents which were analyzed by the members of the Committee in their work. They included contracts for services and acquisitions of equipment, letters from companies and countries doing work with PDVSA, decisions on no-bid contracts, findings about the criminal activities of Bank of Andorra, Documents on the illegal activities of the Banco de Madrid, Loan contracts subscribed by PDVSA, Recordings of conversations related to illegal deposits in the Bank of Andorra, copies of the legal actions introduced against Derwick Associates, Equipment requisitions originated in Bariven PDVSA’s affiliate company, contracts between Energy Parts Solution and Derwick Associates, Legal records of Trial of Francisco Illaramendi, diverse documents related to the Employee Pension Fund, Annual reports of the company Aban Offshore, India, Registry of Petro Marine in Singapore, documents related to the case of Roberto Rincon and Abraham Shiera, letters from PDVCaribe and to PDVCaribe, Bills from diverse Chinese companies and other diverse documents from Petroleos de Venezuela. The list is impressive and illustrates the extent of the investigation. Still, not every document available to the Committee is listed here. I did not see listed all the material I personally sent to the Committee on the case of the Aban Pearl barge. I presume that there is much more in their possession than the list they published.

IIIB. ACTIVITIES OF THE COMMITTEE

In this section the report enumerates the multiple activities the Committee undertook in the course of its investigation, including requests to government agencies for information related to the cases being investigated and letters to some 40-50 PDVSA current and former managers and to PDVSA contractors  asking them to appear before the Committee to be questioned. No details on the answers to the requests for information appear in the report but, in the case of the persons requested to make an appearance before the Committee, the report says that none of them could be found in their known domiciles to accept the invitation.  

IV.        ANALYSIS OF THE FINDINGS

1.  Designation of Rafael Ramirez as President of PDVSA was irregular

When Rafael Ramirez was named president of PDVSA this designation violated the bylaws of Petroleos de Venezuela, which stated, Clause 29, that “No Minister can occupy a position in the Board of Director of the company”. This regulation was modified after the designation took place. In good practice the positions of Minister and president of a company subject to ministry’s supervision should not be the same person.

2.  Irregularities detected by the General Comptroller during the period 2006-2013

The Committee studied the findings of the General Comptroller on the activities of Petroleos de Venezuela during the period 2006-2013 and listed these findings by year. Some of these findings included numerous cases of no-bid contracts; gross overpricing; contracts without dates; very low percentages of budget completion in sectors of the company; numerous violations of company regulations and bidding procedures. These findings are illustrative of a careless administration. I must emphasize that these revelations by an organism under the control of the Venezuelan regime only relate to minor transgressions, never to major criminal activity within the company since this would have been politically impossible to reveal. Still, when we add the amounts mentioned by the Comptroller during these years we arrive at a figure in the hundreds of millions of dollars. This in itself is highly indicative of the real extent of corruption in the company during these years.

3.  The Acquisition of Chinese Drilling Rigs

In this case a contract by PDVSA with a company called CONSTRUEMA was found to have significant overpricing. The proposal by this company was the least attractive. The amount of damage to the company was of the order of $42 million. The responsibility for this contract entirely belongs to the Board of PDVSA, namely Rafael Ramirez, Eulogio del Pino, Asdrubal Chavez, Alejandro Granado, Eudomario Carruyo, Dester Rodriguez, Ivan Orellana, Bernard Mommer and Carlos Martinez.

4.  Pension Fund of the Employees  

This fund was managed with negligence by PDVSA, to the point of letting it be handled by a high risk company called Michael Kenwood Group LLC. This company did not qualify to be selected by PDVSA to manage the fund but the manager of the fund had been a PDVSA adviser and he had accomplices inside the company. Board member Eudomario Carruyo was the main responsible for this action, which involved a substantial loss of millions of dollars to the Venezuelan nation.

5.  Money laundering in the Bank of Andorra  

A group of former employees and contractors of PDVSA, including Nervis Villalobos, Diego Salazar, Norman Puerta y Javier Alvarado Ochoa, are listed in the report as being involved in a  money laundering operation of the order of $4.2 billion, according to the report. Salazar, who was the contractor for PDVSA insurance policies, is a cousin of Rafael Ramirez and  is specifically mentioned by the report as in “in between” in matters related to kickbacks.  

6.  Bribing of PDVSA personnel by contractors

This case applies to the owner of a company called TRADEQUIP, Roberto Rincon who, together with his partner Abraham Shiera, established a connection with the Houston office of Bariven, an affiliate of PDVSA in charge of acquisitions, to obtain contracts  through bribes to managers of the company. Between 2008 and 2015 this company obtained about 15 contracts worth billions of dollars dispensing illegal payments to the PDVSA employees in the millions of dollars. The report mentions the amount of one billion dollars as the loss to the Nation in connection with these criminal transactions. Both Rincon and his partner are awaiting judgement by the U.S. justice.

7.  The case of the barge Aban Pearl

This offshore barge was rented by PDVSA in 2008 to a company called Petro Marine, registered in Singapore. The contract called for a 5 year rental for the amount of $ 1.4 billion, this is, some $730,000 per day. Petro Marine, owned by Enoch Martinez and Hidalgo Socorro, paid the owner of the barge some $286000 per day, causing a loss to the Nation of some $257 million up to the moment the barge sank (NOTE by Gustavo: the text of the report seems to have an error in the paragraph which relates to the amount of loss to the Nation). Inexplicably the report does not mention the details related to Petro Marine and its owners, details which I supplied to the Committee during the course of their investigation, including the possible links of the Petro Marine owners with Directors of PDVSA.  

8.  Bank Spirito Santo, Portugal

In this case there was a loss to the Nation for an amount estimated in some 800 million Euros. PDVSA was one of the main investors in this bank, including the period in which the bank was already in serious financial problems.

9.  The case of “Liaoning Northern Steel Pipes”

This case, which I did not know of, has to do with a contract for $56 million in steel pipe with the company Liaoning Northern Steel Pipes” through a group of Venezuelan intermediaries, with an overprice of some $12 million. A letter sent to the Committee by one of the members of the Venezuelan group, Mr. Joseph Benoudiz, reveals that the irregularities were bigger than previously assumed. The president of Bariven at the time, Mr. Javier Alvarado Ochoa, acted with negligence, failing to cancel the contract

10.            The case of corruption in PDVAL and Bariven, affiliates of Petroleos de Venezuela

These two companies imported food during 2007 and 2008 following an order from the Venezuelan regime. The amount of imports was of the order of $2. 2 billion but only 25% of the food paid for reached Venezuela, while only 14% of the imports were effectively received by PDVAL. Contracts were given mostly to intermediaries. More than $100 million were paid in advance, without guarantees of any kind. The amount of money lost to the Nation was of the order of $1.9 billion, the responsibility of Rafael Ramirez and his Board

11.          The case of the National Housing Program managed by the Simon Bolivar Fund and financed by PDVSA

Although the amount PDVSA reports to have contributed to this Fund is $4 billion the Fund reports to have received $4.9 billion (?), a difference of $900 million that remains unexplained. Much remains to be investigated about this case. This entry in the report contains a significant mathematical error, since the difference between $4.9 and $4.01 billion is not $787 million, as printed in the report.   I would not take this Case into account, unless the Committee clarifies it.  

12.          The auditors of PDVSA appeared before the Committee

Although Rafael Ramirez and Eulogio Del Pino were asked to appear before the Committee, together with the representative of KPMG, the auditors of PDVSA, they failed to do so. Only Mr. Mauro Velasquez, representative of KPMG, did attend the request. The auditor reported that their auditing is done on the Consolidated Statements supplied to them by PDVSA. They are not oriented towards the detection of financial fraud and simply report to the Audit Committee of PDVSA any irregularity they find. PDVSA, therefore, is fully informed of these irregularities but they do not conduct investigations of their own.

Surprisingly the report contains no mention of the contracting with Derwick Associates, although there is abundant information about the gross overpricing and the irregular nature of the contracts signed between PDVSA and that company.  

                               MY CONCLUSION

The report deserves an A for effort but a C for substance. It is not very well written and is lacking in details that the Committee should have in their possession. It is far from being exhaustive, since many well documented cases of corruption were not mentioned. The cases of Derwick Associates, Wilmer Ruperti, the bank deposits of Rafael Ramirez in Florida, the corruption in the programs of the Orinoco region, as reported by members of the government themselves, the cases of corruption denounced by Chavista deputy Luis Tascón, all of these cases and more, have been published in the Venezuelan and in the international press. In spite of its shortcomings the report opens a window on the substantial levels of administrative waste and corruption in the PDVSA managed by Rafael Ramirez, Eulogio Del Pino and their companions in the boards of the company. The lack of attendance of the members of the government to the Committee of the National Assembly is enough indication that this group is outside the Venezuelan laws.    

 I am glad I could contribute to this report and remain totally willing to contribute further, if so requested by the National Assembly. It is my intention to continue working to denounce corruption in the Venezuelan state oil company and to contribute all I can, to put the guilty managers and contractors of PDVSA in prison, where they belong.