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DE RUEHCV #0406 0862104
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P 272104Z MAR 09
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 2830
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEHNSC/NSC WASHDC
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY

UNCLAS CARACAS 000406 
 
SENSITIVE 
SIPDIS 
 
HQ SOUTHCOM ALSO FOR POLAD 
TREASURY FOR RJARPE 
NSC FOR RKING 
COMMERCE FOR 4431/MAC/WH/JLAO 
 
E.O. 12958: N/A 
TAGS: ECON EFIN VE
SUBJECT: PARALLEL MARKET DISRUPTED BY FREEZING OF U.S. 
"UMBRELLA" ACCOUNT 
 
REF: A. CARACAS 137 
     ¶B. 2007 CARACAS 2362 
 
¶1.  (U) The parallel foreign exchange market in Venezuela was 
severely disrupted on March 26 after an "umbrella" U.S. bank 
account was apparently frozen.  According to local brokers, 
the account in question was a Bank of America account held by 
a Florida-based company called Rosemont Corporation.  This 
account had multiple sub-accounts used by up to 54 local 
brokers, or the majority of those participating in the 
parallel market.  The freezing of the account stopped most 
transactions on the parallel market as even brokers without 
Rosemont sub-accounts were hesitant to do business with other 
brokers out of concern their counterparties' funds might be 
directly or indirectly tied up with the Rosemont account. 
 
¶2.  (U) According to several brokers, the parallel market 
began to function again March 27, although with relatively 
high spreads between the buy and sell prices.  As all 
sub-accounts of the Rosemont account remained frozen for 
outgoing transfers, brokers whose only U.S. bank accounts 
were through Rosemont could not complete transactions.  One 
broker Econoff consulted said the advantage of her company's 
sub-account through Rosemont was the speed with which Bank of 
America processed transactions relative to the several other 
U.S. banks at which her company had accounts.  Financial 
executive Miguel Octavio, in a post on his Devil's Excrement 
blog, suggested the ease of opening accounts through Rosemont 
appealed to many brokers.  There are rumors that the major 
brokers PDVSA uses when it sells dollars into the parallel 
market (ref A) operate through sub-accounts of Rosemont's 
Bank of America account. 
 
¶3.  (SBU) Though it is unclear whether U.S. authorities 
ordered Bank of America to freeze Rosemont's account, the 
action is clearly linked to a money laundering indictment 
brought against Rosemont executive director Rama Vyasulu by a 
grand jury in Massachusetts.  Law enforcement officials at 
Post confirmed the charges against Vyasulu, noting they were 
related to a drug trafficking investigation and not related 
to the functioning of Venezuela's parallel market per se. 
The Boston-based DEA agent handling the case told Econoff he 
was unable to comment further on the case or legal 
proceedings. 
 
¶4.  (SBU) Comment:  This incident is another example of the 
costs of the government of the Bolivarian Republic of 
Venezuela's (GBRV) economic model.  As the Central Bank sells 
fewer dollars at the official exchange rate, more and more 
transactions are shifting to the parallel market.  While the 
parallel market functions as a market (unlike the GBRV's 
allocation of hard currency at the official rate), even when 
it is functioning smoothly transaction costs are much higher 
than in a normal foreign exchange market.  Though it could 
never eliminate an alternative foreign exchange market and 
indeed is the largest supplier of dollars into the current 
parallel market, the GBRV has taken a number of steps that 
reduce the market's transparency and efficiency (ref B).  The 
structure of the Rosemont account, and the impact its 
freezing is having on the parallel market, are not surprising 
in this context, nor is the notion that the parallel market 
could be exploited more easily than normal foreign exchange 
markets for money laundering purposes.  The parallel market 
should spring back relatively quickly, albeit perhaps with a 
slightly different structure of brokers and accounts, but not 
without having imposed greater transaction costs on even 
legitimate market participants.  End comment. 
CAULFIELD