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C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001266

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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