How a Chinese venture in Venezuela made millions while locals grew hungry

Caracas and Beijing agreed to hundreds of projects to kickstart growth in Venezuela, but after billions in investments, little has materialized

By Angus Berwick  /  Reuters, TUCUPITA, Venezuela

Sun, May 12, 2019 - Page 7

The project was meant to feed millions.

In Delta Amacuro, a remote Venezuelan state on the Caribbean Sea, a Chinese construction giant struck a bold agreement with then-Venezuelan president Hugo Chavez. The state-run firm would build new bridges and roads, a food laboratory and the largest rice-processing plant in Latin America.

The 2010 pact with China CAMC Engineering Co Ltd (中工國際工程) would develop rice paddies twice the size of Manhattan and create jobs for the area’s 110,000 residents, the contract said.

The underdeveloped state was an ideal locale to demonstrate the socialist Venezuelan government’s commitment to empower the poor. The deal would show how Chavez and his eventual hand-picked successor, Venezuelan President Nicolas Maduro, could work with China and other allies to develop areas beyond Venezuela’s bounteous oil beds.

Chavez tweeted at the time: “Rice Power! Agricultural power!”

Nine years later, locals are hungry. Few jobs have materialized and the plant is only half-built, running at less than 1 percent of its projected output.

The plant has not yielded a single grain of locally grown rice, a dozen people involved in or familiar with the development said.

Yet, CAMC and a select few Venezuelan partners prospered.

Venezuela paid CAMC at least US$100 million for the stalled development, project contracts and sealed court documents from an investigation by prosecutors in Europe showed.

The thousands of pages of court papers were filed in Andorra, the European principality where prosecutors allege Venezuelans involved in the project sought to launder kickbacks paid to them for helping secure the contract. The material on the China deal, reported here for the first time, includes confidential testimony, wiretap transcripts, bank records and other documents.

An Andorran high court judge in September last year said in an indictment that CAMC paid more than US$100 million in bribes to various Venezuelan intermediaries to secure the rice project and at least four other agricultural contracts.

The indictment charged 12 Venezuelans with crimes including money laundering and conspiracy to launder money. Among those indicted was Diego Salazar, a cousin of a former oil minister who, investigators said, enabled the contracts. Also indicted was the top representative in China at the time of state-run oil company Petroleos de Venezuela SA (PDVSA).

Sixteen people of other nationalities were also charged and at least four other Venezuelans — one of whom was formerly ambassador in Beijing and is now the country’s top diplomat in London — are under investigation, the documents said.

The indictment, the names of those charged and their association with Chinese companies were last year reported by the Spanish newspaper El Pais.

A review of the case files, which are still under seal in Andorra, gleaned how CAMC and other Chinese companies forged ties with many of those charged and paid to win projects that the companies often did not complete.

The result was a far-reaching culture of kickbacks, paid through offshore accounts, in which well-connected Venezuelan intermediaries milked and ultimately crippled projects that were meant to develop neglected corners of the country, prosecutors said.

Among other findings reported here for the first time:

‧ CAMC agreed to at least five agricultural projects in Venezuela, valued at about US$3 billion, that it never completed.

‧ The company, according to contracts and project documents, received at least half the value of the US$200 million contract for the rice project and at least 40 percent of the contract value for the other four developments — a combined total of at least US$1.4 billion for work it never finished.

‧ CAMC paid more than US$100 million in fees to intermediaries. Prosecutors said that those payments were kickbacks that helped the company win contracts in Venezuela.

Neither CAMC nor any of its executives were charged in the indictment.

The Beijing-based company in a statement said that the details and assertions in the case files include “a large number of inaccuracies,” but did not elaborate. The company did not respond to requests to speak with CAMC executives mentioned in the documents. The executives could not be reached independently.

“Our company operates in Venezuela in adherence to the idea of integrity and strives to complete every construction project with the best technology and management,” the statement said.

The Chinese Ministry of Foreign Affairs said in a statement that “reports” about alleged bribery by Chinese companies in Venezuela “obviously distorted and exaggerated facts, with a hidden agenda,” without specifying the agenda it was referring to.

Cooperation between the two countries would continue “based on equal, mutually beneficial and commercial principles,” the statement said.

The Venezuelan Ministry of Popular Power for Communication and Information, responsible for government communications, and oil giant PDVSA, a partner in many of the contracts cited in the court case, did not respond to inquiries.

It is not clear when any of those charged could face trial. Enric Gimenez, a lawyer in Andorra for Salazar, who prosecutors said brokered many of the contracts, said that his client is innocent of the charges against him.

The leftist regime founded by Chavez and now led by Maduro is facing its most serious threat yet.

Opposition lawmakers, with the support of most Western democracies, have said that Maduro’s re-election last year was illegal and that Venezuelan National Assembly President Juan Guaido is the country’s rightful leader.

Last week, in a failed uprising, Guaido unsuccessfully sought to rally Venezuela’s military, the lynchpin of support for the unpopular government, against Maduro.

The political crisis was prompted by an economic meltdown of hyperinflation, mass unemployment and an exodus of desperate citizens. Venezuelans suffer regular shortages of food, power and water — basics that were meant to improve through projects like the one in Delta Amacuro.

The dire scarcities and dysfunctional projects, the opposition has said, illustrate how corruption and crony capitalism helped impoverish the once-prosperous country and many of its 30 million people.

After an ambitious 2007 agreement between China and Venezuela, Chinese companies were announced as partners in billions of dollars of infrastructure and other projects. Since then, China invested more than US$50 billion in Venezuela, mostly in the form of oil-for-loan agreements, government figures showed.

Maduro said in a 2017 speech that 790 projects with Chinese companies had been contracted in sectors ranging from oil to housing and telecommunications, adding that 495 projects had been completed.

Some developments have stalled because of graft, while others were derailed by incompetence and a lack of supervision, people familiar with the projects said.

In Delta Amacuro, even government officials have said that a mixture of both ruined the rice project.

“The government abandoned it,” said Victor Meza, state coordinator for Venezuela’s rural development agency, which worked with CAMC. “Everything was lost. Everything was stolen.”

Prosecutors in Andorra, where secretive banking laws long made it a tax haven, launched their investigation into Venezuelan laundering amid a broader effort to clean up the local financial sector.

The indictment is part of a much larger case in which the prosecutors said that Venezuelan officials from 2009 to 2014 received more than US$2 billion worth of “illegal commissions” from contractors, state companies and other sources, often for enabling transactions with the government.

The payments passed through accounts held at local bank Banca Privada D’Andorra (BPA), the indictment said.

In 2015, the Andorran government, after the US accused BPA of money laundering, took over the bank. Courts there since then have charged 25 former BPA employees with money laundering in a series of cases, including the one probing the Venezuela contracts.

An Andorran government spokeswoman declined to comment for this article.

PRODUCING NOTHING

In addition to CAMC’s agricultural projects, the Andorrans examined two power-plant projects by the company and four other power plants built by Sinohydro Corp, another state-owned Chinese engineering firm. None of those plants ever became fully operational, leaving towns near them subject to regular blackouts.

Sinohydro was not charged in the indictment. The company did not respond to calls, e-mails or faxes seeking comment.

A visit to Delta Amacuro showed that the CAMC rice plant remains unfinished. Only one of its 10 silos, half full, held any grain. Some machinery was running, but processing rice imported from Brazil. The nearby paddies lay fallow, the laboratory incomplete and, the roads and bridges unbuilt.

Delta Amacuro’s capital, Tucupita, has 86,000 residents. It hugs the banks of the Cano Manamo, an offshoot of the Orinoco, one of South America’s biggest rivers. Once, Tucupita was a stopover for vessels shipping goods from inland factories to buyers in the Caribbean and beyond.

The government in 1965 dammed the Cano Manamo. Boat traffic stopped, fresh water receded and seawater seeped inland, degrading soils. By the time that Chavez became the Venezuelan president in 1999, little farming remained.

“When I was a kid, there was rice everywhere,” said Rogelio Rodriguez, a local agronomist. “Now we don’t produce anything.”

In 2009, Chavez and then-Chinese vice president Xi Jinping (習近平) expanded a joint fund that the countries had created with the 2007 development agreement.

“Aren’t we grateful to China?” Chavez said at a ceremony with Xi at the presidential palace in the Venezuelan capital of Caracas.

Promising to supply Beijing with oil “for the next 500 years,” Chavez pointed toward Delta Amacuro on a map.

“Look, Xi,” he said, announcing an effort to rehabilitate the region.

In attendance were CAMC chairman Luo Yan (羅幹) and Rafael Ramirez, a Chavez confidante who ran PDVSA and the oil ministry for a decade.

Soon, businesses jostled to get in on the development.

Salazar was well-positioned. His father was a communist guerrilla and author who later became a legislator and Chavez ally. His family ties and connections to lawmakers gave the younger Salazar a valuable address book that he wielded at Inverdt, a consulting firm that he operated in Caracas.

The company was owned by a Panama-based holding company that Salazar had established called Highland Assets, according to testimony that he gave Andorran investigators when they first began probing his BPA account.

From an office a few blocks from PDVSA headquarters, he met often with Ramirez and other top officials, people familiar with his activities said.

Ramirez in 2014 left the ministry and until 2017 was Venezuela’s ambassador to the UN.

Maduro has since then publicly accused him of unspecified corruption, but Ramirez was not indicted in Andorra and has not been formally charged with any crime in Venezuela.

Ramirez lives abroad as a government opponent. He did not respond to e-mails seeking comment and could not be reached otherwise.

At the time of the ceremony with Xi, Chavez was making PDVSA a hub for a growing array of developments, many of them unrelated to oil. For example, a unit known as PDVSA Agricola was created to boost the country’s food supply.

The diversification made PDVSA the conduit through which contracts, and a growing sum of money administered by Banco de Desarrollo Economico y Social de Venezuela, Venezuela’s national development bank, were awarded.

The bank had by 2010 received US$32 billion from the China Development Bank and another US$6 billion from an infrastructure fund created by Chavez, the filings said.

China Development Bank did not respond to requests for comment.

Salazar began reaching out to Chinese executives, offering his services, as a well-connected consultant, to help broker business in Venezuela. He traveled to China monthly and began paying Venezuelan officials there to forge ties with companies, including CAMC.

“My work was to convince them, through meetings, trips and promotion, to sign contracts,” Salazar told Andorran investigators.

People familiar with the case said that Salazar and his alleged associates, before the indictment, agreed to testify in Andorra because they hoped to clear their names.

In his testimony, Salazar told the Andorran investigators that he chose BPA as an offshore bank because he knew other wealthy Venezuelans had done so. Nestled in a quiet valley of the Pyrenees, BPA had a reputation as a discrete money manager for clients from high-risk countries.

After Andorra submitted information requests for its case to Caracas, a Venezuelan court in 2017 ordered Salazar arrested on suspicion of corruption, money laundering and conspiracy.

Citing the Andorran probe, the Venezuelan arrest order said that Salazar sought to “give legal appearance to funds originating from numerous contracts with Venezuelan state institutions.”

A trial date has not been set and Salazar remains jailed in Caracas. A lawyer for Salazar in Venezuela denied the charges before the court.

Gimenez in an e-mail said that Chinese authorities decided which companies would receive funds, and that neither Salazar nor his alleged intermediaries could sway that.

Inverdt offered “professional” and “technical” services to many Chinese companies, Gimenez wrote in the e-mail, adding that “only a handful of those companies were chosen to carry out works.”

One of Salazar’s intermediaries, the indictment said, was Francisco Jimenez, a career engineer who was PDVSA’s envoy in Beijing and who the Andorrans indicted along with Salazar.

Salazar first contacted him during a trip to China in 2010, Jimenez testified to Andorran investigators.

Jimenez in March 2010 signed a “strategic alliance” with Salazar to promote Inverdt in China. Under the terms of their contract, Salazar agreed to pay Jimenez US$7.38 million in a BPA account that Inverdt helped open. Bank records in the case files show that Jimenez later received another US$7 million.

Jimenez, who now lives in Panama, did not respond to calls or text messages. Salvador Capdevila, his lawyer in Andorra, declined to comment.

Another official who prosecutors said helped Salazar was then-Venezuelan ambassador to China Rocio Maneiro, who is now the Venezuelan ambassador to Britain.

Maneiro was not charged in the Andorran indictment. Numerous court documents, including a filing by prosecutors in relation to her testimony, refer to her as “under investigation” for payments that they said she received from Salazar and for her alleged role in helping him contact Chinese companies.

In 2010, according to bank records contained in the court documents, Salazar made a transfer of US$30,000 to a Chinese account in her name, citing “services provided by Mrs Maneiro.”

Salazar later made deposits totaling US$13 million into a BPA account owned by a Panama-based company that Maneiro, in a disclosure document linked to the account, said belonged to her.

An internal report from BPA’s anti-money laundering committee also listed Maneiro as its owner.

Maneiro, through a lawyer and in a text message, denied helping Salazar and receiving payments from him.

“Those are assertions with no basis,” she wrote in the message.

She told an Andorran judge that the signature on the form about the Panamanian company is forged. The court has ordered an analysis of the signature.

HARVESTING CONTRACTS

By early 2010, Salazar’s outreach bore fruit.

Engineering firm Sinohydro in March 2010 signed a US$316 million contract with PDVSA to build a power plant near the city of Maracay.

Sinohydro in the contract agreed to pay Salazar a 10 percent fee for helping it “gain a favorable and positive position to pursue the contract.”

Bank records in the case files show that the company paid US$49 million into Salazar’s BPA account and another US$72 million after Sinohydro secured additional power plant contracts from PDVSA.

Sinohydro eventually built four plants, but none met full contract specifications, engineers said.

For example, the plant near Maracay was meant to generate as much as 382 megawatts, the contract showed, but instead, the plant produces no more than 140 megawatts, according to Jose Aguilar, a former director at Venezuelan state-owned power company CVG Electrificacion del Caroni.

Salazar’s company was soon earning more than US$100 million a year, testimony by him and several aides said.

“He had a briefcase full of contracts,” Luis Mariano Rodriguez — a Salazar deputy also charged in the indictment — told Andorran investigators.

“We made deals with every company possible,” he added. “Some of these companies never actually carried out the projects.”

Rodriguez, who like Salazar has been charged with money laundering and conspiracy to launder, could not be reached for comment. Gimenez also represents Rodriguez and in the e-mail about Salazar, said that Rodriguez, too, is innocent.

As money poured in, Salazar splurged, paying tens of thousands of dollars for hotel stays and spending millions on gifts.

For US$1 million, he bought 83 Rolex and Cartier watches at a Caracas jeweler, an invoice in the filings showed. In a Rodriguez e-mail to BPA justifying the purchase, he said that the watches were “gifted to relatives and friends.”

Andorran police in April 2010 began investigating Salazar. French investigators had asked them about a recent transaction: From his BPA account, Salazar had transferred US$99,980 to a Paris hotel employee as a “tip for providing services.” It is not clear what those services were.

By May, talks for the rice project began.

That month, Rodriguez met with CAMC vice president Wang Hong in Caracas, according to a contract that the men signed. In the contract, they agreed that CAMC would pay Salazar’s company 10 percent of the value of the rice contract to help it “win.”

Within months, PDVSA Agricola awarded CAMC the contract, valuing the rice development at US$200 million. CAMC signed another agreement with Salazar for help securing additional projects. That June, CAMC made the first of several deposits totaling US$112 million to Salazar’s BPA account, bank records showed.

Workers broke ground in Delta Amacuro.

According to project documents, CAMC had by 2012 received US$100 million from the Venezuelan development bank for the undertaking, half that agreed upon. The company shipped excavators, steamrollers and other equipment from China.

However, progress was slow.

An excavator bogged down in mud and stayed there. Chinese foremen spoke little Spanish and struggled with local crews, engineers who worked on the project said.

On suspicion of money laundering, an Andorran court in November 2012 froze BPA accounts of Salazar, Rodriguez and six other Venezuelans. The prosecutors in 2013 began a years-long effort to interview Salazar and others.

The US Department of the Treasury in 2015 began pressuring Andorra over alleged money laundering. In a report at the time, the Treasury Department wrote that BPA facilitated laundering of money from Russia, China and Venezuela.

The Andorran government in March 2015 took over BPA.

Oil prices, which had exceeded US$100 per barrel, that year fell by more than half. Venezuela’s economy foundered.

CAMC pulled its team of 40 employees from the rice site, people involved in the project said. Locals looted scrap abandoned by CAMC, with jobless workers selling leftover cables and lightbulbs, former managers said.

Still, Maduro has sought to make something of the unfinished project.

Venezuelan Minister of Agriculture Wilmar Castro in February inaugurated the “Hugo Chavez” plant, snipping a ribbon in front of rice sacks emblazoned with Venezuelan and Chinese flags. No one from CAMC attended, a person present at the ceremony said.

Instead of machinery capable of processing 18 tonnes an hour, workers are packing imported rice by hand.

“There’s not a gram of rice growing anywhere here,” said Mariano Montilla, a 47-year-old local who lives off the few crops he can coax from nearby scrubland.

“It seemed like a revolutionary idea,” he said of Chavez’s initial promise. “Now we’re starving.”