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WASHINGTON, D.C., U.S.A. – Venezuelan officials have raided or taken control of at least 31 brokerage companies in the past two weeks suspected of illegal currency-trading practices and money laundering, the president of the National Securities Commission said.
Tomás Sánchez said officials have raided 31 of the Andean nation's 107 brokerage firms, according the Venezuelan daily El Universal. Sánchez said officials suspect the firms were engaged in money laundering and “speculative operations” via bond trading.
Venezuelan President Hugo Chávez's administration halted the exchange of government bonds on May 18 in an effort to control currency exchange rates by establishing a scale of prices for the bond market.
But it might be the first step toward Chávez’s shutting down the sector.
“If that whole mess of brokerages has to be eliminated, then they’ll be eliminated,” Chávez recently said, as quoted by Latino Business Week. “This country doesn’t need them.”
Chávez said a new foreign exchange law passed by congress last week would label foreign currency-denominated securities as a kind of foreign exchange. It would mandate the Central Bank (BCV) would manage all transactions involving foreign currency.
Under the legislation, international bond prices would be used as a guide for a system run by the bank, said Nelson Merentes, the president of the BCV. He said brokerages would be “totally” excluded from the process, letting the market establish prices without being impacted by the possibility of brokerages’ driving up the exchange rate.
“We want to find a stable, transparent and efficient system,” Merentes said during a televised media conference.
The legislation comes in the wake of Chávez’s making money changers who operate in the country's black market the focal point of prosecution in an effort to stop what’s been a massive drop in value of the bolívar.
“Like I said, we’re going to hit them where it hurts! The first raids of black market currency houses should be starting about now. They put ‘gold sold here’” when what they are doing is exchanging currency, Chávez told EFE this week.
The Andean nation has two official exchange rates for the bolívar to the U.S. dollar. For merchandise the government deems essential, which includes food and medicine, it’s 2.6 bolívares to the dollar, but for nonessential items, it’s 4.3 bolívares to the dollar.
But business leaders have complained it’s not easy to get the government’s permission to access U.S. dollars at those rates, causing them to use the costlier black market in their transactions.
Local sources, speaking on the condition of anonymity since it’s illegal in Venezuela to advertise the value of the U.S. dollar in the parallel market, said the current black market rate is up to 12 bolívares per U.S. dollar, up four bolívares from the rate before the raids on the brokerage houses.
Four Caracas-based brokerages – Banvalor Casa de Bolsa, Positiva Sociedad de Corretaje de Títulos de Valores C.A., Premier Sociedad de Corretaje de Títulos de Valores C.A., and Italbursátil Casa de Bolsa – were raided by the investigative police (CICPC) on May 18, said Alejandro Castillo, a director general for the Attorney General’s Office.
“We are speaking of illicit monetary operations and illicit operations regarding securities,” Castillo told EFE.
Chávez said the currency markets need to be reformed to decrease inflation, which at a yearly rate of 30% is the highest in Latin America. But analysts said cutting brokerage firms out of the currency exchange market could put them out of business since they’ll likely lose a tremendous amount of revenue. It also could hurt the country’s overall economy, as analysts said the Central Bank isn’t capable of handling the task.
“From a technical point of view, it [the new system] is complicated and the [Central Bank] does not have the systems ready. We hope there will not be a long delay,” New York-based RBS analyst Boris Segura told Reuters. “The key is to get it functioning fast. The more time the parallel market remains closed, the more difficult it will be for importers, and that will have an effect on private consumption, supply, growth and inflation.”
But Chávez isn’t showing any sympathy. He’s asking for the public to inform his administration of firms they suspect are operating outside the law by contacting him via the social network Twitter.
“My Twitter account is open for you to denounce them,” Chávez said during his weekly radio and television program on May 16. “We’re going to launch several raids. We’ve already launched some raids, thanks to the complaints from the people.”