Venezuela taps small banks to handle dollar deals

Venezuela's government is using little-known banks, including a small Puerto Rican lender, as intermediaries for some international trade operations after Citigroup last year stopped providing such services, according to the owner of one of the banks and government officials.
The government has turned to relatively unknown institutions to provide a service known as correspondent banking, as international banks are increasingly concerned about the risks of doing business with socialist-ruled Venezuela amid investigations into corruption and drug trafficking. It also coincides with complaints by President Nicolas Maduro that Venezuela is struggling to obtain financial services amid a severe economic crisis characterised by triple-digit inflation and chronic shortages.
Government officials call the drug allegations a campaign against their administration by ideological adversaries in the United States, and insist Venezuela's problems are being caused by an "economic war." The situation does not affect payment of state oil company PDVSA's high-yielding bonds, which continue to be serviced by Citi due to contractual obligation, according to a 2016 letter from Citi to PDVSA bondholders seen by Reuters.
The country's relationship with global banks is also complicated by a 14-year-old currency control system that requires businesses to acquire dollars through the government rather than private banks. Correspondent banks provide an essential service that allows countries to import goods and maintain links to the global financial system. Italbank, the Puerto Rican lender owned by Venezuelan entrepreneur Carlos Dorado, has served as one for Venezuela since 2016.
Dorado told Reuters that Italbank offers correspondent services to state-owned Banco de Venezuela, which is the country's largest bank, and handles part of the government's offshore business transactions. "Our clients include private sector banks and state-run banks. One of those clients is Banco de Venezuela," said Dorado, who also owns Venezuelan currency exchange house Italcambio and a fashion business that distributes high-end clothing.
He said about 10 or 15 percent of the dollar transfers from Banco de Venezuela go through Italbank. He added that another bank being used for correspondent services include southern Florida-based Eastern National Bank, partly owned by Venezuelan bank regulator Sudeban.
A government official with knowledge of the transactions, who asked not to be identified, confirmed Eastern National was providing such services. Eastern National did not respond to emails and phone calls seeking comment. Nor did Sudeban, Venezuela's central bank, or its Information Ministry, which handles queries on behalf of the Finance Ministry.
It was not immediately evident how much of the transactions Eastern National was responsible for, or which banks were carrying out the remainder of the transactions. Italbank's involvement has been crucial to ensuring basic imports following Citi's exit, the sources said. "Thanks to Dorado we have been able to pay for food imports," said a person close to the Venezuelan government who asked not to be identified, adding that the bank "has processed hundreds of millions of dollars in payments."