MIAMI: Back in January, a yearlong campaign of U.S. sanctions was taking its toll at Venezuelas state-run oil company. Many of PDVSAs overseas bank accounts had been frozen or closed, hampering its ability to pay vendors on whom it relies to keep the nations crude flowing.
So, as the bills piled up, the company leaned on a longtime client from Thailand, Tipco Asphalt, to blunt the impact of the sanctions: in exchange for deep discounts on oil, Tipco would pay PDVSAs obligations and deduct the amounts from what it owed the Venezuelan oil giant, according to records obtained by The Associated Press.
PDVSA quickly took advantage of the arrangement. Over the course of a single day Jan. 10 the oil company sent Tipco executives 43 emails related to payment instructions, prompting a mild rebuke from Jean-Pierre Pastor, Tipcos representative in Venezuela, who complained about the extra workload.
Tipco is a PDVSA client, not the Venezuelan central bank, Pastor wrote in bold and underlined text in an email to PDVSA.
Tipco tried as much as possible to assist you in this difficult period, he added. Lets hope you will not forget it..
The e-mail is just one of the dozens of documents obtained by the AP as part of a months-long investigation into how Venezuela is trying to skirt harsh U.S. sanctions that have exacerbated an economic collapse rarely seen outside war zones. At a time when Nicols Maduros government is seen as a pariah in the west, the financial arrangement with Tipco has quietly allowed PDVSA to move hundreds of millions of dollars around the world that it might not be able to otherwise, records show.
The publicly-traded Thai company says its payments to third parties are a perfectly legal, standard feature of its oil purchases from Venezuela, which are not barred by U.S. sanctions applicable only to American companies. Nonetheless, the AP has learned that the outlays are being scrutinized by U.S. law enforcement and the Trump administration, which views them as a financial lifeline to Maduro.
The documents invoices, contracts, shipping records, and wire receipts were provided to the AP by a former PDVSA consultant located outside of Venezuela on the condition of anonymity for fear of retaliation.
Attorneys and forensic accountants who reviewed the documents said Tipco could be sanctioned for defying U.S. policy seeking to starve Maduro of oil income a risk Tipco itself acknowledged last month. Processing payments for a sanctioned company could also spur a criminal fraud or money laundering investigation against Tipco in the U.S. if American financial institutions or companies were involved, as appears to be the case in a few instances, said David P. Weber, who spent years investigating corruption while employed at the U.S. Treasury Department and Securities and Exchange Commission.
It may have seemed a good idea to make a profit serving as a financial intermediary, said Weber, who now is a forensic accounting professor at Salisbury University in Maryland. But in engaging in such risky activity, Tipco fell in with one of the most despicable governments in the world.
Tipco on Sept. 11 four days after the AP sent it detailed questions announced that it would stop purchasing crude from Venezuela under pressure from the Trump administration.
The company in a filing with Thailand’s stock exchange said it was first contacted by the U.S. Embassy in Thailand in December 2019 and a month later provided American diplomats a written explanation of its purchases from Venezuela. Then in August, it was contacted again by the State Department, which warned it could be subject to U.S. sanctions if it didnt wind down its purchases by the end of November.
A U.S. official said that the State Department in its latest contact raised concerns about Tipcos financial support for PDVSA via payments to third parties. The official declined to be named because the conversations, part of an effort to work pro-actively with companies to eliminate the need for sanctions, were private.
The AP could find no record that Tipco ever informed investors about its contact with U.S. authorities until it announced its abrupt ending of oil purchases from Venezuela last month. Thai stock exchange rules require companies to disclose information that could have a significant impact on its stock price or affect investment decisions.
In order to avoid the sanction, the Company is taking steps to comply with such request, Tipco said in its filing, adding that its refinery in Malaysia, which produces half of the companys asphalt, will have to shut down temporarily until sanctions on Venezuela are lifted or alternative crude supplies are found. The companys stock plummeted 40% following the disclosure.
Tipco CEO Chaiwat Srivalwat, in an email to AP, wouldnt address the alleged financial support provided to PDVSA via third parties, except to say that any payments strictly corresponded to its oil purchases from Venezuela. He also wouldnt disclose details of the companys relationship to Pastor, who is the brother of longtime Tipco board member Jacques Pastor, the head of the Asia Pacific office for Tipcos top shareholder, French road builder Colas.
Theres a lot of rogue players willing to buy Venezuelas oil, said Weber, who previously reviewed the so-called Panama Papers detailing the offshore financial activities of the worlds rich and powerful. But in the absence of a bank willing to process PDVSAs payments, an unlicensed money service business is the next best thing, for which Tipco was paid handsomely.
Venezuelas Oil and Communications Ministries, which are responsible for handling all press inquiries about PDVSA, didnt respond to repeated requests for comment.
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Tipco is one of Asias largest distributors of asphalt for roads, highways, and airport runways, with revenue last year of over $1.2 billion, according to its annual report. Frances Colas, which is also publicly traded, has a 32% stake. Tipcos massive refinery in Malaysia is specifically designed to refine Venezuelas extra heavy crude, possibly the worlds best for asphalt.
Much like a third-party payment processor, Tipco wired several millions of dollars from its accounts at Siam Commercial Bank Thailands oldest to PDVSAs clients around the world, documents show. Instead of accepting payment directly for the crude it sold, PDVSA kept a running tab with its longtime client and periodically would send detailed instructions to Tipco to pay vendors on its behalf. The arrangement was outlined in oil sales summaries seen by the AP in which PDVSA committed to providing invoices as well as bank certification letters of the third parties to Tipco so that the Thai company can make corresponding payments in due time.
Since the start of 2019 when the U.S. sanctioned PDVSA to boost opposition leader Juan Guaids challenge to Maduro nearly 100 companies received hundreds of millions of dollars in this manner, according to the records. They include the global law firm Dentons, shipping owners registered in jurisdictions known for secrecy and small Venezuelan firms with bank accounts in Russia and Turkey, according to the documents. Even OPEC, the oil cartel Venezuela helped found in 1960, was paid 2 million euros ($2.3 million) in dues via Tipco.
Frequently, PDVSAs vendors had no idea why they were being paid from a Thai company whom they never heard of and much less worked with. That was the case with a distributor for Kamaz, a partially state-owned Russian truck manufacturer, which between December 2019 and February 2020 received payments equaling $10.2 million for dozens of buses and chassis sold years earlier when Venezuela was its top regional market. Among the buyers was the state of Aragua, whose governor at the time, Tareck El Aissami, is now Venezuelas Oil Minister.
They asked us for alternatives, so we settled on an account in Euros instead of dollars, said a representative for Kamaz Latinoamerica SA on the condition of anonymity because the company is still waiting to be paid the other half of whats owed. We were never told wed be paid by Tipco.
Knowledge of the arrangement went all the way to the top of Tipco, according to the documents. Several emails containing wire instructions are addressed to Tipcos CEO. Also copied was Jean-Pierre Pastor, whose company, Consulting and Services Associate SA, or CSA, has no website. Pastors email signature lists telephones in Venezuela, Thailand, and Switzerland.
Pastor registered CSA in Geneva in 2014, listing Bangkok as his residence. He gave as CSAs address a suite in a Geneva office building run by a consulting firm representing multiple offshore companies. Two other family members also appear to have worked at the company, according to public records.
Any information concerning CSA are private and family matters, Jean-Pierre Pastor said in a brief e-mail, refusing to comment further.
CEO Chaiwat said the relationship between Tipco and CSA was approved by relevant authorities without the involvement of Tipco board member Jacques Pastor. But he wouldnt provide any details about the contract with CSA nor say whether its role managing the companys biggest oil supply contract had been disclosed. Colas didnt respond to repeated requests for comment.
The appointment of CSA is solely based on capabilities and has nothing to do with that relationship between the Pastor brothers, he said.
Its not clear whether Tipco performed any enhanced due diligence despite the large dealings with multiple sanctioned entities, said Weber. Two days after a multi-million euro wire to a Russian bank was rejected, because the supplier didnt have an account in euros, a Tipco executive asked PDVSA to send new payment instructions, which ended up being an account at the same bank in rubles.
Siam Commercial Bank didnt respond to a detailed list of questions and repeated attempts for comment. Chaiwat wouldnt say whether Tipco alerted Siam bank that the transactions involved Venezuela but insisted that Tipco has always been transparent with its partners in all transactions.
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Another major vendor paid through Tipco is the Prague-based affiliate of Dentons, the worlds largest law firm by the number of attorneys.
PDVSA hired Dentons to advise it on the restructuring of its defaulted bonds, many of which were issued under New York law, and represent it in a mounting number of commercial disputes around the world. The architect of the deal was David Syed, a polyglot Irish-born attorney who runs the firms sovereign practice from Europe. Syed abruptly quit his job at San Francisco-based Orrick, where he was a partner, in 2017 and jumped to Dentons after the U.S. firm refused to do business with Venezuela.
According to the documents provided to the AP, earlier this year PDVSA sent a letter to Tipco instructing it to wire 500,486.48 euros ($544,000) to Dentons Europe CS deducted from what it owed from a crude oil delivery. Three days later, the funds were deposited into Dentons account at Akbank, one of Turkeys largest banks. The wire receipt confirming the transfer lists an invoice number that matches the one sent by PDVSA to Tipco even though theres no mention of Venezuela on the financial record.
In case the payment does not reach the above bank account and is returned to you, PDVSA will provide you with a new Irrevocable Instruction of Payment superseding the present one, according to the letter, which was signed by a PDVSA vice president and embossed with a corporate seal.
In total, Dentons collected nearly 6.6 million euros ($7.5 million) from Tipco for work on a number of ongoing cases for PDVSA, records show.
The complicated scheme by which Dentons received payment from a third party in Thailand, through Turkey, for work purportedly conducted in the Czech republic on behalf of Venezuela raises ethics, money laundering and compliance concerns, said Weber.
The AP found no evidence Dentons Europe was trying to hide any of its financial dealings with Venezuela nor does it face any restrictions unless individuals or entities located in the U.S. worked for the client or shared in profits. A Dentons spokeswoman said that no U.S. persons have had any involvement in work covered by U.S. sanctions but wouldnt respond when asked how revenues and costs generated from its business in Venezuela is shared globally.
Dentons Europe has been careful to comply with all applicable legal and ethical obligations, Amanda Lowe said in a written statement. Dentons has rigorous global policies designed to ensure compliance with all applicable law, regulation and sanctions, as well as the highest standards in the legal profession in each of the jurisdictions in which we practice around the world.
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While the vast majority of the transactions were processed in euros for European vendors, a few American-based companies also received millions of dollars through Tipco and are now under federal criminal investigation for related misconduct, according to four U.S. law enforcement officials.
The officials, speaking on the condition of anonymity to discuss an ongoing probe, wouldnt name the U.S. companies. But any payments to the firms would be at odds with sanctions that ban Americans as well as companies assisting them from doing business with Venezuelas oil industry except with a license from the U.S. Treasury Department.
Sergio Negreira, a Miami-based forensics investigator and licensed attorney, said Tipcos payment arrangement with PDVSA was highly unusual and shouldve sounded alarms inside the company.
Receipt of payments by an unrelated third party is a huge red flag for trade-based money laundering, said Negreira, who is Executive Vice President with Lowers Forensics International.
Tipcos CEO Chaiwat never responded to repeated interview requests but strenuously denied any wrongdoing or allegations of money laundering.
We regret the ongoing insinuations and incorrect allegations and strongly reject them, he added.
He said the legal advice Tipco received, including from U.S. firms, never indicated its crude procurement from Venezuela violated sanctions.
We have never provided financial support or services to PDVSA, he said. These payments purely corresponded to the amount of crude oil purchased from PDVSA.
Chaiwat refused to say which U.S. law firms Tipco consulted nor share with AP their findings, citing confidentiality clauses. He also wouldnt say whether Tipco was licensed to provide money business services and whether it had made similar payments on behalf of other suppliers.
While to the best of Tipcos knowledge no payments were released to U.S.-registered companies he said the companys due diligence was not focused on nationality because it understood that any American companies doing business with PDVSA would be in direct breach of sanctions.
PDVSAs dependence on Tipco as a financial intermediary has grown as the Venezuelan company has been hit by turmoil stemming from sanctions and years of mismanagement, according to a former supplier. A recent presentation by PDVSA shows foreign income deposited in the central bank has declined 90% since sanctions were imposed two years ago.
In late February, Maduro tasked El Aissami a former vice president sanctioned by the U.S. as a drug kingpin with restructuring the oil giant. Later he was named Oil Minister.
While El Aissami has managed to consolidate power hes been unable to revive production that has crashed to levels unseen since the 1920s. Employees at PDVSA dismissively refer to El Aissami behind his back as the Terminator, for his role finishing off whats left of the once-proud industry, according to the former supplier, who spoke on the condition of anonymity to avoid retaliation. IHS Markit, a market research firm, forecast in August that Venezuela could soon be producing almost zero barrels of oil despite sitting atop the worlds largest reserves.
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What did Tipco gain from the deal? Cheap oil. When international crude prices this summer hovered around $41, PDVSA offered Tipco discounts on its Boscan crude of around $25 per barrel for a shipment of 700,000 barrels, according to a 4-page summary of the proposal, which was addressed to Tipcos chief operating officer.
Thats far in excess of what shouldve been a roughly $8 per barrel discount for the tar-like blend of crude, according to Venezuelas publicly-available pricing formula for Asia. Its not clear if Tipco accepted the proposed sales offer.
PDVSA is in survival mode, said Francisco Monaldi, a Venezuelan economist who heads the Latin America energy program at Rice Universitys Baker Institute for Public Policy. Due to sanctions they have no alternatives, so anyone willing to assume the legal and reputational risk can easily take advantage of them.
Sweetening the deal even further: PDVSA has recently started offering to ship the oil itself, according to internal documents sent to Tipcos senior management, potentially saving the Thai company millions of dollars in freight costs. The arrangement, borrowed from Iran, another oil exporter crushed by U.S. sanctions, is a necessity as the Trump administration has blacklisted vessel owners, shipping operators and insurance companies that continue doing business with the South American country.
Tipcos CEO said in his emails to the AP that any additional discounts it received have always solely been motivated by the quality of the crude and by the sky-rocketing shipping costs from Venezuela.
But Tipco appears to have done its utmost to keep attention away from its Venezuelan purchases, according to Weber and Negreira.
Despite obtaining 90% of its crude for its refinery in Malaysia from Venezuela, theres not one mention of the country in its 208-page annual report.
The last written disclosure regarding Venezuela the AP could find prior to last months abrupt announcement it was ending purchases came in Tipcos 2018 annual report, when it said it had extended from four to seven years a sales agreement with Venezuela. Tipco’s CEO told the AP that since the start of 2019 Tipco has purchased 29,000 barrels per day or nearly 18 million barrels total, the equivalent of around 53 days of the nations current output of around 340,000 barrels per day.
Tipco executives in May 2020 did tell investors that supply disruption from Venezuela remains the companys top risk. But in none of their quarterly conference calls did they mention any contact with U.S. authorities over its crude purchases from the sanctioned country.
We have in this matter timely disclosed what was needed, as the situation evolved, CEO Chaiwat said.
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As Maduro clings to power, the U.S. is considering expanding sanctions to the few remaining non-U.S. companies still doing business with Venezuela. Elliott Abrams, U.S. Special Representative for Venezuela and Iran, said last month that the U.S. was looking to close loopholes that allow some oil companies to exchange Venezuelan crude for diesel fuel potentially hurting Venezuelan farmers that must transport food to market.
As it owns a refinery designed to process oil from Venezuela, we have been aware of Tipcos operations and continue to be interested in how they do business, said a State Department spokesperson for the Bureau of Western Hemisphere Affairs.
PDVSA is also steeling itself for more pressure from the north.
With motorists in the interior waiting days in line to fill up their cars with gas that is increasingly scarce, the government last week proposed to the rubber-stamping Constitutional Assembly an Anti-Blockade Law to get around U.S. sanctions. Among measures to boost foreign investment and prevent leaks exposing would-be partners to sanctions is a proposal granting PDVSA expanded powers to sign oil deals in secret, according to a presentation seen by the AP.
The imperialists have tried by all means to impede Venezuelas development and prevent Bolivarian socialism from being a palpable, irrefutable example to other countries, El Aissami said in a speech outlining the bill.
To date, only a handful of non-U.S. companies have been sanctioned for doing business with PDVSA including a trading unit of Russian energy giant Rosneft as well as two Mexican start-ups suspected of being a front for a businessman allegedly close to Maduro. But almost as quickly as buyers are discovered and punished, new intermediaries of dubious origins emerge to fill the void.
For Tipco, U.S. sanctions could prove devastating, however. It need look no further than what happened to another asphalt producer reliant on Venezuela, Europes Nynas, which was forced to declare bankruptcy after it was told in October 2019 to immediately stop importing Venezuelan crude. The company, with operations in Sweden, Germany, and Britain, had been 50% owned PDVSA in a joint venture with Finlands Neste Oil, which last month said it was selling its stake.
Unlike Nynas, which had been weaning itself off Venezuelan crude ever since it was entangled by U.S. sanctions on PDVSA in 2019, Tipco is now scrambling for a replacement. Four days after announcing it would stop purchasing oil from Venezuela it said it would continue efforts to source supplies from Asian refineries and any oil trading companies. When asked whether that includes intermediaries selling crude originally produced in Venezuela, Tipcos CEO said it would surely procure Venezuelan crude if it becomes available through authorized channels.
But whatever production bottlenecks Tipco faces pale in comparison to what PDVSA stands to lose if yet another payment mechanism is closed.
Negreira likened the parallel payment system to one long employed by Colombian drug cartels who, like PDVSA, face obstacles accessing hard currencies like the U.S. dollar. For years, large U.S. companies exporting goods to Colombia were unknowingly complicit in helping the cartels access their overseas funds via whats known as the black market peso exchange where cartels pay legitimate U.S. exporters looking for a favorable exchange rate from front entities with U.S. accounts.
Tipco shouldve known better, said Negreira, who has assisted U.S. law enforcement in fraud and corruption investigations in Latin America. Being asked to make payments on behalf of a U.S.-sanctioned entity to unrelated third parties across the globe is devoid of any reasonable business purpose other than to perhaps appease PDVSA, purchase crude at a significant discount or earn a transaction fee.
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Contact APs global investigative team at [email protected].
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AP Writer Grant Peck in Bangkok, Jamey Keaten in Geneva, and investigative researcher Randy Herschaft in New York contributed to this report.
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Joshua Goodman on Twitter: @APJoshGoodman
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