7/13/2017 How the Bolivarian bourgeoisie profit from empty shelves

The Big Read Venezuela

How the Bolivarian bourgeoisie prot from empty shelves

As Venezuela is rocked by protests against shortages and corruption, questions are being asked
about a huge food business empire

42 MINUTES AGO by: John Paul Rathbone

On a Saturday evening in April, Miamis Four Seasons Hotel hosted a

particularly lavish quinceaera the party traditionally thrown by
Latino parents to celebrate the coming-of-age of 15-year-old girls.

Outside, visitors watched limousines deliver their charges. Inside, girls

in eveningwear teetered on high heels across the lobby, while their
consorts wore black tie. Many chattered excitedly in Venezuelan-
accented Spanish; Justin Quiles, a reggaeton star, was even rumoured
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to be playing. Guests said that spirits were high as the teenagers made
their way to the Grand Ballroom on the sixth floor.

Yet the partys most notable feature was the twin hosts father, Mauro
Libi. This self-described visionary has built a remarkable business
empire over the past two decades. As well as food businesses in
Venezuela, Mr Libi is an owner, shareholder, director or legal
representative of some 30 companies across three continents,
according to public records reviewed by the Financial Times, including
banks in Panama and Spain, a $7m Manhattan apartment and dozens
of Miami-registered companies.

What makes Mr Libis success extraordinary and provides the

context for the multiple corruption allegations on which he has been
investigated is that he built his fortune in a country better known for
shortages of basic goods, obscure business dealings and revolutionary
confrontation rather than wealth creation. Indeed, as Mr Libis twin
daughters and guests danced that night, Venezuela ended its 29th day
of protests. The unrest has continued, leaving more than 90 dead.

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Mr Libis public persona, projected on websites and Twitter feeds, gives

little sense of his home countrys drama. This is building up to a
controversial July 30 constitutional convention, where the ruling
Socialist party hopes to cement its control by suborning institutions
such as the opposition-controlled National Assembly to communal
councils selected by President Nicols Maduro. Critics fear it will install
a Cuban-style dictatorship.

Instead, even as three-quarters of Venezuelans lost an average 9kg of

body weight last year, according to studies, and 10 per cent of infants
suffer malnutrition according to the Catholic charity Caritas, Mr Libis
Venezuelan oatmeal business, Avelina, made this comment on April 19:
Being vegetarian is an excellent way to reduce calorie intake.

Mr Libi, 49, told the FT the corruption allegations as a smear

campaign. But they are perhaps inevitable given the public rage over
the rampant state-sanctioned corruption that explains many of
Venezuelas problems today.

Venezuelan businessman Mauro Libi: 'If you work and invest, you are considered an enchufado [a [government insider]. .
But if you close your factory, you are someone against the [government] process

The numbers are mind-boggling outstripping even Brazils lava jato

corruption scandal. The Caracas government received a $1tn windfall

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from the oil price boom in the previous decade. Of that, two-thirds was
spent on cash transfers and other social benefits. But more than
$300bn was stolen or misappropriated, according to estimates by
Jorge Giordani, a former planning minister. Food fraud alone has
reached $27bn since 2010, according to the National Assembly.

Malnutrition in Venezuela is a problem of corruption, not a lack of

money, says Maritza Landaeta, a director of the Bengoa Foundation, a
Caracas-based health and nutrition charity.

Making matters worse, critics say, is a government riddled with

corruption rackets operated by officials with a vested interest in regime
survival. Accusations of rot go all the way up to Mr Maduros cabinet,
13 of whom are generals. Mr Maduro placed the army in charge of food
distribution last July.

The upper echelons of the military are all in . . . making money with
various schemes, says Russ Dallen, managing partner of Caracas
Capital, a broker. Accusations even stain the ruling family: two
nephews of first lady Cilia Flores await sentencing in a New York court
on charges of smuggling cocaine into the US.

Global Insight Given the vast amounts that

have been stolen, questions
Venezuelas B-movie have arisen over who has been
drama threatens to turn fronting for corrupt officials
from farce to tragedy and how the money is salted
away.
Outlandish helicopter attack provides
Nicols Maduro with an excuse for a
crackdown The schemes typically involve
fake invoices and currency
fraud, carried out via shell
companies and private banks.
One scheme moved $4.2bn

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abroad, a 2015 US Treasury

probe found.

Its not as if there is just one

group within the Socialist
party trafficking food. There
are several, says Francisco Toro, a political scientist who edits the
Caracas Chronicles website. But compromised officials have moved
past working with a single frontman. These days they operate through
networks.

***

As with many of the so-called Bolivarian bourgeoisie, the small class

of newly rich created during Venezuelas 18 years of Bolivarian
Revolution, little is known publicly about how Mauro Libi Crestani
first made his fortune.

Born in Caracas in 1968, public photographs show a mild-looking man

with tight-curled hair. As a teenager, he studied business in Milan,
returning in the 1990s to work at his fathers food businesses. But it
was from the early 2000s after Hugo Chvez was in power that Mr
Libi made his mark as a food importer and entrepreneur.

The oil price boom helped Mr Chvez finance his revolution but also
provided ample opportunities for fraud. In 2013, the comptroller-
general found that Bariven, a subsidiary of the state oil company, spent
$2.3bn on food imports but goods worth only a quarter of that ever
arrived in Venezuela. Three executives were charged with corruption
but later released; two were reinstated in their jobs.

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Opposition activists block a highway in Caracas in clashes with the police last month AFP

Venezuelas currency control system, in place since 2003, has been

plagued by fraud. Essentially, the scam works like this. Insiders with
access to preferential dollars can arbitrage the strongest exchange rate
of 10 bolvars to the dollar, and the black market rate, currently
Bs8,000, to make huge profits. Miguel Rodrguez, Mr Maduros former
interior minister but now a fierce critic, has called the system a source
of unlimited corruption.

Against this backdrop, Mr Libis food businesses plus his directorship

of local bank Banplus have seen him become a target for corruption
allegations especially from an online campaign called Escrache
which aims to name and shame insiders suspected of fraud.

The National Assemblys audit commission opened an investigation

last August, building on a dossier compiled by Socialist Tide, a splinter
chavista group. The commission alleged that Mr Libi swindled the state
of up to $573m between 2004 and 2012, using six shell companies to
invoice for preferential hard currency to pay for fictitious food imports.
The alleged scheme has the usual modus operandi of this countrys
criminal structures . . . working in complicity with government
members
. . . two in particular . . . Generals Carlos Osorio and Marco Torres [the
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former and current food ministers], Freddy Guevara, a congressman,

told the commission in public proceedings.

Gen Osorio and Gen Torres, both the subject of separate National
Assembly allegations, rebut such charges as empty accusations by
political opponents.

Venezuelan President Nicols Maduro: Critics fear a July 30 constitutional convention could increase the government's
control by suborning institutions such as the National Assembly Reuters

Mr Libi, however, defended himself at the commission on October 5.

He rebutted allegations his Venezuelan businesses were shell
companies by pointing to their 1,400 employees and continuing
operations. A 47-page presentation showed sales receipts: All
preferential dollars acquired by [my] businesses fully complied with
state laws, he said. He pointed out he was a shareholder of only four of
the six alleged front companies; the other two were owned by his half-
brother and had been cleared under a separate probe. Nor, Mr Libi
stressed, did he keep social company with any officials or ex-officials.

On December 7, the commission decided no fact, act or omission was

found to have impaired the public patrimony and closed its
investigation.

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I would not say we were satisfied, although Libi answered all the
questions, Carlos Berrizbeitia, a commission member, told the FT.

Everything is ambiguous in the shell game of Venezuelan finance. As

Gen Torres, who as head of Banco de Venezuela also distributes hard
currency, wrote in an October 2014 tweet: Meeting with Mauro
Libi . . . Efficiency! That same month, Mr Libi opened a chilled food
distribution business, Frimaca, a venture part-financed by Banco de
Venezuela.

Its a big problem, Mr Libi admitted to reporters. If you work and

invest, you are considered an enchufado [a government insider]. But if
you close your factory, you are someone against the [government]
process.

***

Mr Libis story, as he tells it, is of a resourceful businessman working

against the odds. Anyone who lacks courage to take risks wont achieve
anything, he tweeted on May 9.

Indeed, of the 18 active companies registered at a Miami warehouse

that name Mr Libi as their principal agent or director, seven hold
Miami property purchased between 2008 and 2013 for a total $9m,
public records show. Another investment company, Orele Properties
LLC, owns a $7m two-bed midtown Manhattan apartment, bought in
2013.

Venezuelans are consistently South Floridas largest foreign buyers of

real estate, spending $868m in 2016, according to the Miami
Association of Realtors.

But Mr Libi also has international banking interests, which is less

common. As well as being a director and shareholder of Finanplus, a

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Panama bank incorporated in 2014 that finances car purchases, he is a

director of Spains AFC Investment Solutions. In 2013, Mr Libis
Caracas investment company, Inversiones Valentina 15402, subscribed
5m to a capital increase by AFC: Mr Libi told the FT he has since sold
his 18 per cent stake.

Mr Libi told the FT his success grew out of businesses begun by his
father and that some corruption allegations are simply blackmail, but
he counts them as a cost of being a businessman working in difficult
circumstances.

On that point, everyone agrees. Last year, food imports fell to $2.3bn,
one-third of their 2008 peak. Even Mr Libi admits he has to work with
lean inventories amid the drastic shortages and that one of his
delivery trucks was recently sacked by hungry mobs.

Foreign scrutiny of Venezuelans suspected of fronting corruption

rackets is rising. In February, the US sanctioned one Venezuelan
businessman as a primary frontman for senior officials. On June 14,
Rex Tillerson, US secretary of state, said the US was building a robust
list of other individuals.

Domestic legal pressures are rising too. On June 15, the National
Assembly opened an investigation into an alleged $207m fraud at a
subsidised food programme, called CLAPs. It said it was continuing
other fraud investigations, including into Mr Libi, and would release
more information soon. (Mr Libi says he never participated in CLAPs
and reopening the assemblys probe lacks logical and legal sense.)

Mr Libis public relations effort has gone into overdrive. I invite

anyone who has any evidence of crimes or irregularities attributed to
me . . . to submit them to appropriate authorities, he said on June 4.
Exactly which authorities is moot, however, given that Human Rights
Watch says Venezuela is a country where impunity is the norm.

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Mr Libi remains upbeat. He gives parties in Miami. His oatmeal

business has pummeled the famous Quaker oats brand made locally to
win a 65 per cent market share. He even claims to be exporting oatmeal
to the US.

Additional reporting by Andres Schipani

Tensions have risen between Venezuelan attorney-general Luisa Ortega Daz and President Nicolas Maduros Socialist
administration AP

Facilitating fraud: Businessmen get rich on

overpriced imports
Corruption in Venezuela is local but its implications are global
affecting banks and companies across the western
hemisphere.
Last December, US agents arrested the owners of a Florida-
based equipment company on charges they had transferred
more than $100m from construction businesses largely in
Venezuela to foreign bank accounts belonging to Venezuelan
officials, via shell companies in Portugal and the British Virgin
Islands. Meanwhile, federal prosecutors in Chile and the office
of Venezuelas attorney-general, Luisa Ortega, have accused
the directors of two local food exporters of defrauding the
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Chilean state and facilitating an $80m Venezuelan over-

invoicing scheme. Excessively overpriced imports from Chile
allowed the perpetrators to get more dollars [in Venezuela] and
arbitrage exchange rates, said Carlos Gajardo, Chiles public
prosecutor. All the prices were fictitious.
According to court testimony by the companies accountant,
cited in the prosecutions arguments, the Chilean companies
were a front for a Venezuelan scheme arranged and headed by
Serafn Garca, a 73-year old businessman known as
Venezuelas Apple king.
Mr Garca, who lives in Miami, is also Mr Libis father-in-law.
Lawyers for Mr Garca, who has not been charged with any
offence nor called as a witness, rejected he court allegations.
Mr Garca has said he was never a shareholder in the
companies and was the victim of campaign by Caracas to
pressure him to drop an arbitration claim over the
nationalisation of his food businesses.

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