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DOJ Sweeps Up Two More Defendants in PDVSA Criminal Investigation

The Justice Department’s sprawling and successful prosecution of bribery and money laundering surrounding PDVSA, Venezuela’s state-owned energy company, shows no signs of letting up.  DOJ’s prosecutions began in 2015, and with the recent announcement of two new defendants, DOJ’s scorecard has reached a total of 21 defendants, 15 of whom have pleaded guilty. 

Given PDVSA’s reputation for corruption, which is well earned (or as I like to say, “they came by it dishonestly”), we will continue to watch this investigation as more individuals are targeted for prosecution.

The bribery schemes appear to fall into two major categories – first, bribes that are paid for award of PDVSA contracts; and second, bribes that are paid to receive payment by PDVSA for outstanding invoices. 

As everyone knows, Venezuela is undergoing social and political upheaval, and PDVSA, as the primary economic engine, has been suffering economically from corruption and general deteriorating economic conditions.  For years, companies have been suffering delays in payment of invoices, thereby creating a market for third parties to provide assistance in securing payment of outstanding invoices.  Unfortunately, these situations are a breeding ground for bribery.

In the latest case, the two defendants, Rafael Enrique Pinto Franceschi (“Pinto”) and Franz Herman Muller Huber, both US residents, were each charged with one count of conspiracy to violate the FCPA, one count of conspiracy to commit wire fraud, two counts of wire fraud, and one count of conspiracy to launder money for engaging in bribery schemes for contracts with PDVSA and payment on past due invoices.

Muller is President of a company which supplies industrial equipment which is an exclusive provider to PDVSA.  Pinto is a sales representative for Muller’s company.  Two previously charged PDVSA officials (connected to PDVSA’s US subsidiary, PDVSA Services, Inc.), Jose Orlando Camacho, and Ivan Alexis Guedez, and a third official of PDVSA, agreed to assist Muller and Pinto in exchange for bribery payments.  Pinto and Muller also were paid kickbacks, equal to a three percent commission that PDVSA made to the company, for their roles in the scheme.

In exchange for the bribery payments, Camacho, Guedez and the third official would:

(1) take steps to ensure that PDVSA requested equipment that the company distributed;

(2) provide Pinto with inside information regarding PDVSA; and

(3) assist the company in receiving payments for prior contracts awarded by PDVSA.

Pinto and Muller earned $985,000 and $258,000, respectively, as kickbacks for the PDVSA contracts and payments.  Pinto and Muller arranged for such payments by invoicing the payments from a Panamanian shell company and requesting payment be made directly to Swiss bank accounts they each maintained.

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