Sucre, the virtual trade currency set up to facilitate transactions between Venezuela, Ecuador, Cuba, Bolivia and Nicaragua, and subject to a 2014 investigation by the Ecuadorian authorities amid allegations of serious abuse and money laundering control issues, is still a relevant use case that demonstrates the importance of implementing the proper financial crime and network risk management controls to ensure that what was in essence a perfect solution to a commercial challenge is not undermined by involvement – albeit inadvert – in financial crime.
Sucre, an invention of Hugo Chávez in 2010, stands for the Unified System of Regional Compensation (in Spanish) and is also the last name of the 19th century Venezuelan leader, Antonio José de Sucre y Alcalá. It is primarily a trading currency managed by a board of central bankers, which is used by importers and exporters to make and receive payments in their local currencies. As The Wall Street Journal points out, “Sucre’s appeal lies in its implicit payment guarantee…In a typical sucre transaction, a company in Ecuador sends the Venezuelan importer an invoice denominated in U.S. dollars, which is Ecuador’s national currency. The Venezuelan company then sends that invoice to the Venezuelan central bank, handing over bolívares. The Venezuelan central bank converts the bolívares to sucre and transfers the sucre to Ecuador’s central bank. There, it is converted into U.S. dollars, Ecuador’s national currency, and the exporting company receives its payments.”
In 2014 a joint investigation between the Ecuadorian and Venezuelan authorities was launched into abuses of Sucre transactions, primarily focussed on the use of so-called “ghost companies” which over-invoiced for goods received and took advantage of favourable exchange rates, a common tactic used in money laundering. Ecuadorian newspaper El Universo and the Miami daily El Nuevo Herald reviewed and highlighted schemes involving various transactions carried out with Sucre currency. The investigation found that Sucre served as a platform for at least 60 Venezuelan companies and 30 Ecuadorian firms to carry out multi-million dollar operations involving fictitious exports and ghost companies — as well as bank accounts in Panama, the Bahamas, and Anguilla. Reporting indicates that at the time up to 5% of Sucre transactions were suspicious in nature – which FINTRAIL assess to be very high by current bank standards.
This is further compounded by allegations in the public domain that senior figures in the Ecuadorian and Venezuelan governments were privy to some of the money laundering schemes, specifically a company called Fonglocons (Global Construction Fund), which was incorporated just four days before the bilateral agreements between Venezuela and Ecuador were signed and which was created with the specific purpose of trading between the two countries. None of the allegations against Fonglocons has yet been proven, however.
On face value the potential attractiveness and vulnerability of the Sucre scheme to money launderers was clearly not fully considered in the strategy and planning mechanisms around the currency and its deployment, leaving it open to relatively easy misuse by criminal or otherwise corrupt enterprises, sullying its reputation as a reliable virtual trade currency and undermining its otherwise strong utility in markets trying to reduce their reliance on the US dollar. Appropriate network risk management through a comprehensive understanding of the threats facing a virtual currency such as Sucre and the implementation of a clear control infrastructure to mitigate particular vulnerabilities would likely have prevented such infractions.