US Money Laundering Case Halts Venezuela Forex Trading

A money laundering case has prompted U.S. authorities to freeze an umbrella account used by dozens of brokers in Venezuela for currency trading, bringing the South American nation's so-called parallel currency market to a halt.

The seizure in unofficial currency market trading threatens to badly hamstring Venezuela's import-dependent economy.

The U .S. District Court of Massachusetts has charged one of the managers of the account for allegedly wire transferring $900,000 in proceeds from "dealing in a controlled substance," according to court documents.

Prosecutors are charging Rama K. Vyasulu, an apparent representative for the umbrella account that Venezuelan traders said was managed by Florida-based Rosemont P. Corporation, also known as Rosemont Money Services.

A Rosemont presentation from last November lists Vyasulu as an executive director formerly employed at the Federal Reserve Bank of Atlanta as a regulatory officer in charge of several Latin American countries.

Vyasulu was employed by the Federal Reserve Bank of Atlanta in its Miami branch from March to August 1997 as a foreign bank analyst, essentially examining performance indicators of foreign banks doing business in the U.S., a spokesman for the bank confirmed.

Rosemont's stated purpose is to help foreign financial institutions carry out wire transfers in the U.S. and meet government regulations. According to its November presentation, Rosemont handled $10 billion in transactions last year.

Phone calls to Rosemont's Florida office for comment went unanswered.

Traders said the frozen account was held at Bank of America Corp. (BAC). A spokeswoman for the bank declined to comment, citing client confidentiality. A U.S. Treasury spokesman Thursday also declined to comment.

As a result of the freezing of the account, traders haven't been able to settle some deals. They use U.S. accounts to receive and transfer dollars in exchange for bolivars in Venezuela.

Traders speculated that a minimum of $100 million could be tied up in the frozen account.

Companies and individuals in Venezuela that can't buy dollars at the official, pegged exchange rate of VEB2.15 turn to the parallel market.

Speculation has been running rife for months that state-oil company Petroleos de Venezuela SA, or PdVSA, has been breaking the law by selling part of its oil revenue in the parallel market instead of through the central bank, as it's required to do. A PdVSA spokesperson dismissed the speculation and said the company wasn't selling dollars.

In the past Venezuela's Finance Ministry sold structured notes made up of sovereign debt from other nations in the parallel market, providing an influx of dollars to traders and keeping a lid on the unofficial exchange rate, which retailers usually use to set prices.

A Finance Ministry spokesman Friday declined to comment on the frozen account.

The parallel market was so thin on Friday that traders said they couldn't even quote a price. On Thursday, a dollar fetched around VEB6.2 a dollar, almost three times the official rate.

The parallel market operates through bond swaps, where Venezuelan bonds denominated in bolivars are exchanged for dollar-denominated Venezuelan bonds. After the exchange, the purchaser obtains U.S. currency or bolivars from the sale of the bond.

A prolonged halt in dollar-trading could have devastating effects on Venezuela's economy as companies increasingly depend on the parallel market to pay for imports.

As the price of oil collapsed in recent months, the government has curbed the sale of dollars at the official exchange rate, forcing more companies and individuals to go to the parallel market.

Some traders feared that the case against Rosemont was an indication of tighter oversight of their operations in the U.S., which would force them to adjust their settlement mechanisms.

"No one truly understands what the source of the dollars is in these transactions. Most of the money is coming from offshore accounts," said Brian Stoeckert, who runs an anti-money laundering consulting firm. "There's a possibility that the parallel-market could come under closer scrutiny" by U.S. regulators, he said.

Venezuela's capital account in 2008 showed a $26 billion deficit, signaling that Venezuelans continue to sidestep strict currency controls to get their money out of the country.