US alleges kickbacks by law firms in Venezuelan arbitration cases

  • United States
  • 08/07/2018
  • Latin Lawyer

The US Department of Justice has alleged that unnamed law firms representing Venezuela in international arbitrations arranged to pay “kickbacks” to the relative of a Venezuelan government official.

The allegation is buried in a criminal complaint filed in a court in Florida on 24 July against 44-year old German banker Matthias Krull and seven other defendants. The men have been charged with conspiracy to commit money laundering and violations of the US Travel Act.

Krull, who was until recently a wealth manager at Swiss investment bank Julius Baer based in Panama, was arrested in Miami two weeks ago, according to an announcement by the Department of Justice (DOJ). His counsel declined to comment.

While the bulk of the complaint concerns an alleged scheme to launder around US$1.2 billion in money embezzled from Venezuela’s national oil and gas company PDVSA, the DOJ accuses Krull of pursuing an additional scheme to launder kickbacks from “foreign law firms” hired to represent the Venezuelan government in arbitrations with international companies.

The law firms who were to pay the kickbacks and the arbitrations on which they worked are not identified in the complaint.

A number of international law firms have represented Venezuela and its state-owned entities in large international arbitrations reported by Latin Lawyer’s sister publication GAR in recent years. None of those firms contacted by GAR was willing to comment for this article. It is possible that the allegations relate to law firms whose representation of Venezuela has gone unreported.

The DOJ is relying on recordings made by a “confidential source” who approached the US Department of Homeland Security’s investigations arm in Miami in 2016, leading to an undercover investigation dubbed “Operation Money Flight”.

The complaint alleges that Krull approached the source in the summer of 2017 on behalf of a relative of an unidentified Venezuelan official who needed a way to launder payments from the law firms.

According to the DOJ, Krull called the source in June 2017, saying he was in Los Angeles with the official’s brother, who had “earned in the last years a payment they’re going to receive”.

In a later recorded call on the same day, Krull allegedly specified that these were payments from law firms that had charged the Venezuelan government US$5 million to represent it in international arbitrations.

The next day, the source, Krull and the official’s brother had another call in which they allegedly discussed ways to launder the payment and overcome know-your-customer requirements in the international banking system.

A meeting took place in August 2017 between the source and Gustavo Adolfo Hernandez Frieri, a 45-year-old naturalised US citizen born in Colombia who is one of the other men charged and is described in the complaint as a “professional money launderer”.

At that meeting, the source explained that Krull had two clients related to the Venezuelan government official who needed a way to launder the payments they are to receive from attorneys hired by the government. The source said “the lawyers are giving them their kickbacks”, to which Hernandez responded “Mm-hmmm.”

When the source suggested that the lawyers themselves would pay the kickbacks, Hernandez is alleged to have said, “No they can’t pay these two guys. No, that’s impossible. Just imagine. Specifically nowadays with OFAC [the US Office of Foreign Asset Control], and with all of these people reviewing every money transfer every day… Brother, that’s kindergarten Algebra. Right? Well, we will have to give a vehicle to each one of these guys. A private fund”... continue

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