Caracas Chronicles

Photo: Reuters

We have become inured to shocking allegations of corruption; each successive tale of speed-money, yachts and beauty pageant contestant girlfriends turns into a joke that can easily be a Chigüire Bipolar post.

But the latest twist, a recently unsealed lawsuit brought by a PDVSA-linked trust against several companies for a bribing scheme, is another level of mafia. Deeply-entrenched corruption has compromised basic operational safety of PDVSA, and the turf wars inside the company resemble more an episode of the Sopranos that the management of a major oil corporation.

The trust

The first shock is the plaintiff itself, something called “the PDVSA US Litigation Trust.”

PDVSA created a trust in New York to pursue litigation in the US arising from an alleged bribery scheme to rig oil tender sales. The mysterious trust is represented by the Boies Schiller Flexner LLP law firm, headed by legendary litigator David Boies. Boies has represented clients from Al Gore, Harvey Weinstein, and the New York Times, to one of the narcosobrinos (Ruperti writing those checks).

According to the trust agreement, disgraced PDVSA President Nelsón Martínez set up the trust on July 27, 2017; the trustees, i.e. the people managing the trust, are Vincent Andrews, Edward Swyer and Alexis Arellano. Andrews and Swyer were appointed by Boies Schiller Flexner LLP. Arellano is identified in the document as PDVSA’s General Business Manager. There isn’t much available information online about him, but an Alexis Arellano (identified as PDVSA former general manager in Ecuador) was indicted there for corruption charges. Adding to the confusion, another copy of the agreement produced by one of the defendants says the trust appointed Miguel Bolívar, PDVSA treasury manager (instead of Arellano), as trustee.

The lawsuit alleges the existence of a widespread sophisticated network of corruption in PDVSA for oil tenders and bids operating to this day.

The beneficiary of the trust is PDVSA, meaning that any funds recovered by the trust will be funneled back to the oil company.

Litigation trusts are widely used in bankruptcy proceedings, which would be fitting for a nearly bankrupt company like PDVSA — bankruptcy trustees create litigation trusts to collect money for debtors. But this is not the case, and you can bet the vultures trying to collect will fly as low as they have to, to get their hands on any settlement or judgment in the trust’s favor.

The biggest mystery is the story behind its creation. The lawsuit alleges the existence of a widespread sophisticated network of corruption in PDVSA for oil tenders and bids operating to this day. The lawsuit also alleges that PDVSA’s current VP, Ysmel Serrano, the most powerful man in the company, is part of it.

To my lawyer’s eye, this trust agreement is odd. It’s only signed by Nelson Martínez, citing his authority based on the Law on Public Administration. This is irregular and probably invalid: PDVSA is a corporation governed by common commercial law, and authorization from its board is usually needed for this type of contracts. Maybe the reason there’s no reference to the board is that the trust agreement was entered into behind their backs?

If PDVSA is behind this lawsuit, why the hell are the trust’s lawyers hellbent on proving how corrupt PDVSA and its main honchos are? Was Martínez out to get Serrano before his downfall?

The case

The suit alleges that two men by the names of Francisco Morillo and Leonardo Baquero incorporated a company called “Helsinge, Inc.” (and several other entities) to provide confidential information about PDVSA’s tender sales to several big buyers of Venezuelan oil under the guise of a consultancy firm. Under such scheme, Helsinge and its “clients” managed to rig PDVSA’s oil tenders and fix prices. Baquero and Morillo disguised the bribes and their own cut as “consultancy fees.”

PDVSA claims that several big traders who are defendants in the suit (Lukoil, Vitol, Glencore and Trafigura) participated in the scheme. The trust is also suing the Curaçao and U.S. banks used to funnel funds from the clients to the Helsinge group and its ultimate beneficiaries.

Boies obtained evidence by hiring a security expert who managed to get a hold of Morillo’s laptop from his estranged wife.

One shocking part is how the trust’s lawyers obtained their evidence. You’d think that it’d come from PDVSA’s own records or maybe from an investigation by the Venezuelan prosecutor’s office. But no – Boies obtained evidence by hiring a security expert who managed to get a hold of Morillo’s laptop from his estranged wife.

From a review of this laptop, the expert claims he found out that Morillo, with the help of a complicit PDVSA employee referred to as the “Nerd”, set up a clone server of PDVSA’s Commercial and Supply Department server, which he could access remotely from the U.S. to obtain confidential information.

Boies also commissioned a report from an IT expert, who claims in his sworn statement that several PDVSA top officials (that he doesn’t name) flew him to Caracas in September and October 2017 to perform an audit of PDVSA’s servers located in their headquarters in la Campiña.

During his October visit, he walked the company premises incognito and inspected the servers to ascertain those corresponding to the Commercial and Supply department can be accessed remotely, something highly irregular for a big company. Not only that, he claims he also found out that PDVSA only stores emails in its servers for three months. He says he was kept from doing a fuller inspection by PDVSA’s security personnel, and the employees who are part of the corruption scheme.

PDVSA’s servers corresponding to the Commercial and Supply department can be accessed remotely, something highly irregular for a big company.

So, first, there’s a corruption network so entrenched that third parties can access PDVSA’s most sensitive data from abroad to enrich themselves without consequence. Second, there’s the shocking vulnerability of PDVSA’s technological platform (according to the IT expert, PDVSA has no disaster data recovery plans and backup functions within its network). And third, there are several factions in PDVSA vying to death for power, to the point that one faction can create a entity to sue past clients alleging that several active PDVSA employees (including its VP!) are crooks bleeding the company dry, with no one getting fired.

The case is ongoing and several defendants are already filing motions for dismissal. According to experts, this PDVSA case faces a lot of hurdles and the validity of the trust agreement has already been questioned by the defendants. I, for one, am left with much more questions that answers, but two things are crystal clear: a lot of fancy lawyers will get brand new BMWs out of this mess, and PDVSA is doomed under chavismo.

No Russians or army men can save a wretched company run like a criminal organization by untrained thugs.