Cunning, unscrupulousness and a network of allied countries: this is how dictatorships circumvent economic sanctions

Regimes such as that of Nicolás Maduro in Venezuela, Kim Yong-un in North Korea, Bashar al-Assad in Syria and that of Hassan Rouhani in Iran, confirm that the theory that only the fittest survive also applies to dictators. Under the cover of a network of front companies and with the help of allied countries, these regimes have evaded economic sanctions for years and have managed to maintain power while many of their citizens suffer countless hardships. Accustomed to doing business in opacity, the clique that has governed Venezuela since 1999 is not only perfectly adapted to circumvent sanctions, but also benefits from a distinctive feature: the absence of ethical values

Gitanjali Wolfermann @GitiW

There is consensus around the ineffectiveness of economic sanctions imposed on authoritarian regimes as a method of forcing political change. In fact, the evidence suggests that some dictatorships are politically strengthened after sanctions have been issued as they provide a narrative of enemy attack which opens up a range of opportunities to operate in the shadow.

After 57 years of sanctions imposed by the US government, Cuba is an emblematic example of political survival, but it is not the only case. It was 1950 when the United States imposed the first economic sanctions on North Korea due to grave human rights violations. More sanctions would later be added in response to the development of its nuclear program. 

The Iranian regime has been dealing with restrictions for 40 years and although they have drastically reduced its economy, they have not achieved political change or hampered the development of its nuclear sector. The sanctions against Syria since 1986 due to human rights violations and its links with terrorist organisations did not prevent either the civil war or the subsequent mass exodus.

More than 100 representatives of the regime led by Nicolás Maduro have been individually sanctioned since 2008, not only by the United States but by a broad coalition of countries. The main state-owned company Petróleos de Venezuela joined in 2019 more than 50 companies sanctioned for their participation in crimes such as money laundering and corruption. The sanctions for both Venezuelan individuals and companies are due to crimes such as corruption, money laundering, serious human rights violations and drug trafficking.

“Military and single-party regimes are less likely to yield to foreign pressure compared to democracies. This is because they effectively use various repressive tactics and positive incentives to bear the costs of coercion”, argues the University of Memphis Professor of Political Science Dursun Peksen.

Diego Moya Ocampo, Senior Analyst for Latin America at IHS Global Insight, agrees with Peksen and goes one step further: “Venezuela cannot only adapt to survive under a sanctions regime, as has been the case with Iran, Cuba, Syria or Zimbabwe. Maduro´s government is in a privileged and more comfortable position. Before sanctions were imposed on Venezuela, what has characterised the Chavista regime has been the creation of black markets. It is an environment that is comfortable for them. The vision of all its bureaucrats has always been to open a black market. Consider for example the health sector: instead of resorting to traditional forms of corruption such as asking for bribes from pharmaceutical companies to award contracts, Chavista ministers closed the market and created a black market so that the only way to market their products was through a system that they controlled. Trading in black markets is their natural position”. 

Cunning: the thousand and one names

In early November 2019, Bloomberg reported that Venezuelan tankers responsible for transporting oil to Cuba have resorted to the strategy of changing their names to circumvent sanctions. “The ship Ocean Elegance, a tanker that has been delivering Venezuelan crude to Cuba for the past three years, was renamed Oceano after being sanctioned in May. The S-Trotter ship, another vessel on the sanction´s list, is now known as the Tropic Sea”, the news agency reported.

It was also reported that the freighter called Nedas and now known as Esperanza after being sanctioned in April 2019, has continued to make shipments to Cuba in a “ghost” way, turning off its satellite tracking system. That tanker alone is estimated to have delivered 2 million barrels of crude oil to Cuba this year.

“The Venezuelan regime is comparable to a criminal organisation rather than to a conventional populist and nationalist dictatorship. That is one of the reasons why it can be said that the sanctions regime in itself is going to force a change of behaviour. On the contrary, the sanctions create a new series of opportunities for bureaucrats who are used to managing black markets to do more business”, says Moya Ocampo.

The comparison with a criminal organisation is also made by risk management strategy consultant Alberto Ray, who coined the term revolutionary criminal economy (ECR) to explain how Maduro´s government operates. “The ECR went from a complementary system to sustain the regime as a primary source of income and to give oxygen to what remains of the Chavista revolution”, Ray said in his twitter account.

Ray affirms that in its evolution, this system has developed its own economy based on a very complex network of operators that would make it harder to dismantle. “The ECR has become a life-line of support for the Venezuelan regime,” he added.

In an interview with, Ray explained that the criminal economy is revolutionary as it internationalises. “The revolutionary economy was purposely designed and has been refined over the years. Let’s think about how they have organised the illegal sale of fuel across the border to Colombia. The logistics on both sides of the border did not happen overnight, it was a process. Today, since the legal ways of making money have been closed, they have looked for alternative ways, including criminal ones, such as the illegal extraction and commercialisation of gold to obtain economic resources”, he said.

Ray does not hesitate to state that the number-one purpose behind a system like ECR is to stay in power at any cost. “The regime has calculated that to achieve this goal it does not need more than $ 500 million a month. Any activity that procures that amount of money is enough. With this amount, Maduro pays expenses such as the payroll of their loyalists in the Armed Forces, the main leaders of illegal operations and the purchase of CLAP. In the end, the formula for sustaining power passes through two factors: the structure of social domination through food and the structure of repression through force”, he added.

The role of the allies: beyond the usual suspects

No dictatorship can stay in power for decades without international support. Despite the extension of sanctions imposed on Syria, Iran, North Korea and Venezuela, the ruling clique in those countries has used not only its ideological allies but even some democratic and theoretically critical countries of human rights violations. 

The small group that governs North Korea has managed to circumvent sanctions and retain power largely thanks to the fact that China buys 86% of its exports and in turn provides more than 90% of imports, according to information from the Agency Central Intelligence of the United States.

China is not the only country willing to do business with hermetic Kim Yong-un. A report from the Institute of Science and International Security revealed that 49 other countries have violated the United Nations Security Council sanctions imposed on North Korea between March 2014 and September 2017. Data from the UN study found that countries ranging from poor and isolated nations like Angola to richer global powers like Germany have ignored a wide variety of measures that prohibit economic activity and military ties to North Korea.

While Kim Yong-un manages to get around sanctions to continue ruling, more than 11 million North Koreans -almost half the population- suffer from malnutrition, according to reports from the World Food Program.

In the case of Iran, China shines again as its main buyer of oil. However, the role Germany plays is perhaps more interesting since Iran has managed to evade sanctions by using a cunning and complex network of shell companies operating in the European country.

“A good illustration of how Iran ignores sanctions is the regime’s activities in the German city of Düsseldorf. Some of the best technology in Germany is produced here. Concentrated in a relatively small region, thousands of small and medium-sized family businesses invent, assemble, produce and sell some of the best machines and industrial products in the world. It is an ideal place to buy “dual-use” components: materials that are necessary for the manufacture of nuclear weapons, but can also be used for civilian purposes, which gives the buyer a plausible denial”, says Emanuele Ottolenghi, a principal member of the Foundation for the Defence of Democracies

Ottolenghi noted that “Iran has established a dizzying array of front-line companies from Düsseldorf to Frankfurt. Because of most of these companies open and close in a matter of months, leaving little or no paper trail, it’s hard to say exactly what they do. Even when they last for a reasonable time, they tend to operate under the radar, often in their managers’ homes, with little information available to the public. However, many of them appear to be involved in industrial acquisitions, including, supposedly, for Iran’s ballistic and nuclear missile programs”. 

While the Hassan Rouhani regime has managed to evade sanctions and continues to advance its nuclear program, the 2019 Human Rights Watch report confirms that the Iranian authorities have carried out arbitrary mass arrests and serious violations of due process during 2018 in response to protests across the country over deteriorating economic conditions, perceived corruption, and a lack of political and social freedoms.

Russia is another common suspect for supporting the fragile economies of sanctioned dictatorships. It has been a key support for Bashar al-Assad in Syria and consequently, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) appointed in September 2019 one company, three individuals and five vessels participating in a sanctions-evasion scheme to facilitate the delivery of jet fuel to Russian forces operating in Syria.

“The Treasury is targeting a sanctions evasion scheme that includes front companies, ships and conspirators who have been facilitating the illicit transfer of jet fuel to the Russian army in Syria. The despotic Assad regime is under international attention for using chemical weapons and committing atrocities against innocent Syrian civilians, and they rely on these types of illicit networks to stay in power”, said Sigal Mandelker, undersecretary for Terrorism and Financial Intelligence.

While Bashar al-Assad devises strategies to remain in power, the Syrian Center for Policy Research estimated that the death toll after the start of the civil war in 2011 was 470,000 and has also left nearly 2 million injured. Furthermore, the number of refugees reached around five million in 2016, which corresponds to almost 25% of the population of Syria.

Both China and Russia have been key allies for the survival of the Chavista revolution. Over the past decade, China has loaned Venezuela some $ 62 billion, according to the China-Latin America Financing Database of the Inter-American Dialogue. In October 2019, Venezuela and Russia renewed “support and advisory” contracts in the military and energy fields that include the participation of Russian companies in the oil, gas and agricultural sectors, announced Nicolás Maduro. According to Kremlin spokesman Dimitri Peskov, Venezuela’s debt amounts to $ 3 billion.

“These allies are there to the extent that it represents a business for them. For example, in the case of China, oil production was robust enough to attract investment in infrastructure, but since 2016 it has ceased to be a good business and today its only interest is to collect the debt. In the case of Russia, today it is a great business for them to manage the marketing, transportation logistics and sale of oil, just as until 2013 was the sale of arms to Venezuela. Both countries will be allies until Venezuela stops being a good business. Those alliances work as long as they are profitable. Of course, the problem is that in the meantime they give oxygen to the regime”, argues Moya Ocampo.

Turkey and Lebanon are also in trade alliances with the Maduro regime. An investigation of Runrunes revealed that the Central Bank of Venezuela has sold Venezuelan gold to companies in Turkey that in exchange supplies food for the state program known as CLAP. Another investigation uncovered six companies in Lebanon -which is not a traditional food supplier to Venezuela- with links to the subsidised food program. CLAP has been associated with a widespread corruption scheme and is known for supplying low-quality food.

As Maduro and his power groups hold the wealth of Venezuelans, the humanitarian emergency declared by organisations like Human Rights Watch continues to advance. The special representative of the UN Refugee Agency (UNHCR) Eduardo Stein, declared in October 2019 that by next year Venezuelan refugees may exceed 6.5 million.

The United Nations and its humanitarian partners estimate that there are some 7 million people who need humanitarian assistance in Venezuela because the country has a collapsed health system. Even without official figures, it is known that maternal and infant mortality has increased; diseases that could be prevented by vaccination such as measles and diphtheria are spreading fast; increased infectious diseases such as malaria and tuberculosis; and acute child malnutrition rose to 100% in 14 states of the country according to Caritas Venezuela. In addition, the International Monetary Fund estimates that 2019 will close with 200,000% inflation and projects 500,000% for 2020.

Unscrupulous: what’s behind the perception of stability

Even dictators need to build stability to stay in power, Ray says. “Between 2018 and the beginning of 2019 the regime was very unstable. The revolutionary criminal economy has allowed them to go beyond the mere maintenance of power to also generate a perception of stability. How did they do it? Supplying the country through a network that, while not criminal, has grown under the shadow of the criminal economy”. 

Ray refers to the boom of imported food minimarket and a network of small services offered in dollars that have proliferated in the main cities of Venezuela. “These are opportunistic businesses. This is not to improve the country’s economy but to build the perception of stability. The criminal economy is not in place to fix anything structural but only to bring superficial improvements. Hence the focus is on commerce. Under this model, there will be no economic growth at all ”. 

To build this perception of stability, Maduro has again resorted to the support of Russia. Investigative work by the Bloomberg agency revealed that hundreds of millions of dollars in cash have been sent to Venezuela from Rusia, which provides a lifeline to the regime as US sanctions limit its access to the global financial system. “A total of 315 million in US dollar and euro banknotes were sent in six separate shipments from Moscow to Caracas from May 2018 to April 2019”, says Bloomberg.

For Omar Zambrano, chief economist at the consulting firm Anova, this “bubble” responds to the pressure that comes from the elite and not from society as a whole. “I think they realised that spontaneous dollarisation is working as the engine of a small commercial and service economy in the main cities which aims at satisfying the empowered caste. It does not go hand in hand with the institutions and therefore it is dollarisation without a structure or regulation”. 

Zambrano argues that although the economic situation appears to be looking much better than it did 18 months ago, the problem is that it is a superficial economy that does not generate jobs or production. “Much of the population does not participate in this economy which is generating a deep fracture among those who can access dollars and those who only generate bolivars. I am concerned that it is perceived that this bubble represents an economy that has already started and that is finding ways because I do not think that is the case”.

Zambrano’s projection is not encouraging. “This economy will not save us from the crisis because it does not generate production or employment for the vast majority. On the one hand, there is a sector of the population with access to imported goods and on the other, there is one that suffers the rigor of a crisis humanitarian. This is an economy that every day looks more like Haitian or Equatorial Guinea. It is a bubble aimed at satisfying the consumption of an empowered and wealthy elite and, on the other hand, nothing, the walking dead, the people who have no way to buy food or medicine”. 

The senior analyst for Latin America at IHS Global Insight warns that as the Venezuelan formal economy closes, and becomes less profitable to trade with allied countries due to international surveillance, the government will be forced to resort to other types of black markets such as drug trafficking and money laundering on a large scale.

“Until now, Maduro´s government has been able to adapt and evade sanctions because the Russians carry out the transportation and commercialisation of oil, but given the fall in production, it is estimated that it will continue to drop to less than 500,000 barrels per day in 2020, they will no longer finance the security apparatus. They will not be able to maintain the loyalty of the military apparatus, which is the only thing that keeps Maduro in power. What is going to happen? To complement the loss of legal resources there will be no other option but to turn completely towards criminal activities such as drug trafficking to the United States and Europe”, says Moya Ocampo.

While Venezuelan oil production continues to decline, India presents itself as a lifesaver for the Venezuelan regime as it has been for years for the Rouhani regime in Iran. New Delhi has been the second-largest buyer of Iranian oil despite the sanctions and, according to the Reuters agency, in December 2019 it significantly contributed to PDVSA evading the sanctions and managing to export 1,037 million barrels of crude.

Against this background, the analyst at IHS Global Insight issues an alert: “I think that eventually there will be large-scale counterfeiting in Venezuela. Not because Venezuelans have the knowhow but because they will tell the mafias that are in charge of that business in Peru to go to Venezuela as nobody is going to persecute them there. Venezuela will become a criminal state -something other than a narco-state- in which any criminal activity that is capable of generating resources is something that the Maduro government will support and seek to attract”. 

The Venezuelan retaining wall

The jurist and former president of the Executive Committee of Amnesty International Venezuela Fernando Fernández considers that what Venezuela is going through responds to the characteristics of the dual State. “We have two States, the one that is in the Constitution and the one that is in the Decree-laws, and both are antagonistic. Besides, we have two governments, two Prosecutors, two Assemblies, in conclusion, we have chaos. This economy has reached rock-bottom due to great corruption or kleptocracy ”.

Fernández agrees with the appreciation that it is a mistake to believe that sanctions are intended to overthrow governments. “Those sanctions are limited to individuals and companies. Venezuela as a country is not sanctioned. Its function is to limit the money that comes from criminal activities entering the international financial system because when they do, they end up integrating into the entire economy”, Fernández explains.  

The human rights activist claims that the country has not collapsed because Venezuelans have not surrendered. “People here keep on fighting. In this country, there is still a moral reserve and many NGOs are working hard, especially in the inner-country. Every day more people join in to face this tragedy”. 

Ray also sees values as a sort of retaining wall against the advancement of the revolutionary criminal economy. “We are at a crossroads because the criminal economy model has not been fully consolidated as there is still a lot of struggle for spaces and power. This is an opportunity for democratic forces. Personal sanctions on the figurehead caste have made it difficult for this system to be fully consolidated”. 

“What can save us from this model are our values. Venezuelans are not criminals. If we miss this crossroad and allow this criminal model to take hold completely, it will be practically impossible to disrupt. In the end, these people are a megaband. It is in our hands to decide if we want to live under their rule”. 

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