KPMG report: Washington sees every BCV dollar sale, and shows the public only totals

On November 12, the State Department released KPMG's report on the account where the United States holds Venezuela's oil revenue in custody. It is dated October 29, runs 53 pages and has the depositors' names redacted. According to the document, between January 3 and September 30 the account took in $12.26 billion and disbursed $12.11 billion, nearly all of it as dollars the Central Bank of Venezuela (BCV) sold to companies and individuals. The report also shows that the BCV hands Washington every one of those sales with the buyer's tax ID, and that what was released is only the totals.

An advisor's report, not an audit

KPMG appears as the State Department's technical advisor, and the text is explicit: its services "do not constitute audit or attestation services under applicable professional standards."

Before Congress, the State Department had described it as an audit. On April 16, at the House Western Hemisphere Subcommittee, Ambassador Michael Kozak, senior bureau official for Western Hemisphere Affairs, answered that the account had an independent audit system run by KPMG, which would deliver reports, quarterly as he understood it, and review operations back to the beginning. On June 3, at the House Foreign Affairs Committee, Secretary of State Marco Rubio said the account was audited by KPMG, that the audit was ongoing rather than annual, and that every disbursement went through it. The report released on November 12 covers nine months, January through September.

The report itself says who pays for that work. The State Department hired KPMG "using Venezuelan funds," under a memorandum of understanding with the interim government, and the account's payment table records a $18.2 million outflow to KPMG LLP on April 10 for financial oversight. In USASpending, the federal contracts database, the order with the firm totals $14.9 million obligated and drew a single offer.

Neither document explains the gap between the two figures.

Nor does it report control results. It describes procedures (depositor reviews, statistical sampling of recipients, vendor due diligence) and notes that not all of them were in place from January: the process "has been iterative." Until April, when KPMG came in, vendor payments were reviewed by Citibank under its own controls. The document mentions recipients "previously identified as high risk," but does not say how many there were or how many deposits or payments were rejected.

Who deposited, and how much

According to the report, 20 approved depositors provided the $12.26 billion. Oil, petroleum products and one gas transaction made up 98.7%; the rest came from gold ($108 million, all in March), minerals and fertilizer. The account also earned $12.5 million in interest. The descriptions left visible include crude, fuel oil, liquefied petroleum gas, commercial aviation fuel and primary aluminum.

The names are redacted. The two largest depositors accounted for more than 60% and the top three for almost three quarters; from January through March, the document says, "several global commodity traders" made virtually all payments.

The New York Times attributed most of the money to Trafigura and Vitol; the released version does not allow that to be checked.

The flow was not steady. Deposits peaked in May at about $2.4 billion and totaled about $3.3 billion in the third quarter, 45% less than in the second. Over those three months about $3.85 billion went out, more than came in, and the balance fell from $1.075 billion at the end of May to $169 million on September 30: less than four days of deposits at the period's average.

The report does not explain the drop in inflows.

The monthly figures make it possible to test the most widely cited independent estimate. Working from exports, Transparencia Venezuela estimated that the fund was owed $12.5 billion to $13.6 billion from January to June; the report records almost $9 billion for that half. The organization cautioned that exports are paid for at 30 to 90 days and that the amount actually received could be lower. The report does not reconcile its figures with exports, so the gap, between $3.5 billion and $4.6 billion, remains without a documented explanation.

Since April, the BCV sets the price

Through March 30, the BCV sold the dollars in 101 public auctions: individuals and companies bid, through their bank, how much they wanted to buy and at what exchange rate, and the central bank set only the volume. That channel moved about $2.1 billion. Since March 31 the mechanism has been different: the BCV allocates the dollars to each bank on its own criteria (liquidity needs, macroeconomic targets, banks' bolívar balances, historical participation) and at "a fixed exchange rate" that it sets. That channel moved about $9.3 billion through September, almost four of every five dollars sold.

The report also describes the other side of each sale. When the BCV allocates dollars to a bank, it debits the equivalent in bolívares, and according to the document those bolívares are then used "for government expenditures, such as to fund public sector payrolls"; taking them out of circulation lets the state, it says, meet its budget needs "without printing unbacked currency." In the currency sales, the same text specifies, no dollars went to government entities.

According to the report, then, the oil dollar goes to whoever buys it, and its counterpart in bolívares to state spending.

The figure that decides who gains from that circuit is the rate, and the report does not publish it: it does not say at what exchange rate each allocation was made or how it compared with the price of a dollar outside the official channel. With a fixed rate, every dollar allocated below what it costs outside that channel is a transfer to whoever receives it, and without the rate it cannot be measured.

Since July there has been a third channel: banknotes. After the June earthquakes, the State Department authorized using account funds to import cash; five shipments brought in about $550 million, of which $357 million had been distributed by September 30, nearly all of it to businesses.

Who received the dollars

Using the data banks report to the BCV, the report classifies recipients: companies received 77%, about $9.4 billion, and individuals 23%, about $2.9 billion. Those figures also include dollars from another source: Venezuela withdrew $346 million from its reserve tranche at the IMF, which was commingled in the same BCV operating account.

The report concludes that food, business services and agriculture, together 72%, show an emphasis on "basic consumer needs." The second category fits that reading poorly: "business and administrative services" received about $2.2 billion, almost a quarter of what went to companies, and the document does not say which activities it groups. Food and agriculture add up to 48%.

The breakdown by bank is complete. Twenty banks received dollars and five took 83%. The largest channel was Banco de Venezuela, with almost $2.9 billion, one of every four dollars sold. In January it had received nothing: the first $500 million was split among Banesco, Mercantil, Provincial and Banco Nacional de Crédito.

What the account paid directly

Outside the FX channel, the account paid $133.1 million to vendors, organizations and central banks between March and September, at the BCV's request and with State Department and Treasury sign-off. Before the release, The New York Times described that amount as Venezuelan government debts, mostly to other governments and international organizations.

The published table shows a different mix.

International organizations and central banks received about $10 million, PAHO included, less than 8% of the total. Healthcare was the largest item, and KPMG's equals 14% of all direct payments in the period. The table also records $155,000 to BDO, a service provider to the BCV, for "limited assurance" covering May and June, a review whose results the report does not include.

The full list is already in Washington

Until the release, the information needed to know who gained from the oil revenue seemed split between the two governments, as our November 11 piece argued: Washington with the deposits, Caracas with the buyers. The report shows that the second half reaches Washington too. The BCV gives the State Department and KPMG the detail of every dollar sale, classified by the buyer's tax ID, and for each banknote delivery banks report the recipient's tax identification number and the serial numbers.

From that list, totals by recipient type, sector and bank were released. Both governments hold the buyers' names; the BCV sets the rate for each allocation. The price of each cargo does not appear in the report either.

On the Venezuelan side, the contrast is starker. In August, Transparencia Venezuela found no mechanism by the interim government that would show the amount administered or where the funds went, and the official record added up to about $300 million. KPMG's report, even with its redactions, releases the monthly flow, the breakdown by bank and sector, and every direct payment with name and amount.

The precedent involving the same firm looked different. In 2004, KPMG audited Iraqi crude sales and the fund they were paid into, under an engagement approved by an international advisory board, which published those audits. In the Venezuelan account, the firm acts as technical advisor, is paid from the account it reviews and delivers its report to the State Department, which decided what was redacted.

What to watch

The report says it "may be updated" with new data, with no date for the next one. Three things will show whether the circuit changes: a future report that includes control results (rejected deposits, excluded recipients, withheld amounts) and not just procedures; publication by the BCV or the State Department of the rate for each allocation; and fourth-quarter deposits, which will show whether the third-quarter drop was temporary.

For anyone importing, lending or setting prices in Venezuela, the report leaves a practical conclusion: access to the official dollar depends on a bank-by-bank allocation on the BCV's criteria and on an inflow that Washington authorizes payment by payment and that fell 45% between July and September.

The rate at which it is allocated is still not published.