Venezuela arrests bank chief close to government

Sun Dec 6, 2009 4:34am GMT

* Arrest in purge of businessmen with government links

* Minister calls for tighter financial regulation

CARACAS Dec 5 (Reuters) - Venezuela arrested the brother of one of President Hugo Chavez's senior ministers on Saturday, the latest move in a clean-up of the financial system that has closed banks and pointed to corruption close to the government.

Police arrested Arne Chacon Escamillo, president of one of seven small banks seized by the authorities this week, on unspecified charges linked to irregularities in the bank he ran in South America's top oil exporter.

"Chacon Escamillo, the president of Banco Real, was detained in the afternoon of Saturday, Nov. 5, after handing himself in," the attorney general's office said.

The arrest of the banker, whose brother Jesse Chacon has worked with Chavez for nearly twenty years and is now science minister, shows the president clamping down on a new class of businessmen made rich by their connections to the government.

In a turbulent week for Venezuela, the government took control of the seven banks owned by such businessmen, who are known as "Boli-bourgeoise," in reference to Chavez's idol and Venezuela's independence hero Simon Bolivar.

Chavez has sought to calm depositors and investors after he sent Venezuela's bonds and currency tumbling in value this week by twice threatening to nationalize the financial system if banks broke rules.

Five bankers have now been detained and 10 arrest warrants issued in what some have described as a Cuban-style purge of figures connected to the former para-trooper's decade-old Bolivarian revolution.

Chavez seems to have acted now to prevent problems in the banking sector from spreading, and to show rectitude ahead of legislative elections in September.

Some opposition politicians say the purge reflects a fight between different economic groups linked to top officials.

Corruption has been a perennial feature in Venezuela for generations. Despite Chavez's promises to clean up government, Venezuela is frequently ranked as one of the world's graft-prone nations.

"This requires a serious revision of our institutions," said Jorge Giordani, minister of economic planning. "We have to make changes to certain laws, not only in the banking system but also in the stock market and insurance."

Part of the government's investigation is focused on why so many of the deposits in the collapsed banks, notably Banco Canarias, came from government institutions.

Four banks belonging to Ricardo Fernandez, a jailed billionaire whose wealth largely came from government contracts, were closed on Monday for regulatory problems including unanswered questions about the source of some of the funds.

"You begin to have doubts when they cannot demonstrate the origin of funds," Giordani said in an interview on state television. He said investigations would determine whether the banks had been used to launder drug money. (Reporting by Eyanir Chinea and Frank Jack Daniel; editing by Anthony Boadle)

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