04/15/2013 03:42 EDT | Updated 06/15/2013 05:12 EDT

Ottawa still trying to recover nearly $2M missing from South American embassy

OTTAWA - A decade after an accountant at the Canadian embassy in Venezuela is said to have misappropriated more than $2 million, the federal government is still trying to get most of its money back.

Figures released last fall show Canada has yet to recoup $1.75 million of the $2.2 million lost to "fraud involving immigration revenue."

But a newly released document tells the full story.

A report by Foreign Affairs' special investigations unit reveals for the first time how an accountant and his brother-in-law allegedly siphoned the money from the embassy's bank accounts.

It also takes the department to task for missing red flags, allowing the alleged fraud to go undetected for years.

The books were already in a bad way when accountant Rafael Beltran started work at the Caracas embassy in summer 1999. A fire the previous year destroyed part of the building and made a mess of the accounting records.

Officials tried in vain to make sense of the transactions.

"The disorder in the accounting records created the perfect opportunity for the accountant and enabled him to cover up several fraudulent transactions," the report says.

There were early signs something was amiss.

Foreign Affairs officials visiting Caracas in April 2001 found "a significant discrepancy" in the embassy's books, the report says, but didn't properly follow up on it.

"The (Special Investigations Unit) investigation revealed that the discrepancy in question was directly related to the fraud committed by Beltran and involved a sum of US$130,000 from transfers that had been made in February and March 2000," the report says.

The discrepancy was reported — twice — to embassy officials. But the officials unknowingly asked Beltran to look into his own alleged fraud.

"There is no doubt that if this discrepancy had been brought to the attention of the (name blanked out) and/or if the (Financial Operations - International Division) had insisted on obtaining an appropriate response, Beltran's dishonest behaviour would have been detected as early as the summer of 2001."

The embassy tried to get rid of Beltran during the probationary period after he was hired, the report says. However, the embassy's former ambassador told investigators he didn't fire Beltran because Venezuela "was not allowing layoffs during its economic crisis."

The embassy's reasons for wanting to get rid of Beltran are blanked out in a copy of the report obtained by The Canadian Press.

Two years passed before the full extent of Beltran's alleged "fraudulent activities" became known.

The Foreign Affairs investigators eventually found Beltran allegedly made some 190 fraudulent transactions between January 2000 and April 2003.

Most of the money he is alleged to have withdrawn from two embassy accounts at the Banco del Caribe was in the form of cash or traveller's cheques.

He was suspended in early April 2003, and fired days later. In August 2004, Venezuelan authorities arrested and charged Beltran and his brother-in-law, Larry Enrique Ramirez Canelon, who had both eluded arrest for some time.

The Canadian Press obtained the special investigations unit's report under the Access to Information Act. The department blanked out sections of the document that explain precisely how Beltran committed the alleged fraud.

Venezuela's ambassador to Canada was not immediately available to comment. In an email, Foreign Affairs spokesman John Babcock did not directly respond to specific questions about the fraud.

"This incident is obviously unacceptable, and we continue to seek justice in this matter," he said in an email.

Josh Zanin, a spokesman for Diane Ablonczy, the minister of state for foreign affairs, told The Canadian Press three people were found guilty in the embassy fraud.

Beltran spent some time in a Venezuelan prison but has since been released, Zanin said, but his whereabouts are currently unknown.

Venezuelan court records show Canadian officials faced accusations of harassment as they tried to recover money.

In January 2008, Beltran admitted to the fraud, according to the court documents. He also accused Canadian officials of harassing him. They denied doing so.

The status of the legal proceedings is unclear. The Foreign Affairs report says the federal government intended to sue Beltran once his criminal proceedings concluded.