By Dan Molinski
Of DOW JONES NEWSWIRES

CARACAS (Dow Jones)--In what could become a diplomatic dispute, a Venezuelan banker wanted in his homeland was released on parole from U.S. custody Wednesday, though an extradition request by the government of President Hugo Chavez continues to hang over him.

"Mr. Eligio Cedeno was in U.S. Immigration and Customs Enforcement custody until this morning, when he was released on parole pending a hearing before an immigration judge," said Ivan Ortiz-Delgado, an ICE spokesman, in an email.

Cedeno, whose whereabouts was not released by immigration authorities, had been arrested in Venezuela in early 2007 and charged with but not convicted of allegedly gaming the country's strict currency rules to make a quick profit worth tens of millions of dollars.

A judge in Caracas freed Cedeno on parole Dec. 10 after he had spent 34 months in jail without a verdict being reached. Venezuelan law stipulates no more than two years of pre-trial detention. Cedeno, who denies the charges against him, fled to the U.S., where on Monday immigration officials confirmed he was in U.S. custody.

The Venezuelan judge, Maria Afiuni, was herself arrested hours later on corruption charges for letting him go free. Incensed at Cedeno's release, Chavez said he wants Afiuni jailed for 30 years.

Cedeno's lawyer, Robert Amsterdam, said his client will stay in the U.S. for the time being. He also criticized Chavez for the arrest of Afiuni, saying she is essentially being held as a "hostage" because Cedeno is free.

Officials at Chavez's press office were not immediately available for comment.

Prior to Cedeno's release, Venezuela's top prosecutor had already acknowledged the government will have a tough time convincing U.S. authorities to send Cedeno back to Caracas.

"No nation is obligated to deport, and in this case we have even less of a chance to demand that they do so," Attorney General Luisa Ortega Diaz told El Nacional newspaper.

Part of the problem with convincing U.S. authorities to send Cedeno back to Venezuela may be that he was legally released before surfacing in the U.S.

Three United Nations human rights experts recently said the Chavez administration had no right to arrest the judge, who is being charged with corruption, accessory to an escape, criminal conspiracy and abuse of power.

Afiuni, through her lawyers, has denied the charges.

The Caracas bar association has also come out in support of Afiuni's decision to release Cedeno, and condemned her incarceration in a women's prison on the outskirts of Caracas.

Ortega also noted that previous extradition requests to the U.S. have been unsuccessful.

"It's been more than three years since we made an extradition request for Luis Posada Carriles, and to data we have had no response," she told the newspaper.

Posada Carriles is a Venezuelan-born Cuban militant and former CIA operative. He is wanted in Venezuela on charges of plotting a 1976 airliner bombing that killed 73 people.

Cedeno's attorney criticized the Venezuelan government for making any comparisons at all to Posada and Cedeno, saying his client is a law-abiding citizen with no convictions. "The cases are worlds apart," Amsterdam said.

In addition to the currency-trading fraud charges against Cedeno, he has also now been charged with running from the law, as his release in Venezuela required that he remain there and check in with the court every 15 days while on parole.

-By Dan Molinski, Dow Jones Newswires; 58-212-284-5651; dan.molinski@dowjones.com