In what’s becoming one of the longest running legal dramas in the global gold market, the saga of Venezuela’s ‘frozen’ gold in London continues to roll on, most recently reaching the UK Supreme Court in a 4 day court hearing between 19 – 22 July.
At the core of the legal drama is the question of who has the authority to withdraw Venezuela’s gold reserves which are stored in custody at the Bank of England. Is it the Banco Central de Venezuela (BCV) under the direction of de facto president of Venezuela, Nicolás Maduro, or is it a team directed by self-styled interim president of Venezuela Juan Guaidó, who is backed by the US and UK governments. Given the multiple developments in this saga over the last few years and the complexity of the matter, a recap is in order.
50 tonnes at the Bank of England
From 1980 until 2011, the BCV had 99.2 tonnes of gold stored at the Bank of England. For details, see the BullionStar article from May 2015 titled “
Venezuela’s Gold Reserves – Part 1: El Oro, El BCV, y Los Bancos de Lingotes”.
Between late 2011 and early 2012, the BCV conducted a famous gold repatriation operation, flying 160 tonnes of gold bars that were held abroad, back to Caracas in Venezuela to be stored in the vaults of Venezuela’s central bank. Following the completion of that gold repatriation in January 2012, this still left 4,089 of BCV’s Good Delivery gold bars stored in the Bank of England’s vaults (about 50.8 tonnes).
For details of the above, see the BullionStar article from May 2015, titled “
Venezuela’s Gold Reserves – Part 2: From Repatriation to Reactivation”.
Sometime after 2012 and until 2018, the BCV then began entering various gold swap transactions, including those with Deutsche Bank and Citibank as counterparts, and also with the Bank for International Settlements (BIS) as a counterpart. To do this, the BCV used most of the gold that it held in the Bank of England vaults in London as collateral for the gold swaps.
Deutsche Bank and Citibank Gold Swaps
One such transaction was a
$1.7 billion gold swap with Deutsche Bank, which the BCV let lapse in 2017, thus allowing Deutsche Bank to keep the gold that had been put up as collateral. This was somewhere between 30-40 tonnes of gold.
Another was a
gold swap transaction with Citibank, again with the BCV putting up gold as collateral. In April 2018, the BCV paid Citibank $172 million to recover some of that gold from Citi which had been put up as collateral. That then left the BCV, as of April 2018, with a net total of 14 tonnes of gold held at the Bank of England (about 1125 Good Delivery gold bars).
After the Citi gold swap was wound up in April 2018, the BCV then began asking for its gold back from the Bank of England. This is where it gets very interesting.
In November 2018, it became public knowledge that the Bank of England was stalling on the BCV’s request to withdraw 14 tonnes of Venezuela’s gold from London, with the Bank of England using bogus excuses such as transportation insurance costs and anti-money laundering concerns to not fulfill its withdrawal obligation on BCV’s gold custody contract.
For details, see BullionStar article from 14 November 2018 titled “
Bank of England refuses to return 14 tonnes of gold to Venezuela”.
However, the real reason for stalling the BCV’s gold withdrawal request was political – in the form of US State Department and US Treasury pressure that was put on the British Foreign office and HM Treasury to block Venezeula’s gold withdrawal and repatriation plan. This stalling was designed to allow time to roll out
US sanctions against Venezuela in November 2018 and critically, to move the goalposts and change the rules of the game by allowing time for the Guaidó team (backed by the US and UK) to enter the arena so as to try to win control of the remaining 14 tonnes of BCV gold at the Bank of England.
Blocking tactics included the following. On 30 November 2018, two high profile politicians from the Venezuelan political opposition, Julio Borges and Carlos Vecchio, wrote a letter to the then Governor of the Bank of England, Mark Carney, asking the Bank of England to refuse the gold withdrawal request by the BCV.
At the same time, UK Government officials fronted by the “Venezuela All-Party Parliamentary Group (APPG)” attempted to block a meeting between the Bank of England and a Venezuelan team comprising BCV president Calixto Ortega Sánchez and Venezuelan finance minister Simón Zerpa Delgado, who had flown over from Caracas to London in early December.
Although that meeting went ahead, the Bank of England again refused the gold withdrawal request of Ortega Sánchez and Delgado. For more details, see BullionStar article dated 18 December 2018 and titled “
Venezuela’s gold in limbo amid tug-of-war at the Bank of England”.
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