Venezuela
gold holdings in Bank of England soar on Deutsche deal -sources
CARACAS, Jan 21 (Reuters) - Venezuela’s gold holdings in the
Bank of England have jumped after it closed out a gold swap deal with Deutsche
Bank, according to two sources, as Britain remains reluctant to release gold
held for the troubled OPEC nation.
The government of Nicolas Maduro has since last year been
seeking to repatriate about $550 million in gold from the Bank of England on
fears it could be caught up in international sanctions on the country.
Its holdings at the bank more than doubled in December to 31
tonnes, or around $1.2 billion, after Venezuela returned funds it had borrowed
from Deutsche Bank AG through a financing arrangement that uses gold as
collateral, known as a swap, one of the sources said.
Under the deal struck with Deutsche Bank in 2015, Venezuela put
up 17 tonnes of gold in exchange for a loan, according to one of the sources
who asked not to be identified because it is not authorized to speak publicly about
the issue.
The country’s gold holdings fell to 134 tonnes in November
compared with 150 tonnes at the start of 2018, according to central bank
statistics.
This is in part because Venezuela last year started carrying out
gold barter operations with Turkey to import food following U.S. sanctions that
have made international banks reluctant to handle Venezuelan transactions.
The motivation for paying back the funds from the Deutsche swap
was not immediately evident. But redeeming the swap would give Venezuela more
gold for barter operations with Turkey.
Deutsche Bank declined to comment. Venezuela’s Central Bank did
not reply to an email seeking comment.
The Bank of England did not immediately respond to a request for
comment. When queried about Venezuela issues in the past, it has said it does
not comment on customer operations.
POLITICAL
PRESSURE
The Bank of England is facing political pressure from
Venezuela’s opposition and from members of British parliament to not assist
Maduro, whose just-begun second term has been widely described as illegitimate.
Losing the gold would be a significant blow to the country’s
finances by undermining Venezuela’s ability to obtain hard currency crucial to
importing items ranging from food and medicine to auto parts and consumer
electronics.
But refusing to hand over the gold, which belongs to Venezuela’s
central bank, could cause alarm among countries that store their own bullion in
the Bank of England’s coffers.
Maduro’s government is struggling under hyperinflation now approaching
2 million percent annually, and a broad economic collapse has fueled an exodus
of some three million people since 2015.
Opposition critics, including exiled leader Julio Borges, have
argued that the gold should not be repatriated because it could be used to
finance corruption.
Calixto Ortega, president of Venezuela’s central bank, met with
Bank of England officials in December to discuss repatriating the gold but was
unable to convince them, according to sources familiar with the situation.
Venezuela for decades stored gold that makes up its central bank
reserves in foreign bank vaults, which is common among developing nations.
The country’s late socialist leader Hugo
Chavez, citing the need for Venezuela to have physical control of central bank assets,
in 2011 repatriated around 160 tonnes of gold from banks in the United States
and Europe to the central bank in Caracas.
Maduro says his government is victim of an
“economic war” led by the opposition and fueled by Washington’s sanctions. His
critics blame the country’s struggles on a state-led economic model, stringent
exchange controls and nationalization of private companies.
Venezuela to Refine Gold in Turkey Amid US
Sanctions – Report
The South American country stopped
refining its gold in Switzerland in 2017 amid fears that it could become
subject to US or EU sanctions. Washington did indeed impose sanctions on
Caracas' gold reserves in November 2018.
Venezuela plans to refine tons of gold in the
central Turkish province of Corum and has sent a delegation, led
by Venezuelan Minister of Industries and Production Tareck El
Aissami, to assess the gold refining facilities and conduct negotiations,
Turkish newspaper Yeni Safak reported. The results of the
delegation's mission will later be reported to Maduro, the outlet added.
In
2017, Venezuela stopped refining gold in Switzerland and in 2018
announced the repatriation of its gold reserves from the UK
amid concerns that it could be frozen under US or EU sanctions. Also
in 2018, Caracas sent around $834 million worth of unrefined gold
to Turkey.
The US has
imposed several rounds of sanctions against Venezuela in recent
years, limiting its oil and gold trade. The latest batch was introduced
on 8 January 2019, targeting several individuals and entities. Maduro
slammed the sanctions as "economic persecution" and noted that his
country would not bow to threats and orders from economic
"oligarchs" in Washington. Venezuelan
Opposition Urges Bank of England not to Return Gold to MaduroThe call comes after reports emerged that the Venezuelan
government is looking to repatriate gold bars worth about $550 million from the
Bank of England out of fear that the holdings may be affected by US sanctions
announced by President Trump early last month.
Venezuelan opposition leaders Julio
Borges and Carlos Vecchio have urged the Bank of England not to hand
over $550 million worth of gold to Venezuela.
In a letter to the bank, they claimed that Venezuelan President Nicolas Maduro would either pocket the gold or
use it to illegally imprison and get rid of the government's
opponents.
Borges and Vecchio,
who currently live in self-proclaimed exile, also warned that if the Bank
of England allows Maduro to repatriate the gold, it will further
violate the bank’s legal obligation to fight money laundering and
corruption.
The letter came
after Reuters cited sources as saying in early November that the
Venezuelan government is seeking to repatriate 14 tons of gold bars
worth about $550 million from the Bank of England over concern
that the holdings may be affected by US sanctions.
On November 1, US
President Donald Trump imposed new restrictive measures against Venezuela,
specifically prohibiting US companies and individuals from buying the
Latin American country's gold.
Maduro accused Trump of
"schizophrenia" and pledged that Caracas would not "kneel
down before American imperialism."
According
to Maduro, the Venezuelan government is in the process
of certifying 32 gold fields which would turn Venezuela into "the
second largest gold reserve on Earth." With both public and private
sector investment, the government is also building 54 gold processing plants.
In
July, Venezuelan Minister of Ecological Development and Mining Victor Kano
said that in light of the agreement that was signed this year
with Ankara regarding the processing of gold, gold ore mined
in Venezuela will be sent to Turkey for processing, purification
of impurities and casting of gold bars. Venezuela was ordered
by a Canadian court in 2016 to compensate Canada-based
Crystallex International Corporation for having nationalized its gold
mining operations.
The Canadian company
had demanded that Venezuela be forced to auction off its principal
foreign asset, the U.S.-based Citgo Petroleum Corp refining business,
but a settlement was reached. On Nov. 23, according to a filing
in the Ontario Court of Justice, Caracas completed an initial payment
of $425 million, mostly in the form of "liquid securities".
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