It took the United Kingdom’s High Court merely a week to push back against a solid attempt by the Venezuelan government to access around one billion dollars in gold stored at the Bank of England (BoE), citing Downing Street’s “unequivocal recognition” of Juan Guaidó as Venezuela’s head of state. The decision on July 2nd prompted immediate celebration from most of the Venezuelan opposition and ire from government circles. However, the effects of the decision are not clear.
Despite the actual trial and decision lasting just under two weeks, the dispute over Venezuela’s gold held inside the BoE has been brewing since late last year, when the Banco Central de Venezuela (BCV) first sought out to repatriate around 14 tons of bullion.
According to reports at the time, BoE officials first began to stall the request for repatriation—a fairly routine exercise for any custodian—citing the difficulty and cost in obtaining insurance for the shipment. Indeed, assuming an underwriter had an even passing knowledge of what goes on in the Maiquetía airport, this decision is financially sound. But for a custodian such as the BoE, which had already conducted similar dealings with Caracas as early as 2012, insurance hurdles were an improbable excuse, and many industry watchers were quick to point that out.
Several weeks later, in early November 2019, London-based news outlets elaborated on the matter, disclosing that British officials needed clarification on what the Venezuelan government intended to do with the bullion, adding that “standard measures to prevent money-laundering” would need to be addressed. These reports came days after President Donald Trump signed an executive order under which, by all intents and purposes, Venezuelan dealings in the precious metal were censored.
This particular reasoning, assuming that the gold would be used to facilitate money laundering, even if correct, is flawed too. The BoE has limited rights to enquire on what the end use of the gold would be, and the de facto freezing of a state’s assets violates a number of custodian agreements and international law.
Already discounting procedural and legal arguments, the BoE’s motivation behind its stall tactics were expanded upon in January 2020, when Bloomberg reported that top U.S. officials, including Secretary of State Mike Pompeo and then National Security Advisor John Bolton, had lobbied their UK counterparts to cut Nicolás Maduro’s regime off its overseas assets. The BoE also received a number of public appeals by several opposition heavy weights to maintain the gold inside its vaults—a plea that was echoed by UK backbench MPs.
The BoE has limited rights to enquire on what the end use of the gold would be, and the de facto freezing of a state’s assets violates a number of custodian agreements and international law.
So, once it became clear that neither the BoE nor HM Treasury would budge on the matter, the Venezuelan regime turned to the Commercial Court of the High Court Justice, arguing that the gold would finance coronavirus-related relief with the UN Development Programme (UNDP), which superficially appears to have played along with the excuse.
Fast forward to the time of writing and Judge Nigel Teare’s unwillingness to father the first gold-PPE swap in financial history.
In his decision, Judge Teare referenced the so-called “one voice” doctrine, arguing that the court must accept as conclusive the political decision by the British government to recognize Guaidó as the leader of Venezuela. This is despite the UK maintaining ties with the Venezuelan government by keeping an embassy in Caracas and continuing to have contact with the BCV. These arguments were dismissed by the court, which stated that there was “no room for recognition of Mr. Guaidó as de jure president and of Mr. Maduro as de facto president.” The judge, in other words, deferred to the UK government’s political guidance.
Now, first and foremost, the decision is a win for the Venezuelan opposition largely due to the regime’s unadulterated history of corruption and mismanagement. Indeed, the notion that 100% of the gold would have gone to aid the government’s coronavirus response is laughable to most Venezuelans. And even if it was transferred directly from London to UN headquarters in New York, one does not simply show up at the UNDP with a bag full of gold and expect PPE in return.
Nevertheless, the decision doesn’t immediately transfer the gold to the opposition either. Guaidó’s camp would eventually need to petition the BoE and the court to become the legal representatives of the bullion. And given that the BoE custodian agreement isn’t with the Venezuelan executive, but with the BCV, the bank and the court would now need to extend their recognition to the ad hoc BCV board named by Guaidó. Incidentally, all five members of the board now have Venezuelan arrest warrants.
Assuming that the Guaidó-BCV issue is resolved in the near future, there are also domestic Venezuelan laws that would restrict the BCV’s ability to maneuver and deal with the bullion.
The opposition can of course consider the ruling a fait accompli and attempt to knock on the door of the BoE tomorrow and ask for the gold to be handed over. However, what would be the likely response by an institution that has already set a precedent for asking too many questions and over-valuing political considerations? Would the BoE have reason to think that the opposition isn’t frugal or financially adept at auditing its members? Would the BoE not consider what self-identified members of the opposition have condoned and supported in the past?
Until the UK High Court takes up the matter again and decides on whether Guaidó’s camp is the bullion’s legal representative, the current limbo will persist.
While further exegesis of the law is required, Guaidó’s legal team (which has signalled that they don’t seek to move the gold anytime soon) has indicated its willingness to consider the precedent set by the ruling and seek to at least freeze other foreign assets across Europe. The caretaker government’s Ambassador to the UK, Vanessa Neumann, has provided little detail on what specific assets they might target next, but the entire exercise might be a little bit trickier than expected.
In recent years, the Venezuelan government has wound down numerous operations and assets across the continent in a bid to avoid U.S. sanctions, and politics in those specific countries might not be able to bend judicial decisions. Ms. Neumann admitted as much in an interview with El Nuevo Siglo, stating: “A legal ruling has much more weight than a political pronouncement and that should set a precedent for other foreign assets in Europe. That’s what we are thinking. But let’s see, because between theory and practice (…) particularly when it comes to politics and money, there are always complications.”
Setting “complications” aside, if the opposition is able to find and target other assets in friendly countries across Europe, further rulings like that of Judge Teare are likely on the pipeline.
Perhaps the single silver lining, for now, is how the BoE has a pretty solid record as a custodian. Past custodians for countries which have seen large financial assets frozen have been more than permeable to corruption. Libya’s wealth fund, for example, was frozen by the UN Security Council following the toppling of Muammar Qaddafi in 2011, but has seen leaks develop ever since, with large amounts of cash going missing in transactions that should have never been cleared by investment banks.
The BoE, in contrast, holds bullion on a set-aside basis, so a clear record and weight list of each gold bar is likely available to Ms Neumann, and Guaido-backed BCV officials. The BoE also facilitates gold lending in London using the London Bullion Market Association (LBMA), to facilitate deposits and swaps. In this case, the original gold bars are taken by banks offering access to the financial instruments, but the banks and the BoE both have a liability to the customer. Hence, it is safe to assume that there won’t be much leakage, or opportunities for corruption will at least be very limited.
So, until the UK High Court takes up the matter again and decides on whether Guaidó’s camp is the bullion’s legal representative, the current limbo will persist. Another positive ruling for the opposition will, nevertheless, have a significant number of strings attached that might limit Guaidó’s use of the funds. Avenues to change the likely status quo are beyond the scope of this particular article, but unless the opposition shortens the gap between them and the White House, which would take considerable effort following the still beyond-words “Operation Gedeón”, and comes up with a credible excuse to use the funds, that bullion is not going anywhere.