June 6, 2019
By Corina Pons and Mayela Armas
CARACAS (Reuters) – Citibank and Deutsche Bank have taken control of around $1.4 billion of Venezuelan government gold, which they received as guarantees for loans, as a result of U.S. sanctions on the Venezuelan Central Bank, according to five sources.
Between 2014 and 2016 the central bank (BCV) used a portion of its foreign gold reserves to guarantee financial operations with banks to boost liquidity, with the intention of repaying the loans to avoid losing the gold.
Five sources with knowledge of the deals said the BCV had agreed with Citibank and Deutsche Bank to buy back the gold in 2020 and 2021, but since the U.S. government imposed sanctions on the BCV in April the banks had invoked a condition of the contracts to retain ownership of the bars.
Both banks had resolved that an “event of default” had occurred due to the sanctions, as established in agreements underpinning the gold swap deals, the sources said.
Citibank took control of gold for around $400 million BCV was supposed to repay in 2020. For a separate guarantee Deutsch Bank took $1 billion, the sources said.
Citibank and Deutsche Bank declined to comment, and the BCV did not respond to a request to comment.
Reuters has not been able to review the gold swap contracts the BCV signed with the banks and it is not clear if the central bank could initiate legal proceedings to seek to regain control of the gold.
Since 2017, the BCV has partially recovered some gold bars it used to guarantee the loans, at the same time as it began to sell dozens of tonnes of gold to Turkey and other Middle Eastern allies to earn vital foreign currency, according to the sources and official data.
The BCV in 2018 had paid $172 million to Citibank to recover part of the gold it had put up as guarantee in a swap operation.
In March of this year, the BCV was unable to pay $1.1 billion to Citibank via a repurchase agreement to recover part of the gold it gave to Citibank for a $1.6 billion loan, sources told Reuters at the time. The BCV was supposed to pay another $400 million in 2020 to Citibank under the agreement, but Citibank has now taken the gold instead.
Both banks can now sell the Venezuelan gold to recover the value of the loans, and any money left over would be returned to Venezuela, the sources said. But under U.S. sanctions banks are restricted from carrying out any transactions with the BCV.
Opposition leader Juan Guaido’s team has approached Citibank and Deutsche Bank to ask the banks to deposit a portion of the gold in accounts that President Nicolas Maduro’s government can not access, three sources said.
Guaido, head of the opposition-controlled National Assembly, in January invoked the constitution to assume a rival interim presidency, denouncing Maduro as illegitimate after he secured re-election last year in a vote widely considered fraudulent.
Most Western nations recognize Guaido as Venezuela’s rightful leader, while Maduro calls Guaido a coup-mongering U.S. puppet.
(Reporting by Corina Pons and Mayela Armas; Writing by Angus Berwick; Editing by Phil Berlowitz)