In the vaults beneath the Bank of England, where foreign nations stash parts of their vast gold reserves, lie 1.7 billion euros ($1.9bn) of disputed gold bars. Two parties claim access to them.
Venezuelan President Nicolas Maduro says they belong to his administration’s central bank. His rival, opposition leader Juan Guaido, who the British government recognises as Venezuela’s rightful leader, says the bars are his to control.
Next week, a British commercial court will begin deciding whose claim is just, after the Venezuelan central bank (BCV) sued the Bank of England to gain access. A decision is not expected until August or September, the judge wrote in a May 28 ruling.
At stake is a sizeable chunk of the Maduro government’s dwindling overseas assets. Lawyers representing the BCV say much of the gold would be sold to fund Venezuela’s response to the coronavirus pandemic, which threatens to overwhelm a health system gutted by six years of economic crisis.
The opposition alleges Maduro wants to use the gold to pay off his foreign allies, which his lawyers deny. Over the past two years, Maduro’s government has removed some 30 tonnes from its reserves in Venezuela to sell abroad for much-needed hard currency, according to people familiar with the operations and the bank’s own data.
The opposition, still led by Guaido almost a year and a half after he began a parallel presidency, hopes a favourable verdict could influence other countries to hand them control of more Venezuelan assets, including $5bn of state funds frozen in foreign bank accounts.
“Without a doubt recognition from the court would be a very important precedent,” Guaido’s chief overseas legal representative, Jose Ignacio Hernandez, told Reuters news agency.
The Bank of England has declined to comment on the case.
The dispute began in May 2018 when Maduro secured re-election in a vote that the main opposition coalition boycotted and called a sham. Afterwards, Boris Johnson, then the British foreign minister, said: “We may have to tighten the economic screw on Venezuela.”
Concerned by mounting sanctions against the Maduro government, the BCV told the BOE it wanted to bring home 14 tonnes of gold it had stored there.
Around the year’s end, Calixto Ortega, the BCV president, travelled to London to discuss this with BOE officials, according to Sarosh Zaiwalla, a London-based lawyer representing the BCV.
The BOE officials told Ortega they could not accept his instruction as there was an issue with his authority, Zaiwalla told Reuters.
The following February, Britain joined dozens of other nations in backing Guaido’s claim. In April, the US Treasury sanctioned the BCV, alleging Maduro was using it to “plunder” Venezuelan assets to “enrich corrupt insiders”.
Before the sanctions, Venezuela paid off several gold swap transactions the BCV had agreed with Deutsche Bank in the previous years, people familiar with the deal said. This resulted in 17 tonnes of gold held in the BOE’s vaults being returned to the control of the BCV, bringing its holdings there to 31 tonnes, about a quarter of Venezuela’s total gold reserves.
The sanctions then triggered the early termination of other gold swaps made between BCV and Deutsche Bank, releasing more gold to the BCV, according to a chronology filed to the court by Guaido’s legal team.
Guaido’s team asked the court to determine who had the authority to represent the BCV and receive the gold. In July, Guaido appointed his own central bank board.
This February, Maduro’s government hired Zaiwalla to replace another law firm. He says Ortega contacted him after he represented Iran’s Bank Mellat in a case seeking damages from the British government for imposing sanctions that harmed its reputation and goodwill. The British government settled for 1.25 billion pounds ($1.54bn) last year.
“This case is bound to have some bearing because a UK court decision is respected worldwide,” Zaiwalla said.
In April, Zaiwalla sent the BOE’s solicitors a letter instructing the BOE to facilitate the sale of gold worth $1bn and transfer the sum to the United Nations Development Programme (UNDP), which would buy medicine and food needed for Venezuela’s coronavirus response, according to documents submitted in court.
When the BOE did not comply, Zaiwalla filed a legal claim against the bank in May, saying it was depriving the BCV of funds at a time of “national and global emergency”.
“We have no income, no way of generating cash flow,” Ortega told Reuters in May.
So far, Maduro’s administration says the virus has killed 28 people out of 3,300 confirmed cases. The number of infections has accelerated in recent weeks raising worries that any leap in severely sick patients could overwhelm hospitals.
The UNDP has confirmed the BCV approached it. In a letter seen by Reuters sent to the opposition on June 3, the UNDP’s Latin America regional director said any UNDP engagement would only follow a “formal agreement” between the BCV and the BOE.
In response to the legal claim, the BOE asked the court to rule on whether it should follow instructions from Maduro or Guaido’s boards.
In their arguments submitted to the court, Maduro’s BCV says the court should consider which side controls the state in Venezuela and whose ambassador is recognised by the British government.
The UK Foreign Office’s current diplomatic list names a Maduro-appointed official as ambassador, not Guaido’s own ambassador, Vanessa Neumann. Neumann told Reuters this is because Guaido does not control the immigration authority.
Guaido’s camp argues the court should base its decision on the British government’s recognition of his authority. The Foreign Office, in a letter to the court in March, confirmed this remains the government’s position.
Meanwhile, the opposition says Maduro is trying to intimidate figures involved back home. Vice President Delcy Rodriguez in May accused Guaido and his legal chief Hernandez of “trying to steal the gold”.
On June 1, Hernandez denounced that intelligence agents were raiding his home in Caracas, though he now lives in the United States. He said this was in retaliation for “defending” Venezuela’s assets abroad.