Citigroup Settles Venezuela Gold Swap Transaction

Patricia Laya and Jenny Surane
Citigroup Settles Venezuela Gold Swap Transaction

(Bloomberg) -- Citigroup Inc. has settled a Venezuela gold swap transaction and plans to sell the metal it received as collateral while also depositing about $260 million into a U.S. account formerly controlled by President Nicolas Maduro’s central bank, according to four people with direct knowledge of the matter.

After Venezuela’s Central Bank missed a March 11 deadline to buy back gold from Citigroup for nearly $1.1 billion as part of a financing agreement signed in 2015, the difference in price from when the gold was acquired to current levels will be deposited into an account, said the people, who asked not to be named speaking about a private transaction.

The development represents another financial blow to the embattled Maduro regime. It won’t be able to access the cash deposited in the U.S. account and could ultimately see the money be handed over to the parallel government being formed opposition leader Juan Guaido.

While Maduro has managed to maintain a stranglehold on power on the ground -- he still controls the military, the courts and government bureaucracy -- Guaido is leveraging the support he has from dozens of countries to slowly seize Venezuela’s financial assets abroad. Guaido, who’s seeking to topple the autocratic Maduro, has wrested control of Houston-based refiner Citgo Petroleum Corp from Petroleos de Venezuela SA and is also taking over diplomatic real estate. More importantly, he has gained access to cash, which he’s vowing to use to relieve a humanitarian crisis at home.

While no details about the U.S. accounts have been given, Venezuela’s opposition-controlled National Assembly said it identified $3.2 billion of funds being held at 20 bank accounts in the U.S. belonging to Maduro’s government. Earlier this year, the Bank of England refused to give back $1.2 billion worth of gold.

In response to Citigroup’s settlement, the central bank is weighing options including a declaration of force majeure -- a legal status commonly used in the commodities industry protecting it from liability if it can’t fulfill a contract for reasons beyond its control -- arguing U.S. sanctions prevented it from raising the cash it needed to pay for the gold. Another swap comes due next year, one of the people said.

Citigroup spokesman Daniel Diaz declined to comment. A press official for Venezuela’s central bank didn’t respond to requests for comment.

Maduro blew through more than 40 percent of Venezuela’s gold reserves last year, selling to firms in the United Arab Emirates and Turkey in a desperate bid to fund government programs and pay creditors. Pressure from Guaido and the U.S. derailed his administration’s plans to ship more gold to buyers in the UAE last month.

The U.S. sanctioned the state-run gold producer, Minerven, on Tuesday and described the precious metal trading as being essential to Maduro’s ability to keep loyalty from the military. Venezuela’s central bank has $8.7 billion of international reserves remaining, much of which is held in physical gold.

Citigroup, which has been in Venezuela since 1917, serves top multinational companies and affluent clients, according to its website.

--With assistance from Fabiola Zerpa.

To contact the reporters on this story: Patricia Laya in Caracas at playa2@bloomberg.net;Jenny Surane in New York at jsurane4@bloomberg.net

To contact the editors responsible for this story: Daniel Cancel at dcancel@bloomberg.net;David Papadopoulos at papadopoulos@bloomberg.net

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