In addition to the recent lawsuit involving PDVSA and some of the world’s largest oil traders, leaked documents reveal that PDVSA aimed to establish a trading company in Geneva, through a “non-incorporated joint trading company” with Trafigura, one of the 49 defendants named in the PDVSA lawsuit.
According to the filed documents, by the end of July 2017, PDVSA allegedly instructed the U.S. law firm Boies, Schiller & Flexner to form a trust (PDVSA US Litigation Trust) to seek “… recovery for the misconduct of the Defendants.” This included payments of bribes to corrupt PDVSA officials to gain real-time access to PDVSA’s servers, with the aim of manipulating bidding processes and favoring a group of energy trading companies, including Trafigura. Internal communications between PDVSA and senior Trafigura officials show that by late September and early October 2017, Trafigura was discussing a “$700 million guaranteed prepayment facility” with Emir José Manrique Ramírez, PDVSA’s Chief of Financial Planning.
The creation of a “non-incorporated joint trading company” based in Geneva between PDVSA and Trafigura was part of the negotiations.
Trafigura claimed that the local canton of Geneva was “very accommodating to trading companies and has an efficient tax system,” boasting about its “expertise” and “relationship with local authorities.”
In exchange for a “$700 million guaranteed prepayment facility,” Trafigura expected 350,000 BPD (10.5 million barrels of crude oil per month over a three-month period), which PDVSA was to supply at “acceptable segregated locations… offshore…” that would be “inspected weekly by a surveyor.”
Meanwhile, compliance with U.S. sanctions would be circumvented by establishing the euro as the “currency for the purchase contract and prepayment agreement.” Trafigura Pte Ltd, incorporated in Singapore, was proposed as PDVSA’s counterparty. English law would govern the agreement, and under the guarantees, Trafigura explicitly refused to accept “default, material adverse change, and sanctions” as possible breaches of contract by PDVSA.
In any case, the leaked information reveals that PDVSA, whether under past or current management, remains a wholly corrupt company, because how can such agreements between litigating parties be explained? Trafigura is accused, along with 48 other defendants, of causing losses worth over $5 billion to PDVSA. While PDVSA’s lawyers were preparing a case against Trafigura and others, the company’s upper management was seeking to strike deals with one of the main defendants in the lawsuit. It is estimated that agreements between Trafigura and PDVSA over the years have exceeded $40 billion.
However, it didn’t end there. Sources have reported that by late 2017, Venezuela’s vice president, Tareck el Aissami (one of the main intermediaries in a new shared power management system implemented by Nicolás Maduro in PDVSA after the dismissal/arrest of Rafael Ramírez‘s team) instructed Armando “Pelón” Capriles to pursue a similar unofficial deal with Trafigura and Gazprombank. In this case, it is said that Patricio Norris of Trafigura is part of new negotiations with Fernando del Quintal (Head of Trading and Supply at PDVSA) and Boris Ivanov (VP of Gazprombank).
Trafigura and Gazprombank are, of course, right at home in Venezuela. Trafigura has been involved in the country for over a decade. The PDVSA US Litigation Trust lawsuit targets Francisco Morillo, a former employee of Wilmer Ruperti when Ruperti was Trafigura’s representative in Venezuela. Once fallen from grace, Ruperti has been actively repairing his business relationships with the chavismo. He paid the legal defense fees of Boies, Schiller & Flexner for President Nicolás Maduro’s cocaine-trafficking nephews, and according to several sources familiar with the proceedings, is involved in the lawsuit against former protégé and rival Morillo through the Litigation Trust. The choice of PDVSA as a trading partner (Trafigura) is not without cost, considering Ruperti’s past and present involvement.
Gazprombank also has some pedigree in Venezuela. Instead of sealing deals directly with PDVSA, given Andrey Akimov‘s closeness to Putin and the latter’s seriousness about Chávez/Maduro, they perhaps chose the most unsavory local partner (Derwick Associates), which is involved in multiple corruption scandals currently being investigated in various jurisdictions. Anyone can guess why Gazprombank decided to partner with Derwick, although it seems that Russian and Venezuelan politicians, businessmen, bankers, and oilmen share a special knack for illegality and corruption.
However, even though they are capable of operating in severely corrupt environments, a series of challenges stand in the way of PDVSA’s new strategy. U.S. sanctions, for instance. The military head Manuel Quevedo, the new CEO and Minister of Energy at PDVSA, is a puppet of Diosdado Cabello, perhaps the most wanted chavista in the world. Ysmel Serrano, PDVSA’s vice president, is merely a representative of Tareck el Aissami, a Treasury-designated kingpin. Armando “Pelón” Capriles, cousin of Miguel Ángel Capriles López, is also involved in illegal transactions with el Aissami and has a fairly extensive record of corrupt dealings in Venezuela since the early 90s. Gazprombank is also a U.S.-sanctioned entity, just like CEO Andrey Akimov and Andrei Kostin, director of VTB Bank, which controls roughly a quarter of Evrofinance, one of the chavismo’s favorite underwriters.
Then, Switzerland, the base of operations for Trafigura, imposed sanctions on Gazprombank. Swiss financial authorities have also sanctioned several Venezuelan officials (Cabello among them) and are currently sharing banking information, at the request of the U.S. Department of Justice, for various investigations involving PDVSA and Venezuela.
Interestingly, Ysmel Serrano has been named as one of the “bribed officials” of PDVSA by the Litigation Trust. Another accused is the EFG Bank of Switzerland, which is at the center of a separate $4 billion bribery scheme about to explode involving former PDVSA CEO (Rafael Ramírez), Luis Oberto, and Nervis Villalobos (arrested), one of Ramírez’s main facilitators. Another case led Swiss authorities to hand over information regarding Roberto Rincón (accused) to U.S. prosecutors. Derwick Associates has been battling Swiss authorities to prevent the sharing of compromised banking information related to their contracts with PDVSA. Therefore, it seems that almost all parties of a potential PDVSA-Trafigura venture are already compromised, and the new sanctions against Putin’s close partners and Russian state-controlled enterprises further complicate the landscape.
Thus, Swiss banks and energy trading companies are a common denominator in most of the corruption scandals related to Venezuela; however, Trafigura seems to have some means of protecting the corrupt through its excellent “relationship with local authorities.”
On a side note, it’s said that Vladimir Putin asked the chavismo to begin amortizing the huge debts owed by Venezuela to Russia. Gazprombank’s presence in the current negotiations could at least guarantee the payment of part of the principal. Petrozamora, the PDVSA – Gazprombank / Derwick joint venture, is reportedly producing 130,000 BPD according to Ivanov. Surely the Chinese will have some questions about the preferential treatment of (some) creditors.
Venezuela, on the other hand, has nearly defaulted on its international debt obligations since September 2017. About $10 billion is due in principal and interest payments in 2018. All bondholders and creditors are keeping a close watch on PDVSA / Venezuela’s financial moves and are formulating strategies to seize any assets that may be captured. Hence the demands for guarantees from Trafigura. Beyond the increasing number of criminal investigations, there is a growing appetite in international financial and legal circles for the “ripe fruit,” i.e., Venezuelan assets that are susceptible to seizure. It is likely that coverage, like that which Rosneft provided in CITGO, will turn upside down when suing investors and/or U.S. authorities. In the hypothetical case of a favorable agreement for PDVSA US Litigation Trust, undoubtedly multiple claims against the recovered funds will be presented by a myriad of aggrieved parties. Argentina’s default and the subsequent legal arguments of alter ego will appear as footnotes next to what will happen in Venezuela once its gigantic corruption is aired.
With oil production steadily declining, a lack of debt-free guarantees, international sanctions, the inability to forge new partnerships, a lack of investment, and access to new funds, the high cost of increasing production, and a local crisis described as humanitarian and warlike in proportions, the maneuverability of the chavismo is severely limited. Attempts to circumvent this reality, by covertly pitting partners against each other, certainly won’t help Venezuela. It will be fascinating to see the reaction of the other 48 defendants to this news.
Requests for comments have been sent to Manrique and Serrano from PDVSA, to Sebastian Gallie (Trading) from Trafigura, and to Christophe Salmon (CFO). No response has been received.