FORBESBUSINESSENERGY Venezuelan Legal Drama Shakes Energy Markets Ariel Cohen After a lengthy and convoluted legal battle, a judgement handed down in January 2023 ruled that Citgo, the Venezuelan-owned oil subsidiary in the US which served as Caracas' lifeline to global energy markets, is liable for debts owed by Venezuela's state-owned oil company, PDVSA. This ruling, handed down despite the fact Citgo has not been controlled by the Venezuelan state for years, may reorder the relationship between state owned enterprises, debt, and markets worldwide.
By now, many have a passing knowledge of the Venezuelan crisis. While the Maduro regime's malfeasance has long dominated headlines, this time, the spotlight shines equally on the opposition, casting a shadow on their claims of leadership. For years, the narrative was straightforward: Maduro's authoritarian regime, fueled by corruption and mismanagement, had driven Venezuela into the abyss. The opposition, led by figures like Juan Guaidó, represented the beacon of hope, fighting for democratic restoration and economic recovery. This narrative, however, has been shattered by the recent court ruling revealing a shocking truth: the very opposition entrusted with Citgo, Venezuela's crown jewel in the U.S. oil sector, had plundered the company's coffers.
The Trump administration, determined to cripple the Maduro regime, had placed Citgo under opposition control in 2019 as part of its "asphyxiation tactics." This move aimed to sever the regime's vital revenue streams and force a change in leadership. However, the court's decision exposed a stark reality: the opposition, entrusted with this powerful tool, had used it for personal gain, misappropriating funds and blurring the lines between political activism and financial opportunism.
The court ruling nullified Citgo's limited liability protections, opening a Pandora's box for state-owned companies worldwide. This ruling raises chilling questions. Countries that utilize state-owned companies as instruments for their agendas and ends must take heed. The Citgo case serves as a stark warning: U.S. law, and potentially the laws of other nations, may not shield the assets of such companies if used for political purposes. This ruling is a wake-up call for those who rely on these entities as economic and political tools.
For the U.S., the Citgo scandal serves as a harsh lesson in the perils of blind allegiance. Backing the "good guys" without proper vetting and oversight is not a guaranteed path to success. History is replete with examples, most recently with Iraq's opposition where alignment with seemingly righteous actors has backfired. Supporting any opposition group solely based on their anti-regime stance risks empowering actors with their agendas, potentially exacerbating the problems one seeks to solve.
The Biden administration's recent engagement with Maduro, including the partial reversal of some Trump-era sanctions under the framework of the Barbados Agreements, has been met with mixed reactions. While some view it as a pragmatic step towards easing oil price pressures and potentially encouraging cooperation on managing migration, others remain skeptical, fearing it legitimizes Maduro's continued defiance of democratic principles and human rights.
This cautious approach reflects the complex reality of Venezuela's crisis. The mass exodus of over 7.7 million Venezuelans since 2015, many of whom have arrived in neighboring countries and the U.S., creates significant pressure on the Biden administration to find ways to stem the flow of migrants. Engaging with Maduro, even if imperfectly, offers a potential avenue to address this issue, including accepting the deportation of some Venezuelan migrants from the U.S.
However, this pragmatism cannot come at the expense of neglecting the underlying causes of Venezuela's woes. The country's economic collapse, social unrest, and mass exodus are not simply the result of Maduro's authoritarianism; they are the culmination of years of mismanagement, corruption, and a prioritization of short-term gain over long-term stability.
The U.S. must move beyond quick fixes and transactional deals with Maduro. Instead, it should prioritize supporting initiatives that promote transparency, accountability, and the rule of law. These efforts must include holding all actors accountable for their actions, regardless of their political affiliation. The recent Citgo scandal demonstrates that both sides of Venezuela's political divide have contributed to the country's tragedy. Only by demanding genuine reform and transparency from all parties can Venezuela hope to escape its downward spiral and build a brighter future for its people.
Venezuela's quagmire showcases Pandora's Box on many levels. Not only has Pandora's Box been opened for all state-owned enterprises worldwide with this stunning precedent, but Venezuela itself has already opened Pandora's Box. The pursuit of ephemeral policy gains at the expense of institutions and long-term sustainability has led to this failure, which only generates more disastrous improvisation. This lesson transcends borders, offering a cautionary tale for all tempted to follow Venezuela's ruinous path. The country's plight is a testament to the devastating consequences of unchecked corruption, political polarization, and prioritizing personal gain over the nation's well-being.
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Follow me on Twitter or LinkedIn. Check out my website or some of my other work here. With Acknowledgement to Aaron Felce Ariel Cohen Follow I am a Senior Fellow at the Atlantic Council and the Founding Principal of International Market Analysis, a Washington, D.C.-based global risk... Read More Editorial Standards Corrections Reprints & Permissions FORBESBUSINESS BREAKING Trump's Latest Liability: Court Monitor Flags Potential Multimillion Dollar Fraud, Prompting Trump Anger—Here's What's At Stake Alison Durkee Forbes Staff Jan 29, 2024,02:04pm EST TOPLINE Lawyers for former President Donald Trump and his co-defendants in a civil fraud case lashed out Monday at the court-appointed monitor overseeing the Trump Organization's financials, accusing the monitor of making up “errors” after she flagged various “deficiencies”—and suggested Trump made up a fake $48 million loan.
Closing Arguments Delivered In Donald Trump's Civil Fraud Trial In NYC Former President Donald Trump sits in the [+] GETTY IMAGES KEY FACTS Retired judge Barbara Jones was appointed to oversee the Trump Organization's financial activities and statements after New York Attorney General Letitia James sued the ex-president and his company for fraud in November 2022, accusing Trump and his company of fraudulently misstating the value of their assets on financial statements for personal gain.
Jones submitted a report to the court on Friday, writing that while the defendants in the case “have been cooperative” with her oversight, she's identified “deficiencies” in materials she's reviewed, “including disclosures that are either incomplete, present results inconsistently, and/or contain errors,” and which reflect “reflect a lack of effective governance” at the company.
Trump attorney Clifford S. Robert responded to Jones' report in a letter to the court Monday, accusing her of overstating minor issues and “twist[ing] immaterial accounting items into a narrative favoring her continued appointment, and thereby the continued receipt of millions of dollars in excessive fees.” Jones' letter also gained attention for noting in a footnote that while Trump recorded a $48 million loan for his tower in Chicago, the Trump Organization told her such a loan “never existed”—a disclosure legal experts told The Daily Beast could get the ex-president into legal trouble, either for making a false entry on his financial disclosures, or for tax evasion, if he were found to have invented a loan to avoid income taxes.
Robert called Jones' claim about the Chicago loan a “demonstrable falsehood” and a “deliberate mischaracterization” in his letter to the court, claiming the Trump Organization never told Jones that the loan didn't exist, but rather just that “no liabilities or obligations are outstanding” under the loan.
Jones' criticisms about the Trump Organization's financials come as Judge Arthur Engoron prepares to announce a verdict as soon as this week in the ongoing fraud case against Trump and his company, so anything suggesting the Trump Organization is improperly managing their finances could influence the judge as he decides what penalties the defendants should face.
WHAT TO WATCH FOR Engoron is set to issue a verdict in the Trump fraud trial as soon as this week, as he said he aimed to come out with his decision by the end of January. The judge has already found Trump and his co-defendants liable for fraud by misstating valuations, but he still has to determine whether they're liable for other infractions—like insurance fraud and falsifying records—and whether the fraud was done intentionally. James has asked Engoron to impose a range of penalties, including a $370 million fine and barring Trump from New York's real estate industry, but the verdict will also likely determine Jones' fate as the company's monitor. James has asked Engoron to extend Jones' term as monitor for at least five years, while Robert opposed that on Monday. “Further oversight is unwarranted and will only unjustly enrich the Monitor as she engages in some 'Javert' like quest against the Defendants,” Robert told the court, referring to the antagonist in the book and musical “Les Miserables.” KEY BACKGROUND James has accused Trump and his business associates—including his sons—of fraudulently misstating the value of their assets on financial statements more than 200 times between 2011 and 2021. The attorney general's office alleges the ex-president and his colleagues did so knowingly in order to obtain more favorable business deals and reflect a higher net worth for Trump. While the case went to trial starting in October, Engoron appointed the independent monitor a year earlier, soon after James' lawsuit was filed, and Jones previously filed a report in November saying the Trump Organization made $40 million in transfers without informing her. In her letter to the court Friday, Jones accused Trump and his co-defendants of a series of issues that included minor math errors, falsely claiming the Trump family owned something that was actually controlled by Trump's trust, calculating values differently from document to document and failing to include some required information in financial documents. The monitor also noted the company's projected income and expenses for its property at 40 Wall Street for 2023 were “materially different” from its actual income and expenses the previous year.
SURPRISING FACT Trump's loan in Chicago has been a mystery for years. The then-candidate recorded an “over $50 million loan” against the Chicago tower on his financial disclosure in 2015, which he said he owed to Chicago Unit Acquisition LLC—a company that he himself owns. Forbes reported in 2020 that financial records show Trump doesn't actually seem to pay any interest on the loan, however, and lists Chicago Unit Acquisition LLC as having no value, which is confusing given that it should theoretically have more than $50 million in value if it's issued a $50 million loan. “There should be an offsetting entry somewhere,” Harvard real estate professor Richard Peiser told Forbes at the time. “I can't explain that.” TANGENT Jones is the latest person involved with the civil fraud case to draw Trump and his associates' ire, as the ex-president has attacked the case against him as a politically motivated “witch hunt.” Trump has already repeatedly attacked Engoron, James and Engoron's clerk in the fraud trial, resulting in a gag order being imposed on him that barred him from speaking publicly about court staff—and led to him facing $15,000 in fines.
FURTHER READING The Ultimate Donald Trump Mystery That Couldn't Be Solved Before Election Day (Forbes) Trump Organization monitor flags errors and financial misstatements ahead of ruling in fraud case (ABC News) Trump's $50 Million Mystery Debt Looks Like 'Tax Evasion' (Daily Beast) Trump Fraud Trial Ends—Here Are The Punishments He Could Soon Face (Forbes) Follow me on Twitter. Send me a secure tip.
Alison Durkee I am a senior reporter based in London covering breaking news, with a focus on legal issues including the Supreme Court and litigation against... Read More Editorial Standards Corrections Reprints & Permissions © 2024 Forbes Media LLC. All Rights Reserved.
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