The question is: where is the gold?
The name Loretta Preska may ring a few bells among regular NC readers, having graced these pages on a few occasions. The senior US district judge of the US District Court for the Southern District of New York is probably best known for her decision in 2020 to sentence Steven Donziger, the human rights lawyer who had helped secure a historic $9.5 billion judgment against the company ten years earlier over its pollution of the Amazon rainforest in Ecuador, to six months in prison — after more than two years of house arrest.
The ruling triggered a torrent of opprobrium from around the world. The United Nations Working Group on Arbitrary Detention said it was “appalled” by the U.S. legal system’s treatment of the former environmental lawyer and demanded the US government “remedy the situation of Mr. Steven Donziger without delay and bring it in conformity with the relevant international norms” by immediately releasing him. That didn’t happen.
Rick Claypool, research director for Public Citizen, tweeted at the time of Donziger’s imprisonment that the case “perfectly encapsulates how corporate power has twisted the US justice system to protect corporate interests and punish their enemies” — adding that as Donziger was ordered to prison for six months, members of the Sackler family won immunity from opioid lawsuits targeting their private company, Purdue Pharma.
Preska herself has faced multiple allegations of improper conduct and conflicts of interest, as Jacobin reported in 2021:
Preska’s conduct ha[s] been a focal point of the trial ever since she was, against local rules, handpicked to oversee the case by judge Lewis A. Kaplan, the Chevron-invested former tobacco industry lawyer who had blocked the judgement against the company and launched the contempt case. Preska denied Donziger’s request for a jury trial, barred Zoom access to the trial for the public, and consistently ruled against Donziger’s legal team. She refused to hear from Donziger’s lawyers about why he had drawn the contempt charge by not turning over his laptop and phone — namely, to protect attorney-client privilege — and at one point sat and read newspapers while presiding over the proceedings.
Critics pointed to Preska’s seat on the advisory board of the New York chapter of the Federalist Society, the right-wing judicial lobby of which Chevron is a donor.
“The Harshest Possible Ruling”
Now, Preska is back in the news (albeit mainly in Latin America), and once again for all the wrong reasons. The New York district judge is presiding over a case concerning the Argentine government’s 2012 expropriation of the 51% stake in YPF, Argentina’s national oil and gas company, held by the Spanish oil major Repsol. In September 2023, Preska ruled in favour of the plaintiff, Burford Capital, a Guernsey-based litigation funder/vulture fund representing two minority shareholders of YPF, Petersen Energía and Petersen Inversora, on the grounds that the expropriation violated YPF’s corporate bylaws.
This ruling was hardly a surprise, particularly given Preska’s pro-business reputation. What was a surprise was the size of the pay out: $16.1 billion. According to Bloomberg Linea, Burford Capital acquired the rights to the lawsuit in 2015 for $16.6 million from former YPF shareholders and could earn at least $6.2 billion if the full judgment is paid — a whopping 373-fold return!
Sixteen billion dollars is a sizable sum for any country to pay, let alone one that owes the IMF close to $40 billion, is in deep recession and constantly on the verge of default. What’s more, that sum is growing by an additional $1 billion per year due to unpaid interest and legal fees. As one Argentine news site put it, it was the “harshest possible ruling imaginable.” The magistrate also freed YPF from any responsibility, meaning it will be the country, and not the company (which has 49% of the shares in private hands), that will have to settle up.
This is not the first time that a decision in the US District Court for the Southern District of New York has harmed Argentina’s finances. In 2014, another senior judge from the district, Thomas Griesa, ruled that Argentina must pay two investor holdouts from its 2002 debt default– NML Capital and Aurelius Capital Management, both deep-pocketed vulture funds that had bought Argentine bonds at a fraction of their face value — before it could pay the other 93% of its bondholders, who had accepted debt-restructuring haircuts in 2005 and 2010.
The decision was so controversial that even the US Treasury, the French government and the IMF filed amicus brief cases with the Supreme Court, to no avail. As Michael Hudson said at the time in an interview with The Real News Network, the implications of the ruling went far beyond Argentina:
You have a case of the tail wagging the dog. And that’s why everybody from the U.S. government to Europe was insisting that the Supreme Court overruled Judge Griesa’s ruling. And the Supreme Court said, wait a minute, since the ruling is only local New York State bankruptcy contract law, it’s not a national law and a constitutional law, so we don’t have any ground to review it. And the other people said, wait a minute. It may be, of course, that it’s local law, but we’re dealing with an entire country and international relations, and the international relations means that other countries will now shun New York and the dollar market for bonds, and there goes Wall Street.
In the end, Argentina continued to refuse to pay — until the newly elected Macri government agreed in 2016 to settle with Paul Singer’s NML Capital by paying $2.4 billion in damages — a 1,270% return on its initial investment, according to an article in New Yorker.
Where’s the Gold?
For its part, the YPF case is considered one of the most significant disputes in recent history between a sovereign state and international creditors*. This week, Preska ordered the Argentine Republic to disclose the whereabouts of its state-owned assets abroad, including the central bank’s roughly $4.5 billion of gold reserves as well as, allegedly, the nation’s sovereign accounts in the US, including those belonging to diplomats, embassies and consulates, as well as the bank accounts of companies with which it has engaged in commerce.
Judge Preska also said that regardless of whether the gold reserves are in the custody of the Central Bank of the Argentine Republic (BCRA) or in some other jurisdiction, Argentina is obliged to provide documentation showing that these assets are, or are not, in its possession. According to Infobae, one of Latin America’s largest online news portals, this latest injunction underscores the Argentine State’s obligation to comply with the US court’s orders.[2]
“What the judge did was issue an order that obliges Argentina to report where the country’s gold is located and how much came out of the BCRA’s reserves,” Sebastián Marill, CEO of Latam Advisors and an expert in the case, told Ambito. It is estimated that at least 60% of Argentina’s gold reserves were sent to London in recent years. This includes, of course, all the gold bars that the Minister of Economy (and former JP Morgan exec), Luis Caputo, covertly dispatched last year (for further background, click here).
Michael Hudson suggested in response to a previous post that Milei may have sent the gold to the UK precisely so that it could be seized. Given Milei’s near-total devotion to the Anglo sphere, Economy Minister Luis Caputo’s loyalties to Wall Street as well as the UK’s seizure of Venezuela’s gold, this is is a very real possibility.
In our post, “What Is the Milei Government Doing With Argentina’s Gold?“, we noted that the decision to send much of the country’s gold across the Atlantic, either to London or the Bank of International Settlements in Switzerland, under the cover of darkness, puts it at high risk of seizure by unpaid creditors, of which Argentina has its fair share:
As readers may recall, London — and more broadly, Europe — are hardly the safest places to store gold reserves and other sovereign assets these days. In 2019, the UK government impounded Venezuela’s roughly $2 billion of gold deposits stored at the Bank of England after “derecognising” the Venezuelan President Nicolas Maduro in favour of the self-appointed Juan Guaidó. Even after Venezuela’s leading opposition parties voted to oust Guaidó in 2023, the UK continues to hold on to Venezuela’s gold deposits.
With Argentina facing numerous lawsuits over unpaid bills and debts, including one concerning the former Cristina Fernández de Kirchner government’s expropriation of roughly half of national energy company YPF, the risk of part or all of Argentina’s gold being seized is not negligible, as the Secretary General of the Banking Association and deputy, Sergio Palazzo, himself warns:
“The gold in transit may be seized by any judge who eventually orders a seizure for any of the cases Argentina has pending abroad. It’s an unnecessary risk being run, and [the central bank] should clarify to us Argentines the reason for this transaction, whether it is to exchange the gold for foreign currency in another country, or whether it is a credit operation, or whether it is a purchase and repurchase operation with the International Payment Bank.”
When questioned on the matter in July last year, Argentina’s Economy Minister (and former banking exec at JP Morgan Chase and Deutsche Bank) Luis Caputo argued that leaving the gold sitting in a vault at the Central Bank of the Republic of Argentina was a pointless exercise:
“It is a very positive move, because today you have gold in the BCRA that is like a piece of property that cannot be used for anything. If you have it abroad, you can generate returns. It is much better to have it stored outside, where they pay you something for it.”
It is not entirely clear why the Milei government sent so much gold overseas, precisely at a time when the general trend is for countries to try to repatriate their gold, but the most likely explanation is that it is being used as collateral on a bridge loan so that Argentina can continue serving its debt, including, of course, to the IMF. The government is desperate for fresh money from the Fund while struggling to service the near-$40 billion debt it still owes. According to an article in Argentina’s largest newspaper Clarín, Milei is hoping that a Donald Trump victory in the US elections will allow him to expand Argentina’s debt with the IMF.
It is also not entirely clear how much of Argentina’s 62 tonnes of gold (current market value: $5.4 billion) is now stashed abroad. Some estimates put the figure at around 37 tonnes, of which around 11 tonnes were transferred to London by the Macri administration in 2017. Thanks to the Milei government’s recent actions, even more of Argentina’s gold is now far vulnerable to seizure by the country’s creditors. As the libertarian economist Saifedean Ammous writes in a twitter thread, “pawning off a politically neutral monetary asset free of counterparty risk in search of a few quick bucks does not inspire confidence”.
One thing that is clear is that if most Argentineans knew that Milei had sent a large part of Argentina’s gold to the UK, its former informal colonial master, and that that gold is now at risk of seizure by foreign creditors, they would not be best pleased.
Now, back to the Preska trial. Argentina has no more than six weeks to provide the requested information about the location of its overseas assets, according to Marill:
Once it complies with that requirement, the beneficiaries of the ruling will review it and communicate to Judge Preska what they would like to seize. She will decide which assets are seizeable and which are not. Many say that an asset of an embassy or a consulate has diplomatic immunity. That is true, but if it was used for a commercial activity, that benefit is nullified and can be seized.
The previous Alberto Fernández government responded to Preska’s ruling by launching an appeal, which is yet to produce a verdict. That verdict could consist of a confirmation of the original ruling, a reversal of the ruling, or a reduction in the pay out, which is what the Argentine government is realistically hoping for.
In September last year, the US government said it may get involved in the dispute by file a “statement of interest”, which it can do when a case touches on its sovereign interests. According to Reuters, the Justice Department “said it should know whether to get involved by Nov. 6, the day after the U.S. presidential election, and asked Preska not to rule on the YPF stake until it decides.”
It is not yet clear what the incoming Trump administration’s position on the matter will be. The Milei government has so far responded to the judge’s information requests by kicking the can down the road, but it is likely to run out of road before too long, especially given its near-total dependence on the IMF as well as the Milei government’s desire to expand Argentina’s access to international capital markets.
In April 2024, Burford even asked Preska to force the Argentine State to cede its entire stake in YPF to partially satisfy the judgment. Argentina rejected the Guernsey-based fund’s arguments in May, saying relinquishing the stake would violate Argentine law and be an “impermissible affront to Argentine sovereignty.” Since then, Burford appears to have softened its position somewhat, and is even apparently open to receiving 10-year zero-coupon bonds, which do not generate interest and begin to be paid after a decade.
[1] YPF had been privatised during the Carlos Menem government, resulting in Repsol’s purchase of a majority stake in the company in 1999. But after years of under-investment in the company, sliding oil and gas production, poor maintenance and, perhaps most importantly, the 2011 discovery of Vaca Muerta in Patagonia, one of the world’s largest unconventional oil fields, the Cristina Kirchner de Fernández government swooped in and took back majority control of the company in 2012.
In 2013, Argentina would eventually settle with Repsol by offering the company $5 billion in 10-year corporate bonds. But it was the largest minority shareholder, the Petersen Group, whose chairman and majority owner, Enrique Eskenazi, was close to former President Néstor Kirchner, that would end up launching litigation against Argentina, with the support, of course, of Burford Capital.
[2] A little “sordid history” of Argentina’s debt problems, courtesy of James Henry, Michael Hudson’s interview partner on TRNN:
[I]f you go back to the sordid history of the Argentine debt, that’s the other thing that’s really quite disturbing here. As of 1976, Argentina had a total foreign debt of $18 million, 17 percent of GDP. The military came in in ’76 with U.S. government support, established a junta. By 1983, the debt had soared to $48 billion… And no one has ever audited that debt. There’s a U.S. legal doctrine called odious debt which says that if you have a debt that’s contracted by a military dictatorship, it doesn’t necessarily have to be honoured. We invoked it with respect to Cuba in 1898. It had acquired a lot of loans from Spain, and nobody could account for where they were. But this odious debt doctrine had never been applied to Argentina.
Interestingly, the other thing is that this choice of jurisdiction was originally chosen by this military junta back in 1976. Martínez de Hoz, the finance minister at that point in time, a very conservative guy, decided that Argentina would waive its sovereign immunity for purposes of all this debt that it was beginning to accumulate and allow the United States and the Southern District of New York to be the [centre] for all of these cases. So those two very fundamental changes made by, essentially, a military government, first of all blowing up the debt out of proportion, and then relocating the judiciary outside of Argentina, is very important for what we’re seeing.