The Financial War Against Venezuela

Imperialism is a two-headed snake of military and finance. Unfortunately the focus has often been singularly on the military occupations and violence. Given the depravity ranging from depleted uranium to the ongoing crisis in Yemen, it is easy to understand why that aspect of imperialism garners most of the attention. But this allows some of the most egregious exercises of imperialism to go unremarked upon. One of those is the recent ruling by a US court on a Canadian mining-financier, Crystallex. The court has ruled in favor of Crystallex seizing public assets of Venezuela to satisfy “debt” the government allegedly owes to the company.

Why the scare quotes? The “debt” is a money judgment that Crystallex obtained in international arbitration against Venezuela. Back in 2002, Venezuela and Crystallex entered into a contract for Crystallex to develop the Las Cristinas gold mine. Venezuela, as any responsible government would, conditioned the contract on Crystallex obtaining the required permits satisfying environmental standards. Pollution from gold mines is incredibly dangerous, and if not handled correctly the runoff will turn into sulfuric acid which dissolves almost anything in its path, breaking down heavy metals into ground and surface water. Such contamination leads to similar poisoning of drinking water as occurred in Flint, Michigan.

Crystallex did not get the permits and would not cooperate with the environmental standards. It is sadly a common affair: Canadian mining companies are notoriously inhumane and ruthless throughout Latin America, causing death, destruction, and revolt from Peru to Mexico to Guatemala to Argentina. The general cycle is for the government to contract the mining company, the company to break the law, the government to levy petty fines and other slaps on the wrists, and repeat. Colonialism never ended; it just became the province of Western corporations and the corrupt politicians that cooperate with them.

Venezuela, under the presidential leadership of Hugo Chavez, sought to preempt this horrid cycle entirely. Rather than waiting for its people to die or its land to be polluted, the government in 2008 seized Las Cristinas and nationalized it. Under ordinary principles of contract law, this action should have been inconsequential. Crystallex failed to meet the necessary conditions to form the contract, so it had no enforceable rights and Venezuela thus was not in breach of anything. But of course the ordinary law is for ordinary capitalism; other measures arise when there is a threat to the “free” market, when a country acts in the interests of its people rather than a corporation’s profits.

So despite Crystallex being in the wrong, both ethically and under its contractual obligations, the company was able to get a $1.2 billion judgment against Venezuela in the International Centre for Settlement of Investment Disputes (ICSID). You may remember ICSID from the fraught Trans-Pacific Partnership negotiations or from this John Oliver segment touching on how Philip-Morris used the ICSID to fight efforts in Australia and Uruguay to prevent smoking. ICSID is part of the World Bank and handles violations of international treaties, especially bilateral investment treaties. Crystallex found such a treaty between Canada and Venezuela, and unsurprisingly the ICSID did not pay much heed to the company’s own wrongdoing.

But this is not the first time ICSID has been used to combat socialization of resources for the common good and enforcement of environmental regulations. The company Aguas del Tunari, which had sought to privatize water in Bolivia, took the country to the ICSID in 2002 for not privatizing the water after mass protests. That dispute was settled for an undisclosed amount. Then Pan American Energy also took Bolivia to the ICSID in 2009 over the nationalization of the hydrocarbon sector. This occurred despite Bolivia having enacted a new constitution that forbid international overturning of sovereign law and withdrew the country from the ICSID. Bolivia would settle with Pan American for $498 million, and has since created its own Bolivian arbitration system to avoid this reoccurring.

There is however a historic aspect to the case against Venezuela — Crystallex is seeking to obtain its money judgment from the ICSID by seizing assets of Citgo, the U.S. affiliate of Venezuela’s PDVSA. PDVSA is the nationalized oil company of Venezuela, and Crystallex argued an “alter ego” of the Venezuelan government. The “alter ego” doctrine generally exists to “pierce the corporate veil” by showing that a company is just a façade for a person to commit wrongful conduct. It is often used against scams so that the scammers cannot avoid liability by using corporations.

Here, as the court even admitted, PDVSA was not in any way attempting to perpetuate fraud or injustice on Crystallex by the use of its corporate form. PDVSA was not even involved in the disputes over Las Cristinas. Yet the court ruled in Crystallex’s favor in a lengthy convoluted decision full of frank concessions to PDVSA’s arguments but then contradictory rulings in favor of Crystallex. In a bit of “late stage capitalism” absurdity, Crystallex’s lawyers pointed to a hashtag, #PDVSAesVenezuela, to make their argument. It would be like a foreign company suing the EPA and then attempting to collect the money from Sallie Mae’s student loan assets.

So why did it happen? Because the dominance of U.S. finance allows corporations like Crystallex to sidestep sovereignty. Venezuela had set up a payment plan to pay off the judgment, but assets are always better than promises. Crystallex cannot get to the assets of the government in Venezuela: that would require obtaining a writ of execution through a Venezuelan court. But PDVSA has investments in the U.S., not just Citgo but also millions of dollars in U.S. bonds. Investment holdings and networks are largely centralized in the United States: the U.S. has twice as much venture capital investment as the rest of the world combined. The U.S. has 39% of the world’s financial assets, far more than countries like the U.K. (5.68%) or China (4.13%). All major payment networks in the world are run by U.S. corporations, facilitating trillions of dollars of transactions. To make investments in this world, the U.S. has to be dealt with, and this consequently gives the U.S. and its courts enormous leverage over other governments, even ones as adversarial as Venezuela. The District of Delaware court, where the decision against Venezuela was held, along with the Southern District of New York court have consequently become infamous battlegrounds of international litigation.

The ongoing civil unrest and economic war going on in Venezuela is a hotly debated issue on the Left, touching on some of the most core debates of economic sustainability and state power. But one thing that should be clear to democratic socialists: a Canadian company taking the public assets of the Venezuelan people because they dared to demand environmental regulations is undemocratic and unethical. When the people of the world are under attack by imperialist finance, we have a duty to speak out on it. I hope that everyone in the Democratic Socialists of America will condemn this violence just as we condemn the occupations in Gaza and bombings of Syria. And we should also learn from this example that even if and when we do win power in U.S. government, the power of finance could be used to wage economic warfare against us.

Written by

Feminist socialist writer fighting for econ justice. Views do not represent my firm, DSA, or my cats, who are sadly both ultra leftists.

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