Brisas Arbitral Award
Enforcement and Collection
In October 2009, we initiated a claim (the “Brisas Arbitration”) under the Additional Facility Rules of the International Centre for Settlement of Investment Disputes (“ICSID”) of the World Bank to obtain compensation for the losses caused by the actions of Venezuela that terminated our Brisas Project in violation of the terms of the Treaty between the Government of Canada and the Government of Venezuela for the Promotion and Protection of Investments.
In September 2014, the ICSID Tribunal unanimously awarded us an award totaling (i) $713 million in damages, plus (ii) pre-award interest from April 2008 through the date of the Award based on the U.S. Government Treasury Bill Rate, compounded annually totaling, as of the date of the Award, approximately $22.3 million and (iii) $5 million for legal costs and expenses, for a total, as of September 22, 2014, of $740.3 million (the “Award”). The Award (less legal costs and expenses) accrues post-award interest at a rate of LIBOR plus 2%, compounded annually.
In July 2016, we signed an amended settlement agreement whereby Venezuela agreed to pay us the Award (including interest) and purchase our Mining Data (the “Settlement Agreement”). Under the terms of the Settlement Agreement Venezuela agreed to pay the Company $792 million to satisfy the Award and $240 million for the purchase of the Mining Data for a total of approximately $1.032 billion payable in monthly installments. The first $240 million to be received by Gold Reserve from Venezuela is related to the sale of the Mining Data.
In addition, the Company agreed to suspend the legal enforcement of the Award until final payment is made by Venezuela and Venezuela irrevocably waived its right to appeal the February 2017 judgment issued by the Cour d’appel de Paris dismissing the annulment applications filed by Venezuela in respect of the Award and agreed to terminate all other proceedings seeking annulment of the Award.
Pursuant to the Settlement Agreement, Venezuela agreed to make a payment of $40 million (the “Initial Payment”) followed by 23 monthly payments of $29.5 million on or before the 15th day of each month starting in July 2017, with a final payment of approximately $313.3 million scheduled to be paid on or before June 15, 2019.
The terms of the Settlement Agreement also included Venezuela’s obligation to make available to an escrow agent negotiable financial instruments, with a face value of at least $350 million, partially guaranteeing the payment obligations to the Company. As of this date, the collateral has not yet been provided to the escrow agent. The Company and Venezuela continue discussions regarding this matter.
Payments made by Venezuela associated with the Settlement Agreement were initially deposited into the Trust Account with Bandes Bank, a Venezuelan state-owned development bank (See Company/Introduction/Settlement Agreement). Under the Trust Agreement, the Company has the right to direct the transfer of the funds to its bank accounts outside of Venezuela. For financial statement purposes, deposits held in the Trust Account as of the balance sheet date are recorded as cash and cash equivalents and deposits made to the Trust Account subsequent to the balance sheet date but prior to the date of issuance of the consolidated financial statements are recorded as a receivable from sale of Mining Data.
On June 13, 2017, Venezuela deposited the Initial Payment of $40 million into the Trust Account and subsequently made additional monthly installment deposits of $29.5 million each from July through November, 2017 for a total of $187.5 million. Since June 30, 2017 Venezuela has transferred a total of $142.1 million to our bank account in the U.S. with $45.4 million remaining in the Trust Account. The monthly payments pursuant to the Settlement Agreement from December 2017 and January through May 2018 totaling approximately $177 million remain unpaid.
In August 2017, the U.S. government imposed financial sanctions targeting the Venezuelan government by issuing an executive order that prohibits U.S. persons from dealing in financing of greater than 30 days for the Venezuelan government, including any entity owned or controlled by the Venezuelan government (with respect to the state oil company and its subsidiaries, these restrictions prohibit financings of greater than 90 days). In addition, U.S. persons are prohibited from dealing in, among other things, bonds or equity issued by the Venezuelan government after the U.S. financial sanctions were imposed on August 25, 2017. These U.S. financial sanctions built on sanctions imposed by the U.S. government starting in March 2015 that prohibit various Venezuelan officials from traveling to the U.S., freeze any assets they may have in the U.S. and generally prohibit U.S. persons from doing business with them and any entity they own 50% or more. Subsequent to the U.S. actions, Canada imposed its own sanctions. Recently the U.S. government added several additional individuals to the sanctions list and prohibited U.S. persons from dealing in cryptocurrencies issued by the Venezuelan government. The U.S. and Canadian governments have been reported to be considering further sanctions (collectively, the “Sanctions”). Sanctions, in addition to the economic and financial condition of Venezuela, have complicated the monthly transfer of funds from the Trust Account to our bank accounts.