United States: New Sanctions Prohibit US Firms From Wide Range of Dealings With Venezuelan Government and PdVSA

On August 24, 2017, the Trump Administration significantly expanded sanctions against the Government of Venezuela, including state-owned oil company Petroleos de Venezuela, S.A. (PdVSA). These latest sanctions reflect elements of several other US sanctions programs, including restrictions on access to US capital markets and authorizations for US firms to "wind down" existing contractual obligations. While the sanctions include a prohibition on dealings in all Venezuelan sovereign bonds, they are accompanied by a general license authorizing transactions relating to certain previously issued bonds. US firms, especially US financial services firms, should carefully examine the interplay between the new prohibitions and the accompanying general licenses.

The new Executive Order signed by President Trump, "Imposing Additional Sanctions with Respect to the Situation in Venezuela," contains five substantive prohibitions that apply to US persons and to activities within the United States.

Section 1(a) prohibits all transactions related to, provision of financing for, and other dealings in:

  1. New debt of PdVSA with a maturity of greater than 90 days;
  2. New debt with a maturity of greater than 30 days, or new equity, of the Government of Venezuela (other than that of PdVSA, addressed above);
  3. Bonds issued prior to August 25, 2017, by the Government of Venezuela; and
  4. Dividend payments or other distributions of profits to the Government of Venezuela from any entity that it directly or indirectly owns or controls.

And Section 1(b) prohibits the direct or indirect purchase of securities from the Government of Venezuela, other than those qualifying as new debt below the applicable authorized tenors for PdVSA and the Government of Venezuela identified above.

While these prohibitions are expansive, the US Department of the Treasury's Office of Foreign Assets Control (OFAC) issued four general licenses which have an impact on applicable restrictions. These measures echo past OFAC authorizations, issued under other US sanctions programs, with which many in the financial services industry may already be familiar. Although the general licenses do not authorize activities that are otherwise prohibited by US sanctions, including past blocking sanctions against designated Venezuelan individuals and entities, they affect the scope, timing, and application of the Executive Order's prohibitions and should be closely reviewed by US financial services firms.

General License No. 1 authorizes all transactions otherwise prohibited (other than the prohibition against dealings in dividend payments and other distributions of profit, which are outside the scope of this authorization) that are ordinarily incident and necessary to wind down contracts or other agreements that were in effect prior to August 25, 2017. Such wind-down must occur by September 24, 2017, and those relying on it must file a report with OFAC within 10 business days of the wind-down transactions. Past US sanctions programs, most notably those targeting Iran, have included comparable wind-down authorizations.

General License No. 2 authorizes transactions otherwise prohibited by the "new debt" and "new equity" provisions discussed above where the only Government of Venezuela entities involved are CITGO Holding, Inc., and any of its subsidiaries. When the US Department of State sanctioned PdVSA in 2011 for its support of the Iranian energy sector, it specifically affirmed that such sanctions did not apply to PdVSA subsidiaries. OFAC similarly recognized in this case the collateral harm that sanctions imposed against CITGO Holding, Inc. would cause in the United States.

General License No. 3 authorizes transactions otherwise prohibited by the restriction on sovereign bonds if the bonds are specified in the Annex to the general license. The list of such bonds is available here. General License No. 3 also authorizes transactions otherwise prohibited involving bonds that were issued prior to August 25, 2017, by US entities that are directly or indirectly owned by the Government of Venezuela.

General License No. 4 authorizes new debt transactions related to the exportation or reexportation of agricultural commodities, medicine, medical devices, and replacement parts and components, provided the export transaction is authorized under the Export Administration Regulations. The scope of products authorized under this general license is defined by reference to other US laws that will be familiar to US exporters of such goods.

OFAC's FAQs that accompanied the Executive Order and General Licenses provide important guidance to US firms that must comply with these new sanctions. Most notably:

  • The 50 Percent Rule: The OFAC 50 Percent Rule applies to these new sanctions, meaning that the prohibitions targeting the Government of Venezuela include entities owned 50 percent or more, individually or in the aggregate, by the Government of Venezuela.
  • Treatment of "debt" and "equity": The terms "debt" (including the rollover of existing debt) and "equity" have the same meanings as under the US sectoral sanctions against Russia.2 The new sanctions prohibit US persons from purchasing any securities, even those issued by a non-sanctioned party, from the Government of Venezuela, unless the securities are "new debt" that is below the applicable authorized tenor.
  • Banking services: US financial institutions may continue to maintain correspondent accounts, and process US dollar-clearing transactions, for the Government of Venezuela, provided the transactions are not specifically prohibited by the new Executive Order.
  • Third-party debt: US persons may engage in transactions in which the Government of Venezuela may be a counterparty in connection with debt issued by a non-sanctioned party (e.g., a loan provided by the Government of Venezuela, or where the Government of Venezuela is an underwriter on new debt of a non-sanctioned third party). US persons may also extend credit above the applicable authorized tenor to non-sanctioned parties for the purpose of purchasing goods or services from the Government of Venezuela (provided, however, the Government of Venezuela is not the indirect borrower).
  • Previously existing credit or loans: A US firm that has entered into a long-term credit facility or loan agreement prior to August 25, 2017, may process drawdowns and disbursements with repayment terms of 90 days or less (for PdVSA) or 30 days or less (for the rest of the Government of Venezuela), as well as those in which the repayment terms exceed the applicable authorized tenor if the terms of such drawdowns and disbursements are not modified on or after August 25, 2017. But where terms are negotiated on or after that date and the repayment terms exceed the applicable authorized tenor, then drawdowns and disbursements are prohibited. US persons may engage in transactions necessary to exit or replace participation in a long-term loan facility extended to the Government of Venezuela prior to August 25, 2017, provided the transaction does not otherwise violate the Executive Order.
  • Notably, the OFAC's FAQs do not include an exclusion for dealings in derivatives, which exists in similar restrictions applicable to Russian sectoral sanctions.

OFAC's FAQs also signaled to the Government of Venezuela what conditions the US Government would expect prior to issuing any licenses for a new bond or other issuance of debt. OFAC noted the Lima Declaration of August 8, 2017, and stated that "the United States would consider using licensing authority" for US persons to deal in the issuance of new debt if that new debt were issued by a democratically elected Venezuelan National Assembly. As in the case of US sanctions against Russia, where the United States has generally been clear that sanctions relief would be tied directly to Russia's adherence to the Minsk II agreement, the US Government has linked sanctions relief for Venezuela to democratic reforms in that country.

In this Administration, as in the past, the new action against the Government of Venezuela illustrates a key trend for the imposition of US sanctions: these measures remain a central tool of US foreign policymaking in responding to evolving geopolitical events. US firms—especially those in the financial services sector—should review how the new sanctions against the Government of Venezuela impact their current financial positions, prospective business plans, and ongoing compliance. At this point, it is possible that the Trump Administration will take further action in sanctioning the Government of Venezuela. Accordingly, US firms should continue monitoring relevant geopolitical developments involving Venezuela and ensuring that their internal compliance programs take into account applicable sanctions risks and requirements.


1 Agricultural commodities include those defined in section 102 of the Agricultural Trade Act of 1978, as well as food for humans; seeds for food crops; fertilizers or organic fertilizers; or reproductive materials for the production of food animals. Medicine is an item that falls within the definition of "drug" in section 201 of the Federal Food, Drug, and Cosmetic Act. And medicine device is any "device" under section 201 of the Federal Food, Drug, and Cosmetic Act.

2Debt includes bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, bankers acceptances, discount notes or bills, or commercial paper. Equity includes stocks, share issuances, depository receipts, or any other evidence of title or ownership.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions