United States: Implications Arising From The Recent Venezuelan Sanctions

Though intended to avoid stifling trade in existing Venezuelan government bonds, the sanctions include restrictions on dealings in certain bonds that could impact bond holders.

The US government imposed additional sanctions on the Venezuelan government on August 25, 2017, for a variety of actions that the administration deems violations of the human and political rights of the people of Venezuela.1 The sanctions are the latest in a series of actions taken by the US government against Venezuelan President Nicolás Maduro and those in his inner circle. These sanctions are designed to close some of the loopholes in prior sanctions aimed at Venezuela and further restrict the Maduro government from access to cash, which has been used to fund the human rights violations and political oppression of the Venezuelan people and political opposition. The newest sanctions restrict the ability of the Venezuelan government and its state-owned oil company Petroleos de Venezuela, S.A. (PdVSA) to raise funds through new debt or equity offerings,2 and make it illegal for US persons (individuals or entities) to participate in debt or equity offerings that extend beyond 30 days for the government and 90 days for PdVSA.


The approach to these new sanctions follows the “catch-and-release” methodology that has become typical in the implementation of targeted sanctions by the US government. Executive Order 13808, which imposes the sanctions, includes broad prohibitions, in this case making it illegal for US persons to transact or otherwise deal in: new Venezuelan or PdVSA “debt” longer than 30 or 90 days, respectively; and Venezuelan government bonds. The Order also prohibits dividend payments to the Venezuelan government. At the same time, the US Office of Foreign Assets Control (OFAC) issued General Licenses authorizing activities that would otherwise violate the Executive Order, having the effect of narrowing the sanctions. By using the catch-and-release approach, the United States has in place broader sanctions, giving OFAC the authority to tighten the sanctions should the need arise.

In the case of the Venezuela action, OFAC issued four General Licenses simultaneous with implementation of the Order. The General Licenses cover actions needed to wind down existing contracts with the Venezuelan government (General License 1), debt related to exports of certain agricultural and humanitarian goods and services (General License 4), transactions with Citgo Holdings, Inc. (General License 2), and, the focus of this discussion, dealings in “certain bonds” (General License 3).

Interpreting the New Sanctions

As with any new sanctions, the imperative is to determine what actions, previously permitted, are now prohibited. When sanctions follow the catch-and-release approach described above, it allows OFAC to take the position that because an Executive Order broadly describes the scope of prohibited activity, that which is not expressly permitted remains prohibited. For example, the Executive Order 13808 broadly prohibits “all transactions related to, provision of financing for, and other dealings” in:

  1. new PdVSA “debt” with a maturity greater than 90 days;
  2. new Venezuelan government “debt” with a maturity greater than 30 days;
  3. bonds issued by the Venezuelan government prior to August 25, 2017; and
  4. dividend payments or other distributions of profits to the Venezuelan government “from any entity owned or controlled, directly or indirectly, by” the Venezuelan government—depriving the Venezuelan government of dividends and/or profits from Citgo in the United States.

Recognizing that significant Venezuelan and PdVSA debt is currently traded in world markets, including the United States, and that the objectives of the sanctions—to deprive the Venezuelan government of new funds—would not be served by prohibiting transactions involving that debt, OFAC issued General License 3 authorizing3 “all transactions related to, the provision of financing for, and other dealings in” virtually every known Venezuelan and PdVSA existing bond as of August 25, 2017, except one4 2036 bond that was not then trading.5 Thus, although the Order initially prohibits transactions relating to Venezuelan government bonds, in fact, this provision is substantially diluted by General License 3, which allows for the continued trading in the bonds listed in the Annex to that license.

While the implementation of these sanctions was covered extensively (See, e.g., Rebecca M. Nelson, “New Financial Sanctions on Venezuela: Key Issues,” CRS Insight, September 1, 2017), little attention has been given to the long-term impact these sanctions may have on the bonds currently being traded. These are significant questions that can impact the viability of continuing to hold these instruments, and which OFAC has yet to address.

Trading in Bonds Exempt From the Sanctions

OFAC issued General License 3 to authorize continued trading in about 75 bonds issued by either the Venezuelan government or PdVSA. The maturity dates on these bonds extend from before the issuance of the sanctions to 2038. While paragraph (a) of General License 3 authorizes “all transactions related to the provision of financing for, and other dealings” in the bonds listed in the License 3 Annex, the license excepts from its coverage any transactions “otherwise prohibited by” the Executive Order. As with other sanctions regimes, no specific guidance was provided describing what actions fall within the meaning of “financing for and other dealings in.” OFAC has offered only limited suggestions as to what these terms might mean in its FAQ responses, where it states that dealings or transactions include entering into contracts, negotiations, or processing transactions. (See OFAC FAQ 505). Therefore, understanding OFAC’s approach to these terms is essential to ensuring compliance with the sanctions.

While General License 3 clearly authorizes continued trading in the bonds listed in the Annex, the authorization to engage in “financing for and dealings in” extends only to activities associated with the existing bonds in the Annex (i.e., trading in, financing and other dealings in those specific bonds). Section (c) of the General License confirms that it extends no further by making clear that actions “otherwise prohibited” by the Executive Order remain prohibited. In OFAC terms, this language is designed to limit the scope of activities to the existing bonds and make clear that actions relating to “new debt” longer than authorized remain prohibited, even if that “new debt” is meant to replace the bonds in the Annex.

OFAC regulations traditionally preclude any action that “facilitates” a violation of the sanctions. As with other sanctions programs, the authority to prohibit facilitation is found in language prohibiting any act that “causes” a violation. (See, e.g., Executive Order 13808, Section 1(c)). Facilitation generally is not well defined by OFAC but construed broadly, and can include almost any activity that assists with or otherwise aids in violating the sanctions. For example, OFAC has found facilitation violations where a company provided “various back-office functions for the sales by a foreign affiliate” (Great Western) and where a US entity assisted its foreign affiliate with prohibited sales (World Fuel Services Corp).6 Thus, while US persons may continue to trade in the bonds in License 3’s Annex, and the license should also act to authorize those actions necessary to deal in them (i.e., dividend payments or potentially even pay off at maturity), it does not go so far as to authorize the issuance of new debt longer than 30 or 90 days, as the case may be, to replace those bonds. Moreover, because the issuance of such new debt is prohibited, any actions to “facilitate” the issuance of the new debt remains prohibited. For example, engaging in negotiations to establish such “new debt” would generally be viewed as “facilitation.”

These prohibitions highlight the risks in trading (and owning) even the bonds in the Annex. Since government bonds are often (if not always) paid from newly issued bonds, and US persons cannot facilitate the issuance of nor accept new debt from the Venezuelan government longer than 30 days, a holder of these bonds may be functionally unable to collect from the Venezuelan government at maturity.

It is not clear whether the Venezuelan government will locate new sources to repay these bonds as they become due. Presumably, however, if Venezuela is able to repay the bonds at maturity, and a bondholder has not facilitated the issuance of any new debt, then the authorization to deal in these bonds should extend to accepting payment at maturity. Nonetheless, these uncertainties have led some US firms to stop trading even in the Venezuelan bonds listed in the Annex to License 3. The overall reticence is already impacting the market as Citgo was reportedly having difficulty with routine financing even though General License 2 specifically exempts Citgo Holdings and its subsidiaries from the sanctions. Suppliers and others who provide credit to Citgo expressed fears of default and the uncertainties surrounding the sanctions outlook.

“Debt” and “Equity” Covered by the Sanctions

Like the Ukraine-related sanctions imposed on Russian authorities and entities, the Venezuela sanctions leave open some of the same questions about when a transaction constitutes “debt” or “equity.” While the Executive Order does not define these terms, OFAC confirms in its FAQs that debt includes “bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, bankers acceptances, discount notes or bills, or commercial paper,” and “equity” includes “stocks, share issuances, depositary receipts, or any other evidence of title or ownership.” As broad as these lists are, they do not address numerous types of transactions that may or may not constitute “debt” or “equity”.

With debt including any “extension of credit,” even routine transactions can be subject to the sanctions. Further, except for debt relating to Citgo Holdings, none of the general licenses authorizes these other forms of new debt for the Venezuelan government or PdVSA. For a country like Venezuela, where most significant industry and commerce has been nationalized, this means that any transactions where goods or services could end up in or for the benefit of a Venezuelan entity must be subjected to extra scrutiny. Routine transactions such as leases or payment terms would fall within the broad definition of debt if they run past the 30 or 90-day limits in the Executive Order. These transactions would be prohibited absent OFAC authorization.

The restrictions on the issuance of new equity similarly prohibit any transaction whose effect is to “deal in” or provide “financing for” anything that would constitute any new equity interest. This restriction does not prohibit, for example, trading in existing equity, but means that entities that engage in underwriting or transactions must be careful not to engage in actions that result in new equity for Venezuelan government entities.

When the Music Stops

One risk created by the new sanctions that seems to have evaded extensive discussion is what happens to those holding Venezuelan bonds at their time of maturity. Although the Venezuelan government might want to roll over the debt, the sanctions prohibit any formal or effective rollover, because any such “new debt” could not be for longer than 30 days. If the maturity date for a bond passed, only default would avoid this result, since accepting continued payments extends the debt. But OFAC has yet to provide guidance on the implications of a default by the Venezuelan government. Although defaults are not extensions of credit per se, they can operate like a credit extension. Thus, it is not clear if a license would be required to collect following a default because the effective extension operates as “new” debt, even though involuntarily created. Certainly, any extension of an existing credit facility or other debt could trigger the sanctions, but OFAC has not advised whether this would be the case where the “credit” results from a refusal to pay. If it did, the sanctions could give Venezuela an excuse to unilaterally extend repayment terms while the sanctions are in place.

OFAC will likely provide further guidance on how or whether it will address these problems, but until it does, there is enhanced risk in holding even the debt authorized by General License 3. While non-US persons can purchase the debt, as the bonds get closer to maturity, the price could plummet in a reverse auction atmosphere as foreign buyers seek to take advantage of the sanctions’ impact on US bond holders.


1 Executive Order 13808, August 24, 2017, effective August 25, 2017 (the “Order”). The EO details the following bases for the sanctions: “serious abuses of human rights and fundamental freedoms; responsibility for the deepening humanitarian crisis in Venezuela; establishment of an illegitimate Constituent Assembly, which has usurped the power of the democratically elected National Assembly and other branches of the Government of Venezuela; rampant public corruption; and ongoing repression and persecution of, and violence toward, the political opposition.” On September 22, 2017, Canada announced sanctions against 40 Venezuelan government officials, but these are not the type of targeted sanctions as those in the Order.

2  As noted both by the White House and in many articles when the Executive Order was signed, these sanctions are similar to the earliest sanctions against Russia imposed in response to its incursion into Ukraine. Such “targeted” sanctions seek to either hold specific parties accountable, constrict particular activity, or both. As with the early Ukraine-related sanctions, the intent behind these sanctions is to make financing almost impossible for the Venezuelan government and PdVSA, but not to completely cut off all funding, or render existing bonds worthless.

3  General License 3 makes clear that the authorizations in section (a) apply only to “bonds” by stating that the only dealings authorized are those otherwise prohibited by subsection 1(a)(iii) of the Order, which addresses only Venezuelan government bonds issued before August 25, 2017.

4  OFAC FAQ No. 523 states: “OFAC intentionally excluded the Venezuela Government International Bond issued on December 29, 2016 (ISIN USP97475AQ39, CUSIP AM1108092) (“the 2036 bond”) from the Annex to General License 3 because available information indicates that the Government of Venezuela is both the bond’s issuer and sole holder. At this time, the 2036 bond is the only bond we have identified and purposely omitted from the Annex to General License 3.”

5  Paragraph (b) of the license also authorizes “all transactions” in bonds that meet two specific criteria: (1) the bonds were issued prior to August 25, 2017, and (2) the bonds were issued by a US entity “owned or controlled, directly or indirectly” by the Venezuelan government. This provision is potentially redundant, in part, in light of General License 2, which authorizes “all transactions” relating to Citgo Holdings, Inc., but reflects OFAC’s concern that there might be further debt, and other entities owned by the Venezuelan government, of which it was unaware.

6  OFAC occasionally provides more direction with respect to facilitation. For example, in the Sudan Sanctions regulations, 31 CFR part 538, “facilitation” is defined to include “any unlicensed action by a U.S. person that assists or supports trading activity with Sudan by any person.” 31 CFR §538.407. Activity of a purely clerical or reporting nature that does not further trade or financial transactions with Sudan or the Government of Sudan is not considered prohibited facilitation. Id.

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

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.

In association with
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.