United States: OFAC Expands Restrictions In Respect Of Transactions With Venezuelan Government

Last Updated: March 26 2018
Article by Perez Bustamante & Ponce

On February 12, 2018, the Office of Foreign Assets Control (OFAC) published additional explanations about sanctions relating to transactions with PDVSA and with Venezuelan Entities, as defined hereinbelow (the "OFAC Guidance"). These interpretations have the effect of restricting the suppliers' possibility of receiving payments for goods and services.

On August 24, 2017, according to Executive Decree No. 13808 (the "Executive Decree"), the President of the United States of America issued sanctions relating to Venezuela, prohibiting transactions – or the evasion or circumvention thereof – that create "new debt" with Petróleos de Venezuela S.A. ("PDVSA"), with the Venezuelan Government, its agencies, instrumentalities or persons under its control (namely, any entity having 50% governmental participation or more) (the "Venezuelan Entities").

In the first place, the OFAC Guidance considers transactions occurring on or after the date of the Executive Decree as "new debt"1. Although the Executive Decree provides that "new debt" is created, among other things, by private or sovereign credit contracts, right to dividends or share quotas, and revenues from traded securities, the OFAC Guidance construes that concept in a very broad manner, including, besides, commercial debt for provision of goods or services.

Therefore, OFAC has clarified that "new debt" is created when payments to suppliers of goods and services are made after 90 days in the case of PDVSA and after 30 days in the case of Venezuelan Entities (the "Applicable Term"), even if the contractual term is shorter and if payment beyond term is (i) contrary to the supplier's will, or (ii) involves PDVSA's or Venezuelan Entities' default on the underlying contract.

In the second place, OFAC creates a license allowing to collect the "new debt", as long as (i) the debt was incurred complying with the restrictions for applicable sanctions, (ii) the debt is created before March 14, 2018, (iii) late payment does not meet the applicable term according to the underlying contract (which ought to respect the Applicable Term), and (iv) the transaction does not violate other sanction schemes. In this regard, OFAC has mentioned that any license application that does not meet these parameters will be processed under presumption of denial.

Although these sanctions are applied to U.S. persons, they also prevent making payments in U.S. dollars to non-U.S. creditors.

(i) new debt with a maturity of greater than 90 days of Petroleos de Venezuela, S.A. (PdVSA); (ii) new debt with a maturity of greater than 30 days, or new equity, of the Government of Venezuela, other than debt of PdVSA covered by subsection (a)(i) of this section; (iii) bonds issued by the Government of Venezuela prior to the effective date of this order; or (iv) dividend payments or other distributions of profits to the Government of Venezuela from any entity owned or controlled, directly or indirectly, by the Government of Venezuela. (b) The purchase, directly or indirectly, by a United States person or within the United States, of securities from the Government of Venezuela, other than securities qualifying as new debt with a maturity of less than or equal to 90 or 30 days as covered by subsections (a)(i) or (a)(ii) of this section, respectively, is prohibited. (c) The prohibitions in subsections (a) and (b) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted before the effective date of this order. Sec. 2. (a) Any transaction that evades or avoids

Footnotes

1 Transactions carried out before that date are under a different treatment.

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.

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