Worldwide: New U.S. Sanctions Targeting Venezuelan Government

Last Updated: August 12 2019
Article by Gibson, Dunn & Crutcher

On August 5, 2019, the Trump administration imposed new sanctions on the Government of Venezuela by freezing the property and assets of the regime of Venezuelan President Nicolás Maduro as well as those who provide it with "material support." Issued on the eve of a major international conference on the Venezuelan political crisis in Lima, Peru, the August 5 Executive Order was at first mistakenly characterized in some news reports as a complete "embargo" on Venezuela. In reality, this latest measure is more limited in scope, consisting of a set of sanctions against the Government of Venezuela—and not the country of Venezuela as a whole. Individuals and entities unaffiliated with the Government of Venezuela generally remain unsanctioned and transactions that have no nexus to the Venezuelan government generally remain unrestricted.

In terms of its direct impact, the Executive Order's reach is also blunted somewhat by the fact that Venezuela's most economically significant actor, the state-owned oil company Petróleos de Venezuela, S.A. ("PdVSA"), was already sanctioned earlier this year, as were Venezuela's central bank and several of the country's larger state-affiliated financial institutions. What this latest measure does is fill in the gaps to cover all remaining elements of the Government of Venezuela. As with the previously-imposed sanctions, however, exceptions abound. On August 6, 2019, the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") issued 13 new general licenses and amended 12 previous general licenses to authorize U.S. persons to continue engaging in a range of narrowly defined transactions involving Venezuela's government. These exceptions are designed to mitigate the impact of U.S. sanctions on the Venezuelan opposition, civil society and multinational companies.

In our assessment, the principal significance of the Government of Venezuela being designated lies in the fact that many companies, and financial institutions in particular, are now likely to become even more reluctant to engage in transactions with any nexus at all to the country. While U.S. sanctions against Caracas are still not nearly as broad as those targeting several other countries, we expect that—at least over the near term—many parties will apply to Venezuela-related transactions the same level of scrutiny and concern typically reserved for dealings with Cuba and other comprehensively sanctioned jurisdictions. In fact, the designation of the Government of Venezuela may turn out to be of limited practical significance since so many companies and financial institutions have already made the decision to withdraw from the country. Some companies that have previously received specific licenses from OFAC to undertake certain transactions involving Venezuela have decided not to request an extension when those specific licenses expired.

Background

As we previously reported, OFAC formally designated Venezuela's state-owned oil company, PdVSA, to the Specially Designated Nationals and Blocked Persons ("SDN") List on January 28, 2019, sending shockwaves through global markets. On April 17, 2019, OFAC designated Venezuela's Central Bank, effectively cutting it off from the U.S. financial system. These designations represented a dramatic escalation of U.S. sanctions targeting Venezuela, which include restrictions on certain debt and equity of the Government of Venezuela; the country's gold, oil and financial sectors; and those who engage in corrupt conduct involving the Venezuelan government.

Key Points

  • Not an Embargo. Although some initial media reports (incorrectly) characterized the new sanctions as a total "embargo" or "blockade" on Venezuela, the action was in reality more circumspect—amounting to an extension of existing U.S. sanctions to the remainder of Venezuela's embattled government. OFAC quickly confirmed that U.S. persons may continue to transact with Venezuelan persons that are not affiliated with the Government of Venezuela and that are not otherwise subject to U.S. sanctions. See OFAC, Frequently Asked Question ("FAQ") No. 680 (Aug. 6, 2019). That said, as a practical matter, the designation of the Government of Venezuela will likely cause risk-averse financial institutions and other key counterparties to become even more reluctant to engage in otherwise lawful transactions involving Venezuela.
  • Sanctions for "Material Support." The new Executive Order also explicitly provides for the possibility that non-U.S. persons may themselves be sanctioned if they are found to have "materially assisted, sponsored, or provided financial, material, or technological support for, or services to or in support of" the Government of Venezuela. Critically, Executive Order 13850—the authority pursuant to which PdVSA and its subsidiaries were sanctioned on January 28, 2019—already provided for the possibility that individuals and entities may be designated for providing material support to PdVSA and its subsidiaries, a reality which OFAC had underlined in a recent Frequently Asked Question. See Exec. Order 13850, 83 Fed. Reg. 55243 (Nov. 1, 2018); OFAC, FAQ No. 672 (June 6, 2019). In that sense, the new Executive Order simply extends the possibility of an individual or entity being designated for providing "material support" to transactions and activities involving all arms of the Venezuelan state. By suggesting that non-U.S. persons can be subject to sanctions, the United States is seeking to discourage companies from other countries—principally Russia and China—from propping up the Maduro regime. Indeed, the day after the Executive Order was issued, White House National Adviser John Bolton in a speech in Lima, Peru raised the possibility of sanctioning Russian and Chinese individuals and entities that help the Maduro regime maintain its grip on power.
  • Secondary Sanctions. Also, despite what some of the media reported, this new Executive Order does not provide for "secondary sanctions" (of the type seen in Iran, North Korea and Russia). Rather, the Executive Order merely underlines that parties can be designated on a material support basis if they provide support to any person or entity on the SDN List. As noted, that was already the case. Moreover, even though the entire Government of Venezuela is now blocked under the Executive Order, not all components of the Venezuelan government appear by name on the SDN List.
  • Wind-down Period Until September 4, 2019. A new General License 28 provides a wind-down period before elements of these new sanctions take effect. The authorization provided in this license permits U.S. persons to continue engaging, until September 4, 2019, in activities that are "ordinarily incident and necessary to the wind down of operations, contracts, or other agreements involving the Government of Venezuela," provided that those agreements were in effect before August 5, 2019. As in other recent instances in which OFAC has provided a wind-down period along with new designations, the precise scope of activities permitted by this license is uncertain. However, it likely does not authorize U.S. persons to increase their engagement with the Government of Venezuela. Instead, this general license effectively establishes a grace period within which U.S. persons may conclude, terminate or withdraw from current arrangements with the Venezuelan government before facing sanctions exposure.
  • Exemptions for Venezuelan Opposition. A new General License 31 permits U.S. persons to transact with (i) the opposition-controlled Venezuelan National Assembly and its members, staff, and appointees or designees; (ii) Venezuela's Interim President, Juan Guaidó, and his appointees, designees, ambassadors and staff; and (iii) persons that Guaidó has appointed to the board of directors or as executive officers of a Venezuelan government entity.
  • Standard Exemptions. Most of the newly-issued general licenses permit U.S. persons to engage in the same type of activities that are commonly allowed even with respect to jurisdictions that are subject to comprehensive sanctions (e.g., Cuba, Iran, North Korea, Syria and the Crimea region). On August 6, 2019, OFAC issued numerous general licenses that make certain transactions a bit easier to undertake (or at least provide a greater degree of regulatory certainty with respect to those transactions). OFAC issued general licenses covering, among other things, transactions that involve the Venezuelan government and that are associated with telecommunications/mail; technology allowing internet communication; medical services; registration and defense of intellectual property; support for non-governmental organizations; transactions related to port and airport operations; overflight payments; and personal maintenance of U.S. persons inside Venezuela. Each of these licenses—although limited by their own terms—provides clear avenues to engage in specific transactions associated with that particular issue. For example, U.S. persons are permitted to continue engaging in activities ordinarily incident and necessary to the operation or use of ports or airports in Venezuela under new General License 30.

General Licenses

The various OFAC general licenses implicating Venezuela that were in effect before the latest Executive Order was issued on August 5 generally still remain in effect today. See OFAC, FAQ No. 681 (Aug. 6, 2019). The amended licenses extend existing authorizations to cover transactions that would otherwise have been restricted by the new Executive Order. These amended authorizations include the following:

  • General License 2A authorizes transactions involving new debt or new equity issued by, or securities sold by, CITGO Holding, Inc. or its subsidiaries, provided that no other Government of Venezuela entity is involved in the transaction. The license was expanded to cover transactions involving PDV Holding, Inc., as well.
  • General License 3F exempts certain bonds, listed in an annex, from the prohibition on transactions involving Venezuelan bonds or the new, broader restrictions on dealing with the Government of Venezuela.
  • General License 4C authorizes certain transactions involving the export or reexport to Venezuela of agricultural commodities (including food), medicine or medical devices.
  • General License 7C permits U.S. persons to engage in certain transactions with PDV Holding, Inc., CITGO Holding, Inc., or their subsidiaries.
  • General License 8C authorizes certain named energy and oilfield services companies to engage in certain transactions with or involving the Government of Venezuela until October 25, 2019.
  • General License 9E authorizes U.S. persons to continue engaging in any dealings in debt (including certain listed bonds, promissory notes and other receivables) in which PdVSA owns a 50 percent or greater interest, provided that the debt was issued prior to August 25, 2017 and that any divestment or transfer of any U.S. person holdings are to a non-U.S. person.
  • General License 10A permits U.S. persons in Venezuela to purchase refined petroleum products for personal, commercial or humanitarian uses from PdVSA or from any entity in which PdVSA owns a 50 percent or greater interest and now to engage with the Government of Venezuela in transactions necessary for the purchase of such refined petroleum products.
  • General License 13C continues to authorize U.S. persons to engage in transactions involving Nynas AB or its subsidiaries that would otherwise be prohibited (except payments to or for the benefit of a blocked person, which must be placed into a blocked account).
  • General License 15B continues to authorize certain listed banks or payment service providers to engage in transactions involving listed Venezuelan banks until March 22, 2020.
  • General License 16B continues to authorize transactions ordinarily incident and necessary to maintaining, operating or closing accounts of U.S. persons in certain Venezuelan banks.
  • General License 18A continues to authorize certain transactions involving Integración Administradora de Fondos de Ahorro Previsional, S.A.
  • General License 20A authorizes transactions and activities involving the Government of Venezuela that are for the official business of an expanded list of international organizations.

Taken together, these new and amended licenses provide several clear avenues for continued engagement in specific transactions with the Government of Venezuela, further contradicting early reports of the comprehensiveness of these new sanctions. However, relying on these authorizations requires careful consideration of their many limitations and conditions, some of which remain open to interpretation. As a result, these authorizations may ultimately do little to persuade companies that are already reluctant to engage in any business with Venezuela to take the risk of engaging even in these authorized transactions.

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
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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