United States: US Imposes Blocking Sanctions Against The Government Of Venezuela

On Monday, August 5, President Donald Trump issued Executive Order 13884,1 which blocked the property and interests in property of the Government of Venezuela ("GoV"), effective immediately. As a result, US persons2 are generally prohibited from engaging in any transactions with or involving the GoV,3 including any entity in which it owns a 50 percent or greater stake, unless authorized by a specific or general license. The Office of Foreign Assets Control (OFAC) issued more than a dozen new general licenses exempting certain activity, revised several existing general licenses, and issued new FAQs concerning the action.

EO 13884 further escalates the United States' sanctions against Venezuela and the Maduro regime. In January 2019, the United States added the Venezuelan state-owned oil company Petróleos de Venezuela, S.A. (PdVSA) to the List of Specially Designated Nationals and Blocked Persons (SDN List) pursuant to a prior executive order, EO 13850. As a result, the property and interests in property of PdVSA were blocked, and US persons were prohibited from dealing with PdVSA without authorization by general or specific license.

In April, OFAC added the Central Bank of Venezuela (CBV) to the SDN List. EO 13884 extends the same prohibitions that have applied to PdVSA since January, and to the CBV since April, to the rest of the GoV. It effectively places the GoV in the same category with regard to transactions with US persons as the governments of Iran and Cuba.

New and revised general licenses permit certain activity to continue

OFAC issued 13 new general licenses authorizing transactions that would otherwise be prohibited as a result of the blocking of the GoV.4 Many of these general licenses are similar to those in other sanctions programs that target foreign governments, and authorize certain transactions related to diplomatic relations; telecommunications and mail; personal communications; emergency and other medical services; protection of intellectual property rights; support for certain nongovernmental organizations; port and airport operations; and overflight payments, emergency landings, and air ambulance services.5

Of particular note are General License 28 and General License 31. GL 28 authorizes until September 4, 2019, the wind-down of operations, contracts or other agreements involving the GoV that were in effect prior to August 5, 2019.6 However, the wind-down license does not apply to GoV entities that were blocked pursuant to prior executive orders—including PdVSA, for which a similar wind-down general license expired in April 2019.7

GL 31 generally authorizes transactions with the Venezuelan National Assembly and Interim President Juan Guaidó (including his executive staff and appointees).8 GL 31 also authorizes US persons to engage in transactions with persons Guaidó has appointed to the board of directors of PdVSA—although PdVSA itself remains blocked. 

OFAC also amended 12 of the existing Venezuela general licenses, which authorized certain transactions that would otherwise be prohibited under the prior executive orders targeting PdVSA and restricting dealings in Venezuelan debt or equity.9 Many of these amendments extended the validity period of these general licenses or made other revisions necessary following in view of the GoV now being blocked. General License 2A, however, which authorizes transactions involving exclusively CITGO Holding, Inc., and PDV Holding, Inc. (PDVH), and their subsidiaries, expanded the scope of GL 2, which had authorized such transactions only with CITGO Holding Inc. (but not PDVH).10

Jurisdictional reach unclear, but intended to have wide-ranging impact

As with other sanctions executive orders, including 13850, EO 13884 also authorizes sanctions against persons determined by the Secretary of the Treasury in consultation with the Secretary of State "to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of" any person added to the SDN List pursuant to EO 13884.

National Security Advisor John Bolton, speaking in Lima, Peru, following the announcement of the new sanctions, threatened retaliation against foreign businesses and governments that continue to do business with Venezuela.11

OFAC has not expressly addressed how the United States may seek to exercise such leverage, and against whom it will seek to exercise it. Amb. Bolton has indicated that China and Russia could be a particular focus.12 The Venezuela sanctions do not contain "secondary sanctions" akin to those present in the Iran sanctions program. However, in March 2019, OFAC sanctioned a Russian bank partly owned by the GoV, Evrofinance Mosnarbank, under EO 13850 on the grounds that it had materially assisted, sponsored or provided financial, material or technological support for, or goods or services to or in support of, PdVSA.13

Counterparty due diligence remains important—but challenging

EO 13884 blocked the property and interests in property of the GoV as well as any entity in which it holds a 50 percent or greater interest. However, neither the GoV nor any of its instrumentalities, agencies or subdivisions—all of which are also blocked—have been added to the SDN List. Effective due diligence on counterparties, including as to their beneficial ownership, is a critical component to assure sanctions compliance. OFAC has emphasized that even financial institutions that do not have direct relationships with customers but act purely as intermediaries in payments that involve a sanctions target may still face enforcement action, depending on the totality of the circumstances.14

Conclusion

The new blocking sanctions against the Government of Venezuela significantly increase the risk of conducting business in or with that country. While compliance challenges for US persons abound, including as to counterparty risk, the prohibitions with respect to US persons dealing with the GoV are reasonably clear. Significant uncertainty remains, however, as to how those prohibitions will affect transactions that involve exclusively non-US persons and that occur entirely outside the United States. Caution, effective risk assessment and an appropriate compliance response are critical for any person, US or non-US, conducting business in or with Venezuela.

Footnotes

1 "Executive Order Blocking Property of the Government of Venezuela," (August 5, 2019)

2 A "US person" is defined as a (1) US citizen, (2) permanent resident alien (i.e., Green Card holder), (3) entity organized under the laws of the US or any jurisdiction within the United States (including foreign branches) or (4) any person in the US (regardless of citizenship).

3 The GoV is defined as "(1) the state and Government of Venezuela, (2) any political subdivision, agency, or instrumentality thereof, (3) the Central Bank of Venezuela, (4) Petroleos de Venezuela, S.A. (PdVSA), and (5) any person or entity owned or controlled, directly or indirectly, by the foregoing, and any person who has acted or purported to act directly or indirectly for or on behalf of, any of the foregoing, including as a member of the Maduro regime."

4 https://www.treasury.gov/resource-center/sanctions/Programs/Pages/venezuela.aspx#gl21.

5 Id.

6 See https://www.treasury.gov/resource-center/sanctions/Programs/Documents/venezuela_gl28.pdf

7 OFAC FAQ # 681 (Updated as of August 6, 2019)

8 See https://www.treasury.gov/resource-center/sanctions/Programs/Documents/venezuela_gl31.pdf.

9 https://www.treasury.gov/resource-center/sanctions/Programs/Pages/venezuela.aspx#gl.

10 Compare https://www.treasury.gov/resource-center/sanctions/Programs/Documents/venezuela_gl2a.pdf with https://www.treasury.gov/resource-center/sanctions/Programs/Documents/venezuela_gl2.pdf.

11 "Bolton warns foreigners that violate Venezuela asset freeze," August 6, 2019.

12 "Trump administration threatens penalties on Russia, China for aiding Venezuela's government," August 6, 2019.

13 "Treasury Sanctions Russia-based Bank Attempting to Circumvent U.S. Sanctions on Venezuela," March 11, 2019,

14 Frequently Asked Question #680.

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