On 5 August 2019 the Trump administration issued Executive Order 13884 (the executive order) imposing sweeping sanctions against the government of Venezuela, including its agencies and instrumentalities as well as any entities owned or controlled by the Venezuelan government (collectively, the GOV). The executive order is effective immediately and bars all dealings with the GOV by U.S. persons, subject to certain exceptions discussed below, including a wind-down period lasting until the end of day on 3 September 2019.
The announcement of the executive order follows a series of economic measures taken by the Trump administration to increase economic pressure on the Maduro regime, as well as Venezuela's trading partners and financial supporters abroad. You can view our previous publications concerning Venezuela sanctions here.
Given the nature of the economy in Venezuela and the involvement of state-owned enterprises, the impact on business is very broad. The new sanctions on GOV do not constitute a comprehensive embargo on the country; however, parties engaged in Venezuela-related business should thoroughly review their Venezuela-related activity to ensure that any continued business in Venezuela is authorized. Both U.S. and non-U.S. companies engaged in dealings with Venezuela, or considering investments in companies with Venezuela-related business, should take note of the newly imposed restrictions, update their compliance programs to reflect such changes, and continue to monitor for additional developments.
Should you have any questions regarding the new Venezuela sanctions, please do not hesitate to contact one of the members of the Hogan Lovells International Trade and Investment group identified on this alert.
Key changes to Venezuela sanctions program
The key changes implemented by the executive order include the following:
- The executive order freezes all assets of the GOV subject to U.S. jurisdiction and prohibits U.S. persons from engaging in activities with the GOV unless exempt or authorized by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC). OFAC has issued a general license authorizing U.S. persons to engage in all activities and transactions necessary and ordinarily incident to wind down of preexisting contracts and operations with the GOV so long as such activities are completed before 4 September 2019.
- The executive order authorizes the
imposition of secondary sanctions on any person (including non-U.S.
persons) found to have done one of the following:
- "[M]aterially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of" any party designated by OFAC as a Specially Designated National (SDN) under this executive order (no such designations have been made to date).
"[A]cted or purported to act for or on behalf of, directly or indirectly," the GOV. As such, there is no broad exposure for non-U.S. persons who may be providing "material support" to GOV but those who act on GOV's behalf could face SDN designation.
- In conjunction with the executive order, OFAC issued new and amended existing general licenses, authorizing certain transactions that are otherwise targeted by prohibitions set forth in the executive order – we discuss these in further detail below.
While this announcement constitutes a major expansion of the Venezuela sanctions program, the United States has not imposed a comprehensive embargo against the entire country of Venezuela and all parties in it. Rather, these blocking sanctions only apply to the GOV, and certain previously permitted activities remain authorized.
It is important to note that the executive order does not prohibit transactions with privately owned entities in Venezuela that do not involve SDN banks or other SDNs. However, as a result of the executive order, conducting business in Venezuela will be even more difficult for both U.S. and non-U.S. parties, given the large role the GOV plays in many sectors of the Venezuelan economy. Moreover, given the broad scope of the executive order, many companies, such as banks, insurers, or logistics providers, may begin to treat Venezuela sanctions as being similarly comprehensive in scope as those targeting Cuba, Crimea, Iran, Syria, and North Korea. Therefore, even companies that can continue to lawfully do business in Venezuela my face numerous practical challenges.
As noted above, OFAC issued and amended a number of general licenses that authorize certain types of activities, including the wind-down of preexisting contracts or operations with the GOV (but NOT with previously designated SDNs). Key general licenses include:
- General License 28: Authorizes all transactions and activities prohibited by Executive Order 13884 that are ordinarily incident and necessary to the wind-down of operations, contracts, or other agreements involving the GOV that were in effect prior to 5 August2019. This general license expires on 4 September 2019, so authorized activities have to be completed before that date. Please note that OFAC's guidance makes it clear that this wind-down does not extend the previously expired wind-down authorization for activities with Petróleos de Venezuela, S.A. (PdVSA); this general license only provides authority for wind-down of activities with GOV entities that are not SDNs.
- General License 4C: Authorizes certain transactions involving GOV and certain SDN banks for the export or reexport of agricultural commodities, medicine, medical devices, replacement parts and components, and software updates for medical devices.
- General License 30 and 33: Authorize use of ports and airports in Venezuela, as well as payments for overflights of Venezuela or emergency landings in Venezuela by aircraft registered in the United States.
- General License 25: Authorizes the exportation of services, software, hardware, and technology incident to the exchange of communications over the Internet, such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, blogging, web hosting, and domain name registration services.
- General License 7C: Continues to authorize all transactions involving CITGO Holding Inc. and PDV Holding Inc., including their subsidiaries (such as CITGO Petroleum Corp.) so long as PdVSA or its entities are not involved. Because this authorization is valid for 18 months since the issuance of this amended general license, the prior expiration date has been extended in practice. This remains an important authorization for these U.S. operations and both U.S. and non-U.S. businesses can transact with CITGO consistent with the terms of this authorization.
The relatively short validity period of several of these general licenses underscores the U.S. government's aim with these sanctions – to isolate the Maduro regime from its international supporters and the U.S. financial system, and to pressure the Maduro regime to cede power to the U.S.-recognized Interim President of Venezuela Juan Guaidó. A summary of the newly issued and amended general licenses is set forth below.
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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.