Latest Developments on the U.S. Sanctions Front: Venezuela

By Melissa Miller Proctor 

On August 24th, the President signed an Executive Order entitled “Imposing Additional Sanctions with Respect to the Situation in Venezuela” in light of the recent human rights violations, public corruption, repression and persecution of the political opposition, and establishment of an illegitimate Constituent Assembly by the Government of Venezuela (“GoV”). These new sanctions target the government and the Venezuelan oil industry, prohibiting U.S. persons  from providing financing for, or dealing in: 

  • New debt with a maturity greater than 90 days of Petróleos de Venezuela S.A. (“PdVSA”);
  • Other new debt with a maturity greater than 30 days or new equity of the GoV or its political subdivisions, agencies, or instrumentalities such as the Central Bank of Venezuela and PDVSA, and any person owned or controlled by the GoV; 
  • Bonds issued by the GoV; and, 
  • Dividend payments or other distributions of profits to the GoV from any entity it owns or controls (directly or indirectly). 

US companies are also prohibited from purchasing securities (directly or indirectly) from the GoV, other than securities qualifying as new debt not targeted by the above provisions. 

The Executive Order does not require U.S. persons to block the property or interests in property of the GoV, and the GoV has not been added to the List of Specially Designated Nationals and Blocked Persons. The sanctions specifically target bonds and other securities because the GoV is selling assets (including bonds and other securities) for much less than they are worth at the expense of the Venezuelan people, and are giving the proceeds to supporters of the regime. The prohibitions under the Executive Order are intended to prevent U.S. persons from contributing to the GoV’s corrupt financing schemes while mitigating market disruptions and harm to investors.

On August 25th, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued four general licenses authorizing certain transactions involving Venezuela, including transactions to wind down existing contracts that would otherwise be prohibited under the Executive Order. Specifically, U.S. persons are authorized to engage in the following transactions vis-à-vis Venezuela:

  • Transactions ordinarily incident and necessary to winding down contracts or other agreements that were in effect prior to August 25, 2017—such transactions must be completed by September 24, 2017. (General License 1) 
  • Transactions in which the only GoV entities involved are CITGO Holding, Inc. and any of its subsidiaries. (General License 2)
  • Transactions related to, provide financing for, and otherwise deal in Venezuela-related bonds that are specified in the Annex to General License 3, or were issued prior to August 25th by US Person entities owned or controlled, directly or indirectly, by the GoV (e.g., CITGO Holding, Inc.). (General License 3)
  • Transactions related to, provide financing for, and otherwise deal in new debt related to the export or re-export from the United States or by US Persons of agricultural commodities, medicine, medical devices, or replacement parts and components for medical devices to Venezuela, or to persons in third countries purchasing specifically for resale to Venezuela provided that they are licensed or otherwise authorized under the under the Export Administration Regulations. (General License 4)

OFAC also published new Frequently Asked Questions regarding the Executive Order prohibitions and general licenses. 

The new sanctions took effect on August 25th, and are in addition to those imposed back in March 2015, in which President Nicolas Madura and other senior Venezuelan government officials were added to the Specially Designated Nationals List. In addition, exports and re-exports by U.S. companies of certain goods, software and technology destined for military end-use or end-users in Venezuela, are already subject to stringent Commerce Department licensing requirements, and Venezuela is a proscribed country in Section 126.1 of the International Traffic in Arms Regulations.