On August 24, President Trump issued an Executive Order (E.O.) “Imposing Additional Sanctions with Respect to the Situation in Venezuela“. Unlike previous sanctions on Venezuela targeting individuals, the new sanctions specifically target the Government of Venezuela and Petróleos de Venezuela (“PDVSA”), the state-owned Oil and Gas Company. The E.O. also targets, for the first time in an OFAC sanctions program, government issued bonds and securities.
The new E.O. prohibits U.S. persons or persons within the United States from:
- Dealing in new debt with PDVSA and the Government of Venezuela. These new sanctions bear a resemblance to the Sectoral Sanctions targeting Russia. In practice, no new debt can be issued to PDVSA—for a maturity of more than 90 days——or to the Government of Venezuela—for a maturity of more than 30 days. The E.O. defines “new debt” broadly.
- Dealing in bonds issued by the Government of Venezuela prior to the E.O. This is the first time OFAC has imposed a prohibition on U.S. persons from acquiring sovereign bonds. The restriction is however limited, as General License 3 (as discussed below), authorizes the purchase of certain bonds.
- Payment of dividend or other distributions of profits to the Government of Venezuela from entities owned or controlled by the Government of Venezuela.
- Purchasing, directly or indirectly, securities from the Government of Venezuela, unless they can be considered as new debt and have a maturity period of less than 90 or 30 days.
OFAC also issued four General Licenses authorizing certain transaction otherwise prohibited under the E.O.:
- General License 1 provides a wind-down period of 30 days with respect to contracts and other agreements in effect prior to the entry into force of the E.O., on August 25. Such wind-down transactions are subject to a reporting requirement to OFAC. This general license does not apply to distributions of dividends or profits to the Government of Venezuela.
- General License 2 authorizes all transactions provided that the only Government of Venezuela entities involved in the transactions are CITGO Holding, Inc. and any of its subsidiaries. CITGO Holding, Inc. is a subsidiary of PDVSA and has operations in the U.S. This General License, however, does not authorize the payment of dividends to the Government of Venezuela or PDVSA.
- General License 3 encloses a List of Authorized Venezuela-Related Bonds. All transactions related to the provision of financing for, and other dealings in bonds contained on list are authorized. General License 3 further authorizes all transactions related to, the provision of financing for, and other dealings in bonds issued prior to the effective date of E.O, if such bonds were issued by U.S. person entities owned or controlled, directly or indirectly, by the Government of Venezuela, such as CITGO Holding, Inc.
- General License 4 authorizes all transactions related to the provision of financing for, and other dealings in new debt related to the exportation or reexportation 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 the exportation or reexportation is licensed or otherwise authorized by the Department of Commerce.
OFAC issued a list of Frequently Asked Questions, with some questions and interpretations which remain to be clarified. For example, while the E.O. applies to entities fifty percent or more owned by the Government of Venezuela, the E.O. defines “Government of Venezuela” as to include the Central Bank of Venezuela and PDVSA, and any person owned or controlled by, or acting for or on behalf of, the Government of Venezuela. OFAC will need to clarify how to define “controlled by” and “acting on behalf of” the Government of Venezuela.
For details on other sanctions imposed against Venezuelan officials, see Crowell’s Client Alerts on the E.O. issued by President Obama in March 2015, and the Venezuela Sanctions Regulations issued by OFAC in July 2015.
For more information, contact: Cari Stinebower, Jeff Snyder, Dj Wolff, J.J. Saulino, Eduardo Mathison, Mariana Pendás