On August 24, 2017, President Trump signed an Executive Order (“Order”) imposing additional sanctions on Venezuela. The Order states that these sanctions, which primarily target the Government of Venezuela and the Venezuelan oil industry, are in response to the deepening political and humanitarian crisis in Venezuela. The Order adds to a growing list of restrictions that apply to Venezuela, which is already subject to an arms embargo and licensing requirements on exports and reexports of specific categories of goods, software, and technology to military end-users or for military end-uses in Venezuela. The Order also follows the designation as Specially Designated Nationals of various Venezuelan government officials (including President Nicolas Maduro) pursuant to Executive Order 13692 of March 8, 2015 (see prior blog post here regarding this order).
In conjunction with this Order, the US Department of the Treasury’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 Order. Finally, OFAC published new Frequently Asked Questions regarding these restrictions and general licenses.
The Order prohibits “US Persons” (i.e., entities organized under US laws and their non-US branches; individuals and entities physically located in the United States; and US citizens and permanent resident aliens, wherever located or employed) from engaging in any transactions related to, providing financing for, or otherwise dealing in the following:
- New debt with a maturity of greater than 90 days of Petróleos de Venezuela S.A. (“PdVSA”);
- New debt with a maturity of greater than 30 days (other than the debt of PdVSA, which is subject to the 90 day limit discussed above) or new equity of the Government of Venezuela (including any political subdivision, agency, or instrumentality thereof such as the Central Bank of Venezuela and PDVSA as well as any person owned or controlled by, or acting for or on behalf of, the Government of Venezuela);
- Bonds issued by the Government of Venezuela prior to the effective date of the Order (August 25, 2017); and
- Dividend payments or other distributions of profits to the Government of Venezuela from any entity owned or controlled, directly or indirectly, by the Government of Venezuela.
US Persons are also prohibited under the Order from purchasing, directly or indirectly, securities from the Government of Venezuela, other than securities qualifying as new debt not targeted by the above provisions of the Order because the debt has a maturity of less than or equal to 90 days (for PdVSA) or 30 days (for the Government of Venezuela).
OFAC’s FAQs provide examples of what constitute “new debt” and “new equity” for purposes of the Order and clarify that the above prohibitions apply to entities that are 50% or more owned by the Government of Venezuela.
As noted above, OFAC issued four general licenses to authorize certain transactions that would otherwise be prohibited by the Order, as follows:
- General License 1 authorizes US Persons to engage in certain transactions ordinarily incident and necessary to winding down contracts or other agreements that were in effect prior to the effective date of the Order (August 25, 2017) but that would now be prohibited under the Order. Such wind down transactions may be carried out under this general license through September 24, 2017.
- General License 2 authorizes US Persons to engage in transactions where the only Venezuelan government entities involved are CITGO Holding, Inc. and any of its subsidiaries.
- General License 3 authorizes US Persons to engage in transactions related to, provide financing for, and otherwise deal in bonds that (i) are specified in the Annex to General License 3 or (ii) were issued prior to the effective date of the Order by US Person entities owned or controlled, directly or indirectly, by the Government of Venezuela (e.g., CITGO Holding, Inc.).
- General License 4 authorizes US Persons to engage in certain transactions related to, provide financing for, and otherwise deal in new debt related to the export or reexport 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. These exports and reexports must be licensed or otherwise authorized under the Export Administration Regulations, 15 C.F.R. Parts 730-774.