On August 5, 2019, President Trump issued Executive Order 13884 (“Venezuela EO”) blocking all property of the Government of Venezuela (“GOV”), a significant escalation of sanctions against the regime of President Maduro. Statements issued by the White House and State Department indicate that this escalation is meant to target the Maduro regime for its continued abuses of human rights and repression. The US Department of Treasury’s Office of Foreign Assets Control (“OFAC”) concurrently issued 12 amended general licenses and 13 new general licenses, new and revised FAQs, and guidance related to the provision of humanitarian assistance and support to the Venezuelan people.
The Venezuela EO targets only the GOV and entities owned 50% or more or otherwise controlled by the GOV, and thus does not place Venezuela under a full territorial embargo. Transactions with private Venezuelan parties that can be effected without the involvement of the GOV remain permissible.
The new sanctions prohibit virtually all US Person dealings with the GOV by blocking the property and interests in property of the GOV that are in the United States, that come within the United States, or that come within the possession or control of US Persons (i.e., US companies and their branches, US banks, US citizens and permanent resident aliens, any person physically located in the United States). GOV funds, contracts or other property interests that come into the possession or control of US Persons must be blocked and reported to OFAC.
The GOV is defined broadly under the Venezuela EO and includes:
- any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela (“CBV”) and Petroleos de Venezuela (“PdVSA”);
- any person owned or controlled, directly or indirectly, by the foregoing, which potentially expands the reach of the prior sanctions against PdVSA so that they now cover PdVSA affiliates that are less than 50% owned but still controlled by PdVSA; 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.
The Venezuela EO also includes expansive authority to block any other person determined by the US Government to (i) have “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person” who is blocked under the Venezuela EO, or (ii) to be owned or controlled by, or have acted on behalf of any person who is blocked under the Venezuela EO. Thus, even non-US companies could be exposed to the risk of collateral designation as Specially Designated Nationals (“SDNs”) if they materially assist or provide goods or services to GOV entities.
Newly Issued General Licenses
OFAC has concurrently amended and issued numerous general licenses authorizing certain activities by US Persons. Below we highlight several key general licenses.
- Wind Down of Transactions with the GOV
Newly issued General License 28 authorizes all transactions and activities ordinarily incident and necessary to the wind down of operations, contracts, or other agreements involving the GOV that were in effect prior to August 5, 2019. All wind down activities must be completed by September 4, 2019. General License 28 does not extend the authorization of wind-down periods that have expired for PdVSA, CBV, or other GOV entities that were previously designated as SDNs.
- Intellectual Property Related Transactions
Newly issued General License 27 authorizes certain transactions, including payments of fees to the GOV related to the filing, receipt, renewal, maintenance, and prosecution of patents, trademarks, copyright, and other forms of intellectual property. General License 27 does not authorize assignments, licensing or other transfers of intellectual property to the extent such activities involve the GOV, for example, where recordal or the payment of fees is required or where the assignment is to a GOV entity. This general license does not have an expiration date.
- Transactions with the Government of the Interim President of Venezuela
Consistent with the US Government’s official recognition of Juan Guaidó as the Interim President of Venezuela, newly issued General License 31 authorizes US Persons to engage in all otherwise prohibited transactions involving (i) the Venezuelan National Assembly; (ii) the Interim President of Venezuela Juan Guaidó and his representatives and staff; and (iii) any person appointed by Guaidó to the board of directors or as an executive officer of a GOV entity, unless otherwise prohibited under relevant sanctions. This general license does not have an expiration date.
- Transactions Related to Port and Airport Operations in Venezuela
New General License 30 authorizes all transactions and activities involving the GOV that are ordinarily incident and necessary to operations or use of ports and airports in Venezuela. Exports or reexports of diluents, whether directly or indirectly, to the GOV are prohibited. This general license does not have an expiration date.
- Dealings Between Financial Institutions and the GOV
In newly issued FAQ 680, OFAC advises that it expects financial institutions to conduct due diligence on their own direct customers (including, for example, their ownership structure) to confirm that those customers are not persons whose property and interests in property are blocked. With regard to other types of transactions where a financial institution is acting solely as an intermediary and fails to block transactions involving a sanctions target, OFAC will consider the totality of the circumstances surrounding the bank’s processing of the transaction to determine what, if any, regulatory response is appropriate.
In addition, newly issued General License 21 authorizes: (i) US financial institutions to debit any account blocked pursuant to the Venezuela EO or EO 13850 held by that financial institution in payment or reimbursement for normal service charges owed by the owner of the blocked account, and (ii) transfers of funds or credit by US financial institutions between blocked accounts by their branches or offices, as long as no transfers are made from accounts in the United States to accounts outside the United States and provided that the transfer is from one blocked account to another blocked account held in the same name. Normal service charges include charges in payment or reimbursement for interest due; cable, telegraph, internet, or telephone charges; postage costs; custody fees; small adjustment charges to correct bookkeeping errors; as well as minimum balance charges, notary and protest fees, and charges for reference books, photocopies, credit reports, transcripts of statements, registered mail, insurance, stationery and supplies, and other similar items. This general license does not have an expiration date.
- Humanitarian Assistance and Support for the Venezuelan People, Sales of Ag/Med Commodities
OFAC amended General License 20A (authorizing official activities of certain international organizations) and issued several general licenses to ensure the continued flow of humanitarian goods and services to the Venezuelan people including, General License 22 (goods and services related to Venezuela’s mission to the United Nations), General License 23 (authorizing funds transfers related to certain third-country diplomatic/consular funds), General License 24 (transactions involving telecommunications and mail), General License 25 (export/reexport for the exchange of communications over the Internet), General License 26 (emergency and medical services), and General License 29(transactions involving certain activities by nongovernmental organizations). These general licenses do not have an expiration date. OFAC also issued Guidance emphasizing that OFAC will maintain a favorable specific licensing policy for supporting the provision of humanitarian assistance, and all specific license applications will be reviewed on a case-by-case basis.
Amended General Licenses
- Transactions with PDVH, CITGO, and NYNAS AB
Most dealings with PDV Holding, Inc. (“PDVH”), CITGO Holding, Inc. (“CITGO”), and Nynas AB and their subsidiaries continue to be authorized (although still subject to certain limitations) under amended General License 7C (valid for 18 months from the effective date of General License 7C or its subsequent renewal), General License 2A (no expiration), and General License 13C (valid through October 24, 2019).
- Transactions with PdVSA
Amended General License 8C continues to authorize all transactions and activities ordinarily incident and necessary to operations in Venezuela involving PdVSA or its 50%-or-more-owned subsidiaries that are otherwise prohibited by Executive Order 13850 and now the Venezuela EO, for the following entities and their subsidiaries: Chevron Corporation; Halliburton; Schlumberger Limited; Baker Hughes; and Weatherford International. This amended General License 8C does not, however, appear to cover such operations involving PdVSA entities that are less than 50% owned by PdVSA but nonetheless still controlled and now blocked under the new Venezuela EO. (Valid through October 24, 2019.)
Amended General License 10A continues to authorize US Persons in Venezuela to purchase from PdVSA or its 50%-or-more-owned subsidiaries (again, apparently not including entities less than 50% owned but still controlled by PdVSA) refined petroleum products for personal, commercial, or humanitarian uses, but it does not allow the commercial resale, transfer, exportation, or reexporation of those products. It also clarifies that payments of taxes, fees, and import duties to, and purchase or receipt of permits, licenses, or public utility services from, the GOV related to the purchase of such products are authorized. This general license does not have an expiration date.
- Dealings in Debt and Securities
General License 3F was amended to cover transactions otherwise prohibited by the Venezuela EO. US Persons can continue to engage in transactions related to, provide financing for, and otherwise deal in bonds that (i) are specified in the Annex to General License 3F provided that any divestments or transfer of, or facilitation of divestment or transfer of, any holdings in those bonds are to a non-US person; or (ii) were issued prior to the effective date of Executive Order 13808 by US Person entities owned or controlled, directly or indirectly, by the GOV (e.g., CITGO Holding, Inc.). The wind-down of financial contracts and other agreements entered into prior to February 1, 2019 at 4:00 p.m. EST involving the specified bonds is also authorized. (Valid through September 29, 2019.)
General License 9E was also amended to explicitly cover transactions otherwise prohibited by the Venezuela EO. US Persons can continue to engage in (i) transactions that are ordinarily incident and necessary to dealings in any debt of, or equity in, PdVSA or any entity owned 50% or more by PdVSA (but again, apparently not those entities less than 50% owned but still controlled by PdVSA) (together, “PdVSA securities”) issued prior to August 25, 2017, provided that any divestment or transfer of, or facilitation of divestment or transfer of, any holdings in such debts must be to a non-US person, (ii) transactions that are ordinarily incident and necessary to dealing in bonds issued prior to August 25, 2017 by the following PdVSA entities and their subsidiaries: PDVH, CITGO, and Nynas, and (iii) transactions ordinarily incident and necessary to wind-down of financial contracts or other agreements that were entered prior to January 28, 2019 at 4:00 p.m. EST involving PdVSA securities. The latter authorization is valid through September 29, 2019.
- Sales of Ag/Med Commodities
Amended General License 4C continues to authorize US Persons to engage in certain transactions ordinarily incident and necessary to the export/reexport from the United States or by US Persons of agricultural commodities, medicine, medical devices, replacement parts and components for medical devices, and now also software updates for medical devices, to Venezuela or to persons in third countries purchasing specifically for resale to Venezuela. This general license does not have an expiration date.
- Dealings with the CBV, Banco Bicentenario del Pueblo, and Banco del Tesoro
Amended General License 15B and General License 16B now cover Banco del Tesoro (in addition to the previously covered Banco de Venezuela and Banco Bicentenario del Pueblo), but otherwise remain unchanged.(Valid through March 21, 2020.)
- Transactions Related to Integracion Administradora de Fondos de Ahorro Previsional, S.A.
Amended General License 18A continues to authorize certain transactions ordinarily incident and necessary to maintain or operate Integracion Administradora de Fondos de Ahorro Previsional, S.A., whose fund administrator is owned 50% or more by Bandes Uruguay. This general license does not have an expiration date.
All of the above-described general licenses are subject to important terms and limitations. Companies should, therefore, carefully review the amended and newly issued general licenses and other relevant regulations when considering dealings with and/or exports/reexports to or involving Venezuela
The foregoing is intended only to provide a general summary of recent developments regarding the escalation of US sanctions and export controls targeting Venezuela. If you have any questions about how these changes might affect your company or if you require advice on any specific transactions or plans, please contact one of the members of Baker McKenzie's International Commercial Practice Group.