Developments in Venezuela are raising new considerations for companies with operations in Venezuela and those that are considering business opportunities there, both in the energy sector and beyond. Finding the intersection of risk mitigation and opportunity requires understanding and balancing the legal, geopolitical and practical challenges that lie ahead.
Below are some key takeaways from our recent discussion:
1. Changing legislation
Companies should be prepared for significant changes to Venezuela’s existing legal frameworks around oil, gas and minerals. Potential changes are expected to focus on encouraging participation from private entities in these industries.
For example, Venezuela’s interim president, Delcy Rodríguez, announced impending changes to Venezuela’s hydrocarbon law that would allow easier access for foreign investors. The mining industry is also expected to be subject to increased flexibility.
2. Immigration
Companies planning to send individuals to Venezuela to assess current conditions and opportunities on a short-term basis should consider a transient business visa as opposed to entering into local employment agreements.
While no announcements have been made specifically regarding immigration matters, we could also see increased flexibility or speed in immigration requirements and processes to facilitate investments and broader interest in the economy. It is advisable to monitor developments in this area.
3. Sanctions restrictions
Recent announcements, executive orders and fact sheets issued by the US government seem to be laying the groundwork for relaxing certain sanctions, particularly in the energy sector, but questions remain as to how broad or how layered any relaxation of the rules may be.
At present, Venezuela is not subject to a country-wide US embargo. Sanctions primarily focus on the Venezuelan government and sanctioned parties, or Specially Designated Nationals (SDNs), including key companies and banks such as PdVSA, Minerven, the Central Bank of Venezuela, Banco de Venezuela and certain other banks, and the airline, Conviasa, among others. US and non-US companies looking to invest or do business in Venezuela should conduct robust due diligence and carefully assess any sanctions-related risks and licensing requirements.
The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces the sanctions based on US foreign policy and national security goals.
Sanctions currently apply to any transaction with a US nexus, as follows:
- US persons, meaning US companies and their foreign branches. This does not automatically extend to separately incorporated foreign subsidiaries of US companies.
- US banks, and any transaction in US dollars—even transactions between foreign banks, as these route through the US banking system.
- US citizens and permanent residents, wherever they are located or employed.
With a few exceptions, the sanctions prohibit US persons from dealing directly or indirectly with the Venezuelan government, including state-owned or controlled entities, as well as SDNs (and entities 50% or more owned by one or more SDNs), including in key sectors such as energy, mining, and finance.
Non-US companies also need to consider the implications of US sanctions, including:
- Potential liability for causing US persons to be involved in a transaction that would be prohibited for them, for example, by involving a US bank in a transaction with a sanctioned party.
- The risks of secondary sanctions or being designated as an SDN for providing material support to Venezuelan SDNs.
US export controls under the Export Administration Regulations still apply to anybody exporting or reexporting US and certain non-US goods, software, or technology to Venezuela. Depending on the nature of the items, this may require a license from the Commerce Department. Exports and reexports of items to Venezuelan military end users or end uses will generally require licenses and be denied. Canada, the UK, EU and Switzerland have also imposed sanctions against various parties in Venezuela.
4. Exceptions
Many of the exceptions to current US sanctions involve general licenses provided by OFAC.
If a company can fulfill relevant terms and conditions, general licenses will automatically apply. While there can also be reporting requirements, the onus is usually on the company to ensure compliance with the general license terms.
Some of the existing Venezuela-focused general licenses issued by OFAC focus on:
- Telecoms: permitting communication between Venezuela, the US and other countries
- Intellectual property: enabling companies to deal with the Venezuelan government to register trademarks or patents
- Administration and transactions: allowing companies to pay government taxes or fees, pay for public utilities or pay import duties
- Humanitarian efforts: for selling or sending food, medicines or medical devices to Venezuela
Parties can also apply for specific OFAC licenses as needed.
5. Practical sanctions guidance
For US companies:
- From a sanctions compliance perspective, companies seeking to explore opportunities in Venezuela need to conduct due diligence and ensure that other key players such as banks, insurers and shipping companies are aligned on the overall approach and risk profile.
- While typically there is a level of coordination across US agencies on approvals, this is not always the case with regard to Venezuela, so businesses must ensure they have obtained the proper authorizations from each relevant agency.
For non-US persons concerned about secondary sanctions:
- General licenses issued by OFAC can be a helpful risk barometer as OFAC has traditionally declined to apply secondary sanctions to non-US companies engaging in activities permitted to US persons under general licenses.
- In some cases, non-US companies may consider outreach to the US Department of State to minimize the risk of secondary sanctions.
What’s next?
Parties can strategize, scenario-plan and even travel to Venezuela to assess their options, but caution is required. US persons remain restricted in what they can do, and any sanctions that are relaxed could later be reintroduced.
Consider the optimal location from which to pursue opportunities in Venezuela; companies may want to consider options in Venezuela, the US or other countries, where there may be reduced risk of US primary sanctions applying. Ensure robust due diligence protocols are in place, and look at contractual risk mitigation and consider exit rights in the event sanctions are reintroduced.
For more on the latest announcements on sanctions, export controls, enforcement and related developments, visit our Global Sanctions and Export Controls blog.
For more on the latest announcements on customs, tariffs and related developments, visit our Global Import Blog.