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08 February 2019
With the escalating political turmoil in Venezuela, the Trump administration responded – at least in part – by imposing additional sanctions.
On 23 January 2019 Juan Guaidó, the president of Venezuela's legislative body, the National Assembly – and for whom the Trump administration has declared its support – took the oath to serve as Venezuela's interim president in opposition to what he and his allies view as the illegitimate presidency of Nicolás Maduro. While many nations, including the United States, have recognised and expressed support for Guaidó's temporary ascension to power, some nations (eg, Russia and China) have rejected it.
In a strike against Maduro and his closest supporters, the Trump administration announced a new executive order on 28 January 2019, broadening the scope and definition of the 'government' of Venezuela to include persons that have acted, or have purported to act, on behalf of the Venezuelan government, including members of the Maduro regime. This action was likely taken in order to spur defections or at least deter support for the regime among key officials and other persons within and potentially outside Venezuela.
Although it was clear that the imposition of additional sanctions targeting the Maduro regime would form part of the United States' response, there was much speculation about what those sanctions would look like and how far the Trump administration would go.
On 28 January 2019, pursuant to Executive Order 13850, the Office of Foreign Assets Control (OFAC) also announced the designation of Petróleos de Venezuela, SA (PDVSA), Venezuela's state-owned oil company, for operating in Venezuela's oil sector.
President Trump issued Executive Order 13850 in November 2018, prohibiting US persons from dealing with any person designated under the executive order, including the blocking of property of any such person. The purpose of Executive Order 13850 is to target rampant corruption within the Venezuelan government which, according to the US government, has exacerbated "the economic and humanitarian crises afflicting the Venezuelan people".
As a result, US persons are now broadly prohibited from engaging in transactions with PDVSA, including its majority-owned subsidiaries. Previously, PDVSA had been subject to only limited sanctions imposing restrictions on certain debt and equity transactions.
In light of the effect that blacklisting an entity such as PDVSA would have on the United States and beyond, OFAC has rolled out a slew of general licences (summarised below) authorising US persons to engage in certain transactions involving PDVSA and its majority-owned subsidiaries – two of which (ie, PDV Holding, Inc (PDVH) and CITGO Holding Inc (CITGO)) are US entities. The general licences are particularly important as Venezuela is the United States' third largest source of oil imports. The authorisations provided in the general licences cross-reference one another, so it is essential to closely evaluate potential transactions to determine which authorisation applies to a specific transaction.
General Licence 3A
General Licence 3A authorises all transactions relating to the provision of financing for – and other dealings in – certain bonds prohibited by Executive Order 13808 and listed in the licence's annex, and all transactions relating to the provision of financing for – and other dealings in – bonds issued prior to 25 August 2017, by US person entities owned or controlled by the Venezuelan government other than Nynas AB, PDVH, CITGO and any of their subsidiaries.
General Licences 7, 9, and 13, described below, authorise – at least temporarily – certain transactions with Nynas AB, PDVH, CITGO and their subsidiaries.
General Licence 7
Section A of General Licence 7 authorises all transactions prohibited by Executive Order 13850 relating to PDVH and CITGO (including their subsidiaries) where the only PDVSA entities involved are PDVH and CITGO. This authorisation expires on 27 July 2019.
Section B further authorises PDVH and CITGO (including their subsidiaries) to engage in all transactions prohibited by Executive Order 13850 that are ordinarily incident and necessary for the purchase and import of petroleum and petroleum products from PDVSA and its majority-owned subsidiaries. This authorisation expires on 28 April 2019. Any related payments for the direct or indirect benefit of a blocked person other than PDVH and CITGO (including their subsidiaries) must be paid into a blocked, interest-bearing account in the United States.
General Licence 8
This licence authorises all transactions and activities ordinarily incident and necessary to the operations of the following US companies in Venezuela which involve PDVSA:
However, it does not authorise the exportation or re-exportation of diluents from the United States to Venezuela. This general licence expires on 27 July 2019.
General Licence 9
Under this licence, all transactions prohibited by Section 1(a)(iii) of Executive Order 13808 and Executive Order 13850 that are ordinarily incident and necessary to dealings in any PDVSA debt (including its majority-owned subsidiaries and certain bonds in General Licence 9's annex) issued prior to 25 August 2017 are permitted, provided that any divestment or transfer of any holdings in such debt be to a non-US person. This licence also authories all transactions prohibited by Section 1(a)(iii) of Executive Order 13808 that are ordinarily incident and necessary to dealings in any bonds issued by PDVH, CITGO or Nynas AB prior to 25 August 2017. General Licence 9 does not authorise US persons to directly or indirectly sell PDVSA-related debt to, purchase or invest in debt of, or facilitate such transactions with entities blocked by Executive Order 13850, including PDVSA and its majority-owned subsidiaries, other than that ordinarily incident and necessary to the divestment or transfer of PDVSA-related debt.
General Licence 10
General Licence 10 authorises US persons in Venezuela to purchase refined petroleum products for personal, commercial or humanitarian uses from PDVSA and its majority-owned subsidiaries. It does not authorise any commercial resale, transfer, exportation or re-exportation of refined petroleum products.
General Licence 11
This licence authorises a wind-down period for US employees and contractors of non-US entities located in a country other than the United States or Venezuela to engage in transactions prohibited by Executive Order 13850 that are ordinarily incident and necessary to the maintenance or wind down of operations, contracts or other agreements involving PDVSA and its majority-owned subsidiaries. US financial institutions are authorised to reject, rather than block, funds transfers involving PDVSA and non-US entities located outside the United States and Venezuela, provided that:
This general licence does not extend to transactions involving Nicaragua-based PDVSA subsidiary ALBA de Nicaragua (ALBANISA) or its majority-owned subsidiaries. General Licence 11 expires on 29 March 2019.
General Licence 12
General Licence 12 authorises a wind-down period until 28 April 2019 for all transactions prohibited by Executive Order 13850 that are ordinarily incident and necessary to the purchase and importation into the United States of petroleum and petroleum products from PDVSA and its majority-owned subsidiaries. Any related payments for the direct or indirect benefit of a blocked person must be paid into a blocked, interest-bearing account in the United States.
This licence also more broadly authorises all transactions ordinarily incident and necessary to the wind down of operations, contracts or other agreements in effect prior to 28 January 2019, including the import into the United States of goods, services or technology (beyond petroleum and petroleum products) until 27 February 2019. Notably, this licence does not authorise the exportation or re-exportation of any diluents from the United States to Venezuela, PDVSA or its subsidiaries or any transactions with ALBANISA.
General Licence 13
This licence authorises all transactions prohibited by Executive Order 13850 where the only PDVSA entities involved are Nynas AB (a Swedish PDVSA subsidiary) and its subsidiaries. General Licence 13 expires on 27 July 2019. Except as authorised by General Licence 11, any payments for the direct or indirect benefit of a blocked person other than Nynas AB or its subsidiaries that are ordinarily incident and necessary to give effect to authorised Nynas AB-related transactions and that come into the possession of a US person must be paid into an blocked, interest-bearing account in the United States.
General Licence 14
Under General Licence 14, all transactions relating to conducting the US government's official business are allowed.
The situation in Venezuela – as well as further information on the general licences, PDVSA's designation and the new executive order – will continue to be monitored. OFAC has indicated that it will publish additional guidance in the form of FAQs in conjunction with the designation.
For further information on this topic please contact Kay C Georgi, Lamine Hardaway or Regan K Alberda at Arent Fox LLP's Washington DC office by telephone (+1 202 857 6000) or email (email@example.com, firstname.lastname@example.org or email@example.com). Alternatively, contact Marwa M Hassoun at Arent Fox LLP's Los Angeles office by telephone (+1 213 629 7400) or email (firstname.lastname@example.org). The Arent Fox LLP website can be accessed at www.arentfox.com.
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