New Sanctions Targeting Venezuelan Government and State-Owned Entities

September 5, 2017 Advisory

On August 24, 2017 President Trump issued Executive Order 13808 imposing additional sanctions against the Government of Venezuela for human rights abuses, a deepening humanitarian crisis, an attempt to usurp the democratically elected National Assembly, and ongoing repression of political opposition. This comes on the heels of several recent additions by the Department of Treasury, Office of Foreign Assets Control ("OFAC") of Venezuelan Government Officials to the Specially Designated Nationals List ("SDN List"), including the designation of President Maduro on July 31 2017.[1] In 2015, President Obama issued Executive Order 13692 targeting a number of Venezuelan senior governmental officials for their involvement in similar abuses.

The new sanctions, effective 12:01 a.m. August 25, expand the previous sanctions program to restrict U.S. persons [2] from engaging in certain financial transactions with or involving the Government of Venezuela and including entities owned or controlled by, or acting on behalf of, the Government of Venezuela. However, concurrent with the Executive Order, OFAC issued several General Licenses authorizing certain activities that would be otherwise prohibited under the new sanctions, including transactions with Venezuelan-owned CITGO Holding Inc. and its subsidiaries. OFAC also published Frequently Asked Questions regarding the sanctions.

New Prohibitions

Except as permitted by several new General Licenses, the new sanctions against Venezuela prohibit U.S. persons from engaging in or facilitating:

  • Dealings related to new debt with a maturity of greater than 90 days of state-owned oil and gas company, Petroleos de Venezuela, S.A. (PdVSA);
  • Dealings related to new debt with a maturity of greater than 30 days, or new equity, of the Government of Venezuela, with the exception of new debt of PdVSA;
  • Dealings related to bonds issued by the Government of Venezuela prior to the effective date of the order;
  • Dealings related to 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; and
  • Purchasing securities from the Government of Venezuela, other than securities qualifying as new debt of the Government of Venezuela with a maturity of 30 days or less, or new debt of PdVSA with a maturity of 90 days or less. [3]

The newly issued sanctions are not blocking actions and the Executive Order does not add the Government of Venezuela to the SDN List. However, restrictions on dealing in new debt, new equity, bonds, dividend payments, and other distributions of profits cut broadly and should be considered carefully for potential impact on any dealings involving Venezuela. OFAC interprets debt to include bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, bankers' acceptances, discount notes or bills, or commercial paper. Equity includes stocks, share issuances, depository receipts, and any other evidence of title or ownership. Thus, businesses engaged in commercial transactions involving letters of credit or repayment terms extending beyond 30 days will need to understand the limitations of the new restrictions before engaging in transactions with the Government of Venezuela and companies may wish to consider requesting payment in advance for authorized transactions, in order to avoid inadvertently extending credit beyond the authorized period. While a company may offer payment terms up to 30 days out for a commercial transaction involving the Government of Venezuela, if a company anticipates that it will not receive payment within the authorized period, a license or other authorization from OFAC may be required (though not easily obtained).[4] Furthermore, due to the prevalence of state-owned entities in Venezuela and because restrictions against the Government of Venezuela include any entity that is owned or controlled by, or that acts on behalf of, the Government of Venezuela, restricted transactions may be challenging to spot and additional due diligence may be required to prevent unintentional violations of the new sanctions.

General Licenses

Concurrent with the Executive Order, OFAC issued several General Licenses authorizing certain transactions that would otherwise be prohibited by the new sanctions. Notably, all transactions with CITGO Holding, Inc. (a U.S. company that is wholly owned by PdVSA) and its subsidiaries are authorized (GL-2), as are transactions related to certain Venezuelan bonds (GL-3).

  • General License 1 provides a 30-day wind down period to conduct activities ordinarily incident and necessary to winding down agreements now prohibited by the Executive Order.
  • General License 2 authorizes transactions that would otherwise be prohibited provided that the only Government of Venezuela entity involved is CITGO Holding, Inc. (or its subsidiaries).
  • General License 3 authorizes transactions related to certain bonds that are identified in Annex A to the General License.
  • General License 4 authorizes new debt related to the export or reexport of agricultural commodities, medicine, medical devices, or replacement parts and components for medical devices, provided that such transactions are also authorized under the Export Administration Regulations ("EAR"), which, imposes licensing requirements for exports and reexports to Venezuela of certain products subject to the EAR (including certain items subject to the EAR that are intended for "military end-users" or for "military end uses" in Venezuela).[5]

Compliance Challenges

Targeted sanctions such as the new Venezuela sanctions pose unique compliance challenges, including the need for robust procedures to identify targeted entities and to determine whether transactions are within the scope of the prohibitions.

In the case of Venezuela, the challenge could be significant because the government owns or controls potentially hundreds of Venezuelan businesses. OFAC has not published a list of entities considered to be a part of the Government of Venezuela, but it has reiterated that the prohibitions apply to the "Government of Venezuela, its property, and its interests in property, which includes entities owned 50 percent or more, individually or in the aggregate, by the Government of Venezuela."[6] The Order itself defines "Government of Venezuela" broadly to include any person owned or controlled by, or acting on behalf of, the Government of Venezuela. As a result, companies must be vigilant in conducting due diligence of transactions with potential Venezuelan connections.

Additionally, as with other financial sanctions, financial institutions have reporting obligations in cases where a request for a prohibited fund transfer is received, even if the transfer is properly rejected.[7] Thus, financial institutions[8] subject to such reporting requirements will need to ensure a process is in place to properly identify and flag any requests to engage in transactions prohibited by the Venezuela Executive Order to ensure timely and accurate reporting.

[1] In 2017, OFAC has announced additional Venezuela-related Designations on four occasions: May 18, July 26, July 31, and August 9. See OFAC Recent Actions,

[2] U.S. persons are defined to include any "United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States." See August 24, 2017 Executive Order 13808, Section 3(c).

[3] August 24, 2017 Executive Order 13808, Section 1(b).

[4] See OFAC Frequently Asked Questions, No. 419 (OFAC advises companies to contact OFAC to determine whether a license or other authorization will be required if the company anticipates receiving late payment from an entity subject to the Russia Sectoral Sanctions).

[5] See 15 C.F.R. Part 744.21.

[6] Frequently Asked Questions Regarding the Executive Order Imposing Additional Sanctions with Respect to the Situation in Venezuela, 4.

[7] See 31 C.F.R. Part 501.604.

[8] Financial institutions include banking institutions, depository institutions or United States depository institutions, domestic banks, financial institutions or U.S. financial institutions. See 31 C.F.R. Part 501.604.