FCPAméricas Blog

Trump Tightens Sanctions against Venezuela

Author: Guest Author

Venezuela UpdateThe following guest post is from Timothy O’Toole, a Member of Miller & Chevalier who focuses on sanctions, export controls, and other international regulatory and compliance issues.

At the end of August, President Trump issued an Executive Order that significantly broadened U.S. economic sanctions against Venezuela. In 2015, the U.S. – through the United States Treasury Department’s Office of Foreign Assets Control (OFAC) – began imposing limited sanctions against the Venezuelan government, targeting a small number of government officials with placement on the list of specially designated nationals. As we noted earlier, the earlier sanctions targeted individual officials, not the government itself, and OFAC had in fact provided guidance suggesting that the placement of an official on the U.S. blacklist did not mean U.S persons were restricted in doing business with that official’s agency – so long as the sanctioned official was not personally involved.

President Trump’s recent Executive Order substantially expanded those sanctions by moving beyond individual government officials and placing much broader restrictions on the Venezuelan government generally. In particular, the Executive Order prohibits U.S. persons (a term of art in the sanctions world that includes U.S. citizens, permanent U.S. residents, U.S. companies, including foreign branches, and individuals who are in the U.S.) from engaging in a number of specific types of transactions with the Venezuelan government: (1) no dealings in new debt with a maturity of greater than 90 days for Petroleos de Venezuela; (2) no dealings in new debt of greater than 30 days or dealings in new equity of the government of Venezuela; (3) no dealings in bonds issued by the government of Venezuela; (4) no dealings in dividend payments and other distribution of profits to the government of Venezuela; and (5) no purchase of securities from the Venezuelan government other than securities qualifying as new debt with a maturity of less than 90 days or 30 days, depending on the type of security.

On its face, these prohibitions effectively cut off the Venezuelan government (including all Venezuelan government instrumentalities, agencies and state-owned companies) from the U.S. financial system and U.S. equity markets. And other provisions in the Executive Order prohibit “causing” a U.S. person to violate the sanctions and/or conspiring with U.S. persons to violate the sanctions. These provisions are ones that have traditionally appeared in other U.S. sanctions programs, and have been used by OFAC and the U.S. Department of Justice to penalize non-U.S. persons who participate in a process in which a U.S. person violates the sanctions. The inclusion of these provisions in the Executive Order means that these new sanctions impose a significant U.S. enforcement risk for anyone – inside or outside the U.S. — doing business with the Venezuelan government.

At the same time the Executive Order was announced, OFAC also adopted some important exceptions. These blanket exceptions – which U.S. regulators refer to as “general licenses” because they provide a blanket permission, without need for an application, to engage in otherwise prohibited transactions under certain circumstances – apply in four different areas. First, OFAC has provided a general license that allows for the winding down of otherwise covered transactions already in effect. Second, OFAC has provided a general license that permits all transactions that would otherwise be prohibited if the only Government of Venezuela entities involved in the transactions are CITGO Holding, Inc. and any of its subsidiaries. Third, OFAC has created a List of Authorized Venezuela-Related Bonds, which allows certain bond transactions that otherwise would have been prohibited by the Executive Order. This bond exception also has specific provisions that relate to CITGO and its subsidiaries. Finally, OFAC has adopted a general license that allows certain types of “new debt” financing of U.S. exports to the Venezuelan government of agricultural commodities, medical devices and replacement parts for medical devices. Note that this last exception requires that the transaction also be licensed or otherwise authorized by U.S. Department of Commerce.

The bottom line is that the new sanctions imposed by the U.S. last Friday are far more extensive and complex than earlier sanctions against Venezuela. The prohibitions are broad, attempting to cut the Venezuelan government off from U.S. debt and equity markets, but also contain important exceptions, especially for transactions involving CITGO. The consequences of violating these sanctions can be severe, as U.S. regulators are empowered to impose significant monetary and criminal penalties against any violator, including against non-U.S. companies and individuals in some circumstances. Companies and individuals attempting to do business in Venezuela, especially with any arm of the Venezuelan government, should tread very cautiously before engaging in future transactions.

The opinions expressed in this post are those of the author in his or her individual capacity, and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author`s employers, other contributors, FCPAméricas, or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.

© 2017 FCPAméricas, LLC

Post authored by Guest

Categories: Energy Sector, English, Venezuela

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