[1]The following guest post is from Timothy O’Toole, a Member of Miller & Chevalier, and Abby Cotterill, a Senior Associate of Miller & Chevalier. They focus on sanctions, export controls, and other international regulatory and compliance issues.
In March 2015, the Obama administration imposed economic sanctions against Venezuela arising out of what U.S. officials believed to be serious human rights violations and corruption by Venezuelan law enforcement officials. See more information at this post [2]. Though other sanctions programs [3] such as the Transnational Criminal Organizations program focus on activities in Latin America, the Venezuela program is currently the only program other than the Cuba embargo to focus on a specific country in the region.
The Venezuela program allowed the U.S. Department of Treasury Office of Foreign Assets Control (OFAC) to designate certain Venezuelan officials and entities as Specially Designated Nationals (SDNs)—a determination that effectively would cut the designated persons or entities off from the U.S. financial system and prevent any U.S. person from engaging in transactions with them. Under the executive order issued by the president at the time, any designation would be based on a determination by OFAC that such an official was “responsible for or complicit in, or responsible for ordering, controlling, or otherwise directing, or to have participated in, directly or indirectly,” actions undermining democratic institutions, penalties against free expression, serious human rights violation or engaged in “significant public corruption” (see Exec. Order No. 13,692, 80 Fed. Reg. 12,747 – Mar. 8, 2015). Soon afterwards, OFAC adopted regulations implementing the Venezuela sanctions program, which can be found at 31 C.F.R. Part 591.
At the time the Venezuela sanctions program was created, President Obama’s executive order designated seven Venezuelan government officials as SDNs. These were mostly Venezuelan police officials, intelligence agents, and prosecutors who were believed by U.S. officials to have been implicated in human rights violations or corruption. Following the original designations, over two years passed without an additional designation under the Venezuela sanctions program. Note that, in February 2017, OFAC designated the Venezuelan Vice-President, Tareck Zaidan El Aissami Maddah, as an SDN, but this designation was made pursuant to the Foreign Narcotics Kingpin Designation Act, not the Venezuela sanctions program. On May 18, 2017, OFAC ended this period of inactivity by adding eight members to the SDN list.
According to the press release [4] that accompanied the designations, OFAC determined that these officials were “responsible for a number of judicial rulings in the past year that have usurped the authority of Venezuela’s democratically-elected legislature, the National Assembly, including by allowing the executive branch to rule through emergency decree, thereby restricting the rights and thwarting the will of the Venezuelan people.”
In the press release announcing the sanctions, U.S. Treasury Secretary Steven T. Mnuchin stated, “[t]he Venezuelan people are suffering from a collapsing economy brought about by their government’s mismanagement and corruption. Members of the country’s Supreme Court of Justice have exacerbated the situation by consistently interfering with the legislative branch’s authority . . . [b]y imposing these targeted sanctions, the United States is supporting the Venezuelan people in their efforts to protect and advance democratic governance in their country.” The Venezuelan Supreme Court decisions cited in the U.S. Treasury press release arose over the past six months, and each was described as improperly increasing the Court’s own power and/or the power of Venezuelan President Nicolas Maduro by usurping power from the democratically-elected Venezuelan legislature.
For the individuals subject to the designation, the immediate consequences are that their assets subject to U.S. jurisdiction are frozen and U.S. persons are prohibited from doing any business with them. For companies doing business in Venezuela, the main takeaway is that continuing to deal with these individuals in any way may have serious implications under U.S. law. In addition, the SDN designation applies not only to the individual but also to any entity that is 50 percent or more owned by that SDN, meaning that companies doing business in Venezuela (and especially U.S. companies doing business in Venezuela) must ensure that their compliance program not only screens for transactions involving the named individuals, but also any entities owned by these SDNs. Third, as they expressly link foreign public corruption to the imposition of U.S. sanctions, the Venezuela sanctions highlight the need for companies to have a multifaceted compliance program. Finally, because the situation in Venezuela is extremely volatile and additional sanctions are under discussion in the U.S. Congress and in the executive branch, companies doing business in Venezuela should carefully monitor further actions on this issue.
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