On August 6, 2019, the President issued an Executive Order imposing new sanctions against the government of Venezuela. This sweeping executive action comes after several rounds of escalating U.S. sanctions against the Venezuelan government in response to the Nicolás Maduro regime’s corrupt practices and human rights abuses. In guidance issued shortly after the Executive Order, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) stated that these sanctions are designed to restrict the Maduro regime’s sources of revenue and hold accountable those who prevent the restoration of democracy in Venezuela. That said, the United States has not imposed a comprehensive embargo against Venezuela, such as the embargoes currently in place against Cuba, Iran, North Korea, Syria, and the Crimea region. For example, the Executive Order does not generally prohibit dealings with Venezuela’s private sector, or with Venezuelan nationals ordinarily resident in Venezuela.
U.S. persons are subject to several prohibitions regarding dealings with certain Venezuelan individuals and entities. Most importantly, the new Executive Order blocks or freezes all property and assets of the Venezuelan government in the United States or in the possession or control of a U.S. person and prohibits U.S. persons from conducting any transactions with the Venezuelan government without prior U.S. Government authorization. The Executive Order defines the “Government of Venezuela” to include “the state and Government of Venezuela, any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela and Petroleos de Venezuela, S.A. (PdVSA), any person owned or controlled, directly or indirectly, by the foregoing, and any person who has acted or purported to act directly or indirectly for or on behalf of, any of the foregoing, including as a member of the Maduro regime.” In other words, these new sanctions apply broadly to include not only all aspects of the Venezuelan government, but also all Venezuelan state-owned or state-controlled companies.
The new Executive Order has potentially far reaching implications beyond the shores of the United States and Venezuela. In fact, the Executive Order allows for OFAC to sanction non-U.S. persons (e.g., EU companies, Central American companies, Cuban companies, etc.) which provide financial, material or technological support for or to the Venezuelan government or its state-owned or state-controlled entities. On August 6, the Trump Administration warned that foreign governments and companies could face consequences if they continue to conduct business with the Venezuelan government. In a speech discussing the new sanctions, U.S. National Security Adviser John Bolton stated, “We are sending a signal to third parties that want to do business with the Maduro regime: Proceed with extreme caution. There is no need to risk your business interests with the United States for the purposes of profiting from a corrupt and dying regime.”
Under new General License No. 28, OFAC has provided a 30-day wind-down period ending September 4, 2019 for individuals and businesses to wind down any dealings or transactions with the government of Venezuela or any of its state-owned or state-controlled companies. In addition, OFAC has issued 12 other new general licenses and 12 amended general licenses. Several of the two dozen plus general licenses authorize U.S. persons to provide humanitarian assistance and support to the people of Venezuela, and certain other general licenses authorize specific types of transactions involving two of Venezuela’s most significant state-owned or state-controlled companies, CITGO Holdings Limited and Petróleos de Venezuela.
Companies with operations or dealings involving Venezuelan counterparties, as well as companies considering M&A transactions with targets that have such Venezuela-related business, should (1) consider how the new partial embargo may impact their business and whether any dealings or transactions must be wound down by September 4 in light of the new Executive Order; (2) conduct thorough due diligence to determine whether potential transactions might directly or indirectly involve the Venezuelan government or its state-owned or state-controlled companies; and (3) continue to monitor for further developments the United States’ rapidly expanding and evolving Venezuela sanctions program.