In his latest step to ramp up pressure on the Maduro regime, on August 5, 2019 President Trump signed Executive Order (“EO”) 13884, Blocking Property of the Government of Venezuela. U.S. persons are now prohibited from engaging in virtually all transactions with the Government of Venezuela. Meanwhile, non-U.S. persons may be exposed to a risk of sanctions if they assist or support the Government of Venezuela, including, for example, providing transportation for goods shipped to or from state-owned entities in Venezuela. This EO adds to the growing list of measures introduced by the United States against Venezuela, including most notably the designation of Petroleos de Venezuela, S.A (PdVSA) (the state-owned oil company) in January 2019, pursuant to EO 13850.
Executive Order 13884
Under EO 13884, the term “Government of Venezuela” includes: (1) the state and government of Venezuela, (2) any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela and Petroleos de Venezuela, S.A., (3) any person owned or controlled, directly or indirectly, by the foregoing, and (4) 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. Therefore, while the EO is not a comprehensive embargo against Venezuela, it does prohibit transactions with a number of entities, some of which might not immediately appear to be state owned.
Non-U.S. persons can themselves be designated if it is determined that they have “...materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person included on the list of Specially Designated Nationals and Blocked Persons maintained by the Office of Foreign Assets Control whose property and interests in property are blocked pursuant to this order.”
In connection with the issuance of EO 13884, the Office of Foreign Assets Control (OFAC) issued 13 new general licenses and amended 12 others.
The new licenses are as follows:
- General License 21 – Entries in Certain Accounts for Normal Service Charges and Payments and Transfers to Blocked Accounts in U.S. Financial Institutions Authorized
- General License 22 – Venezuela’s Mission to the United Nations
- General License 23 – Third-country Diplomatic and Consular Funds Transfers Authorized
- General License 24 – Certain Transactions Involving the Government of Venezuela Related to Telecommunications and Mail Authorized
- General License 25 – Exportation of Certain Services, Software, Hardware, and Technology Incident to the Exchange of Communications over the Internet Authorized
- General License 26 – Emergency and Certain Other Medical Services Authorized
- General License 27 – Certain Transactions Related to Patents, Trademarks, and Copyrights Authorized
- General License 28 – Authorizing Certain Activities Necessary to the Wind Down of Operations or Existing Contracts Involving the Government of Venezuela
- General License 29 – Certain Transactions Involving the Government of Venezuela in Support of Certain Nongovernmental Organizations’ Activities Authorized
- General License 30 – Authorizing Certain Transactions Involving the Government of Venezuela Necessary to Port and Airport Operations
- General License 31 – Certain Transactions Involving the Venezuelan National Assembly, the Interim President of Venezuela, and Certain Other Persons Authorized
- General License 32 – Authorizing Certain Transactions Related to Personal Maintenance of Individuals who are U.S. Persons Residing in Venezuela
- General License 33 – Authorizing Overflight Payments, Emergency Landings, and Air Ambulance Services
Of particular relevance are General Licenses 28 and 30. General License 28 authorizes all transactions and activities that are ordinarily incident and necessary to the wind-down of operations and contracts with the Government of Venezuela that were in effect prior to August 5, 2019. These transactions and activities are authorized until September 4, 2019. Notably, this General License applies only to transactions with persons and entities designated pursuant to the new EO rather than the other Venezuela executive orders (for example EO 13850, pursuant to which PdVSA is designated). Meanwhile, General License 30 authorizes all transactions and activities involving the Government of Venezuela that are prohibited by EO 13884 that are ordinarily incident and necessary to operations or to the use of ports and airports in Venezuela.
The amended licenses are 2A, 3F, 4C, 7C, 8C, 9E, 10A, 13C, 15B, 16B, 18A, and 20A, which reflect the expanded nature of the sanctions now imposed against the Maduro regime.
These new sanctions strike a further blow to the Maduro regime and give OFAC the mandate and legal framework needed to target remaining valuable, money-generating assets of the Venezuelan government. While the sanctions avoid targeting the Venezuelan private sector, and introduce specific licenses authorizing the use of Venezuelan ports and airports, they will still likely stifle Venezuelan trade, as international counterparties may be unable to determine whether their trade has a connection to the Venezuelan government, and financial institutions may be reluctant to process even legitimate payments.
The effect of these sanctions on the international community is relevant because, following issuance of the order, U.S. government officials have explicitly identified the extraterritorial scope of the EO. On August 6, President Trump’s National Security Advisor, John Bolton, stated that “we are sending a signal to third parties that want to do business with the Maduro regime: proceed with extreme caution.” Similar statements with respect to EO 13850 targeting PdVSA preceded OFAC’s sanctioning of four non-Venezuelan entities for “operat[ing] in the oil sector of the Venezuelan economy”. That being the case, we can anticipate further OFAC activity in the coming weeks, including the sanctioning of non-U.S. persons engaged in trades with entities that fall within the definition of the Government of Venezuela.
White House rhetoric in recent months has focused on denouncing Venezuelan trade that has Cuban, Russian, and Chinese connections. While to date, OFAC has only taken direct extraterritorial action with respect to Venezuela–Cuba trade (which presents an easier geopolitical axis to target), it seems it is only a matter of time before the United States attempts to curtail Russian and Chinese economic ties, which will likely prove harder to break.
How Reed Smith can help
Reed Smith’s sanctions team has extensive experience representing companies before OFAC. As a global firm, Reed Smith is particularly well positioned to provide guidance on U.S. sanctions and to represent your company before OFAC and other federal agencies implementing U.S. sanctions – such as the U.S. Department of Commerce and the U.S. Department of State – with highly experienced sanctions lawyers from both the United States and the EU available to you, 24/7. Contact one of the authors listed above or your usual Reed Smith lawyer, and we will be more than happy to help you navigate the implications of these significant events for your business.