On Friday, March 22, the U.S. Department of Treasury Office of Foreign Assets Control (“OFAC”) announced that it was designating the Banco de Desarrollo Economico y Social de Venezuela (“BANDES”) and any entity in which BANDES owns, directly or indirectly, a 50% or greater interest (“majority-owned entities”). OFAC designated BANDES and its majority-owned entities for operating in the financial sector of the Venezuelan economy, after the Secretary of the Treasury, in consultation with the Secretary of State, determined that persons operating in Venezuela’s financial sector may be subject to sanctions pursuant to Executive Order 13850, as amended by Executive Order 13857.
According to the Department of Treasury press release, BANDES majority-owned entities include:
- Banco Bandes Uruguay S.A. (“Bandes Uruguay”);
- Banco Bicentenario del Pueblo, de la Clase Obrera, Mujer y Comunias, Banco Universal C.A. (“Banco Bicentenario del Pueblo”);
- Banco de Venezuela, S.A. Banco Universal (“Banco de Venezuela”); and
- Banco Prodem S.A.
All property and interests in property of these entities, and of any entities that are owned, directly or indirectly, 50% or more by this entity, that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. OFAC’s regulations generally prohibit all dealings by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked or designated persons.
The designation also led OFAC to announce the amendment of the Venezuela General License 4 and the issuance of four new General Licenses: General License 15 through 18.
Activities and Transactions with Banco de Venezuela and Banco Bicentenario Del Pueblo
Through 12:01 a.m. eastern daylight time, March 22, 2020, General License 4A, General License 15, and General License 16 authorize certain transactions involving Banco de Venezuela and Banco Bicentenario del Pueblo. These general licenses explicitly do not authorize transactions with BANDES or Bandes Uruguay.
General License 4 allowed U.S. persons to participate in financing that otherwise would have been prohibited for transactions involving the export or reexport from the United States or by a U.S. person of agricultural commodities, medicine, medical devices, or such devices’ replacement components to Venezuela or to persons in third countries purchasing specifically for resale to Venezuela. The Amended General License 4A now permits such transactions to involve transactions with Banco de Venezuela and Banco Bicentenario Del Pueblo Banco.
General License 15 authorizes all transactions and activities that are ordinarily incident and necessary to the activities of the following entities, and their subsidiaries, which involve Banco de Venezuela or Banco Bicentenario Del Pueblo:
- MasterCard Incorporated
- Visa Inc.
- American Express Company
- Western Union Company
- MoneyGram International
General License 16 authorizes:
- All transactions and activities ordinarily incident and necessary to maintaining, operating, or closing accounts of U.S. persons in Banco de Venezuela or Banco Bicentenario del Pueblo; and
- All transactions and activities ordinarily incident and necessary to processing noncommercial, personal remittances. Such remittances do not include charitable donations of funds to or for the benefit of an entity or funds transfers for use in supporting or operating a business, including a family-owned business.
General License 16 also permits U.S. financial institutions processing transactions listed in (b) to rely on the originator of a funds transfer, provided that the transferring institution does not know or have reason to know that the funds transfer is not in compliance with (b).
Activities and Transactions with Other Banks
General License 17authorizes all transactions and activities that are ordinarily incident and necessary to the wind-down of operations, contracts, or other agreements involving not only Banco de Venezuela and Banco Bicentenario del Pueblo but also Banco Prodem S.A., provided that those operations, contracts, or other agreements were in effect prior to March 22, 2019. This authorization lasts through 12:01 a.m. eastern daylight time, May 21, 2019.
Finally, General License 18 authorizes all transactions and activities that are ordinarily incident and necessary to maintain or operate Integración Administradora de Fondos de Ahorro Previsional, S.A. (“Integración”), whose fund administrator is owned 50% or more by Bandes Uruguay. Currently, the authorizations under this general license do not expire.
General License 4A and the four new general licenses all state that they do not authorize 1) any transactions with BANDES or BANDES majority-owned entities that are not otherwise authorized by the general license; 2) the unblocking of any property blocked pursuant to Executive Order 13850; or 3) any transaction that is otherwise prohibited by Executive Orders 13850, 13835, 13827, 13808, or 13692.
Businesses should increase their diligence with respect to transactions involving BANDES, including its subsidiaries with whom transactions are currently more broadly authorized (Banco Bicentenario del Pueblo, Banco de Venezuela, Banco Prodem S.A., and Integración). In part, this includes being mindful of the 50% rule, which would bring under these prohibitions any entities 50% or more owned or controlled, directly or indirectly in the aggregate, by BANDES.