Today, President Trump issued an Executive Order (E.O.) providing for sanctions against the Government of Venezuela. The sanctions are structured similar to existing sectoral sanctions on the Russian petroleum sector and target financial transactions with the Government of Venezuela.
The new E.O. targets certain long-term financial transactions with the Government of Venezuela, with special considerations for Petroleos de Venezuela, S.A. (PdVSA). Specific prohibitions are as follows:
- Dealings in new debt with a maturity of longer than 90 days by, on behalf of, or for the benefit of PDVSA;
- Dealings in new debt with a maturity of longer than 30 days by, on behalf of, or for the benefit of any other Government of Venezuela entity aside from PdVSA;
- Dealings in new equity issued by, on behalf of, or for the benefit of the Government of Venezuela (including PdVSA);
- Transactions involving bonds issued by the Government of Venezuela prior to the E.O.’s effective date;
- Transactions involving dividend payments or other distributions of profits to the Government of Venezuela by any of its owned or controlled entities; and
- Purchasing any securities from the Government of Venezuela other than securities qualifying as new debt as described above.
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued several general licenses commensurate with the E.O. These general licenses provide for the following permitted activities:
- General License 1 authorizes transactions through September 24, 2017 in order to wind down activities in connection with contracts or other agreements in effect prior to the E.O.;
- Note that U.S. persons relying on this general license are required to submit a report to OFAC within 10 business days of the transaction.
- General License 2 exempts from the prohibitions certain transactions involving CITGO Holding, Inc. (CITGO) and its subsidiaries;
- General License 3 authorizes transactions related to an enumerated list of bonds contained in an Annex to this general license; and
- General License 4 authorizes transactions related to dealings in new debt in connection with exports or reexports of agricultural commodities, medicine, and medical devices to Venezuela.
These new Venezuelan sanctions target financial activities involving the Government of Venezuela but do not restrict imports or exports of oil. In publishing the E.O. and related materials OFAC stated that “the Government of Venezuela is selling assets for much less than they are worth at the expense of the Venezuelan people and using proceeds from these sales to enrich supporters of the regime…The prohibitions and related general licenses are meant to prevent U.S. persons from contributing to the Government of Venezuela’s corrupt and shortsighted financing schemes while mitigating market disruptions and harm to investors.” OFAC also stated that for transactions involving new debt approved by the National Assembly, the U.S. would consider issuing specific licenses to authorize U.S. persons to deal in the issuance.