On May 21, 2018, President Trump issued an Executive Order imposing further financial sanctions against the Government of Venezuela in response to President Maduro's recent re-election. The new sanctions, which are already effective, prohibit U.S. persons from engaging in certain activities related to the sale by the Government of Venezuela of debt it is owed, accounts receivable, or equity interests in state-owned entities, including oil companies Petroleos de Venezuela, S.A. (PdVSA) and Citgo Petroleum Corporation. The Trump administration has rejected President Maduro's claim of victory in the May 20, 2018 presidential election, and seeks to prevent the Venezuelan regime from enriching itself at the expense of its people by liquidating state-owned assets. This action by the Trump administration reflects a continuing policy of using sanctions to pressure the Government of Venezuela, which began with the imposition of major sanctions in August 2017 and designations of Venezuelan governmental officials ahead of a contested election, on which we previously reported.
The new sanctions prohibit U.S. persons from engaging in all transactions related to or provision of financing for:
- The purchase of any debt owed to the Government of Venezuela, including accounts receivable;
- Any debt owed to the Government of Venezuela that is pledged as collateral after May 21, 2018, including accounts receivable; and
- The sale, transfer, assignment, or pledging as collateral by the Government of Venezuela of any equity interest in any entity in which the Government of Venezuela has a 50 percent or greater ownership interest.
While the previous round of Venezuela sanctions sought to deprive that country of funds by prohibiting U.S. persons from providing credit to Venezuela, the current round seeks a similar goal by preventing the country from selling or collateralizing state-owned assets, including debt and accounts receivable. Notably, these new sanctions do not carve out business with Citgo, unlike the major sanctions introduced in August 2017, including General License 2. This likely reflects the concern of the Trump administration that the Government of Venezuela may be selling accounts receivable or pledging equity interests of Citgo, one of the few remaining healthy companies owned by Venezuela. For example, as the financial crisis worsened in Venezuela in 2016, the Venezuelan government pledged 49.9% of Citgo as collateral to Russian state-owned oil enterprise Rosneft in exchange for a $1.5 billion loan.
These actions come after President Maduro declared victory in a contested May 20, 2018 election in Venezuela. The election’s results were condemned as illegitimate by many U.S.-allied countries worldwide and the Lima Group, a consortium of Latin American countries including Venezuela’s largest neighbors, Brazil and Colombia. U.S. officials reportedly stated that the Maduro administration has been selling debt and accounts receivable held by the Venezuelan government and state-owned enterprises for a fraction of its worth, further exacerbating the financial crisis in Venezuela. President Trump compared the actions of the Venezuelan government to “fire sales” that were liquidating Venezuela’s critical assets that the country will need to rebuild its economy.
These sanctions follow OFAC’s May 18, 2018 designations of Diosdado Cabello Rondón, a leader of the United Socialist Party of Venezuela (the party of Venezuelan President Maduro), and a network of individuals and companies affiliated with Rondón. While the Trump administration continues incrementally to increase pressure on Venezuela, yesterday’s sanctions again fell short of the most severe options that have reportedly been on the table, including a ban on Venezuelan oil exports to the United States or designating PdVSA as a sanctioned entity. However, as the situation in Venezuela remains unstable, additional U.S. sanctions are possible, including these extreme options. Accordingly, U.S. companies should continue to evaluate their exposure to Venezuela and consider the potential effects of additional sanctions. If you have any questions regarding the Venezuela sanctions program or how it may affect your business, please reach out to the contacts listed below.