Podcast - Venezuela Sanctions in Practice: What Financial Institutions Need to Know

Stephanie Connor: In January 2026, OFAC (Office of Foreign Assets Control) issued several general licenses for certain oil and gas sector activities in Venezuela, opening the door for certain Venezuela transactions. What's actually happening on the other side of that door? My name is Steph Connor, a partner in Holland & Knight's D.C. office, and today I'm talking to my Partner Andy Fernandez about what companies and financial institutions are experiencing in Venezuela in practice. Are transactions flowing? Where are the bottlenecks? How are banks navigating the compliance landscape alongside the FTO designation? And what should companies be watching for next? This is the candid, practical look at the sanctions reality that every general counsel and compliance officer needs to hear. So Andy, great to have you here today.

Andres Fernandez: Thank you so much, Steph. I agree, it is great to be here, and I want to thank all of you that are joining and listening to this podcast on such an important and very relevant topic on the constantly changing and evolving landscape with respect to the OFAC sanctions and Venezuela. We have a lot to talk about today and there's a lot of things that have changed, and I want to start with that, Steph, as to what's new. A lot, you know, obviously when the general license first started, you know, kind of getting issued in late January and early February, there was a lot of discussion as to what was authorized and what was now permitted, but there's been a lot of new changes, recent changes. Can you kind of walk us through what some of those recent and new changes are?

Stephanie Connor: Yes, you're exactly right. There have been a lot of developments since January 2026. So there are now a dozen new or amended general licenses authorizing a range of activities involving oil and gas, electricity, sectors, minerals – including gold – and now the financial sector. Many of these general licenses overlap, and they include many of the same strict limitations and conditions.

Andres Fernandez: Steph, can you remind us briefly, like, what is actually authorized right now, and what are some of the limitations imposed with what is authorized?

Stephanie Connor: Well, let's start with some of the most recent general licenses, which are some of the most broad and powerful ones. So in mid-March, OFAC issued General License 52, which authorizes transactions involving PDVSA (Petroleos de Venezuela S.A.) – Venezuela state-owned oil company – and its majority-owned subsidiaries by established U.S. entities. And we'll talk a little bit about what that means later on. But generally speaking, this general license filled in some of the gaps from the prior authorizations. It's still restricted to U.S. companies. This language "established U.S. entity" is defined in these executive orders to mean companies that were actually organized under U.S. law on or before January 29, 2025. That's a year before the first post-Maduro OFAC general license. And I think the goal there was to make sure that these are entities that were subject to U.S. law, that had been around for a while and that were generally kind of forcing these transactions into what the U.S. government perceived to be a legitimate channel.

Over the last few weeks, OFAC has continued to expand those authorizations. So OFAC authorized commercial-related negotiations of contingent contracts with the government of Venezuela in General License 56. And then authorized financial service transactions involving certain Venezuela financial institutions and employees of the government of Venezuela. These last two general licenses are not limited to established U.S. entities, which frankly wouldn't make sense given the way that they're structured. And I think one of the key things there is that opening the door to more financial service transactions involving Venezuelan banks was just critically important in terms of, kind of, you know, greasing the wheels of economic activity. You can have these really limited general licenses, but until you give them a little bit more leash in terms of the banks they can use and the way that they can begin to discuss opportunities with the government of Venezuela, it's really hard for companies to engage.

Andres Fernandez: Before moving to a couple of practical considerations, you had mentioned this "established U.S. entity," and I know that that's a point that is always in discussion when you and we are advising clients on the application of these general licenses, and you also mentioned that the established U.S. entity needed to be in place prior to January 29, 2025. Do you have any kind of insight as to why that date was picked? Is that just arbitrary, or what are your thoughts on why? 'Cause I remember when I first read it, I was like, oh, it's interesting, they're going a year back. Do you have some thoughts on that?

Stephanie Connor: Yeah, I mean, it's interesting because of what it says and what it doesn't say. Right. It says established as January 29, 2025, is exactly one year before the first General License 46 was authorized. So you're kind of picking a year mark and with the idea that a company established in the United States before then is, you know, a legitimate and established actor. They don't really give you any more color than that, right? So say you just incorporated in the U.S. state on January 28, 2025, but you have no operations there. You still technically qualify for this provision. It really kind of tries to force things into U.S. jurisdiction, but doesn't give a lot of parameters in terms of how established that company has to be, whether they actually have to have operations in the United States or anything along those lines.

Well, now it's my turn to ask a question, Andy. So in your experience, and I know you're kind of the tip of the spear with a lot of financial institutions in particular that are active in the broader region, are transactions actually flowing underneath the licenses? Or are companies finding it harder than they expected to execute?

Andres Fernandez: That's a great question. Yes, we have been seeing transactions related to the oil and gas space in Venezuela now being processed. But I think we always need to remind ourselves and we always need to kind of take a step back and realize that the sanctions remain in place. The Venezuela sanctions regulations and all the executive orders issued in connection with Venezuela are still in place. The government of Venezuela and PDVSA continue to be blocked. And, you know, the authorized activity is limited to what the general licenses authorize. But as I mentioned in my brief opening remarks, the recent changes, you know, have really opened up real, I think, and serious opportunities for the processing of transactions.

Some practical considerations: I think first of all, for the financial services spaces that we need to recognize that the changes are not happening all at once. As you've seen, these changes have occurred starting in late January, and it seems every week there is either a new general license or a modification of a general license. So I always say it's not the fire hydrant approach, but rather a drip, the surgical approach. The other practical consideration – and I'm sure that many of the participants on this call, this hits home – that these general licenses continue to require financial institutions to conduct due diligence – and I think I would argue significant due diligence – and have robust internal controls, you know, modeled around this activity, because unfortunately, it's very document-heavy. It's not a one-size-fits-all. I wish that I could tell my bank clients, well, if you see this, then do this. But unfortunately, it's very fact-specific and it's very dependent on documentation.

And then finally, I think for the financial services space, it really starts with your customer. You need to understand if and what exposure your customer brings to you with respect to Venezuela. The only way you can comply with these general licenses and monitor for compliance with these general licenses is if you understand what your exposure is. If this is something new for your institution, let's say that you, you know, traditionally have not processed activity either in the oil and gas space or Venezuela, you need to make sure that your risk assessment is updated to include this activity and this risk. Because I could tell you the bank examiners, and I think we may get into this later, some of the challenges, I know the bank examiners are asking that. They're asking, have you updated your risk assessment? Have you considered the fact that this activity now is going to open up to a certain extent, you know, and have you considered it as part of your risk modeling within your institution.

Stephanie Connor: You know, that's super helpful, and I think matches up with my experience, which is, as a lot of these companies are kind of overcoming their initial reluctance to transact in Venezuela, largely just because, you know, frankly, things seem to be trending well, right? We see a lot of tension, of course, but generally positive tone of conversation between the Venezuelan government and the U.S. government. And I think we're all aware as well, because we have an ongoing war in Iran, that kind of weighs in favor for the opening of the Venezuelan market. I think we all expect U.S. decision-makers to be focused on that in the weeks and months ahead. But, you know, getting oil flowing from Venezuela is a lot easier said than done. It means making sure that the lights are on, that people are getting paid, that operating in the country is safe and secure.

And this ties back to what we were just talking about, too. We have certain parts of these licenses that are only for established U.S. entities, but non-U.S. persons are able to provide services and be in involved in a certain kind of downstream activity. But it just really adds a layer of additional due diligence, right? You have to make sure, in many instances, that if you're involved in logistics or shipping or other services that the underlying contract is authorized and actually fits within the contours of these general licenses, and that's much easier said than done. I think, most importantly, under the terms of these licenses, monetary payments owed to the government of Venezuela, including to PDVSA, must be paid into these U.S.-controlled federal government deposit funds. And frankly, this is something that came up at the ACI (American Conference Institute) sanctions conference this week is that for most of the public, the manner in which these funds are being distributed in Venezuela is still pretty opaque. Is that your experience as well, or do you feel like you're getting a better sense of how this money is actually flowing back into Venezuela?

Andres Fernandez: You know, Steph, again, another good point. I think that's the challenge. As the saying goes, that's where the rubber meets the road when it comes to the financial institutions, and that's why, you know, I mentioned that it's really document-heavy. And it's where, you know, we're seeing the banks getting comfortable with processing this activity, but they do want to see invoices, they do want to see bills of lading, they do want to see agreements. They kind of want to make sure that everything fits within the confines of the general license.

One thing that has helped us, and as someone that advises banks and financial institutions, we're always looking for some sort of guidance that says that we can rely, that we could rely on this, we could rely on that. Well, I think OFAC did us a solid, and they issued FAQ 1234, which is kind of easy to remember, where it says that in connection with an institution's normal due diligence – and I think that's where the devil's in the detail – an institution may rely on statements from the customer that the activity is in compliance with [the] general license. In this case, they cite 46. We think that by analogy, we could apply that FAQ to the other general licenses. But I think in my experience and our experience, you know the question is, well, OK, how do we document this reliance? And how can we prove that this reliance is reasonable? And I think over the years we've developed certifications, acknowledgements, something that your customer signs and they acknowledge and they represent to you, the institution, that this activity is in compliance with what the requirements are for the general licenses. And I think because this FAQ cites to an institution's ongoing and normal due diligence, you need to sprinkle and pepper that in with reviewing some of the supporting documentation, reviewing some the underlying agreements. And this is where we can use this risk-based approach to our advantage where we can maybe pick a monetary threshold, that activity above a certain amount, we're going to get additional supporting documentation, etc. So that's where I think the guidance is good, that it gives us something that we can use and then each institution can tailor their internal controls to the risk that they're willing to undertake.

Stephanie Connor: That's a really good point, and it's an interesting moment in time here, too, where OFAC has said this before, right? You can rely on traditional due diligence. And yet, at the same time, we also have this new guidance on sham transactions, which essentially says, you need to look behind legal formalities and really assess whether there is a sanctioned person who is pulling the strings, calling the shots. So I think that we have some difference in the signals that are being sent to companies about, you know, just how much faith they can put in standard commercial due diligence. Essentially being, if you have any indication that there is something amiss, that there is some sort of activity that is not authorized or some person who is not authorized, you should really run that down or risk being held liable yourself.

Andres Fernandez: 100 percent. And along those lines, these general licenses contain certain limitations. We talked about the established U.S. entity. Well, another one says that any agreement entered into with the government of Venezuela and PDVSA must have a U.S. choice of law and venue, choice of venue clause. How do you see that playing out? Is that creating friction?

Stephanie Connor: It does create a friction, but it also gives U.S. companies a little bit of an assist with respect to these contract negotiations. You know, aside from sanctions, there are still some really serious practical concerns about, you know, operating in Venezuela, risks in Venezuela and, frankly, whether they could again face the expropriation of assets and other risks like we saw 20 years ago. So forcing these contracts into your U.S. jurisdiction, where a lot of these issues would be decided by U.S. courts, provides a certain degree of legal protection. So in this sense, I think, while it does create friction, it really helps U.S. companies who are considering moving into Venezuela. And I guess I'll flip that back to you, Andy, while we're on the topic of these restrictions. These licenses also exclude transactions involving entities owned or controlled by persons located in China, Russia, Iran, North Korea and Cuba. So that includes the usual suspects of countries that are subject to comprehensive U.S. sanctions in addition to people in the PRC. How are companies conducting due diligence to satisfy those exclusions, and what does that look like?

Andres Fernandez: You know, again, that's where financial institutions and even commercial entities there, that's really where they're spending their time. As I said, it's very document-heavy. When I speak to the financial institutions, we have this FAQ that has this reliance provision, and how do we document that reliance? Well, the certification. Well, the certification that, you know, we have been developing for our clients, are very detailed certifications. It's not just a one-liner that says, oh, you know, this activity complies with 46.b.52, whatever. We set forth in the certification that none of the activities involved of any of these prohibited jurisdictions. That all the terms that are negotiated are reasonable. We kind of set forth all of the limitations into the certification. But at the same time, the supporting documentation that you are collecting, you can't just put that supporting documentation into a drawer, you know, you need to review it. You need to identify whether any of the payments come from any of these prohibited jurisdictions. That would be a red flag that you need to hunt down and figure out, is this prohibited? Are any of parties, are any of the counterparties located in these jurisdictions? You know, chances are, if any of those answers are yes, it's likely going to be a no-go. So I think from the financial institution standpoint, you know, these are all things that need to be and are incorporated into their ongoing due diligence collection, review and monitoring.

Stephanie Connor: That's a great point, and while we're on the topic of financial institutions, when we last spoke about this, you talked about financial institutions being effectively deputized to enforce sanctioned policy, which certainly resonated with me and I think a lot of other listeners. So do you think that dynamic has changed, or is it still the state of play?

Andres Fernandez: It has not changed, and it's likely only going to get worse. Unfortunately, banks have been deputized, financial institutions have been deputized, not only to be, probably, the front line of sanctions compliance, but as well as anti-money laundering compliance. So I think the banks are somewhat used to it. They've definitely been beat up over the years over it. And I was just recently in Washington for meetings with OFAC, and we were talking about, you know, what are OFAC's enforcement priorities? And what are they looking at and honing in on? And they used an interesting word that we've been seeing thrown around, that they're really focused on the "gatekeepers." Who are the gatekeepers? What are the entities or individuals that are allowing folks access into the U.S. financial markets, the U.S. financial sectors? I think the king of the castle there are banks and financial institutions. So, I think, the banks are viewed as the gatekeeper, so they're going to be held to a higher standard when it comes to OFAC sanctions compliance. And remember, not only do the banks have to answer to OFAC, but the banks answer to their federal banking regulator. And I have seen over the years federal banking regulators, as part of their ongoing exam process, ask the banks about their OFAC compliance, ask the banks about their OFAC filtering and what they're doing. So I don't see that changing, unfortunately, and I do see banks deputized as enforcement of these sanctions.

Stephanie Connor: It's interesting too, because we see a lot of conversation over the last couple of years about this issue of de-dollarization, right, where companies who want to do business with Russia or want to do business with Iran, might kind of try to transact outside of the U.S. financial system and move into crypto, move into other currencies, where perhaps they don't have the same long-arm leash of U.S. regulators. But by forcing these contracts to be governed by U.S. law, by establishing a clear preference for U.S. companies, and by limiting some of the payment terms and the ability to deal in alternative mechanisms, you're really forcing everyone back into the U.S. financial system and almost ensuring that these transactions are being rooted through the U.S. system. So obviously that creates a lot of compliance pain points that banks and financial institutions are dealing with. And at least in my experience, sometimes they're the most conservative when it comes to assessing whether something complies with OFAC sanctions. When I was in the OFAC policy team, we designed the general licenses very intentionally with the idea that that was kind of a surgical approach, that we were, you know, minimizing collateral damage and kind of, you know, maximizing activities that would benefit U.S. national security. But if you had banks who say, well, I don't care what your general license says, I'm not going to engage in a transaction that could put me at risk, particularly if this general license is going to be revoked tomorrow, that means that the sanctions tool isn't necessarily operating the way it was intended. What do you think about that? And I think, you know, backing up a little bit, what are some of those biggest compliance pain points?

Andres Fernandez: Again, great question, Steph, and great point. I think the compliance pain point, first and foremost, is the fear of running afoul of the sanctions and the fear of having some sort of enforcement escalation with OFAC. As we know, OFAC is strict liability. If you process a transaction in violation of the OFAC sanction, it's a violation of law, period. And then we have to start talking about mitigating factors. So I think a pain point is that, just not wanting to have an issue. These sanctions are very complicated, these general licenses are very complicated, it's not easy. So a lot of banks may take the position, well, this represents less than 1 percent of what my activity is going to be, but it's going to be 75 percent of my risk, so I'm not going to do it. There're others that, you know, have more of an appetite because it's a bigger portion of their volume and they have significant investment in internal controls and they feel more comfortable. So I think that is, you know, the pain point. The other pain point that I see is just the delay. To review the activity and come to a determination, including, you know, obtaining supporting documentation, making the consideration, all takes time. And customers want the transaction done yesterday. There is this movement towards instant payments, instant transactions, and I just think that is a huge juxtaposition that banks are found to be in where there's this push for instant payments and it's impossible to comply with the OFAC sanctions instantaneously. So those are some of the pain points that I've seen.

Steph, there's one more definite consideration that I would love to get your thoughts on. We've been talking about the sanctions and the general licenses, but there also are complications raised by some of the FTO designations, specifically Cartel de los Soles, Tren de Aragua and some of the others. And we are now reading that as more of the mining authorizations are issued, some of these FTO designations are going to be more relevant for consideration. And I think, you know, you could take us home with this comment.

Stephanie Connor: Well, you're exactly right. That's the elephant in the room, Andy. You know, OFAC's leash in general licenses do not authorize transactions prohibited by the foreign terrorist organization or FTO sanctions. And there are significant risks, not just in terms of sanctions liability, but criminal liability and civil liability for prohibited transactions involving such FTOs. You know, U.S. criminal laws prohibit the provision of material support or material assistance to FTOs. And that's defined really broadly to include financial services. So that's a huge issue. And I don't think that these FTO sanctions are going away anytime soon. But this isn't just an issue in Venezuela, by the way. This is something, again, that came up at the ACI conference. Recent estimates suggest that a lot of these designated FTO cartels employ one in five people in Mexico. Which is just a huge proportion of the working population. And with respect to Venezuela, we see these really deep connections between the FTOs and the government of Venezuela. I think that this is one of those things, once you use the FTO tool in a region to tackle new challenges, you have to live with the consequences and they're severe and will be really hard to walk back.

Andres Fernandez: Such great points. I think, you know, as you could see, this is an evolving landscape. I think the positive is that there are opportunities to conduct business and process transactions that didn't exist a few months ago. There's definitely an appetite, based on, you know, discussions and representations of banks and financial institutions, there is an appetite to engage in this activity. I just think that everyone right now is taking a cautious approach, which is understandable. I think that some of the takeaways are you need to understand whether you're an institution or you're a company; you need to understand what your exposure is, address your risk assessment, understand these general licenses and what is being authorized and, more importantly, what are the limitations; and then develop your plan, develop your map, develop how you are going to get across the finish line. I think that's going to be the best way to ensure compliance and avoid a problem with OFAC and/or enforcement.

Stephanie Connor: And for a company that's seriously considering a Venezuela transaction, whether it's an oil deal, a mining concession, a services contract, walk us through the compliance checklist. What should they be doing before they engage?

Andres Fernandez: Well, I mean, the devil's in the detail. You need to understand what activity you are seeking to do. Who are going to be your counterparties? Are you going to be dealing directly with the government of Venezuela? Or are you going to be dealing with a third party who is dealing with the government of Venezuela? How are you going to make payments? Are you going to be making payments to the government of Venezuela or are you going to be receiving payments from them? You really need to understand who and what you're going to be dealing with, and then you need to understand what's going to be the flow of funds. Because I think, as you mentioned in some of your remarks at the beginning, you know, these general licenses have clear limitations that any payments to the government of Venezuelan [or] PDVSA have to be made to this fund. So you need to really understand what is going to be the flow of funds and who are the parties that you're going to be dealing with. If you are a financial institution, you need to update your risk assessment and you need develop some sort of certification acknowledgement document that you can use to document and memorialize the reliance that you are undertaking and that reliance is reasonable.

Stephanie Connor: And I would add to that, don't forget that there's now a 10-year recordkeeping requirement that OFAC has in place. So that's in line with the new 10-year statute of limitations. So very important, also important to, when in doubt, call us. Don't hesitate to reach out to qualified counsel. And along those lines, I think one of the things that we're seeing is a lot of companies come in because they want a specific license from OFAC to engage in Venezuela. And even sometimes when we tell them, well, you don't need a specific license, you have a general license. This is either one of two mechanisms OFAC has, right? The general licenses are something that are published publicly on the website, they apply broadly to all who qualify, whereas specific licenses are issued in response to particular applicants. And lots of companies want a specific license, which they can use to show to counterparties and as a kind of a blessing from the U.S. government. But it is really hard for OFAC to manage the incoming license applications. The team is inundated, they're understaffed. They've published these general licenses for a reason. And they really don't like to see requests for activities that are already authorized. So one thing to think through as you're kind of thinking through your engagement plan is don't go into OFAC unless you really need to. You may instead want to have some sort of broader U.S. engagement strategy where you're speaking, not just to the Treasury Department, but other agencies who have a role to play in the way that our relationship with Venezuela is unfolding, but don't make more work for the OFAC licensing team than is absolutely needed.

Andres Fernandez: Those are all great points. I want to thank you all for your time and I hope you enjoyed our podcast. And remember, stay up to date with all these changes, because it seems like the changes are going to continue to come. And so with that, we thank you very much.