OFAC Designates Petroleos de Venezuela S.A.; U.S. Expands Sanctions on Venezuelan Government
Additional Measures Also Taken Against Nicolas Maduro Regime
- Pursuant to Executive Order 13850 (E.O. 13850), the U.S. Department of the Treasury's (Treasury) Office of Foreign Assets Control (OFAC) designated Petroleos de Venezuela, S.A. (PdVSA), effectively blocking PdVSA's property and interests in property.
- President Donald Trump has issued an Executive Order (the Amendment) expanding the definition of "Government of Venezuela" under previously issued executive orders relating to the situation in Venezuela.
- The U.S. Secretary of State has taken measures to certify the authority of Venezuela's Interim President, Juan Guaido, including to receive and control certain property in accounts of the Government of Venezuela or Central Bank of Venezuela held by the Federal Reserve Bank of New York or any other U.S. insured banks.
- These actions are expected to curtail commercial activities with PdVSA (including any entities, joint ventures or "empresas mixtas" directly or indirectly owned or controlled by PdVSA). Financial institutions, lenders, companies and individuals that engage in transactions relating to or that operate in the Venezuelan petroleum sector will need to assess the impact of these actions and address any activities that are now prohibited by virtue of PdVSA's designation and the recent expansion of the Venezuela-related sanctions.
The Office of Foreign Assets Control (OFAC) designated Petroleos de Venezuela, S.A. (PdVSA) on Jan. 28, 2019, pursuant to Executive Order 13850 (E.O. 13850) for operating in the oil sector of the Venezuelan economy. PdVSA is a Venezuelan, state-owned oil company and a primary source of Venezuela's income and foreign currency. E.O. 13850 was originally issued on Nov. 1, 2018, and among other things, authorizes the imposition of blocking sanctions on persons determined by the Secretary of the Treasury, in consultation with the Secretary of the State, to:
- operate in the gold sector of the Venezuelan economy or in any other sector of the Venezuelan economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State
- be responsible for or complicit in, or to have directly or indirectly engaged in, any transactions involving deceptive practices or corruption (collectively, Corrupt Practices) and the Government of Venezuela or projects or programs administered by the Government of Venezuela, or to be an immediate adult family member of such a person
- to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any activity or transaction constituting Corrupt Practices, or any person whose property and interests in property are blocked pursuant to E.O. 13850,or
- to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to E.O. 13850
PdVSA's designation effectively blocks all of its property and interests in property to the extent that they come within the possession or control of any United States person (including U.S. financial institutions) and has significant implications for persons that do business with or provide services to PdVSA or any entities, joint ventures or "empresas mixtas" in which PdVSA owns, individually or in the aggregate, directly or indirectly, a 50 percent or greater interest.
Concurrent with this action, OFAC issued various general licenses that authorize certain transactions and activities related to PdVSA and its subsidiaries within specified timeframes.
Amendments to Various Venezuela-Related Executive Orders
On Jan. 25, 2019, President Donald J. Trump issued an Executive Order (the Amendment) taking additional steps to address the national emergency with respect to Venezuela. The Amendment amends several executive orders previously issued relating to the situation in Venezuela, including the following executive orders (collectively, the Executive Orders):
- Executive Order 13850 issued on Nov. 1, 2018, entitled "Blocking Property of Additional Persons Contributing to the Situation in Venezuela"
- Executive Order 13835 issued on May 21, 2018, entitled "Prohibiting Certain Additional Transactions with Respect to Venezuela"
- Executive Order 13827 issued on March 19, 2018, entitled "Taking Additional Steps to Address the Situation in Venezuela"
- Executive Order 13808 issued on Aug. 24, 2017, entitled "Imposing Additional Sanctions with Respect to the Situation in Venezuela" (See Holland & Knight alert, "New Executive Order Ramps Up Sanctions Against Venezuela and Petroleos de Venezuela S.A.," Aug. 28, 2017)
- Executive Order 13692 issued on March 8, 2015, entitled "Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Venezuela"
The Amendment effectively expands the definition of "Government of Venezuela" under each of the Executive Orders to include:
"any person owned or controlled, directly or indirectly, by the foregoing, and any person who has acted or purported to act directly or indirectly for or on behalf of, any of the [Government of Venezuela], including as a member of the Maduro regime."
This change to the "Government of Venezuela" definition was arguably already covered under the previous definition in the Executive Orders because it already included "instrumentalities" and persons "acting for or on behalf of, the Government of Venezuela." However, the new definition appears to have a broader application by using terms such as "acted" or "purported to act" to more clearly capture prior conduct. The new definition also appears to create a new focus on persons that are members of the Nicolas Maduro regime, which together with the Secretary of State's actions certifying the authority of Venezuela's Interim President Juan Guaido (discussed below), suggest an orchestrated initiative by the U.S. government to create a distinction between the Maduro regime and the new, interim administration of the Government of Venezuela.
OFAC has yet to issue formal guidance regarding the interpretation and application of the expanded "Government of Venezuela" definition as it relates to the prior sectoral sanctions imposed under the Executive Orders, but it is expected that this change implemented by the Amendment will result in a broader application of those sectoral sanctions to more parties affiliated with the Government of Venezuela.
Although unclear, this broader application could potentially expose some senior political figures within the Maduro regime, their family members or close associates to the same sectoral sanctions that the Government of Venezuela has been subject to since August 2017.
On Jan. 28, 2019, OFAC amended General License 3 (now General License 3A supersedes and replaces General License 3) "Authorizing Transactions Related to, Provisions of Financing for, and Other Dealings in Certain Bonds," and issued the following new Venezuela-related general licenses in connection with PdVSA's designation:
- General License 7: "Authorizing Certain Activities with PDV Holding, Inc. and CITGO Holding, Inc."
- General License 8: "Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Prohibited by Executive Order 13850 for Certain Entities Operating in Venezuela"
- General License 9: "Authorizing Transactions Related to Dealings in Certain Debt"
- General License 10: "Authorizing the Purchase in Venezuela of Refined Petroleum Products from Petróleos de Venezuela, S.A. (PdVSA)"
- General License 11: "Authorizing Certain Activities Necessary to Maintenance or Wind Down of Operations or Existing Contracts with Petróleos de Venezuela, S.A. (PdVSA)"
- General License 12: "Authorizing Certain Activities Necessary to Wind Down of Operations or Existing Contracts with Petróleos de Venezuela, S.A. (PdVSA)"
- General License 13: "Authorizing Certain Activities Involving Nynas AB"
- General License 14: "Official Business of the United States Government"
Although some of these general licenses authorize certain transactions and activities related to PdVSA and its subsidiaries within specified timeframes, there is some uncertainty regarding the scope, application and interpretation of the general licenses and some of the terms used therein. OFAC is expected to issue supplemental guidance on the some of these actions at a later date.
U.S. Recognizes Guaido as Interim President; Takes Additional Measures to Protect Assets
On Jan. 23, 2019, Michael R. Pompeo, the U.S. Secretary of State, formally recognized Juan Guaido as the new Interim President of Venezuela and requested that the international community and other world organizations do the same. Thereafter, on Jan. 25, 2019, the Secretary of State certified the authority of Venezuela's Interim President Juan Guaido to receive and control certain property in accounts of the Government of Venezuela or Central Bank of Venezuela held by the Federal Reserve Bank of New York or any other U.S. insured banks, in accordance with Section 25B of the Federal Reserve Act.
Pompeo's actions are significant in that they affirm the U.S. government's position as to whom it deems Venezuela's bona fide head of state and its commitment to the new, interim administration. These actions also create various issues and uncertainty regarding the actual and apparent authority of various senior political figures in Venezuela (many of which were appointed by the Maduro Administration or do not recognize Guaido as Venezuela's interim President), senior executives in various state-owned enterprises or "empresas mixtas" owned or controlled by the Government of Venezuela.
For further assistance or answers to questions related to these matters, please contact the authors.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.