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:
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.
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):
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:
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.
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.
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