Categories of Venezuela Sanctions

In addition to the existing set of specific sanctions on Venezuela, President Trump signed an executive order on August 24, 2017, that puts new sanctions on Venezuela, ones that prohibit US citizens from participating in certain transactions with Venezuela. The primary function of these sanctions is to target the government of Venezuela, the oil industry, and the response to the humanitarian crisis taking place in Venezuela. These sanctions are called “sectoral sanctions,” which attempt to sanction specific industries in a specific country. For more information on the categories of Venezuela sanctions, contact a distinguished OFAC sanctions attorney.

Categorizing New Sanctions

The categories of Venezuela sanctions that were imposed in the executive order prohibit US persons from engaging in specific transactions. The first one is any new debt with a maturity of greater than 90 days of Petróleos de Venezuela S.A. (PdVSA), translated as Petroleum of Venezuela, which is the state-owned enterprise that essentially runs the Venezuelan oil industry. The first restriction involves a new debt with the maturity of greater than 90 days with the Petroleum of Venezuela entity, and the second category of prohibition involves other debt situations like new debt with a maturity of greater than 30 days other than the debt of PdVSA and new equity of the government of Venezuela.

This includes any political subdivision, agency, or instrumentality thereof, such as the Central Bank of Venezuela and PdVSA. The second category is a blanket restriction on transactions with the government of Venezuela if the debt matures over to 30 days. According to OFAC, the term “debt” in this new debt includes bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, banker acceptances, discount notes, and bills on commercial papers. The third category prohibited by the executive order covers bonds issued by the government of Venezuela prior to the effective date of the order, which is August 25, 2017.

Understanding the Role of Distributing Profits

The last part of the four categories of Venezuela sanctions covers dividend payments or other distribution of profits to the government of Venezuela from any entity owned or controlled, directly or indirectly, by the government of Venezuela. US persons are also prohibited from purchasing, directly or indirectly, securities from the government of Venezuela. This does not include securities qualifying as new debt not targeted by the above provisions of the order because the debt has a maturity of less than or equal to 90 days for PdVSA or 30 days for the government of Venezuela.

Under this executive order on new sanctions on Venezuela, there are four general licenses which allow for certain transactions to be authorized. The first one is a general license to wind down contracts or end contracts that were effective prior to the effective date of the order, and these transactions are capable of being carried out until September 24, 2017. This means the government is encouraging companies to wind down all of their contracts and agreements with the government of Venezuela and the state oil entity of Venezuela.

Defining General License

General License Two authorizes US persons to engage in transactions in which the only Venezuelan government entities involved are CITGO Capital Holding and any of its subsidiaries. General License Three authorizes US persons to engage in transactions, provide financing for, or otherwise deal in bonds owned or controlled, directly or indirectly, by the government of Venezuela that are specified in the Annex of General License Three and/or were issued prior to the effective date of the order.

General License Four authorizes US persons to engage in certain transactions related to providing financing for or otherwise dealing in new debt related to the export or re-export from the United States or by US persons of agricultural commodities, medicines, medical devices or replacement parts, and components for medical devices to Venezuela.General License Four is a standard category that is typically carved out of most sanctions regimes on targeted for humanitarian reasons.

The United States still permits the sale of agriculture, medicine, medical devices, and parts for medical devices to Venezuela to make sure that humanitarian transactions are still in place. OFAC wanted to clarify that the actions prohibited by this executive order do not block the property or interests of the government of Venezuela and the government of Venezuela will not be added to the SDN list.

Role of Oil Companies

Business dealings and properties in the United States that are already the property of the government of Venezuela or the PdVSA are not blocked, and the US persons do not need to immediately disassociate with this property to abide by sanction law. Instead, the executive order specifically targets the government of Venezuela and the state oil company of Venezuela via sectoral sanction. Most sectoral sanctions require abiding by the 50 percent rule.

This rule states that if any of these entities that are sanctioned, which are the government of Venezuela and the PdVSA, has a company and owns 50 percent or more of that company, that company is also sanctioned under this executive order. This rule is to prevent any subsidiaries or any smaller companies that are not directly named as a sanctioned entity from being sanctioned as well.

There is an existing framework for sanctions already in place against Venezuela and that is under US Arms Embargo and US licensing requirements on exports and re-exports for specific goods. The Arms Embargo involves technology to military end users or for military end uses in Venezuela. Contact an attorney with any questions you may have regarding the categories of Venezuela sanctions.