The latest action permits transactions with the Venezuelan state oil services company and in the secondary bond market for PDVSA debt, but other OFAC sanctions restrictions remain in place.
On October 18, 2023, the Office of Foreign Assets Control (“OFAC”) of the U.S. Treasury Department issued several general licenses to permit U.S. persons to engage in transactions with the oil and gas sector of Venezuela, including Petróleos de Venezuela (“PDVSA”); to trade in secondary Venezuelan debt; and to engage in transactions with the state gold mining company. These actions were taken in conjunction with the U.S. State Department to support the efforts towards democratization that were announced on October 17, 2023, as part of a political electoral reform agreement between the Maduro regime and the opposition Unitary Platform.
What OFAC is Allowing
Through the issuance of General License 44, OFAC is permitting all U.S. persons to engage in transactions with the oil and gas sector of Venezuela. These include the purchase of oil and gas products, new investments in the oil and gas sector (provided they do not involve other sanctioned parties, like Russian companies), and the provision of services to the oil and gas sector. Under this General License, U.S. parties are able to:
- Invest in the oil and gas sectors in Venezuela.
- Purchase oil and gas products from PDVSA.
- Trade in oil and gas products from PDVSA.
- Receive oil and gas from Venezuela as repayment of Venezuelan government debt and PDVSA debt.
- Provide services, such as exploration services, to the oil and gas sector.
- Sell materials required for oil and gas exploration and other activities.
- Provide maritime services for the shipment of Venezuelan oil and gas.
Importantly, the General License only permits these activities for six months unless the license is renewed by April 18, 2024. OFAC has conditioned renewal on progress under the political agreement, including the Maduro regime’s demonstrated compliance with the agreement. While OFAC has in the past repeatedly renewed certain general licenses for some operations in Venezuela, parties contemplating substantial investments should be mindful that there is no guarantee that OFAC will renew General License 44, and if the political situation were to reverse, sanctions could be reinstated.
OFAC also issued General Licenses 31 and 9H to permit secondary trading in Venezuelan sovereign bonds and PDVSA debt issued prior to August 2017. OFAC had already eased restrictions on secondary brokerage activities in such debt but did not allow U.S. persons to acquire an interest in the debt. Under these General Licenses, U.S. parties can provide brokerage and facilitations services in the covered debt and also assume rights in the notes from existing creditors.
OFAC also issued General License 5M, authorizing transactions on or after January 18, 2024, in the PDVSA 2020 8.5% Bond.
OFAC also issued General License 43 to permit transactions involving the Venezuelan state-owned mining company, CVG Compania General de Mineria de Venezuela CA, which had been designated by a presidential executive order as a sanctioned entity.
What Sanctions OFAC Left in Place
OFAC continues to prohibit U.S. persons from engaging in most transactions in the primary market for newly issued Venezuela sovereign debt and PDVSA debt. In addition, OFAC continues to maintain sanctions against certain Venezuela financial institutions and other state-owned assets and property. OFAC also continues to maintain sanctions against numerous individuals closely affiliated with the Maduro regime. These restrictions continue to pose numerous risks for U.S. persons who may wish to engage in business in Venezuela. Therefore, continued due diligence is required before undertaking any transaction involving Venezuelan persons, entities, financial institutions, debt, equity or other assets. Finally, property previously blocked in the United States under OFAC’s Venezuela sanctions remains blocked pending specific authorization from OFAC unblocking the property.
