On August 5, 2019, the President signed a new executive order ( “EO 13884”) that imposes blocking sanctions on the Government of Venezuela (“GOV”). EO 13884 does not impose a trade embargo or broadly prohibit transactions between the United States and Venezuela, and was accompanied by the issuance of several new and amended general licenses (“GLs”) designed to mitigate some of its impact. For example, GLs that authorize U.S. persons to engage in certain activities involving Venezuelan securities or CITGO remain in effect. However, given how broadly the GOV is defined, EO 13884 promises to increase the compliance burden for any transactions involving Venezuela, and to increase the risk for non-U.S. companies engaging in sanctionable conduct by engaging in even ordinary commercial transactions with GOV entities.
Overview of EO 13884
Unlike many other Venezuela sanctions authorities, which impose restrictions on dealing in Venezuelan debt instruments or the provision of financing to GOV entities, EO 13884 is relatively uncomplicated in concept – it imposes full blocking sanctions on the Venezuelan government and all of its owned or controlled entities. Many of those entities – most notably, Petroleos de Venezuela S.A. (“PdVSA”) – were already subject to blocking sanctions by virtue of having previously been added to the List of Specially Designated Nationals and Blocked Persons (”SDN List”) maintained by the Office of Foreign Assets Control (“OFAC”). In this sense, EO 13884 is limited in reach.
However, the potential scope of EO 13884 is broad. That is principally because of two factors. First, EO 13884 includes an expansive definition of the GOV – extending not just to entities owned by the GOV, but also to entities controlled by it or to any persons acting for or on its behalf. Second, EO 13884 authorizes the imposition of sanctions on any non-U.S. entities who materially provide certain financial, material, or technological support to entities blocked pursuant to its authority. That means that non-U.S. companies engaging in even ordinary commercial trade with Venezuela could face a significant risk of being added to the SDN List themselves, to the extent such trade involves the provision of goods, money, or services to the GOV.
New and Amended General Licenses
As if to underscore how far-reaching EO 13884 might become, OFAC also issued 13 new GLs and 12 amended GLs to narrow the scope of its prohibitions. Many of those were technical revisions to ensure that EO 13884 didn’t layer any new restrictions upon previously authorized transactions. For instance, GL 7C was amended so that US persons may continue engaging in transactions with CITGO Holding, Inc., which had previously been subject to blocking sanctions and authorization under GL 7 as a subsidiary of PdVSA, but which EO 13884 also blocked because of its status as a GOV entity. To that end, EO 13884 does not affect:
- U.S. person holdings or divestments of GOV or PdVSA bonds: U.S. persons are still generally authorized to maintain or divest holdings in GOV or PdVSA bonds under GL 3F and 9E, respectively, provided the sales are to a non-U.S. person.
- U.S. person dealings in new debt of PDV Holding, Inc. and CITGO, Inc.: U.S. persons are still authorized to deal in new debt of any maturity, or to purchase new securities from, PDVH and CITGO, pursuant to GL 2A.
- U.S. person dealings with Nynas AB: U.S. persons are still authorized to engage in any otherwise prohibited transactions, where the only GOV entities involved are Nynas AB or its subsidiaries, through October 25, 2019.
- Purchases of PdVSA products by U.S. persons in Venezuela: U.S. persons located in Venezuela are still authorized to purchase refined petroleum products from PdVSA, and to engage in any transactions with the GOV incident to such purchases.
Some of the newly issued GLs, however, apply to discrete transactions and seek to mitigate the collateral impact of the GOV blocking on ordinary Venezuelans. Many of these GLs are boilerplate provisions in OFAC’s “comprehensive” sanctions programs, such as Iran and Syria, but are not often found in more targeted sanctions programs, such as Venezuela – reflecting the level to which the GOV is likely to be entwined in nearly any commercial or noncommercial transaction involving Venezuela. For instance, OFAC authorized:
- Certain transactions necessary related to IP protection in Venezuela: GL 27 authorizes U.S. persons to receive, renew, maintain, and prosecute infringement proceedings related to the protection of patents, trademarks, and copyrights in Venezuela. Without such authorization, U.S. companies could not even have paid license or registration fees to the GOV.
- The exportation of certain services, hardware, and technology incident to the exchange of internet communications: GL 25 authorizes U.S. persons to export certain products and services incident to the exchange of communications over the internet, including exports to the GOV.
- Certain transactions in support of non-governmental organizations’ activities: GL 29 authorizes all transactions involving the GOV that are incident to certain NGO activities in Venezuela, including the payments of taxes, fees, and import duties, or the purchase or receipt of permits licenses, or public utility services from, the GOV. This necessarily means that commercial entities are not authorized to engage in such transactions with the GOV.
Finally, OFAC issued GL 28 to authorize the wind down of operations or pre-August 5, 2019 operations, contracts, or agreements with the GOV, through September 4, 2019. Accordingly, to the extent U.S. persons have activities with the GOV that are not authorized under any of the new or amended GLs, such activities will need to be wound down by September 4 unless a specific license from OFAC is obtained.
Sanctions Implications for Non-U.S. Companies
Although U.S. companies are directly impacted by EO 13884, non-U.S. companies also face significant risk, even where they are engaging in transactions with no nexus to the United States or U.S. persons. This is because EO 13884 includes a provision authorizing the imposition of sanctions on any person who provides financial, material, or technological support to the GOV entities identified on the SDN List. In other programs, such as Russia, OFAC has clarified that similar such provisions (sometimes called “secondary sanctions”) will not apply to non-U.S. persons, to the extent they are engaged in transactions that U.S. persons would not be prohibited from engaging in. Put otherwise, a non-U.S company could not be subjected to sanctions for selling internet communication hardware to the GOV, because GL 25 authorizes U.S. persons to engage in such activity. OFAC has not articulated such a policy under EO 13884, however, and the Administration has publicly threatened to use EO 13884 aggressively against third-country supporters of the Maduro regime.
The U.S. continues to increase sanctions pressure against Venezuela and the Venezuelan government. At the same time, OFAC and other sanctions and export enforcement authorities have assumed a more aggressive enforcement posture in recent months, highlighting the risk for any business continuing to operate in markets such as Venezuela. As the compliance burden continues to increase, companies must be attuned to frequently changing provisions under U.S. sanctions laws, and how they impact their business.
