On Friday, January 25, 2019, President Trump issued a new Executive Order expanding the current sanctions imposed on the government of Venezuela to target the country’s state-owned oil company Petróleos de Venezuela, S.A. (PdVSA) – its primary source of revenue – and to increase pressure on Venezuelan President Nicolas Maduro to step down. This followed the Trump administration’s announcement on January 23, 2019 to formally recognize Juan Guaidó as the interim president of Venezuela and declare Maduro to be illegitimate. In response to the order, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) on January 28, 2019 placed PdVSA on the Specially Designated Nationals (SDN) List and issued General Licenses that will continue for a specified period of time to authorize certain transactions and activities related to PdVSA and its subsidiaries.
Companies or individuals holding debt with certain entities directly or indirectly affiliated with PdVSA must ensure they are fully aware of these recent developments. Due to these modifications, existing contracts and open obligations should be reviewed to ensure they continue to be structured within the scope of these new General Licenses, and, given this heightened political situation, companies should be prepared for additional actions taken by the Trump administration in the form of additional sanctions or other targeted prohibitions until the Maduro regime is replaced.
In a message sent to Congress on January 28, 2019, the president explained that the new order amends past executive orders concerning sanctions toward Venezuela to now define the government of Venezuela as follows:
“(d) the term “Government of Venezuela” includes the state and Government of Venezuela, any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela and Petróleos de Venezuela, S.A. (PdVSA), 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 foregoing, including as a member of the Maduro regime.”
This modification broadens the definition of what and who is considered part of the government of Venezuela by specifically identifying individuals affiliated with the Maduro regime. Stating that PdVSA has “long been a vehicle for corruption,” Treasury Secretary Steven Mnuchin said that the designation of PdVSA “will help prevent further diverting of Venezuela’s assets by [President Nicolas] Maduro and preserve these assets for the people of Venezuela. The path to sanctions relief for PdVSA is through the expeditious transfer of control to the Interim President [Juan Guaidó] or a subsequent, democratically elected government.” Placement on the SDN List means that all property and interests in property of PdVSA subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them. Mnuchin stated that the U.S. assets of Citgo Petroleum Corporation, a U.S. subsidiary of PdVSA, will be allowed to continue to operate, provided that any funds that would otherwise go to PdVSA be retained in a blocked account in the United States.
Given the potential impact of these actions on U.S. companies and persons, OFAC amended one existing General License and released eight new General Licenses exempting certain U.S. activities involving the government of Venezuela or entities directly and indirectly affiliated with Petróleos de Venezuela, S.A. Below are links to the licenses:
- General License 3A – Authorizing Transactions Related to, Provision of Financing for, and Other Dealings in Certain Bonds
- General License 7 – Authorizing Certain Activities Involving 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 Gasoline 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 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