John E. Smith, John P. Carlin, David A. Newman, Michael V. Dobson, Panagiotis C. Bayz, Felix Helmstädter, Saqib Alam, and Kristofer G. Readling
National Security, CFIUS, Sanctions + Export Controls
Hot on the heels of the “Saturday Surprise,” the Trump Administration initiated “Monday Madness” earlier this week when the President issued new Executive Order (E.O.) 13884 blocking any property and interests in property of the Government of Venezuela (GOV) under U.S. jurisdiction. Per section 6(d) of the new E.O., “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 Petroleos 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.”
At least one newspaper called this action an embargo. Not so; embargoes, at least as they are generally understood by OFAC and the sanctions bar, are comprehensive and prohibit dealings involving not only a country’s government, but its people – individuals and industry alike – as well (at least when it comes to most commercial relations).
What the President imposed on Monday is narrower. Any GOV assets in the United States are frozen (with a few exceptions). And U.S. persons generally cannot deal with the GOV anymore (again, with a few exceptions discussed below). But if Jhovanna in Caracas wants to open an online account at a U.S. bank, and Jhovanna herself is neither individually sanctioned nor acting on behalf of the GOV or another sanctioned party (and no other sanctions prohibitions apply), then the U.S. bank has no duty to reject her business the way it would if Jhovanna were located in Cuba or Iran, for example. The new sanctions do not target Jhovanna and other regular Venezuelan people. New FAQ 680 says this explicitly. Whether a U.S. bank is willing to take on any perceived lingering sanctions risk and open the account for Jhovanna, however, is a far different story.
The day after the President issued the new E.O., the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published a slew of new and amended general licenses (GLs), bringing the total number in the program to a staggering 29 – almost as many GLs in the Venezuela sanctions program alone as there are U.S. sanctions programs.
The amendments to the existing GLs – 12 in total – prevent the GOV blocking from interfering with activity OFAC authorized and intends to allow to continue. In most cases, the amendments constitute a simple addition of the words “or E.O. of August 5, 2019” to the list of legal authorities against which the relevant license authorizes. OFAC added this language to amended GLs 2A (debt, equity, and securities transactions involving PDV Holding, Inc. and CITGO); 3F (Venezuelan government bonds); 4C (agricultural and medical); 7C (activities involving PDV Holding, Inc. and CITGO); 8C (certain entities in Venezuela); 9E (PdVSA securities); 10A (refined petroleum products); 13C (Nynas AB); 15B (certain entities involved with certain banks); 16B (maintaining U.S. person accounts and remittances involving certain banks); 18A (Integración Administradora de Fondos de Ahorro Previsional, S.A.); and 20A (international organizations). We discussed what many of these GLs authorize in our past client alerts about OFAC sanctioning PdVSA and Venezuela’s national development bank, but OFAC has since changed some of them, so make sure to review the latest versions.
Among the 13 new GLs, the one most likely to be of interest to a broad spectrum of readers is GL 28. GL 28 generally authorizes all transactions and activities ordinarily incident and necessary to winding down operations, contracts, or other agreements involving the GOV that were in effect before August 5, 2019. GL 28 currently expires on September 4, 2019, does not extend wind-down periods authorized under other GLs (per new FAQ 681), and does not license against any E.O. other than E.O. 13884. U.S. persons therefore cannot rely on this GL to engage in activities that, for example, E.O. 13850 prohibits.
Another GL of potentially broad interest is GL 31, which demonstrates Trump Administration support for Venezuelan Interim President Juan Gerardo Guaidó Marquez. The GL authorizes all transactions prohibited under the new E.O. that involve Interim President Guaidó, the Venezuelan National Assembly, and their assorted staff and appointees. The GL also authorizes against E.O. 13850 to permit all transactions involving anyone Interim President Guaidó appoints to the board of directors or as an executive officer of a GOV entity. As with GL 28, GL 31 does not license against any unspecified E.O. prohibitions. The GL also explicitly states that it does not apply to transactions involving the Venezuelan Constituent Assembly.
We can divide the rest of the GLs into two general buckets: administrative GLs and humanitarian GLs.
“Administrative GLs” allow U.S. persons to engage in routine, often unavoidable transactions with the Venezuelan government that matter little to the GOV but a lot to the U.S. person involved. These GLs authorize U.S. persons to deduct normal service charges from blocked accounts (GL 21); transact to provide goods and services to Venezuela’s mission to the United States (GL 22); process funds transfers for third-country diplomatic and consular missions in Venezuela (GL 23); engage in certain transactions related to protecting intellectual property (though paying in Venezuela’s “Petro” digital currency, which some have reported is a requirement for IP protection in Venezuela, remains prohibited under E.O. 13827) (GL 27); engage in transactions and activities ordinarily incident and necessary to operate or use Venezuelan ports and airports (GL 30); maintain themselves as residents of Venezuela (GL 32); and receive (and pay for) services related to overflights and emergency landings, as well as engage in transactions necessary to provide air ambulance and related medical services (GL 33).
As one might expect, “humanitarian GLs” are those that primarily benefit the Venezuelan people. These authorize U.S. persons to engage in transactions incident to sending and receiving telecommunications (GL 24); export and reexport items incident to exchanging communications over the internet (GL 25); provide and receive medical services (GL 26); and engage in transactions ordinarily incident and necessary to specified nongovernmental organization activities (GL 29). Along with the GLs, OFAC also issued supplemental guidance on providing humanitarian assistance and support to the Venezuelan people.
At the time of publication, none of the administrative or humanitarian GLs contains expiration dates, but they are all fairly detailed, so anyone interested in taking advantage of them should review them thoroughly before proceeding.
Blocking the GOV – or at least the portion that Interim President Guaidó doesn’t control, which is most of it – is a big step in the Venezuela sanctions program. It means one less option for imposing meaningful economic pressure on the Maduro regime at a time when such options are already in short supply. A full embargo – with full import and export bans – seems unlikely given the potential for disproportionate harm to the Venezuelan people, but it is not outside the realm of possibility, especially if Maduro continues to maintain his hold on power for an extended period. More likely, the Administration will make extensive use of the “material support” designation prongs in the various Venezuela-related Executive Orders to further chill international commerce that benefits the Maduro regime by sanctioning those parties that continue to engage in it (particularly in situations that also involve Cuba). While OFAC does not consider these “secondary sanctions,” the effect is largely the same.
Notably, the material support prong in the latest E.O. only applies to parties identified on the OFAC List of Specially Designated Nationals and Blocked Persons (the SDN List). The GOV is not on that list. The Administration therefore seems to intend to use the prong to target parties that OFAC, in consultation with the State Department, identifies as providing material support to persons owned or controlled by, or acting or purporting to act for or on behalf of, the GOV – a class of persons on which the new E.O. also authorizes the traditional blocking sanctions.
Thus, while dealing with the GOV does not appear to trigger U.S. sanctions automatically, acting on its behalf or supporting parties that do is probably a bad idea, particularly as the Trump Administration doubles down on its efforts to force Maduro from power.
©1996-2019 Morrison & Foerster LLP. All rights reserved.