On January 31 and February 1, 2019, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) amended two General Licenses (GLs) relating to the January 28, 2019 designation of Petróleos de Venezuela, S.A. (PdVSA), amended two Venezuela-related Frequently Asked Questions (FAQs), and issued thirteen new FAQs.
The new amendments and additions provide additional guidance for navigating the PdVSA sanctions and clarify, to some extent, the scope of authorization in each of the new GLs.
- General License 3b (“GL3b”): replaces GL3a by authorizing certain transfers and divestment of funds, provided that they must be to a non-U.S. person. Importantly, it adds a new authorization to enable U.S. persons to engage in transactions necessary to facilitating, clearing, and settling trades of holdings in the bonds specified in the Annex, provided that such trades were placed before February 1, 2019, even if the whole trade was not completed prior to the issuance of the GL. Finally, this GL allows until March 3, 2019, transactions that are necessary to the wind down of financial contracts and other agreements (entered into prior to February 1, 2019).
- General License 9a (“GL9a”): replaces GL9 by amending the term, “PdVSA-related debt” to “PdVSA securities,” and authorizing transactions necessary to facilitating, clearing, and settling trades of holdings in the PdVSA securities that were placed before January 28, 2019. GL9a also allows until March 3, 2019, transactions that are necessary to the wind down of financial contracts and other agreements (entered prior to February 1, 2019) linked to PdVSA securities issued prior to August 25, 2017. Lastly, GL9a updates the List of Bonds (Annex) by adding bonds issued by Petrozuata Finance Inc., Cerro Negro Finance Ltd., and La Electricidad de Caracas.
For more information on the original GL3a and GL9 please see our recent client alert.
In conjunction with the Amended GLs, OFAC issued supplemental guidance in the form of FAQs, as follows:
FAQ 595 was amended to (a) state that GL5 remains in effect despite OFAC’s designation of PdVSA, and (b) include guidance on GL9, which authorizes transactions involving certain PdVSA debt, including the PdVSA 2020 8.5 percent bond. FAQ 595 states that U.S. persons who are bondholders would be included under this exclusion.
FAQ 648 defines “maintenance” under GL6 and GL11 to include all transactions that are necessary to continue operations. OFAC further defines the term as including “all transactions and activities ordinarily incident to performing under a contract or agreement in effect prior to the sanctions effective date (in the case of General License 6, January 8, 2019, and in the case of General License 11, January 28, 2019).” It will be key for companies to demonstrate in their transaction history that the transactions it will engage in are consistent and recurring from previous transactions. This FAQ also states that GL6 and GL11 could include renewing contracts if they are ordinarily incident and necessary to contracts in effect prior to the applicable sanctions effective date. However, this FAQ does highlight that U.S. financial institutions may not process transactions that will benefit PdVSA or any entity they possess 50% or more ownership.
The new FAQs provide guidance on the seven newly issued GLs as well as explain the changes and authorizations in the amended GLs:
- Address the expected level of due diligence necessary associated with the transfer of debt under GL9a;
- Address bonds issued by PdVSA or any entity in which it owns, directly or indirectly, a 50% or greater interest;
- Do not allow funds to be bought, sold, or engaged with any entity that appears in OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List);
- Authorize, with certain exceptions, U.S. person employees of non-U.S. entities located in a country other than the United States or Venezuela to engage in transactions and activities prohibited by E.O. 13850 that are ordinarily incident and necessary to the maintenance or wind down of operations, contracts, or other agreements involving PdVSA or entities owned, directly or indirectly, 50% or more by PdVSA that were in effect prior to January 28, 2019;
- State that U.S. persons are allowed to purchase petroleum products from PdVSA as long as funds owed to PdVSA are placed in a blocked, interest-bearing account located in the United States;
- State that U.S. persons in Venezuela are allowed to purchase gasoline products from PdVSA as long as it is done in a blocked, interest-bearing account located in the United States;
- Address cash transactions with PdVSA;
- Address exporting issues, while noting that the GLs do not generally extend to cover transactions with ALBA de Nicaragua (ALBANISA), meaning U.S. persons are generally prohibited from engaging in most transactions with ALBANISA today; and
- Explain that the path to sanctions relief for PdVSA is through a bona fide transfer of control of the company to Interim President Juan Guaidó or a subsequent, democratically elected government.
For more information on the PdVSA sanctions and guidance under any Venezuela-related sanction, please contact the Crowell & Moring team.
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