On April 23, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued General License (GL) 14 in its Ukraine/Russia sanctions program.

According to a Treasury press release, GL 14 “authorizes U.S. persons to engage in specified transactions related to winding down or maintaining business with United Company RUSAL PLC (RUSAL) and its subsidiaries until October 23, 2018. In accordance with preexisting OFAC guidance, OFAC will not impose secondary sanctions on non-U.S. persons for engaging in the same activity involving RUSAL or its subsidiaries that General License 14 authorizes U.S. persons to engage in.”

Treasury Secretary Steven T. Mnuchin said, “RUSAL has felt the impact of U.S. sanctions because of its entanglement with Oleg Deripaska, but the U.S. government is not targeting the hardworking people who depend on RUSAL and its subsidiaries.  He added, “RUSAL has approached us to petition for delisting. Given the impact on our partners and allies, we are issuing a general license extending the maintenance and wind-down period while we consider RUSAL’s petition.”

In addition to extending the time period until October 23, 2018, GL 14 also expands the existing authorization in GL 12 by authorizing (a) the disbursement of previously blocked funds for specific maintenance and winddown activities, (b) new payments to RUSAL not to be made into blocked accounts, and (c) exports from the United States to RUSAL. GL14 is still, however, subject to many of the same conditions as apply to GL 12, including (a) the transactions must relate to “operations, contracts, or other agreements” in place prior to April 6, 2018 and (b) U.S. persons utilizing the authority must file a report with OFAC within 10 days of GL 14’s conclusion.

In addition to General License 14, today OFAC also published several FAQs regarding to the general license’s authorizations and limitations, and issued an amended General License 12A (Authorizing Certain Activities Necessary to Maintenance or Wind Down of Operations) that reflects the expanded RUSAL-related authority in GL 14.

Per a press release, on April 6, “the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), in consultation with the Department of State, [ ] designated seven Russian oligarchs and 12 companies they own or control, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary, a Russian bank.”

In addition to new Ukraine/Russia-related designations, two persons were also designated pursuant to the Government of Syria authorities.

OFAC also issued the following two Ukraine-/Russia-related general licenses in connection with these designations:  General License 12 “Authorizing Certain Activities Necessary to Maintenance or Wind down of Operations or Existing Contracts”; and General License 13 “Authorizing Certain Transactions Necessary to Divest or Transfer Debt, Equity, or other Holdings in Certain Blocked Persons”.

Finally, OFAC published eight new FAQs related to its April 6 action and published one updated FAQ related to the Countering America’s Adversaries Through Sanctions Act (CAATSA).

 

On March 19, President Trump issued an Executive Order (E.O.) “Taking Additional Steps to Address the Situation in Venezuela.” This E.O. aims to take further action against the Venezuelan Government’s newly issued cryptocurrency—Petro.

Previously, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) had issued a Frequently Asked Question (FAQ) to clarify that its existing prohibitions against extensions of debt/credit to the Government of Venezuela would likely prohibit U.S. persons to transact in the petro given its structure.

In the new E.O., the United States has gone further to simply prohibit all such transactions. Specifically, the new E.O. prohibits U.S. persons (defined to include U.S. citizens and permanent residents, U.S. companies including foreign branches, and persons in the United States) from engaging in:

  1. Any transaction associated with any digital currency, digital coin, or digital token, issued by, for, or on behalf of the Government of Venezuela, on or after January 9, 2018; and
  2. Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set in this E.O.

The E.O. defines the term “Government of Venezuela” (GoV) as any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela, and Petróleos de Venezuela (PDVSA), as well as any person owned or controlled by, or acting for or on behalf of, the GoV.

In addition, OFAC released new Frequently Asked Questions (FAQs) related to this E.O., and separate new Digital Currency-related FAQs.

On March 22, President Maduro announced a redenomination of Venezuela’s fiat currency, “Bolívar Fuerte,” into a new currency called “Bolívar Soberano.” The “new” bolívar is expected to remove three zeros from the current bills once released. Notably, one of OFAC’s new FAQs clarified that the Bolívar Fuerte is not considered a digital currency for purposes of the new E.O. and therefore U.S. persons are not prohibited to transact with the Bolivar Fuerte. OFAC has not, however, specifically addressed transactions in the Bolivar Soberano. However, given that very similar—if not identical—measures were instated by the GoV in 2008 when late-president Chávez announced the redenomination of the “Bolívar” into the Bolívar Fuerte, it is likely that OFAC would take the position that the Bolívar Soberano and Bolivar Fuerte would be considered equivalent “traditional fiat currencies” pursuant to its regulations and would not be covered by the new E.O. Nevertheless, in view of the escalated sanctions on Venezuela, companies should continue to monitor closely any future measures by OFAC.

OFAC Designates Four Venezuelan Officials

OFAC also added four individuals associated with Venezuela’s Treasury and other government agencies to its Specially Designated Nationals (SDN) List pursuant to pre-existing authorities, as follows:

  • William Antonio Contreras—Vice Minister of Internal Commerce and Superintendent for the Defense of Socioeconomic Rights (SUNDDE)
  • Nelson Reinaldo Lepaje Salazar—Acting in the Capacity of the Head of the Office of the National Treasury
  • Américo Alex Mata Garcia—Alternate Director of the National Bank of Housing and Habitat
  • Carlos Alberto Rotondaro Cova—Former President of the Board of Directors of the Venezuelan Institute of Social Security (IVSS)

For the latest news, please subscribe to Venezuela Sanctions on Crowell’s International Trade Law Blog.

On March 15, the Office of Foreign Assets Control (OFAC) designated as Specially Designated Nationals (“SDNs”) 2 new persons under an existing Obama-era cyber Executive Order, and 13 new persons under new authority granted by the Countering America’s Adversaries Through Sanctions Act (CAATSA). This was the first time OFAC has utilized any of the multitude of CAATSA authorities to designate new SDNs.

The agency also updated nine previously sanctioned persons, adding the Cyber and/or CAATSA designations.

As background, CAATSA Section 224 requires the imposition of asset blocking sanctions on a person the President determines “knowingly engages in significant activities undermining cybersecurity” on behalf of the Government of Russia.

These actions are closely linked to the recent Mueller indictment of Russian persons for allegedly interfering with U.S. elections. All 15 defendants in that indictment have now been designated as SDNs: three of them were previously designated (but have now been re-designated under a second authority) and the 12 others were newly designated as part of this action. Specifically, the Internet Research Agency LLC is named in the indictment, as are 11 individuals linked to the company.

OFAC amended Cyber General License No. 1, “Authorizing Certain Transactions with the Federal Security Service” (GL 1), and reissued it as Cyber General License No. 1A (GL 1A). GL1A has the same net effect as GL1 insofar as it authorizes transactions, subject to certain conditions, with the Federal Security Service (a.k.a. Federalnaya Sluzhba Bezopasnosti) (a.k.a. FSB) related to certain licensing and authorization functions that the FSB performs. The only change under GL1A was to clarify that the authorization continues to apply despite the FSB’s new designation under CAATSA Section 224 (i.e., GL1A authorizes transactions otherwise prohibited by both the Cyber sanctions and Section 224).

OFAC also published four updated FAQs relating to GL 1A and one updated CAATSA-related FAQ related to this action.

Venezuela has frequently been in the news lately, not only because of domestic politics, but also because of sanctions and bribery enforcement actions brought by U.S. authorities. In this podcast, Crowell & Moring’s Cari Stinebower, Dalal Hasan, Eduardo Mathison, and Mariana Pendás provide an overview of recent political and enforcement developments in Venezuela and explain what U.S. companies need to know about how these developments could impact business and trade ties with Venezuela.

Discussed in this 23-minute podcast:

  • An overview of the political situation in Venezuela.
  • Implications of U.S. and EU current sanctions targeting Venezuela and the potential for new sanctions.
  • FinCEN guidance on identifying corruption and money laundering red flags from Venezuela transactions.
  • Legal protections and International Dispute Resolution options for companies provided in Bilateral Investment Treaties (BITs) signed by Venezuela.
  • Takeaways for companies with business ties to Venezuela.

Click below to listen via the embedded player or access from the link:
SoundCloud

Within the last month, both the United States and European Union have decided to extend the authorities underpinning some or all of their Russia-related sanctions programs.

For the United States this involved renewing the “national emergency” finding that provides the basis for each of the Russia-related Executive Orders while in the European Union this involved renewing several of the authorities that are only implemented for six or 12 months at a time.

The tables at the links below identify the relevant authority, most recent extension, and next extension deadline by jurisdiction.

For U.S. Russia-related Sanctions information, please click here.

For EU Russia-related Sanctions information, please click here.

 

 

The U.K.’s Office of Financial Sanctions Implementation (OFSI) started a new sanctions blog on 1 March.

In the About section, OFSI states “this blog will keep you informed about financial sanctions events, changes to our guidance and topical issues.”

This could prove to be a very useful resource for companies in light of OFSI’s new ability to impose monetary penalties under the Policing and Crime Act of 2017.

 

In the Federal Register on March 5, OFAC amended and reissued the North Korea Sanctions Regulations in its entirety to implement three recent Executive Orders and to reference the North Korea Sanctions and Policy Enhancement Act of 2016 and the Countering America’s Adversaries Through Sanctions Act.

The agency is also incorporating into the reissue:

  • Several general licenses which until now have only appeared on OFAC’s website on the North Korea Sanctions page;
  • Several new general licenses; and
  • New definitions, interpretations, and general licenses that were not previously provided on OFAC’s website have been added to flesh out the regulations, including incorporating several general licenses typically included in OFAC’s other programs (e.g., related to the provision of legal services, work with international agencies, or on behalf of the U.S. government)

OFAC has also published new and updated North Korea-related FAQs.

 

 

On February 20, the Secretary General of the Organization of American States (OAS), Luis Almagro, called for more and harsher sanctions on Venezuela. Almagro proposed broader sanctions on the country in addition to the current financial and individually-targeted sanctions. This includes the country’s oil industry.

In addition to Almagro, U.S. Secretary of State Rex Tillerson has said the United States is contemplating sanctioning Venezuela’s oil industry with possible import and export restrictions on state-owned Petróleos de Venezuela (PdVSA). Because many countries in Central America and the Caribbean have long benefitted from subsidized oil from Venezuela, any such sanctions would affect other governments in the region. Tillerson reportedly believes this could lead to a “new kind of relationship” that will help Caribbean nations achieve energy independence and reduce Venezuela’s political capital in the region.

On the same day the OAS Secretary called for more sanctions, the Government of Venezuela (GoV) announced the pre-sale of petro. The petro is Venezuela’s new digital cryptocurrency backed by PdVSA produced oil—one petro is the equivalent of one Venezuelan oil barrel. The new currency has generated controversy both in Venezuela and around the world. The Venezuelan opposition-led National Assembly considers the project illegal because it was not approved legislatively. Commentators also have warned that reliance on the petro is risky because of PdVSA’s current low production rate. According to recent reports, PdVSA’s oil production has fallen to its lowest level in almost 30 years.

The U.S. Treasury’s Office of Foreign Assets Control (OFAC) has already stated that purchasing petros could be seen as a credit extension to the GoV, and thus may be exposed to U.S. sanctions risk.

For more on OFAC and the petro cryptocurrency, please see Crowell’s previous blog post.

The GoV recently announced that it raised $735 million from petro cryptocurrency sales on the first day. If successful, the petro could set a precedent for other sanctioned countries, although it is likely to be closely monitored by the U.S. Government and other key stakeholders in the region.

In addition, on February 12, the Department of Justice unsealed an indictment targeting five former GoV officials relating to their scheme to process outstanding invoices PdVSA owed to its suppliers. The indictment illustrates the potential corruption exposure suppliers to PdVSA may face in trying to collect on over-due invoices. The scheme involved using front companies and promises to expedite payments for overdue invoices.

The combination of the corruption risk companies face when engaging in even pre-sanctions transactions with PdVSA and other GoV state-owned enterprises and the sanctions exposure makes doing business in Venezuela extremely risky from a sanctions, money laundering, and corruption perspective.

On February 5, the U.K.’s Chancellor of the Exchequer was asked the following:

“How many suspected breaches of financial sanctions were reported to the Treasury’s Office of Financial Sanctions Implementation (OFSI) in 2017; what the value was of those breaches; and how many investigations into breaches, by sanctions regime, have (a) been opened and (b) are ongoing since new powers to impose penalties under the Policing and Crime Act entered into force.”

Initially, the government reported 118 suspected breach cases worth £117 million had been reported to OFSI.

Now less than two weeks later they have revised the answer to 133 breach cases worth £1.4 billion.

Regarding the last question, the government said “as of April 2017, a total of 103 suspected breaches have been reported to OFSI since OFSI gained the ability to impose monetary penalties under the Policing and Crime Act 2017…”