Updates about the current situation in Venezuela have been coming in rapidly. Recently, we wrote about OFAC adding PdVSA to the SDN list. In this podcast, Crowell & Moring’s Cari Stinebower, Eduardo Mathison, and Mariana Pendás provide an overview of recent developments in Venezuela and explain what U.S. companies need to know about how these developments could impact trade.Compudemano

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Crowell & Moring’s Latin America Practice helps clients navigate laws, regulations, and issues by jurisdiction; resolve international disputes and litigation; and assist with both domestic and cross-border corporate and M&A transactions. Additionally, we bring cultural and political sophistication within Latin America to our work and represent clients in both English and Spanish, among other languages. The Crowell & Moring Latin America practice is available to counsel on a wide range of issues. Please click here for contacts and additional information.

On February 11, 2019, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) amended two General Licenses (GLs) and revised three Frequently Asked Questions (FAQs) relating to the January 28, 2019 designation of Petróleos de Venezuela, S.A. (PdVSA) and the Government of Venezuela.

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The amended GLs provide further guidance on how to navigate the recently-issued sanctions on PdVSA.

Amended GLs:

General License 3C (“GL3C”): replaces GL3B by (a) extending the deadline to wind down financial contracts “involving, or linked to” so-called “GL3C Bonds” from 12:01 AM on March 3 to 12:01 AM on March 11, 2019, and (b) clarifying that the GL only authorizes U.S. Persons to purchase or invest in GL3C Bonds if such purchases or investments are ordinarily incident and necessary to the divestment or transfer of holding in GL3C Bonds.

General License 9B (“GL9B”): replaces GL9A with similar amendments, including by (a) extending the wind-down period to 12:01 AM on March 11, 2019 from March 3, 2019 and (b) clarifying and re-ordering the conditions and exceptions on the granted authorization.

For more information on GL3B and GL9A, please see our recent post.

Updated FAQs:

FAQ 650: addresses the issue of the expected level of due diligence required for the recently amended GLs. It also states that GL3C and GL9B authorize U.S. persons to facilitate the transfer or divestment of securities or bonds to non-U.S. persons.

FAQ 661: provides further explanation on what GL9B authorizes in terms of the PdVSA securities. It states that if a U.S. person decides to sell or transfer any interests in the PdVSA securities, it must be to a non-U.S. person. It also clarifies that U.S. persons may continue to hold their PdVSA securities while still being subject to certain restrictions on the sale in secondary markets.

FAQ 662: explains that GL3C allows U.S. persons to divest, transfer, or facilitate the divestment or transfer of any of GL3C Bonds to any non-U.S. person. Further, it states that U.S. persons may continue to hold their interests in the GL3C Bonds, but are subject to certain restrictions on the sale of those bonds in the secondary market.  Finally, it notes that while non-U.S. persons may continue to deal with the GL3C Bonds, if the transactions involve a U.S. Person or the U.S. financial system, they must comply with the terms of GL3C.

For more information on the PdVSA sanctions and guidance under any Venezuela-related sanction, please contact the Crowell & Moring team.

Crowell & Moring’s Latin America Practice helps clients navigate laws, regulations, and issues by jurisdiction; resolve international disputes and litigation; and assist with both domestic and cross-border corporate and M&A transactions. Additionally, we bring cultural and political sophistication within Latin America to our work and represent clients in both English and Spanish, among other languages. The Crowell & Moring Latin America practice is available to counsel on a wide range of issues. Please click here for contacts and additional information.

 

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.

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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.

Amended 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.

Amended FAQs:

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.

NEW FAQs:

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.

 

Crowell & Moring’s Latin America Practice helps clients navigate laws, regulations, and issues by jurisdiction; resolve international disputes and litigation; and assist with both domestic and cross-border corporate and M&A transactions. Additionally, we bring cultural and political sophistication within Latin America to our work and represent clients in both English and Spanish, among other languages. The Crowell & Moring Latin America practice is available to counsel on a wide range of issues. Please click here for contacts and additional information.

On January 28, 2019, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated Petróleos de Venezuela, S.A. (PdVSA) pursuant to Executive Order (E.O.) 13850 – “Blocking Property of Additional Persons Contributing to the Situation in Venezuela”. Further, OFAC amended General License 3, issued eight (8) new General Licenses, and published a new Frequently Asked Question (FAQ) on the new E.O. – “Taking Additional Steps to Address the National Emergency with Respect to Venezuela.”  Additional FAQs are anticipated.

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The sanctions designation and the corresponding general licenses appear modeled after sanctions programs designed to protect and preserve a jurisdiction’s assets from kleptocratic or corrupt regimes for the next duly elected Administration – in this case, Interim President Juan Guaidó.  Treasury Secretary Mnuchin’s statement illustrates this point:

“T[he] designation of PdVSA will help prevent further diverting of Venezuela’s assets by 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 or a subsequent, democratically elected government.”

Similar programs include the Kuwait sanctions program and the current remaining sanctions in Iraq and Libya.   As a result, the sanctions on PdVSA are accompanied by general licenses allowing U.S. Persons (individuals and entities) to wind down or maintain certain transactions—in some instances, by mandating that payments flow into interest bearing blocked (or “frozen”) accounts.

For more information, please see Crowell’s Client Alert.

Crowell & Moring’s Latin America Practice helps clients navigate laws, regulations, and issues by jurisdiction; resolve international disputes and litigation; and assist with both domestic and cross-border corporate and M&A transactions. Additionally, we bring cultural and political sophistication within Latin America to our work and represent clients in both English and Spanish, among other languages. The Crowell & Moring Latin America practice is available to counsel on a wide range of issues. Please click here for contacts and additional information.

 

 

On July 19, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela General License 5.

General License 5 authorizes U.S. persons to engage in all transactions related to, the provision of financing for, and other dealings in the Petróleos de Venezuela SA 2020 8.5 Percent Bond that would be prohibited by Subsection 1(a)(iii) of  Executive Order 13835 of May 21, 2018 (“Prohibiting Certain Additional Transactions With Respect to Venezuela”) (E.O. 13835). In practice, General License 5 expands the previously issued General License No.3. by adding a new bond to the list of previously authorized bonds.

OFAC also published two new Frequently Asked Questions (FAQs).One explains why OFAC is issuing General License 5. The other answers the question of whether E.O. 13835 prohibits a U.S. person with a legal judgment against the Government of Venezuela from attaching and executing against Venezuelan government assets.

 

 

On May 21, President Trump issued a new Executive Order (E.O.) “Prohibiting Certain Additional Transactions with Respect to Venezuela.” The new E.O. targets the Venezuelan Government’s ability to factor receivables and liquidate equity interest in exchange for cash.

The E.O. prohibits U.S. persons or persons within the United States from all transactions related to, or providing financing for, and other dealings—including evading, avoiding or conspiracy transactions—in:

  • The purchase of any debt owed to the GoV, including accounts receivable;
  • Any debt owed to the GoV that is pledged as collateral after the effective date of the E.O. (i.e., May 21, 2018); and
  • The sale, transfer, assignment, or pledging as collateral by the GoV of any equity interest in an entity in which the GoV has at least 50% interest.

Consistent with previous sanctions, the E.O. also 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.

The new measure further tightens already existing financial sanctions against the GoV in effect since August 2017. In particular, the new E.O. is expected to directly restrict PDVSA’s ability to engage in accounts receivable financing, which may accelerate the oil company’s liquidity struggles.

For more details on the E.O. issued on August 24, 2017, see Crowell & Moring’s Client Alert.

 

On April 19, Crowell & Moring’s International Trade Attorneys hosted a webinar on “Trade in 2018 – What’s Ahead?”

Please click here to register and view the webinar on demand.

Summary

From the Section 232 national security tariffs on steel and aluminum imports to the ongoing NAFTA re-negotiation, the Trump administration is seeking to implement significant changes in international trade policy and enforcement. Economic sanctions on Russia continue to expand, the future is far from clear regarding Iran, and perhaps North Korea is coming into focus. A new Asia trade agreement without the United States, and a bumpy road ahead for Brexit all make for uncertainty and the need for enhanced trade risk management. Join us as we identify the international trade risks and opportunities likely to continue and grow in 2018.

Our Crowell & Moring team discussed predictions for the remainder of the year, with cross-border insights from our practitioners in the U.S., London, and Brussels. Topics included likely trends and issues in the U.S. and EU including:

  • Trade policy developments: Section 232, NAFTA renegotiation, and trade remedies
  • Sanctions in Year Two of the Trump Administration: Russia, Iran, North Korea, and beyond
  • Anti-money laundering (AML) and beneficial ownership
  • Supply chain risk management: blockchain, forced labor, the U.K. Modern Slavery Act, and GDPR
  • Europe: Brexit, the EU’s 4th AML Directive, and the EU/U.K. AML enforcement
  • CFIUS: how significant is the new legislation?
  • Export controls: Wither reform?
  • Import and customs

The last week of March has brought new measures against Maduro’s regime from the U.S., Europe, and Latin-America. While Switzerland has aligned with European Union (EU) sanctions, Panama has included Venezuelan government officials and several companies in their Politically Exposed Persons’ (PEPs) list. The State of Florida has also enacted divestment laws targeting Venezuela.

Florida Actions: On March 29, Governor Rick Scott of Florida signed into law HB 359, stating that the State Board of Administration shall divest any funds and is prohibited from investing in any institution or company (U.S. company or its subsidiary), doing business in or with the Government of Venezuela (GoV), or with any agency or instrumentality thereof, in violation of federal law. It is unclear how Florida will assess whether a company has undertaken an activity “in violation of Federal law” and, specifically, whether it will wait for Federal indictments, or whether it will be making an independent state-level assessment.

Panama Actions: On March 27, Panama published a list of PEPs with ties to the GoV. Although the press has described this measure as “sanctions” against the Maduro regime, on its face, the measure only requires financial institutions to conduct enhanced due diligence (EDD) in certain persons considered as high risk due to its political exposure. This new resolution from the Panamanian National Anti-Money Laundering Commission (AML Commission) imposes for the first time in Panama the need to conduct EDD on specific Venezuelan government officials and related companies. Among the due diligence measures the AML Commission requires financial institutions and other regulated persons to investigate is whether any PEPs from Venezuela are directly or indirectly participating in a given transaction.

In a separate resolution, the AML Commission decided it will make the U.S., Canadian, and U.K. denied party lists available on the AML Commission’s webpage. This way financial institutions and other regulated persons can use them as a reference for enhanced due diligence when dealing with individuals on one or more of the lists.

Switzerland Actions: On March 28, Switzerland adopted restrictive measures which align with the measures adopted by the EU on November 13, 2017, and January 22, 2018, as a result of the human rights violations and the undermining of democracy in Venezuela. Swiss sanctions, which usually follow the respective EU sanctions regime, now do so in the case of Venezuela. Switzerland has also imposed an embargo on military equipment that could be used for internal repression, as well as equipment used for surveillance purposes. Swiss measures also include a travel ban, an asset freeze, and a prohibition to make funds available to certain individuals. Institutions or persons having or managing assets that are subject to the asset-freeze must report it to the State Secretariat for Economic Affairs (SECO) without delay. The list of individuals subject to the asset-freeze and the travel ban can be found here. These measures entered into force on March 28.

These new Swiss sanctions may have an outsized impact because, while less broad than U.S. sanctions, Venezuelan officials are thought to have assets in Switzerland.

Venezuelan Response: The GoV condemned both the Swiss and Panamanian measures, identifying them as illegal coercive measures against Maduro’s regime.

Further, the GoV announced the suspension of its commercial relations with several Panamanian officials and companies, including Copa Airlines. The retaliatory measure forced Copa to suspend its flights into Venezuela, despite being one of the few airlines still operating in the country after most airlines canceled or reduced their services due to currency exchange restrictions combined with security concerns in the country. By virtue of these controls, Venezuela reportedly owes foreign airlines around $ 4 billion. Depending on how their investments are structured into the country, airlines – and other companies in the same situation – may have the ability to make claims against the GoV for their stranded funds under free transfer provisions found in numerous Bilateral Investment Treaties (BITs) with Venezuela.

For more information on how BITs may aid in the recovery of monies owed by Venezuela, please click here for a short paper in English and Spanish.

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.

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