On March 8, 2019, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) further amended the general licenses governing secondary trading of pre-sanctions Government of Venezuela (GoV) debt and Petróleos de Venezuela, S.A. (PdVSA) debt and equity by issuing new General Licenses (GL) 3D and 9C.  In both, OFAC extended the authorization for all transactions and activities ordinarily incident and necessary to winding down financial contracts or other agreements entered into before January 28, 2019 (for transactions involving PdVSA debt and equity) or February 1, 2019 (for transactions involving certain GoV debt listed in GL 3D) to May 10, 2019.

OFAC has stated that these authorizations permit settling trades entered into prior to the relevant restrictions even where the related sale or transfer is to a U.S. person.  OFAC also revised previously issued FAQ guidance to reflect the extended expiration dates.

Today the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued new general licenses (GL) 3C (amending GL 3B) and GL 9B (amending GL 9A) and amended previously issued FAQ 661 and FAQ 662.  The changes clarify that U.S. persons remain prohibited from purchasing or investing in listed GL 3C (GL 3C Bonds) or pre-sanctions PdVSA debt and equity (PdVSA Securities) and that OFAC’s facilitation prohibitions apply to such purchases other than (in both cases) purchases or investments that are “ordinarily incident and necessary” for divestment or transfers to non-U.S. persons. In other words, U.S. persons may purchase, invest in, or facilitate purchases and investments in GL 3C Bonds and PdVSA Securities where doing so is a necessary part of a transaction involving divestment or transfer to a non-U.S. person.  OFAC further specifically noted in the revised FAQs that this authorization includes activities such as acting as custodian for U.S. and non-U.S. persons’ holdings in GL 3C Bonds and PdVSA Securities (including acting as custodian for a non-U.S. person after that person receives the securities from a U.S. person) and receipt and processing of principal and interest payments. See FAQ 661, FAQ 662.  The wording is not fully clear, but the changes appear designed to reassure U.S. intermediaries in particular that they are authorized to provide services such as custody, transfer, and payment so long as no prohibited acquisition by a U.S. person is involved.

OFAC also made minor corrections to the list of GL 3C Bonds and to the GL 9B list of PdVSA Securities and made non-substantive changes to FAQ 650 conforming it to the updated General Licenses.

On February 1, 2019, the U.S. Department of Treasury’s Office of Foreign Assets Control issued FAQs providing guidance on the designation of Petróleos de Venezuela, S.A. under Executive Order 13850 and concurrent issuance of related general licenses. OFAC also issued amended general licenses governing secondary trading of pre-sanctions Government of Venezuela and PdVSA debt (General License (“GL”) 3B and 9A).

Highlights of the new OFAC guidance and license amendments include that:

  • holders of the PdVSA 2020 8.5 percent bond, including U.S. person bondholders, are licensed to execute on the underlying collateral despite the blocking of PdVSA property under GL 9A;
  • authorized trades in pre-sanctions GoV bonds pursuant to GL 3B are now limited to sales to non-U.S. persons, as was the case for PdVSA bonds;
  • technical fixes were added that are designed to permit settlement of open trades and securities transactions if the transactions were entered into before the effective time of the relevant sanctions (4:00 pm NY time on January 28 for PdVSA entities, and 4:00 pm NY time on February 1 for other GoV entities), regardless of whether the transferee is a U.S. person;
  • U.S. financial institutions’ authority to reject (rather than block) “U-turn” funds transfers relating to PdVSA has been limited to maintenance or wind down activities involving U.S. persons authorized under GL 11, and all other unlicensed, PdVSA-related U.S. dollar clearing transactions must be blocked;
  • U.S. and non-U.S. persons may continue to form and invest in funds providing synthetic exposure to PdVSA-related debt or equity where the underlying basket being tracked does not consist predominantly of blocked securities;
  • Non-U.S. persons can engage in transactions with a U.S. nexus to purchase PdVSA petroleum and petroleum products outside of the United States until April 28, 2019.

Please click here to read the full alert memorandum.

On January 28, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control designated Petróleos de Venezuela, S.A.; effective immediately PdVSA is on OFAC’s Specially Designated Nationals and Blocked Persons List and all of its assets within U.S. jurisdiction are blocked.

Simultaneously, OFAC issued a number of general licenses intended to mitigate the impact of this designation outside of Venezuela by providing limited authorization for certain transactions and activities related to PdVSA and its subsidiaries. As a result:

  • all assets of PdVSA and its direct and indirect subsidiaries owned 50% or more by PdVSA or other specially designated nationals (SDNs) (in the aggregate) within U.S. jurisdictions are now blocked and all transactions within U.S. jurisdiction involving these persons and entities are prohibited, absent a license;
  • PdVSA and its subsidiaries may still service debt issued prior to August 25, 2017, and U.S. persons can continue to hold and provide services related to such debt, but transfers of such debt are now only permitted to non-U.S. persons (in other words, U.S. persons may only divest PdVSA debt, not acquire it);
  • purchase and importation into the United States of petroleum and petroleum products from PdVSA is permitted until April 28, 2019, so long as all proceeds from such sales are paid into blocked, interest-bearing accounts in the United States rather than released to PdVSA;
  • certain U.S.-linked PdVSA subsidiaries—including PDV Holding, Inc., CITGO Holding, Inc., and their subsidiaries—are not subject to blocking sanctions until July 27, 2019, and thus their assets are not frozen and transactions with these entities within U.S. jurisdiction remain permitted; and
  • U.S. financial institutions are permitted to reject rather than block (i.e., return rather than seize) funds transfers involving PdVSA or its subsidiaries, so long as the funds transfers originated outside of the United States and both the originator and beneficiary are non-U.S. persons located outside of the United States or Venezuela, until March 29, 2019.  Note that this does not authorize the processing of U.S. dollar transfers relating to PdVSA, which are now prohibited unless related to U.S.-licensed activities.

Please click here to read the full alert memorandum.

On September 25, OFAC designated four additional Venezuelan officials as “Specially Designated Nationals” (“SDNs”), blocking all of their assets and prohibiting any transaction in which they have an interest within U.S. jurisdiction. The new designations target important former and current officials in the Venezuelan government who have supported President Nicolas Maduro, whom OFAC designated on July 31, 2017. The newly designated officials include: Cilia Adela Flores de Maduro, the current First Lady and former Attorney General under Hugo Chavez; Delcy Eloina Rodriguez Gomez, the Executive Vice President and former President of the National Constituent Assembly (“ANC”); Jorge Jesus Rodriguez Gomez, the Minister of Popular Power for Communication and Information; and Vladimir Padrino Lopez, the Sectoral Vice President of Political Sovereignty, Security, and Peace. In addition, OFAC also designated a network supporting Diosdado Cabello Rondon’s “key front man,” Rafael Alfredo Sarria. Continue Reading OFAC Sanctions Additional Venezuelan Officials

On July 19, 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) confirmed through issuance of two new FAQs that Executive Order 13835 prohibits U.S. persons from attaching and executing judgments against equity collateral securing debt issued by Government of Venezuela state-owned entities, even if both the debt and the security interest pre-date sanctions.  Specifically, Subsection 1(a)(iii) of the Executive Order prohibits “[a]ll transactions related to, provision of financing for, and other dealings in…the sale, transfer, assignment, or pledging as collateral by the Government of Venezuela of any equity interest in any entity in which the Government of Venezuela has a 50 percent or greater ownership interest.”  As we noted in a prior post, this prohibition is not limited to debt incurred or collateral pledged after the date of the Executive Order and so prevents executing on any collateral securing Government of Venezuela debt consisting of equity in state-owned or state-controlled entities absent a license from OFAC. Continue Reading OFAC Confirms U.S. Sanctions Retroactively Prohibit Execution on Equity Collateral Securing Government of Venezuela Debt, Authorizes All Dealings Involving PdVSA 2020 Bonds

Last week, President Trump issued Executive Order 13835, further tightening sanctions on Venezuela.  The Executive Order had three new prohibitions, barring all transactions relating to the following:

  • the purchase of any debt owed to the Government of Venezuela, including accounts receivable;
  • any debt owed to the Government of Venezuela that is pledged as collateral after the effective date of this order, including accounts receivable; and
  • the sale, transfer, assignment, or pledging as collateral by the Government of Venezuela of any equity interest in any entity in which the Government of Venezuela has a 50 percent or greater ownership interest.

Continue Reading Recent Venezuela Executive Order Calls Into Question Enforceability of Security Interests

On March 19, 2018, President Trump issued an Executive Order prohibiting all U.S. persons and residents from transacting in digital currencies issued by the Government of Venezuela, including the country’s recently launched oil-backed cryptocurrency the “Petro” (PTR) or petromoneda.  The sanctions are in response to an emerging trend of sanctioned or rogue regimes experimenting with digital assets. Continue Reading U.S. Sanctions Venezuela’s “Petro” Cryptocurrency Amid Broader Trend of Sanctioned and Rogue Regimes Experimenting with Digital Assets

On February 12, 2018, the Office of Foreign Assets Control (OFAC) issued two new Venezuela-related frequently asked questions (FAQs) providing additional guidance on how late payments will be treated for purposes of the prohibitions on dealing in “new debt” of the Government of Venezuela and of state-owned entities.  Most notably, the new guidance prohibits acceptance of late payments on post-sanctions debt of Government of Venezuela entities if those payments are received outside the applicable 30- or 90-day limit under Executive Order 13808, even if the failure to pay was not consented to by the lender and violates the underlying agreement.  This guidance likely also has implications for the similar prohibitions on dealings in “new debt” under Russian sectoral sanctions. Continue Reading OFAC Issues Guidance on Payments under Venezuelan “New Debt”; Likely to Affect Russian Sectoral Sanctions as Well

On December 14, 2017, Cleary Gottlieb partner Paul Marquardt led a presentation titled, “Developments in U.S. Sanctions Against Iran, Russia, and Venezuela” as part of PLI’s Coping With U.S. Export Controls and Sanctions 2017 conference.

To view the full presentation, click here.

For additional information regarding the conference, please visit the event’s website.