OFAC Provides Venezuela with Sanctions Relief, Authorizes Certain Transactions in the Oil and Gas Industry
Matt Stankiewicz, Partner at The Volkov Law Group PC, rejoins us for an important blog posting concerning OFAC’s recent relaxation of the Venezuela Sanctions Program. Matt can be reached at [email protected].
On October 18, 2023, the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) took several steps to provide Venezuela with some limited relief from its sanctions. The relief includes General Licenses authorizing various transactions and business with Venezuela. This relief comes in response to an agreement with President Nicolás Maduro and his regime, which includes an electoral roadmap to provide a democratic process for the Venezuelan citizens.
The latest actions include:
- Issuing General License 44, a six-month license that temporarily authorizes transactions with Venezuela’s oil and gas sector, including with Petróleos de Venezuela (“PdVSA”).
- Issuing General License 43, authorizing transactions with CVG Compania General de Mineria de Venezuela CA (“Minerven”), Venezuela’s state-owned gold mining company.
- Amending two existing General Licenses – General License 3I and General License 5M – that ultimately removes secondary market trading bans on certain Venezuelan bonds and PdVSA debt and equity.
Other restrictions remain in place, so while these sanctions do provide notable relief, business in Venezuela is still not completely unrestricted. Companies should still review all transactions with Venezuela on an individual basis to ensure complete compliance with sanctions.
General License 44 – Oil and Gas Industry
General License 44 authorizes all transactions related to the oil and gas industry that were previously prohibited by the Venezuelan Sanctions Regulations, including those involving PdVSA and any entities in which PdVSA owns a 50-percent or greater interest in. The type of transactions specifically authorized include:
- Production, lifting, sale, and exportation of oil or gas from Venezuela, and provision of related goods and services;
- Payment of invoices for goods or services related to oil or gas sector operations in Venezuela;
- New investment in oil or gas sector operations in Venezuela; and
- Delivery of oil and gas from Venezuela to creditors of the Government of Venezuela, including creditors of PdVSA Entities, for the purpose of debt repayment.
This license includes several caveats. The prohibitions still apply to any transaction with a Venezuelan financial institution blocked subject to Executive Order 13850, other than Banco Central de Venezuela or Banco de Venezuela SA Banco Universal. The prohibitions also restrict transactions with Russia in Venezuela, as they continue to apply to any transactions with an entity in Venezuela that is owned or controlled by, or a joint venture with, any entity located in the Russian Federation. Additionally, the sanctions still prohibit any transactions related to new investment in the oil and gas operations in Venezuela by a person located in the Russian Federation, or any entity owned or controlled by a person located in Russia. The prohibitions of Executive Order 13827, 13835, and subsections l(a)(i)- (iii) or l(b) of 13808 also still apply.
Finally, and arguably most notably, this General License does not unblock property that was previously blocked pursuant to the Venezuelan Sanctions Regulations. Which means that any transactions that were disrupted by the sanctions when PdVSA was initially designated are still not able to be completed.
While this General License does authorize a variety of transactions, there are still applicable Venezuelan sanctions still must still be navigated. Ultimately, any proposed transaction with Venezuela should still be carefully scrutinized to ensure it fits within the authorizations included herein without violating any other sanctions prohibitions that are still otherwise applicable.
This authorization runs until April 18,2024 at 12:01am EDT. OFAC made clear in its press release that this relief is contingent. OFAC has reserved the right to amend or revoke the authorizations at any point should Venezuela fail to comply with its agreements. On the other hand, OFAC has indicated it will be open to continuing to extend the license past this deadline should Venezuela maintain compliance with its agreements. OFAC noted it will only renew General License 44 if Venezuela meets its commitments under the electoral roadmap and also released wrongfully detained individuals, which include a collection of U.S. nationals and political prisoners.
General License 43 – Gold Mining Industry
General License 43 is relatively straightforward, authorizing all transactions involving Minerven, or any entity in which Minerven owns a 50 percent or greater interest, that are otherwise prohibited by Executive Order 13850, as amended by Executive Order 13857, or Executive Order 13884. OFAC reasoned that authorizing these transactions would have the added benefit of reducing black market gold transactions.
This General License does not have a deadline, unlike General License 44. However, OFAC noted that this License is still ultimately contingent on Venezuela complying with its agreements and continuing to take steps towards a democratic outcome for the citizens of the country.
Again, any proposed transaction with Venezuela should still be carefully scrutinized, as there still may be other sanctions restrictions that would be applicable to transactions with Minerven.
General License 3I – Venezuelan Bonds
General License 3I authorizes U.S. persons to engage in all transactions related to, the provision of financing for, and other dealings in the bonds specified in the Annex to GL 3I (GL 3I Bonds) that would be prohibited by subsection 1(a)(iii) of Executive Order (E.O.) 13808 or by E.O. 13850, each as amended by E.O. 13857, or by E.O. 13884. This authorization includes transactions related to the receipt and processing of interest or principal payments on the bonds.
General License 5M – PdVSA 2020 8.5 Percent Bond
General License 5M authorizes all transactions related to, the provision of financing for, and other dealings in the PdVSA 2020 8.5 Percent Bond on or after January 18, 2024.
As we’ve emphasized throughout this post, all proposed transactions with Venezuela should still be carefully scrutinized. While these new and amended General Licenses authorize various transactions with Venezuela, there are still sanctions that could apply otherwise. Venezuela still continues to present legal and regulatory complexity.
While these authorizations provide sanctions relief, we want to emphasize that they are contingent on the Venezuelan government continuing to progress toward a democratic election. Should the country fail to comply with its agreement, OFAC has indicated it will revoke these General Licenses. OFAC could conceivably revoke these transactions without offering any sort of wind down period. In that instance, any transactions still in progress must be immediately stopped. Any goods or products subject to such a transaction must then be held as blocked property until obtaining a specific license.
On the other hand, these actions also indicate a softening of U.S. sanctions policy towards Venezuela. If the country continues to comply with its agreements, it is likely that more relief will come in the future through additional authorization or outright repeals of certain regulations. We will continue to update as things progress.
If you have any questions in the meantime, please contact me at [email protected].