- Virtually all transactions with government prohibited
- Most transactions with private sector parties still permitted
- Practical challenges make Venezuela transactions difficult, including for non-U.S. parties
On August 5, 2019, President Trump issued Executive Order 13,884 (EO 13,884), which significantly expands existing U.S. sanctions on Venezuela.
Pursuant to EO 13,884, virtually all transactions with the government of Venezuela are now prohibited. There are some important exceptions to that prohibition, and those are discussed below.
While this is not an absolute embargo on Venezuela, it is quite close. And even when a transaction with Venezuela may be lawfully permitted, the practical challenges and the risk of conducting the transaction may make it nearly impossible to complete successfully.
Executive Order Augments Existing Prohibitions on Trade with Venezuela
In early 2015, then-President Obama announced sanctions on a targeted list of Venezuelan individuals deemed to be involved in activities threatening democracy and human rights. Each of these individuals was designated as a Specially Designated National (SDN). As a general matter, U.S. companies and individuals are prohibited from conducting any business with an SDN, and also must block any property or property interest of an SDN that is in or comes into their possession.
Since that initial designation, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC), which administers most U.S. sanctions, has consistently ratcheted up pressure on Venezuela – particularly the government of Venezuela – through the imposition of additional sanctions.
Notably, in July 2017, OFAC announced that it was designating Venezuelan President Maduro as an SDN. While the designation of Maduro was largely symbolic, in January 2019, OFAC took the more substantively consequential step of extending sanctions to cover Petroleos de Venezuela, S.A. (PdVSA), the national state-owned oil company of Venezuela.
Pursuant to the designation of PdVSA as an SDN, U.S. companies and individuals have been prohibited from conducting virtually any transaction with PdVSA or any entity owned 50% or more by PdVSA. As a further restriction on Venezuela’s critical oil and gas sector, in June 2019, OFAC announced an explicit restriction on exports to Venezuela of any diluents (such as crude oil or naphtha).
Virtually All Business Involving the Government of Venezuela is Now Prohibited
The new prohibitions cover the entire government of Venezuela, including entities 50% or more owned by the government. In a country in which so much of the economy is state-owned or state-controlled, this is a significant restriction. In addition, there are continuing restrictions on any private Venezuelan entity that was previously designated as an SDN. This would include a private entity that, although not specifically listed on the SDN List, is owned 50% or more by one or more SDNs.
Prohibitions Do Not Cover Private Venezuela Businesses and Exceptions Exist
Importantly, the prohibitions do not extend to private Venezuelan businesses or individuals (unless they are otherwise designated as SDNs).
In addition, OFAC has issued a number of General Licenses that facilitate certain continuing business with private-sector actors. For example, General License No. 30 authorizes U.S. persons to conduct transactions necessary to the use of ports in Venezuela, thereby authorizing U.S. persons to deal with Venezuelan Customs officials and other government representatives as needed related to importing goods into, or exporting goods from, Venezuela. General License No. 28 authorizes U.S. persons to engage in a limited number of transactions necessary to wind-down operations or contracts involving the government of Venezuela (including entities 50% or more owned by the government).
Practical Considerations Abound, Proceed with Caution
Even in the case of a permitted transaction, it may be difficult to obtain financial support from a U.S. or other international bank for a Venezuela transaction. The increasing scope of the sanctions may also make freight forwarders and other service providers more reluctant to do any business in Venezuela, even when not prohibited from doing so under U.S. sanctions.
In addition, there are risks for non-U.S. actors that continue to engage in transactions with Venezuela where those transactions support or assist parties that have been designated pursuant to the August 2019 Executive Order. The Executive Order is explicit that such non-U.S. actors can themselves be designated as SDNs. Given recent action by OFAC in which parties from one country were designated for supporting sanctioned parties in another (see here related to a recent North Korea designation), we would not be surprised to see OFAC designate non-U.S. actors for conduct that is inconsistent with the new sanctions on Venezuela.
This is perhaps most acute for non-U.S. actors in the oil and gas sector. In May 2019, OFAC designated one entity in Liberia and another in the Marshall Islands for their involvement in the Venezuelan oil industry.
The main takeaway for any company considering or pursuing business in Venezuela is that the challenges – legal, commercial, and practical – are considerable. Careful due diligence is a necessity to determine the ownership of any transaction partner. And throughout the life of a transaction, it is essential to remain vigilant, both about the parties to the transaction and additional potential shifts in U.S. restrictions.
The Bass, Berry & Sims International Trade Practice Team regularly advises clients on their most challenging sanctions compliance matters. Please contact us if we can help you or your business.