On Wednesday 18 October 2023, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) implemented easing of certain Venezuela-related sanctions by providing authorization for certain activities in recognition of political progress between the Venezuelan Government (GOV) and opposition parties—specifically, the signing of an electoral roadmap agreement between the Unitary Platform and representatives of Nicolas Maduro. In particular, OFAC issued new or amended general licenses (GLs) that: suspend for a 6-month period most of the sanctions on Venezuela’s oil and gas sector operations (subject to certain conditions), authorize most dealings in the gold sector, authorize U.S. persons to purchase in the secondary market certain Venezuela sovereign bonds or bonds and other debt obligations issued by PdVSA, and authorize certain transactions with a Venezuelan airline necessary for the repatriation of Venezuelan nationals to Venezuela from non-U.S. jurisdictions.
As described below, the GLs reflect a significant relaxation of the U.S. sanctions program against Venezuela, which is set forth in the Venezuelan Sanctions Regulations, 31 CFR part 591 (the VSR), but the Venezuelan government continues to be subject to blocking and PdVSA continues to be designated as a Specially Designated National (SDN) so activities with US nexus that are not authorized by the GLs continue to be prohibited by primary US sanctions.
What do the new and amended GLs consist of?
Oil and Gas – GL No. 44: Authorizing Transactions with PdVSA and GOV Related to Oil or Gas Sector Operations in Venezuela
Effective 18 October 2023, Venezuela GL 44 temporarily authorizes for a 6-month period all transactions (with some limited exceptions) that are related to oil and gas sector operations in Venezuela that are currently prohibited by the VSR if they involve PdVSA, entities owned by PdVSA at 50% or greater level, or GOV and any entity owned or controlled by GOV. This includes authorizing ordinarily incident and necessary financial transactions with two Venezuelan SDN banks—namely Banco Central de Venezuela and Banco de Venezuela SA Banco Universal—related to the oil and gas sector (but not the involvement of other SDN banks in activities pursuant to GL 44). The suspension of these sanctions will authorize U.S. companies to engage in activities with PdVSA or involving Venezuelan-origin crude or gas that were previously prohibited. GL 44 currently expired at the end of day on 17 April 2024 but could be extended.
GL 44 provides a non-exhaustive list of authorized activities related to the oil and gas sector, including:
- Production, lifting, sale, and exportation of oil or gas from Venezuela, and the 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 Venezuelan oil and gas to creditors of the Venezuelan Government (including PdVSA entities) for the purpose of debt repayment.
GL 44 does not authorize:
- Any transactions involving financial institutions designated as SDNs pursuant to E.O. 13850 other than Banco Central de Venezuela or Banco de Venezuela SA Banco Universal;
- The provision of goods or services to, or new investment in, an entity located in Venezuela that is owned or controlled by, or a joint venture with, an entity located in Russia;
- Any transactions related to new investment in Venezuelan oil or gas sector operations by a person located in Russia or any entity owned or controlled by a person located in Russia;
- Any transactions related to, provision of funding for, and other dealings of PdVSA’s new debt with maturity over 90 days (or GOV’s new debt with maturity over 30 days) by U.S. persons or within the U.S. (but PdVSA’s payment of invoices for goods/services related to oil/gas sector operations authorized by GL 44 is not limited to a 90-day payment terms);
- Any transactions related to, provision of financing for, and other dealing in digital currency, digital coin, digital token, or a traditional fiat currency issued by, for, or on behalf of GOV on or after 9 January 2018 wherein U.S. jurisdiction is implicated;
- The purchase of any debt of/extension of credit to GOV (including PdVSA), including but not limited to accounts receivable, debt pledged as collateral after 21 May 2018, and the sale, transfer, assignment, or pledging as collateral by GOV of equity interest in any entity in which GOV has a 50 percent or greater ownership interest (please see below additional GLs that authorize US persons to purchase certain pre-existing debt of PdVSA or GOV); or
- Unblocking any property blocked previously blocked under the VSR and held in the United States or by US persons.
According to guidance released by OFAC, the U.S. Government “intends to renew GL 44 only if representatives of Maduro follow through on the commitments they made and continue to move toward a democratic election by the end of 2024.” In addition, OFAC specified that new debt transactions beyond the 90 day (PdVSA) and 30 day (GOV) restrictions set forth in EO 13808, including the provision of loans to PdVSA, are not authorized by GL 44 unless they are for the payment of invoices or repayment of debt through the delivery of oil or gas.
Gold – GL No. 43: Authorizing Transactions Involving CVG Compania General de Mineria de Venezuela CA
GL 43 authorizes all transactions involving CVG Compania General de Mineria de Venezuela CA (Minerven), the Venezuelan state-owned mining company designated as an SDN pursuant to EO 13850. According to FAQ 5, issued on 18 October 2023, the U.S. government does not intend to sanction any person solely for operating in the gold sector of the Venezuelan economy, which is also important for non-US persons who are concerned with secondary sanction risk of being found by OFAC to “operate in” a designated sector of Venezuela’s economy. Updated FAQ 629 noted that OFAC would use discretion in targeting individuals operating corruptly in the gold or other identified sectors of the Venezuela economy, but will not target those operating legitimately in those sectors. Corrupt operations included engaging in dishonest or fraudulent conduct, illicit activity, or deceptive transactions with the purpose or effect of misappropriating Venezuelan resources in such sectors for personal, professional, or political gain. Despite the language of FAQ 5 that contains broader statements than FAQ 629, it appears that a non-US person could still reasonably be targeted for corrupt conduct, as the new rule notes that participation in the gold sector alone will not be enough to be targeted. As long as a non-U.S. person’s conduct does not fall under OFAC’s definition of corrupt and appears legitimate, however, it is likely that such non-US person will not be subject to secondary sanctions solely for their participation in designated sector of the Venezuelan economy. This is true for the gold sector, but also for the oil and gas and other designated sectors.
While GL 43 authorizes all transactions involving Minerven, it does not authorize any transactions otherwise prohibited by the VSR. Specifically, GL 43 does authorize transactions with Minerven or any entity in which Minerven holds a 50 percent or greater interest, GOV entity blocked solely pursuant to E.O. 13884, and two SDN banks: Banco Central de Venezuela and Banco de Venezuela SA Banco Universal. Transactions with other SDNs are not permitted by this GL even if such transactions involve Minerven. Minerven was the only entity that had been designated by OFAC for operating in the gold sector in Venezuela.
Secondary Market Trading – GL 3I: Authorizing Transactions Related to, Provision of Financing for, and Other Dealings in Certain Bonds; GL 5M: Authorizing Certain Transactions Related to the Petróleos de Venezuela, S.A. (PdVSA) 2020 8.5 Percent Bond on or After January 18, 2024; and GL 9H: Authorizing Transactions Related to Dealings in Certain Securities
Collectively, these three GLs authorize a number of transactions related to pre-existing bonds and other securities previously blocked by the VSR. Each GL, as noted below, focuses on a different subset of covered securities. Two of the GLs remove the secondary market trading bans on the purchases by US persons of certain GOV sovereign bonds and pre-2017 bonds or equity issued by PdVSA; the other allows transactions after 18 January 2024 involving a 2020 bond issued by PdVSA (it effectively delays further the effective date of GL 5). In FAQ 1136, OFAC specified that the impact of GLs 3I and 9H (superseding and replacing GL 3H and 9G, respectively) was to remove the restriction that any divestment by U.S. persons of covered bonds or securities must be to a non-U.S. person, effectively allowing US persons to purchase specified securities in the secondary market.
GL 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”). It authorizes all transactions prohibited by subsection 1(a)(iii) of E.O. 13808 (prohibiting transactions involving bonds issued by GOV prior to 24 August 2017) or by E.O. 13850, each as amended by E.O. 13857, or by E.O. 13884, that are ordinarily incident and necessary to facilitating, clearing, and settling trades of holdings in the GL 3I Bonds, provided such trades were placed prior to 4:00 p.m. EST on 1 February 2019. Finally, it authorizes all transactions related to, the provision of financing for, and other dealings in bonds that were issued both (i) prior to 25 August 2017 (the effective date of E.O. 13808), and (ii) by U.S. person entities owned or controlled, directly or indirectly, by the Government of Venezuela, other than PDV Holding, Inc., CITGO Holding, Inc., and any of their subsidiaries, that would be prohibited by E.O. 13808 or E.O. 13850, each as amended, or by E.O. 13884. GL 3I does not authorize U.S. persons to sell or facilitate the sale of GL 3I Bonds to, directly or indirectly, any person whose property and interest in property are blocked pursuant to the VSR. Nor does it unblock any property pursuant to the VSR or authorize any transactions or activities otherwise prohibited under the VSR unless otherwise specified.
GL 5M supersedes GL 5L, and allows all transactions related to, the provision of financing for, and other dealings in the PdVSA 2020 8.5 Percent Bond that would be otherwise prohibited by the VSR but this GL has effective date on or after 18 January 2024. OFAC’s FAQ 4 from 18 October 2023 indicates that these new measures do not affect the U.S. government’s posture on litigation brought by creditors seeking to attached assets of GOV in the United States.
GL 9H supersedes GL 9G and removes secondary market trading bans on purchases of pre-2017 bonds or equity issued by PdVSA. Specifically, GL 9H authorizes U.S. persons to engage in all transactions prohibited by subsection 1(a)(iii) of E.O. 13808 (prohibiting transactions involving bonds issued by GOV prior to 24 August 2017) or by E.O. 13850, each as amended by E.O. 13857, or by E.O. 13884, as collectively incorporated into the VSR, that are ordinarily incident and necessary to dealings in any debt of, or equity in, PdVSA, or any entity directly or indirectly owned 50 percent or more by PdVSA, that was issued prior to 25 August 2017 (together, “PdVSA Securities”). This includes bonds issued by PDV Holding, Inc. and CITGO Holding, Inc., or any of their subsidiaries. It also authorizes all transactions prohibited by subsection 1(a)(iii) of E.O. 13808 or by E.O. 13850, each as amended by E.O. 13857, or by E.O. 13884, that are ordinarily incident and necessary to facilitating, clearing, and settling trades of holdings in PdVSA Securities, provided such trades were placed prior to 4:00 p.m. EST on 28 January 2019. GL 9H does not authorize U.S. persons to sell or facilitate the sale of PdVSA related securities to, directly or indirectly, any person whose property and interest in property are blocked pursuant to the VSR. Nor does it unblock any property pursuant to the VSR or authorize any transactions or activities otherwise prohibited under the VSR unless otherwise specified.
Repatriation of Venezuelan Nationals – GL 45: Authorizing Certain Repatriation Transactions Involving Consorcio Venezolano de Industrias Aeronauticas y Servicious Aereos, S.A.
GL 45 authorizes all transactions ordinarily incident and necessary to the repatriation of Venezuelan nationals from non-U.S. jurisdictions in the Western Hemisphere to Venezuela, and are exclusively for the purposes of such repatriation, involving the SDN airline Consorcio Venezolano de Industrias Aeronauticas y Servicios Aereos, S.A. (“Conviasa”), or any entity in which Conviasa owns, directly or indirectly, a 50 percent or greater interest, that are prohibited by E.O. 13850, as amended by E.O. 13857, or E.O. 13884, each as incorporated into the VSR. FAQ 1137 specifies that OFAC considers “Western Hemisphere” to be those countries and areas identified by the State Department as comprising the Western Hemisphere, as found here. GL 45 does not authorize any transactions otherwise prohibited by the VSR, including those involving any person blocked pursuant to the VSR other than those described in paragraph (a) of the license, Government of Venezuela persons blocked solely pursuant to E.O. 13884, Banco Central de Venezuela, or Banco de Venezuela SA Banco Universal.
Despite the significant shift in U.S. sanctions on Venezuela, other sanctions and restrictions remain in place, and the U.S. has made clear that it will rescind these short-term general licenses if commitments made under the electoral roadmap and with respect to political prisoners are not met. In a press release, Secretary of State Antony Blinken emphasized that the U.S. expected Venezuela to take several steps before the end of November in order for the sanctions relief to remain in place. These expectations include (1) Venezuela defining a specific timeline and process for the expedited reinstatement of all candidates, allowing the opportunity for all candidates who wish to run for president, and ensuring a level electoral playing field, freedom of movement, and their physical safety and (2) beginning the release process for all wrongfully detained U.S. nationals and Venezuelan political prisoners. While the general licenses are a significant step in easing sanctions on Venezuela, companies should in the short term consider a cautious approach given the temporary nature of the general licenses and carefully review the political situation in Venezuela.
Hogan Lovells will continue to monitor the ongoing developments regarding the VSR. Please contact any of the Hogan Lovells lawyers listed above with any questions or concerns regarding the potential implications of these general licenses and shifts in the U.S. sanctions program against Venezuela.
Authored by Aleksandar Dukic, Ari Fridman, Anthony Capobianco, Bruno Ciuffetelli, Josh LaFianza, and Andrea Fraser-Reid.