Doing Business with Venezuela? Consider Whether the New Sanctions Impact Your Business

4 min

The Trump administration recently took several actions in response to the current political situation in Venezuela. Specifically, the administration:

  1. Issued Executive Order 13857, "Taking Additional Steps to Address the National Emergency with Respect to Venezuela," on January 25, 2019;
  2. Designated Petróleos de Venezuela, S.A. (PDVSA) as a Specially Designated National ("SDN") on January 28, 2019; and
  3. Enacted a number of amended General Licenses for U.S. sanctions on Venezuela on January 28, 2019.

One significant impact of the executive order is that the definition of the term "Government of Venezuela" was broadened to now include persons who have acted, or have purported to act, on behalf of the Government of Venezuela, including members of the Maduro regime, for purposes of several existing executive orders, under which all existing Venezuela-related restrictions remain in effect. An equally significant consequence of these actions is the designation of Venezuela's prominent state-owned oil company, PDVSA, as an SDN. PDVSA has substantial business ties to the United States, including through its U.S. subsidiaries, PDV Holding Inc. (PDVH) and CITGO Holding Inc. (CITGO). The designation of PDVSA as an SDN means that U.S. persons are now broadly prohibited from engaging in transactions both with PDVSA and with its subsidiaries, including PDVH and CITGO. While the administration did issue certain exceptions to this broad prohibition in the newly issued and amended General Licenses, U.S. persons should carefully review any current or proposed business dealings with these named entities or the "Government of Venezuela," as discussed below.

Restrictions on dealings with the Government of Venezuela are not new, but previous restrictions were narrower—applying only to certain types of transactions with certain entities. Since August 25, 2017, U.S. persons have been prohibited, pursuant to E.O. 13808, from engaging in:

  • Certain transactions relating to the Government of Venezuela's debt issued on or after August 25, 2017 with a maturity longer than 30 days;
  • Transactions relating to PDVSA's debt issued on or after August 25, 2017 with a maturity longer than 90 days; and
  • Transactions involving the Government of Venezuela's bonds, securities, and equity.1

For U.S. investors, these prior restrictions have impacted investment in Venezuelan securities and debt instruments, among other assets. Furthermore, the prohibition on extending credit or payment terms beyond 30 days (for the Government of Venezuela generally) or 90 days (for PDVSA) has created significant practical challenges for U.S. exporters and service providers to Venezuela in a cash-strapped market.

The recent actions by the Trump administration expand the restrictions previously applicable to PDVSA by now broadly prohibiting U.S. persons from engaging in any transactions involving PDVSA or its subsidiaries (including CITGO), subject to various authorized wind-down periods. Notably, transactions with the Government of Venezuela and other entities owned or controlled by the Government of Venezuela remain subject to the same restrictions as before.

On January 28, 2019, the administration also issued amendments to pertinent General Licenses in conjunction with the designation of PDVSA as an SDN. Subject to certain restrictions, the General Licenses authorize U.S. persons to:

  • Engage in transactions "ordinarily incident and necessary to the wind-down of operations, contracts, or other agreements involving PDVSA" or its subsidiaries until February 27, 2019;
  • Engage in transactions for the purchase and importation of petroleum products from PDVSA and its subsidiaries, until April 28, 2019;
  • Engage in transactions with PDVH, CITGO, and any of their subsidiaries, provided no other PDVSA entities are involved, until July 27, 2019;
  • Purchase (by U.S. persons in Venezuela) refined petroleum products from PDVSA or its subsidiaries, with no expiration date (but resale and transfer of petroleum products is not authorized); and
  • Engage in transactions ordinarily incident and necessary to the maintenance or wind-down of operations, contracts, or other agreements involving PDVSA or its subsidiaries (by U.S. persons or employees and contractors of non-U.S. entities located outside of the United States or Venezuela), until March 29, 2019.

PDVSA is Venezuela's flagship energy company, and is involved in both upstream and downstream operations through exploration, production, refining, and sales of oil and gas from Venezuela. With the designation of PDVSA as an SDN, U.S. businesses now face increased risk when doing business in Venezuela. Additionally, by virtue of PDVSA's ownership, certain prominent U.S. companies, such as CITGO, are also subject to restrictions. Enhanced screening procedures and careful review of existing and proposed business activities are some of the recommended steps U.S. businesses should take to ensure compliance with these new sanctions and any applicable amended General Licenses. If you have any questions about the application of the new sanctions to your business activities or wonder what you should be doing to protect your company, please contact Venable's International Trade Group for guidance on your particular situation.

[1] Notably, the U.S. Department of Treasury's Office of Foreign Assets Control (OFAC) provided an exception to these restrictions for CITGO and its subsidiaries due to CITGO's presence in the United States.