August 29, 2017

New U.S. Sanctions on Government of Venezuela Affect Debt, Equity and Other Transactions by U.S. Persons or within the United States

Alleging that Venezuelan President Nicolas Maduro is corruptly selling off state assets at below value to enrich persons supporting his regime, and in order to deprive it of hard currency, the United States has imposed new sanctions on the Government of Venezuela. These sanctions severely restrict the Government of Venezuela’s ability to borrow or sell assets in the U.S. financial system and to realize profits from its interests in the United States. These sanctions will be of significant interest to U.S. financial institutions, private equity firms, hedge funds, U.S. interests partly owned by the Government of Venezuela, and other U.S. persons and companies having commercial relationships with it.

What is now prohibited, subject to the General Licenses

By Executive Order effective August 25, 2017, the sanctions prohibit transactions and dealings, by United States persons (wherever located) or within the United States, related to –

  1. new debt with a maturity of greater than 90 days of Petroleos de Venezuela, S.A. (PdVSA);
  2. new debt with a maturity of greater than 30 days, or new equity, of the Government of Venezuela, other than certain debt of PdVSA;
  3. bonds issued by the Government of Venezuela prior to August 25, 2017;
  4. dividend payments or other distributions of profits to the Government of Venezuela from any entity owned or controlled, directly or indirectly, by the Government of Venezuela.

The sanctions also prohibit the purchase by U.S. persons or within the United States of new securities issued by the Government of Venezuela, other than securities qualifying as new debt with a maturity less than or equal to 90 days (PdVSA) or 30 days (other Government of Venezuela debt).

The General Licenses

OFAC issued several general licenses that limit the effect of or otherwise mitigate the Executive Order’s prohibitions, including:  

General License 1 authorizes, through September 24, 2017, activities necessary to winding down contracts and other agreements that are newly prohibited, subject to a reporting requirement.

General License 2 authorizes certain transactions with PdVSA’s CITGO Holding, Inc. and its subsidiaries that the Executive Order would otherwise prohibit (but not including profit distributions from these entities to the Government of Venezuela).

General License 3 authorizes transactions relating to existing bonds issued by the Government of Venezuela that appear on the Annex to the General License; and by U.S. companies owned or controlled by the Government of Venezuela.

And General License 4 authorizes certain new debt transactions relating to the exportation or reexportation to Venezuela of U.S. medical devices and replacement parts, medicines, and agricultural commodities.

The new sanctions will be implemented through regulations promulgated by the Office of Foreign Assets Control, of the U.S. Department of the Treasury, which has published an FAQ about the sanctions, available here.

If you would like additional information about the issues addressed in this client alert, please contact Rich Matheny or Jacob Osborn, or the Goodwin attorney with whom you typically consult.