Venezuelan Sanctions

Author:Ms Amanda DeBusk, Melissa Duffy, Sean C. Kane and Alan G. Kashdan
Profession:Hughes Hubbard & Reed LLP
 
FREE EXCERPT

August 28, 2017 - On August 24, 2017, the White House issued an Executive Order (E.O. 13808) that restricts access to U.S. financing for the government of Venezuela and its state owned energy company, Petroleos de Venezuela, S.A. (PDVSA).  This is the most recent U.S. government action to ratchet up sanctions against Venezuela in response to President Nicolas Maduro's efforts to expand his power and suppress his political opposition. 

Summary

The sanctions do not generally bar transactions with the government of Venezuela or PDVSA.  They instead take a more targeted approach - similar to the U.S. sectoral sanctions against Russia - by prohibiting specific types of dealings (mostly financial transactions) in order to increase pressure on the ruling regime.  The U.S. government simultaneously offered some relief by carving out transactions with PDVSA's U.S. subsidiary CITGO Holding, Inc. ("CITGO"), food- and medicine-related transactions, and certain dealings in existing bonds.  It also has provided a 30-day wind-down period for contracts that are now prohibited.

Although U.S. persons can continue to engage in most commerce with Venezuela, particularly with entities that are not owned or controlled by the government, it is becoming increasingly complicated to do so.  These latest sanctions are an added layer on top of the blocking sanctions already in place against the country's president Nicolas Maduro, the vice president, the president of PDVSA, and other high profile government and commercial officials.  Below is an overview of this latest round of sanctions, followed by practical considerations for companies with U.S. ties that do business in Venezuela.

  1.           New Executive Order and General Licenses

    Highlights of the August 24 Executive Order include the following.

    U.S. persons are restricted from dealing in: new debt of PDVSA with a maturity exceeding 90 days; new debt with a maturity exceeding 30 days, or new equity, of the government of Venezuela (other than debt of PDVSA; this provision, thus, includes new equity of PDVSA); existing bonds already issued by the government of Venezuela (unless excepted - see discussion below); dividend payments or other distributions of profits to the government of Venezuela from any entity it owns or controls.  This would prohibit payment of dividends by CITGO to the Venezuelan government, as well as participation by U.S. persons, such as financial institutions, in the payment of such...

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