The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) on Oct. 18, 2023, suspended certain U.S. sanctions under the Venezuela Sanctions Regulations (VSR), including measures on Venezuela's oil and gas sector operations, the gold sector of the Venezuelan economy and purchases by U.S. persons in the secondary market of certain Venezuela sovereign bonds and pre-2017 bonds or equity issued by Petróleos de Venezuela S.A. (PDVSA). OFAC established the VSR to limit the Nicolás Maduro (Maduro) regime's sources of revenue and hold accountable those who stand in the way of restoring democracy in Venezuela. According to OFAC, the U.S. government has suspended certain sanctions measures in response to recent concrete steps toward a democratic solution in Venezuela, wherein representatives of President Maduro and the Unitary Platform agreed to support the peaceful restoration of democracy, competitive elections and respect for the rights and freedoms of the Venezuelan people.
In addition to discussing key components of the general licenses issued by OFAC – including temporary authorizations related to the oil and gas sector of Venezuela, as well as the removal of secondary market trading bans on the purchase of certain Venezuelan sovereign bonds and pre-2017 bonds or equity issued by PDVSA – this Holland & Knight alert highlights important considerations presented by OFAC's issuance of corresponding frequently asked questions.
As discussed further herein, these changes to the Venezuela-related sanctions program will present new opportunities for certain: 1) creditors of the government of Venezuela to receive payments on their debts that were previously prohibited and 2) investors, suppliers and contractors that operate or seek to operate in the petroleum, oil and gas and mining sectors in Venezuela. U.S. and non-U.S. financial institutions will need to consider these recent changes and monitor ongoing developments to appropriately update their respective anti-money laundering and sanctions compliance programs.
What Is Authorized Under General License No. 3I?
To begin with, General License No. 3I (GL 3I) authorizes U.S. persons to engage in all transactions related to, the provision of financing for and other dealings in bonds specified in the annex thereto (GL 3I Bonds), including on or after Oct. 18, 2023, the divestment or transfer of or facilitation of divestment or transfer of any holdings in GL 3I Bonds to a U.S. person. As an example, GL 3I authorizes engaging in transactions related to the receipt and processing of interest or principal payments and acting as custodian for U.S. and non-U.S. persons' holdings in any of the GL 3I Bonds. Notably, divestment of holdings in GL 3I Bonds is no longer limited to non-U.S. persons.
Importantly, GL 3I does not authorize U.S. persons to sell, or to facilitate the sale of, the GL 3I Bonds, directly or indirectly, to any person whose property and interests in property are blocked. GL 3I also does not authorize the unblocking of property blocked pursuant to the VSR.
What Is Authorized Under General License No. 5M?
General License No. 5M (GL 5M) authorizes all transactions related to the provision of financing for and other dealings in the PDVSA 2020 8.5 Percent Bond (PDVSA 8.5 Bond) on or after Jan. 18, 2024. As a reminder, OFAC initially issued General License No. 5 to allow holders of the PDVSA 8.5 Bond to access their collateral in light of the prohibitions under Executive Order (E.O.) 13835. However, General License No. 5A delayed the effectiveness of this authorization on Dec. 24, 2019, with several extensions thereafter. GL 5M further delays the effectiveness of General License No. 5's authorization until Jan. 18, 2024. As such, between Oct. 24, 2019, and Jan. 18, 2024, there is no authorization in effect that licenses against the prohibitions under E.O. 13835 applicable to the holders of the PDVSA 8.5 Bond. During this period, transactions related to the sale or transfer of shares in connection with the PDVSA 8.5 Bond are prohibited, unless specifically authorized by OFAC.
What Is Authorized Under General License No. 9H?
General License No. 9H (GL 9H) authorizes all transactions 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 were issued prior to Aug. 25, 2017, including bonds specified in the annex thereto, promissory notes and other receivables (PDVSA Securities). Similar to GL 3I, GL 9H authorizes engaging in transactions related to the receipt and processing of interest or principal payments and acting as a custodian for U.S. and non-U.S. persons' holdings in PDVSA Securities. Once again, the divestment or transfer of the PDVSA Securities on or after Oct. 18, 2023, may be to U.S. persons. This is significant as U.S. persons are no longer subject to the restriction that any divestment of holdings in PDVSA Securities must be to non-U.S. persons. In addition, GL 9H authorizes transactions that are ordinarily incident and necessary to facilitating, clearing and settling transactions to divest the PDVSA Securities, including on behalf of U.S. persons.
Similar to GL 3I, GL 9H does not authorize U.S. persons to sell, or to facilitate the sale of, the PDVSA Securities, directly or indirectly, to any person whose property and interests in property are blocked. GL 9H also does not authorize the unblocking of property blocked pursuant to the VSR.
What Is Authorized Under New General License No. 43?
New General License No. 43 (GL 43) authorizes all transactions involving CVG Compania General de Mineria de Venezuela CA (Minerven), or any entity in which Minerven owns, directly or indirectly, a 50 percent or greater interest. This is particularly noteworthy as Minerven is the only entity designated by OFAC for operating in the gold sector of the Venezuelan economy. OFAC has clarified that it does not intend, at this time, to target any person solely for operating in the gold sector of the Venezuelan economy.
What Is Authorized Under New General License No. 44?
New General License No. 44 (GL 44) authorizes all transactions prohibited by the VSR, including transactions involving PDVSA or any entity in which PDVSA owns, directly or indirectly, a 50 percent or greater interest (PDVSA Entities), that are related to oil or gas sector operations in Venezuela through 12:01 a.m. ET on April 18, 2024, including, but not limited to: 1) production, lifting, sale and exportation of oil or gas from Venezuela and provision of related goods and services, 2) payment of invoices for goods or services related to oil or gas sector operations in Venezuela, 3) new investment in oil or gas sector operations in Venezuela and 4) delivery of oil and gas from Venezuela to creditors of the government of Venezuela, including creditors of PDVSA Entities, for the purpose of debt repayment.
It is worth noting that dealings with Banco Central de Venezuela and Banco de Venezuela SA Banco Universal are authorized under GL 44, but transactions with any other financial institution blocked pursuant to E.O. 13850 are not permitted. In furtherance of the Russian Harmful Foreign Activities Sanctions, the following are specifically prohibited: 1) 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 the Russian Federation and 2) any transactions related to new investment in oil or gas sector operations in Venezuela by a person located in the Russian Federation or any entity owned or controlled by a person located in the Russian Federation.
It is important to note that GL 44 does not authorize all transactions prohibited by subsections l(a)(i)-(iii) or l(b) of E.O. 13808 – in other words, the transactions authorized by GL 44 continue to be subject to the prohibitions and limitations of E.O. 13808, subject to minor exceptions. This is crucial as transactions will require a case-by-case evaluation to determine whether 1) GL 44 authorizes the respective transaction and 2) any impact or limitations imposed by E.O. 13808 or other provisions of the VSR. Any transactions prohibited by E.O. 13827 or E.O. 13835 remain prohibited, and GL 44 does not authorize the unblocking of any property blocked pursuant to the VSR.
OFAC has indicated its intent to renew GL 44 upon its expiration, provided the representatives of Maduro follow through with their commitments and take continued concrete steps toward a democratic election by the end of 2024.
What Is Authorized Under New General License No. 45?
New General License No. 45 (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 that are exclusively for the purposes of such repatriation involving 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. OFAC has confirmed that the "Western Hemisphere" includes, but is not limited to, Bolivia, Brazil, Colombia, Cuba, Guatemala, Honduras, Mexico, Nicaragua, Paraguay and Venezuela.
Future Issuances
Due to the ongoing political climate in Venezuela, OFAC has indicated that it retains the authority to rescind authorizations should the representatives of Maduro fail to follow through on their commitments. OFAC is also prepared to revoke these authorizations as needed to support U.S. foreign policy and national security priorities. Holland & Knight expects to receive more clarity and guidance as to OFAC's authorization released on Oct. 18, 2023, including those related to the interaction between the authorizations provided in GL 44 and the prohibitions and limitations under E.O. 13808.
