U.S. Suspends Certain Sanctions Against Venezuela Following Political Agreement Between Maduro Representatives and Unitary Platform

U.S. Suspends Certain Sanctions Against Venezuela Following Political Agreement Between Maduro Representatives and Unitary Platform

October 23, 2023, Covington Alert

On October 18, 2023, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) announced that, in response to the signing of an electoral roadmap agreement between representatives of Venezuelan President Nicolás Maduro and the opposition Unitary Platform, it was authorizing on a temporary and/or conditional basis certain transactions by U.S. persons that would otherwise be prohibited by the U.S. sanctions against the Government of Venezuela and entities it owns or controls. In particular, OFAC issued new or amended general licenses authorizing, subject to certain conditions and limitations:

• all transactions related to Venezuela’s oil and gas sector operations until April 18, 2024;
• all transactions involving Venezuela’s state-owned gold mining company (or entities it owns 50% or more), which was accompanied by associated guidance regarding dealings in the Venezuelan gold sector more broadly;
• purchases by U.S. persons (defined as U.S. legal entities and their non-U.S. branches; U.S. citizens and lawful permanent residents, no matter where located or employed; and persons present in the United States) in the secondary market of certain Venezuelan sovereign debt and Petróleos de Venezuela, S.A. debt and equity; and
• all transactions ordinarily incident and necessary to, and exclusively for the purpose of, repatriating Venezuelan nationals from non-U.S. jurisdictions in the Western Hemisphere involving certain sanctioned parties.

Notably, all other U.S. sanctions targeting Venezuela, including the property-blocking sanctions imposed on the Government of Venezuela, remain in effect.

In announcing these general licenses, OFAC emphasized that it was prepared to amend or revoke them at any time if representatives of President Maduro fail to follow through on the commitments agreed to with the Unitary Platform. The U.S. Department of State also issued a statement emphasizing that the sanctions relief was predicated on an “expectation and understanding” that the Maduro government will take certain steps before the end of November 2023 with respect to the eligibility of opposition candidates to participate in next year’s presidential election in Venezuela and the release of wrongfully detained parties (including U.S. nationals), and that “[f]ailure to abide by the terms of this arrangement will lead the United States to reverse steps we have taken.”

General License 44 Authorizing Activities Related to the Venezuela Oil and Gas Sector

Although the state oil company of Venezuela, Petróleos de Venezuela, S.A., and entities owned 50% or more, directly or indirectly, by it (collectively “PdVSA”) remain subject to U.S. property-blocking sanctions, new General License (“GL”) 44 authorizes until 12:01 a.m. eastern daylight time, April 18, 2024, all transactions related to oil and gas sector operations in Venezuela prohibited by the Venezuela Sanctions Regulations (“VSR”). Authorized transactions include transactions involving PdVSA, subject to certain conditions.

GL 44 provides a non-exhaustive list of otherwise prohibited activities that are authorized by the general license, as follows:

1. the production, lifting, sale, and exportation of oil or gas from Venezuela, and provision of related goods and services;
2. the 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. the delivery of oil and gas from Venezuela to creditors of the Government of Venezuela, including creditors of PdVSA, for the purpose of debt repayment.

OFAC also explained in a concurrently issued Frequently Asked Questions (“FAQ”) document (the “FAQ Document”) that GL 44 allows the sale of oil and gas from Venezuela to the United States and other jurisdictions, as well as the payment of taxes, royalties, costs, fees, dividends, and profits related to oil and gas sector operations or transactions involving PdVSA.

GL 44 includes several key conditions. Specifically, the general license does not authorize the following:

• any transactions involving any financial institution blocked pursuant to Executive Order (“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 oil or gas sector operations in Venezuela by a person located in Russia or any entity owned or controlled by a person located in Russia;
• any transactions prohibited by either subsections 1(a)(i) to (iii) of E.O. 13808—which prohibit all transactions relating to (i) new debt of PdVSA with a maturity greater than 90 days, (ii) new debt with a maturity greater than 30 days or new equity of the Government of Venezuela (other than new debt of PdVSA), or (iii) bonds issued by the Government of Venezuela prior to August 24, 2017—or by subsection 1(b) of E.O. 13808—which prohibits the purchase, directly or indirectly, by a U.S. person or within the United States, of securities from the Government of Venezuela, other than securities qualifying as new debt with a maturity of less than or equal to 90 days (if issued by PdVSA) or 30 days (if issued by the Government of Venezuela). Notably, this exclusion does not cover transactions described in paragraphs (a)(2) and (a)(4) of GL 44 relating to (i) payments of invoices for goods or services related to oil or gas sector operations in Venezuela, and (ii) the delivery of oil and gas from Venezuela to creditors of the Government of Venezuela (including creditors of PdVSA) for purposes of debt repayment (i.e., these transactions are authorized by GL 44);
• any transactions prohibited by E.O. 13827, which prohibits transactions on the part of U.S. persons involving any digital currency, coin, or token issued by, for, or on behalf of the Government of Venezuela, or E.O. 13835, which prohibits transactions by or involving U.S. persons related to purchasing debt owed to the Government of Venezuela (including accounts receivable), any debt owed to the Government of Venezuela that was pledged as collateral after May 21, 2018, and the sale, transfer, assignment, or pledging as collateral by the Government of Venezuela of any equity interest in any entity in which the Government of Venezuela has a 50% or greater ownership interest; or
• the unblocking of any property blocked pursuant to the VSR. Accordingly, all property blocked pursuant to the VSR in the United States, or in the possession or control of a U.S. person, as of October 18, 2023, will remain blocked unless its unblocking is separately authorized.

Finally, transactions involving any person blocked pursuant to a sanctions authority other than the VSR are not authorized pursuant to GL 44.

OFAC announced that it intends to renew GL 44 only if Maduro representatives follow through with the commitments agreed to in the electoral roadmap and take “continued concrete steps” towards a democratic election in Venezuela by the end of 2024.

In addition to the broad relief provided to oil and gas sector operations in Venezuela, OFAC issued GL 43, which authorizes all transactions, subject to certain conditions, involving the Venezuelan state-owned gold mining company CVG Compania General de Mineria de Venezuela CA, or any entity in which it owns, directly or indirectly, a 50% or greater interest (collectively “Minerven”). Minerven is currently the only entity that has been designated by OFAC for operating in the gold sector of the Venezuelan economy pursuant to E.O. 13850.

GL 43 does not authorize any transactions otherwise prohibited by the VSR, including any transactions involving any person blocked pursuant to the VSR other than Minerven, Government of Venezuela persons blocked solely pursuant to E.O. 13884, Banco Central de Venezuela, or Banco de Venezuela SA Banco Universal.

In addition, while E.O. 13850 continues to authorize the imposition of property-blocking sanctions on any person—including any non-U.S. person—determined to operate in the gold sector of the Venezuelan economy, the FAQ Document indicates that OFAC currently does not intend to target for such sanctions any person solely for operating in the gold sector of the Venezuelan economy. OFAC has stated that this policy is contingent on the Maduro regime taking continued concrete steps towards a democratic solution in Venezuela. OFAC also indicated that it is prepared to revoke GL 43 if needed to support U.S. foreign policy and national security priorities.

OFAC also issued amended general licenses GL 3I and GL 9H to remove the secondary market trading bans on purchases by U.S. persons of certain Venezuelan sovereign bonds and pre-2017 debt or equity issued by PdVSA. GL 3H and GL 9G previously did not authorize U.S. persons to purchase or invest in, or to facilitate the purchase of or investment in, directly or indirectly, these bonds and equity, with certain exceptions. Under GL 3I, which replaces and supersedes in its entirety GL 3H, U.S. persons are no longer subject to the restriction that any divestment of holdings in certain Venezuelan sovereign bonds must be to non-U.S. persons. See OFAC FAQ 662. Similarly, under GL 9H, which replaces and supersedes in its entirety GL 9G, U.S. persons are no longer subject to the restriction that any divestment of holdings in certain PdVSA debt and equity must be to non-U.S. persons. See OFAC FAQ 661. All sanctions related to the primary Venezuelan bond market, however, remain in place, as do sanctions restricting other dealings in debt (and equity) of the Government of Venezuela.

OFAC also issued amended GL 5M, which delays until January 18, 2024, the effectiveness of the authorization for all transactions related to, or other dealings in, the PdVSA 2020 8.5 Percent Bond that are otherwise prohibited by subsection 1(a)(iii) of E.O. 13835 and the VSR. As a result, transactions related to the sale or transfer of CITGO shares in connection with the PdVSA 2020 8.5 Percent Bond are prohibited unless licensed by OFAC. CITGO is an indirect, wholly owned subsidiary of PdVSA and CITGO’s shares serve as collateral for the PdVSA 2020 8.5 Percent Bond. See OFAC FAQ 595.

In the FAQ Document, OFAC also advised that none of the sanctions against Venezuela suspended on October 18, 2023, affects the U.S. government’s posture on litigation brought by creditors seeking to attach assets of the Government of Venezuela in the United States, as set forth in FAQs 808, 1123, and 1124.

Finally, OFAC issued GL 45, authorizing all transactions ordinarily incident and necessary to the repatriation to Venezuela of Venezuelan nationals from non-U.S. jurisdictions in the Western Hemisphere involving the Venezuelan state airline Consorcio Venezolano de Industrias Aeronáuticas y Servicios Aéreos, S.A., or any entity in which it owns, directly or indirectly, a 50% or greater interest (collectively “Conviasa”). Coupled with a parallel authorization from the U.S. Department of Transportation for qualified flights involving the United States, GL 45 permits U.S. persons to deal with Conviasa for purposes of repatriating Venezuelan nationals from non-U.S. jurisdictions in the Western Hemisphere following an agreement between U.S. authorities and the Maduro government for the orderly, safe, and legal repatriation of Venezuelan citizens. OFAC considers the term “Western Hemisphere” to mean those countries and areas identified by the U.S. State Department on its website as comprising the Western Hemisphere. See OFAC FAQ 1137.

Similar to GL 44, GL 45 does not authorize any transactions otherwise prohibited by the VSR, including any transactions involving any person blocked pursuant to the VSR other than Conviasa, Government of Venezuela persons blocked solely pursuant to E.O. 13884, Banco Central de Venezuela, or Banco de Venezuela SA Banco Universal.

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As noted, the U.S. government has made clear that failure on the part of Maduro representatives to abide by the terms of the agreement with the Unitary Platform will lead the United States to reverse course on the foregoing relaxation of sanctions. Indeed, OFAC has made clear that it is prepared to amend or revoke at any time the authorizations embodied in the new and amended general licenses. The U.S. State Department has further conveyed its expectation and understanding that the Venezuelan government will take the following steps before the end of November 2023: (1) define a specific timeline and process for the expedited reinstatement of all candidates for the 2024 Venezuelan presidential election so as to ensure a level electoral playing field; and (2) begin the release of all wrongfully detained U.S. nationals and Venezuelan political prisoners. Thus, whether the new authorizations announced on October 18, 2023, remain in effect will be contingent on whether Maduro and his representatives follow through on their commitments.

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We are closely monitoring these developments and would be happy to address any questions you may have.

Covington’s International Trade Controls team—which includes lawyers in the firm’s offices in the United States, London, Brussels, and Frankfurt—regularly advises clients across business sectors, and would be well-placed to provide support in connection with these new developments.

Our trade controls lawyers also work closely with Covington's Global Public Policy team which consists of over 120 former diplomats and policymakers in the United States, Europe, the Middle East, Latin America, Africa, and Asia. Many of the members of the Public Policy team have had substantial government experience in sanctions and export controls matters, and regularly advise our clients on emerging trade controls policy matters and related engagements with government stakeholders.