President Trump’s Executive Order No. 13884 significantly expanded U.S. economic sanctions against the Government of Venezuela.
The EO took effect Aug. 5, and authorizes two types of sanctions: primary sanctions and secondary sanctions. Primary sanctions apply to transactions with a nexus to the U.S., such as those involving U.S. entities, goods, or services.
Secondary sanctions can target a person or company involved in a Venezuelan transaction even if there is no U.S. nexus. The imposition of secondary sanctions can block an entity from doing business in the U.S. and can even affect its ability to transact abroad.
All property and interests in property of the government of Venezuela are now fully blocked. The EO provides that no “United States Person” can have any dealings, unless otherwise exempted, with the government of Venezuela. A “United States Person” is a U.S. citizen, permanent resident alien, entity organized under the laws of the U.S. or any jurisdiction within the U.S. (including foreign branches), or any person located in the U.S.
The “Government of Venezuela” is defined to include any political subdivision, agency, or instrumentality of the government of Venezuela, including the Central Bank of Venezuela and Petroleos de Venezuela, S.A. (PdVSA). It also includes any entity owned or controlled, directly or indirectly, by the Venezuelan government or any person who has acted or purported to act directly or indirectly on the government’s behalf. This includes members of the Maduro regime.
While this definition of the government of Venezuela does not include all private persons and companies within Venezuela, it may implicate commercial business in Venezuela that either have some government ownership, government control, or are directly or indirectly acting on the Venezuelan’s government’s behalf.
This means that those doing business in Venezuela must vet their business partners carefully to identify any government ownership or other government nexus.
The EO allows the U.S. government to block all the property of any individual or company worldwide if it is found to have materially assisted, sponsored, or provided support to the government of Venezuela or any party listed under the EO as a specially designated nationals and blocked person (SDN). This sanctioned activity is deemed to include the provision of goods and services or other financial, material, or technological support.
These secondary sanctions now place any person or company anywhere in the world in jeopardy of being locked out of the U.S. economy if they facilitate or provide support to the government of Venezuela as defined above. Some potentially affected actors might include insurance companies, brokers, freight forwarders, distributors, sales agents, service providers, or financial institutions.
Accordingly, any company doing business in Venezuela needs to understand how these new requirements will affect its business. It will likely have to choose carefully if it can do business with Venezuela or possibly risk losing the ability to do business in the U.S. This is a major decision and must be analyzed correctly so that the company itself is not targeted by the U.S. for a violation of the secondary sanctions, and added to the SDN List.
Note that there are exemptions related to food, clothing, and medicine. In addition, OFAC has authorized general licenses for personal remittances, international organizations, receipt and transmission of telecommunications and mail and packages, services, software or technology incident to exchange of certain communications over the Internet and humanitarian projects, democracy building, educations and environmental protection in Venezuela.
Proceed With Caution
Before your company proceeds with a Venezuela-related transaction, you should ensure it:
- Conducts due diligence inquiries, such as screening and background checks, regarding all parties to the transaction to insure that no party to a proposed transaction could arguably fall within the definition of “Government of Venezuela” as defined above.
- Keeps complete written records for five years of your due diligence inquiries and applicable general license exemptions.
- Maintains a memo for five years explaining why you have concluded the transaction does not involve a party that could arguably fall within the definition of “Government of Venezuela” as defined above.
- Ensures that you notify your financial institution as to why the proposed transaction does not violate U.S. sanctions so that it won’t be rejected.
- Reviews the U.S. Export Administration Regulations (EAR) for additional restrictions on U.S. and non-U.S. persons exporting or re-exporting items subject to U.S. export control jurisdiction to Venezuela.
- Notifies OFAC within 10 business days if your company blocks or rejects a transaction due to any sanctions program, including Venezuela. Failure to file with OFAC a required report may itself constitute a violation.