OFAC Venezuela Sanctions FAQ: Questions 6-9

 

Why is OFAC imposing sanctions and issuing general licenses specific to bonds and other securities?

The Government of Venezuela is selling assets for much less than they are worth at the expense of the Venezuelan people and using proceeds from these sales to enrich supporters of the regime. Bonds and other securities are among the assets being sold. The prohibitions and related general licenses are meant to prevent U.S. persons from contributing to the Government of Venezuela’s corrupt and shortsighted financing schemes while mitigating market disruptions and harm to investors.

Do the prohibitions imposed pursuant to E.O. of August 24, 2017 also extend to entities owned 50 percent or more by the Government of Venezuela?

Yes. These prohibitions apply to the Government of Venezuela, its property, and its interests in property, which includes entities owned 50 percent or more, individually or in the aggregate, by the Government of Venezuela. Note, however, that General License 2 authorizes all transactions otherwise prohibited by Subsections 1(a)(i), (a)(ii), and (b) of E.O. of August 24, 2017 provided that the only Government of Venezuela entities involved in the transactions are CITGO Holding, Inc. or its subsidiaries. General License 3 also authorizes all transactions related to, provision of financing for, and other dealings in bonds that U.S. person entities owned or controlled, directly or indirectly, by the Government of Venezuela issued prior to the effective date of E.O. of August 24, 2017. Additional information on OFAC’s 50 Percent Rule is available here.

If a U.S. person entered into a revolving credit facility or long-term loan arrangement for the Government of Venezuela prior to the sanctions effective date, what are the restrictions on drawdowns from that facility? Do all drawdowns and disbursements pursuant to the parent agreement need to carry repayment terms of 90 days or less (for PdVSA) or 30 days or less (for the rest of the Government of Venezuela)?

If a U.S. person entered into a long-term credit facility or loan agreement prior to the sanctions effective date, drawdowns and disbursements with repayment terms of 90 days or less (for PdVSA) or 30 days or less (for the rest of the Government of Venezuela) are permitted. Drawdowns and disbursements whose repayment terms exceed the applicable authorized tenor are not prohibited if the terms of such drawdowns and disbursements (including the length of the repayment period, the interest rate applied to the drawdown, and the maximum drawdown amount) were contractually agreed to prior to the sanctions effective date and are not modified on or after the sanctions effective date. U.S. persons may not deal in a drawdown or disbursement initiated after the sanctions effective date with a repayment term of longer than 90 days (for PdVSA) or 30 days (for the rest of the Government of Venezuela), if the terms of the drawdown or disbursement were negotiated on or after the sanctions effective date. Such a newly negotiated drawdown or disbursement would constitute a prohibited extension of credit.

Note that General License 2 authorizes all transactions in new debt of any tenor with CITGO Holding, Inc. and its subsidiaries.

Is the term “new equity” limited to equity that is issued by an entity owned or controlled by the Government of Venezuela after the sanctions effective date, or would equity purchased or acquired by an entity owned or controlled by the Government of Venezuela from a third party after the sanctions effective date be considered new equity?

Under E.O. of August 24, 2017, the term “new equity” pertains to equity issued, directly or indirectly, by the Government of Venezuela on or after the sanctions effective date. That said, E.O. of August 24, 2017 prohibits U.S. persons from purchasing any securities – including equity securities issued by a non-sanctioned party – from the Government of Venezuela. The exception to this prohibition is purchasing securities that qualify as (1) new debt of PdVSA with a maturity of less than or equal to 90 days, or (2) new debt of any other part of the Government of Venezuela with a maturity of less than or equal to 30 days. U.S. persons are authorized to deal with the Government of Venezuela as counterparty to transactions involving securities that fall into either of these two categories. General License 2 further authorizes U.S. persons to deal in new equity issued by CITGO Holding, Inc. or any of its subsidiaries, or purchase securities from CITGO Holding, Inc. or any of its subsidiaries, provided that no other entities owned or controlled by the Government of Venezuela are involved. 

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