United States: OFAC Revises General Licenses On Sanctioned Venezuelan State-Owned Energy Company

In connection with the recent imposition of sanctions on Petróleos de Venezuela S.A. ("PdVSA"), the U.S. Treasury Department Office of Foreign Assets Control ("OFAC") issued two revised General Licenses and numerous new and revised Frequently Asked Questions ("FAQs"). The General Licenses and FAQs clarify the scope of activities that remain authorized with respect to PdVSA and its majority-owned subsidiaries, including Citgo Holdings, Inc. ("Citgo").

The revised General Licenses authorize certain dealings related to (i) specified bonds issued by entities owned by the Government of Venezuela (General License 3B) and (ii) securities issued by PdVSA and its subsidiaries (General License 9A). These General Licenses now specifically authorize transactions and activities that are "ordinarily incident and necessary to the wind down" of pre-existing derivatives contracts linked to a covered security. General License 3B also narrows the authorizations previously provided in General Licenses 3 and 3A, such that any divestment or transfer of bonds listed on General License 3A's Annex now must be made to a non-U.S. person. A similar "non-U.S. person" requirement already existed with respect to most activities authorized by General License 9; however, General License 9A and related FAQ 661 clarify that trades in PdVSA securities placed prior to 4:00 p.m. EST on January 28, 2019 are generally authorized "irrespective of whether the sale or transfer is to a non-U.S. person."

Commentary

OFAC's revised General Licenses and guidance provide welcome clarification on a number of important points. They do not, however, put to rest all outstanding questions. For example, it remains unclear whether bonds issued by PdVSA subsidiaries Citgo, PDV Holdings, Inc., and Nynas AB may be sold to U.S. persons under General License 9A. And in connection with the purchase and import of PdVSA oil into the United States, there is also uncertainty surrounding the definition of payments "for the indirect benefit" of PdVSA, which must be made into a blocked account. Given the significant impact of the PdVSA sanctions on U.S. securities and oil markets, additional guidance may be forthcoming.

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