After many rumors of potential changes to the U.S. policy on Venezuela, on October 18, 2023 the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued four general licenses, representing a significant shift in its Venezuela sanctions program.  Most pertinent for the shipping industry, certain sanctions that were in place against Petróleos de Venezuela, S.A. (PdVSA) and the Venezuela oil, gas and mining sectors have now largely been relaxed.

Specifically, OFAC issued:

  • General License 44, a six-month general license temporarily authorizing transactions that are related to oil and gas sector operations in Venezuela, including authorizing ordinarily incident and necessary financial transactions with certain blocked Venezuelan banks related to the oil and gas sector, specifically including transactions involving PdVSA.
    • The license will be renewed only if Venezuela meets its commitments under the electoral roadmap as well as other commitments with respect to those who are wrongfully detained. 
  • General License 43, authorizing certain transactions involving CVG Compania General de Mineria de Venezuela CA, the Venezuelan state-owned mining company designated pursuant to Executive Order 13850.
    • The U.S. government does not intend to sanction any person solely for legitimate operations in the gold sector of the Venezuelan economy.

GL 44 suspends Venezuela-related sanctions applicable to most oil and gas sector operations in Venezuela, including 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 or any entity in which PdVSA owns a 50% or greater interest.

GL 44 provides a non-exhaustive list of transactions covered by the authorization, including:

  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
  4. The delivery of oil and gas from Venezuela to creditors of the Government of Venezuela, including creditors of PdVSA entities, for the purposes of debt repayment

Note: While these authorizations are addressed to “U.S. persons,” it is well established OFAC policy that authorizations issued for U.S. persons are also deemed to extend to non-U.S. persons.  Therefore, non-U.S. operators would also be able to benefit from these authorizations to the extent their activities comply with GL 44. 

While GL 44 provides broad relief to oil and gas sector operations in Venezuela, several key prohibitions remain in place:

  • Designated financial institutions.  GL 44 does not authorize any transactions involving any financial institution blocked pursuant to EO 13850 other than Banco Central de Venezuela or Banco de Venezuela SA Banco Universal.
  • Russia-related operations.  GL 44 does not authorize the provision of goods or services to, or new investment in, an entity located in Venezuela that is owned or controlled by, or in a joint venture with, an entity located in the Russian Federation.  In addition, GL 44 does not authorize 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 the Russia.
  • Certain financial restrictions in EO 13808.  Transactions prohibited by subsections 1(a)(i) – (iii) or 1(b) of EO 13808,[1] other than the payment of invoices for goods or services related to oil or gas sector operations in Venezuela, or the delivery of oil and gas for the purpose of debt repayment to creditors, are still prohibited.
    • Accordingly, new debt transactions, such as the provision of loans to PdVSA, that are not for the payment of invoices or repayment of debt through delivery of oil or gas, are not authorized by GL 44. See FAQ 553 for a definition of “new debt” under EO 13808 and FAQ 511 for examples of debt and equity
  • Transactions prohibited by EOs 13827 and 13835.  GL 44 does not authorize any transactions prohibited by EO 13827 (relating to certain virtual assets issued by, for, or on behalf of the Government of Venezuela) or EO 13835 (relating to debt that is owed to the Government of Venezuela, as well as certain transactions involving any equity interest in any entity in which the Government of Venezuela has a 50% or greater ownership interest).
  • Blocked property.  GL 44 does not authorize the unblocking of any property blocked pursuant to the Venezuela Sanctions Regulations (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 separately authorized.
  • Blocked persons.  Transactions involving any person blocked pursuant to a sanctions authority other than the VSR are not authorized pursuant to GL 44.

While less relevant to the shipping industry, the October 18 relaxation of U.S. Venezuela sanctions also saw the amendment of certain existing licenses to remove the secondary trading ban on certain Venezuelan sovereign bonds and PdVSA debt and equity.  More specifically, General License 3I and General License 9H remove the secondary market trading bans on purchases of certain Venezuelan sovereign bonds and pre-2017 bonds or equity issued by PdVSA.  The ban on trading in the primary Venezuelan bond market remains in place.

Per the newly published FAQ 662:

  • GL 3I authorizes U.S. persons to engage in all transactions related to, the provision of financing for, and other dealings in the bonds specified in the annex to GL 3I (GL 3I Bonds) that would be prohibited by subsection 1(a)(iii) of EO 13808 or by EO 13850, as amended by EOs 13857 and 13884 (as collectively incorporated into the VSR, 31 CFR part 591).  
  • The authorization in GL 3I includes, for example, 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 GL 3I Bonds.  GL 3I also authorizes divestment of the GL 3I Bonds, including, on or after October 18, 2023, to other U.S. persons.
  • GL 3I authorizes all transactions prohibited by subsection 1(a)(iii) of EOs 13808 or 13850, as amended by EOs 13857 and 13884, that are ordinarily incident and necessary to facilitating, clearing, and settling trades of holdings in the GL 3I Bonds, provided such trades were placed prior to 4 p.m. Eastern Standard Time on February 1, 2019.
    • This authorization aims to ensure that trades that were placed prior to February 1, 2019, are allowed to settle in the ordinary course.
  • GL 3I authorizes all transactions related to, the provision of financing for, and other dealings in bonds that were issued both (i) prior to August 25, 2017, and (ii) by U.S. person entities owned or controlled, directly or indirectly, by the Government of Venezuela, other than PDV Holding, Inc., CITGO Holding, Inc., and any of their subsidiaries, that would be prohibited by EO 13808 or EO 13850, each as amended, or by EO 13884.

The other newly issued FAQ 661 clarifies that:

  • GL 9H authorizes U.S. persons to engage in all transactions prohibited by subsection 1(a)(iii) of EO 13808 or by EO 13850, as amended by EOs 13857 and 13884, as collectively incorporated into the VSR, that are ordinarily incident and necessary to dealings in any debt of, or equity in, PdVSA, or any entity directly or indirectly owned 50% or more by PdVSA, that was issued prior to August 25, 2017 (PdVSA Securities). 
    • This includes bonds issued by PDV Holding, Inc. and CITGO Holding, Inc., or any of their subsidiaries.  The authorization in GL 9H includes, for example, 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. 
    • GL 9H also authorizes divestment of the PdVSA Securities, including, on or after October 18, 2023, to other U.S. persons.
  • GL 9H authorizes all transactions prohibited by subsection 1(a)(iii) of EO 13808 or by EO 13850, as amended by EOs 13857 and 13884, that are ordinarily incident and necessary to facilitating, clearing, and settling trades of holdings in PdVSA Securities, provided such trades were placed prior to 4 p.m. Eastern Standard Time on January 28, 2019.

Finally, OFAC issued amended General License 5M, which further delays the effectiveness of the original authorization in General License 5 until January 18, 2024.  Between October 24, 2019 and January 18, 2024 (the date the authorization in GL 5M becomes effective), there is no authorization in effect that licenses against subsection 1(a)(iii) of EO 13835 applicable to the holders of the PdVSA 2020 8.5 percent bond.  Practically this means that, during such period, transactions related to the sale or transfer of CITGO shares in connection with the PdVSA 2020 8.5 percent bond are prohibited, unless specifically authorized by OFAC.  For the background to the scope of the original authorization, see FAQ 595.

Please be aware that to the extent an agreement may be reached on proposals to restructure or refinance payments due to the holders of the PdVSA 2020 8.5 percent bond, additional licensing requirements may still apply.  In this regard, OFAC encourages parties to apply for a specific license, which will be subject to a favorable licensing policy when reviewing such an agreement. 

For further detail on what has changed vis-à-vis the U.S. Venezuela sanctions with the October 18 action, please consult the “Frequently Asked Questions Related to the Suspension of Certain U.S. Sanctions with Respect to Venezuela on October 18, 2023” guidance document or contact the Reed Smith sanctions team with any specific legal queries.  

[1] These subsection 1 prohibitions of EO 13808 state that (a) all transactions related to, provision of financing for, and other dealings in the following by a U.S. person or within the United States are prohibited: (i) new debt with a maturity of greater than 90 days of PdVSA; (ii) new debt with a maturity of greater than 30 days, or new equity, of the Government of Venezuela, other than debt of PdVSA covered by subsection (a)(i); and (iii) bonds issued by the Government of Venezuela prior to August 24, 2017; and that (b) 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 or 30 days as covered by subsection (a)(i) or (a)(ii), respectively, is prohibited.