OFAC Issues Venezuela Sanctions Relief Package Focused on Oil, Gas and Gold Sectors and Secondary Market Trading in Response to Election Commitments

Key Points

• On October 18, 2023, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) took action to relax certain U.S. sanctions on Venezuela in response to the signing of an electoral roadmap between Venezuela’s Unitary Platform and representatives of Nicolas Maduro. Specifically, OFAC:
  • Removed restrictions on the secondary trading of certain specified Venezuelan sovereign debt as well as certain PdVSA debt and equity. Specifically, under amended Venezuela-related General Licenses (“GL”) 3I and 9H, U.S. persons are now authorized, subject to certain conditions described below, to purchase, invest in and sell on the secondary market (1) Venezuelan sovereign bonds specifically identified in the Annex to GL 3I, as well as (2) debt or equity of Petróleos de Venezuela, S.A. (“PdVSA”) (or of any entity owned 50% or more by PdVSA) issued prior to August 25, 2017 (including but not limited to the securities identified in the annex to GL 9H).
  • Issued new GL 44, which provides a six-month license temporarily authorizing almost all transactions involving Venezuela’s oil and gas sector, subject to certain specific exclusions, including against activities involving interests of Russian parties.
  • Issued new GL 43, which authorizes transactions involving CVG Compania General de Mineria de Venezuela CA (the Venezuelan state-owned gold mining company).
  • Issued additional new and amended GLs, as well as new and amended FAQs related to this action (the full set of actions that OFAC announced can be found here).
• The U.S. government has heavily emphasized that the continued validity of this sanctions relief package is contingent upon Nicolas Maduro and his representatives upholding the commitments they have made with respect to the 2024 Venezuelan election, so it will be crucial for interested stakeholders to closely monitor the Venezuelan political calendar in the coming months.
• We note that OFAC’s October 18, 2023 actions were not a complete rollback of all Venezuela-related sanctions, and OFAC still maintains a significant number of other sanctions on Venezuela, including Specially Designated Nationals (“SDN”) sanctions designations of a substantial number of Venezuelan parties that remain subject to U.S. sanctions blocking.

New and Amended Authorizations

Below, we provide further detail regarding the authorizations and related guidance included in OFAC’s October 18, 2023 sanctions relief package.

A. Venezuelan Sovereign Debt and PdVSA Securities

GLs 3I and 9H authorize U.S. persons, as of October 18, 2023, to purchase, invest in and sell certain Venezuelan sovereign debt and PdVSA debt and equity. Specifically:

• General License 3I authorizes all transactions related to, the provision of financing for, and dealings in the bonds specifically identified in the Annex to GL 3I (“GL 3I Bonds”), subject to certain conditions noted in the GL.
  • This amended version of GL 3 authorizes, as of October 18, 2023, the divestment or transfer of, or facilitation of the divestment or transfer of, any holdings in GL 3I Bonds to a U.S. person (the prior versions of GL 3 only allowed such divestment when the GL 3I Bond was being transferred to a non-U.S. person).
  • Relatedly, GL 3I removes a key restriction that was present in earlier versions of the GL, which barred U.S. persons from purchasing or investing in GL 3I Bonds or facilitating the purchase of or investment in such GL 3I Bonds.
• General License 9H authorizes all transactions and activities ordinarily incident and necessary to dealings in any debt (including, but not limited to, the bonds listed in the Annex to GL 9H, promissory notes and other receivables) of, or any equity in, PdVSA, or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest that were issued before August 25, 2017 (“PdVSA Securities”), subject to certain conditions noted in the GL.
  • Like GL 3I, this amended version of GL 9 authorizes, as of October 18, 2023, the divestment or transfer of, or facilitation of the divestment or transfer of, any holdings in PdVSA Securities to a U.S. person (the prior versions of this GL only allowed such divestment when the PdVSA Securities were being transferred to a non-U.S. person).
  • GL 9H removes a key restriction that was present in earlier versions of the GL, which barred U.S. persons from purchasing or investing in PdVSA Securities, or facilitating the purchase of or investment in such PdVSA Securities.

Notably, U.S. investors are now trading in GL 3I Bonds and PdVSA Securities, with the prices of these securities rising rapidly as a result. Importantly, however, GL 3I and GL 9H do not:

• Authorize U.S. persons to sell, or facilitate the sale of, any GL 3I Bonds or PdVSA Securities, directly or indirectly, to a person blocked pursuant to the Venezuela Sanctions Regulations ("VSR").
• Unblock any property previously blocked pursuant to the VSR or any other OFAC regulations, except as specifically noted in either GL.
• Authorize transactions otherwise prohibited by OFAC’s sanctions regulations, including the VSR, or with sanctioned persons not named in the license.

OFAC has noted that “the bans on trading in the primary Venezuelan bond market remains in place,” given that GL 3I and Gl 9H do not license against subsections 1(a)(i) or 1(a)(ii) of Executive Order (E.O.) 13808, which prohibit dealings in “new debt” of the Government of Venezuela or PDVSA.

Concurrent with its issuance of GLs 3I and 9H, OFAC amended FAQs 661 and 662 to provide an updated description of each GL’s new authorization, and issued new FAQ 1136 which confirms that U.S. persons can now purchase GL 3I Bonds and PdVSA Securities.

Lastly, we note that OFAC also amended GL 5 by issuing GL 5M, which provides authorization for U.S. persons to engage in all transactions related to, the provision of financing for, and other dealings in PdVSA 2020 8.5 Percent Bond, by extending the effective date of the authorization to January 18, 2024. U.S. persons are therefore not authorized to engage in the activities described in GL 5M until on or after January 18, 2024, provided OFAC does not extend the authorization date further. OFAC concurrently published FAQ 595 which provides a summary of what GL 5M authorizes.

B. Venezuelan Oil & Gas Sector

OFAC issued new GL 44, which provides temporary authorization for U.S. persons to engage in all transactions, including those involving PdVSA or any entity PdVSA owns 50% or more, that are related to oil or gas sector operations in Venezuela.

GL 44’s authorization is effective through 12:01 a.m. ET on April 18, 2024, and includes, but is not limited to:

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.

In FAQ 2 of the “Frequently Asked Questions Related to the Suspension of Certain U.S. Sanctions with Respect to Venezuela on October 18, 2023,” which OFAC published concurrently with this action, OFAC further clarifies that the list of authorizations in GL 44 is not exhaustive and includes, but is not limited to, “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 does not, however, authorize (1) transactions involving any financial institution blocked under OFAC’s Venezuela Program other than Banco Central de Venezuela or Banco de Venezuela SA Banco Universal; (2) 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; (3) transactions related to new investment in Venezuelan oil or gas sector operations by a person located in Russia or a Russian-owned or -controlled entity; (4) certain transactions prohibited by E.O. 13808, or any transactions prohibited by E.O. 13827 or E.O. 13835; or (5) the unblocking of any property previously blocked pursuant to the VSR.

C. Additional OFAC Authorization and Guidance

OFAC also issued new GL 43, which authorizes all transactions involving CVG Compania General de Mineria de Venezuela CA (“Minerven”)—the Venezuelan state-owned gold mining company—or any entity Minervan owns, directly or indirectly, 50% or more, subject to certain limitations.

Specifically, GL 43 does not authorize U.S. persons to engage in any transaction otherwise prohibited by the VSR, including 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. Concurrent with this GL, OFAC published new FAQ 5 as part of its “Frequently Asked Questions Related to the Suspension of Certain U.S. Sanctions with Respect to Venezuela on October 18, 2023,” which clarifies that OFAC does not intend to target any person solely for operating in the gold sector of the Venezuelan economy, but that policy is “contingent on concrete steps toward a democratic solution in Venezuela.”

Lastly, OFAC issued new GL 45, which authorizes all transactions ordinarily incident and necessary to the repatriation of Venezuelan nationals from non-U.S. jurisdictions in the Western Hemisphere to Venezuela involving Consorcio Venezolano de Industrias Aeronauticas y Servicios Aereos, S.A. (“Conviasa”). In new FAQ 1137, OFAC clarifies that for purposes of GL 45 it considers the term “Western Hemisphere” to mean countries and areas identified by the U.S. Department of State as comprising the Western Hemisphere. As is the case with GL 43, GL 45 does not authorize U.S. persons to engage in any transaction otherwise prohibited by the VSR, including 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.

Potential Revocation Risk and US Policy

The U.S. government has heavily emphasized that the continued validity of this sanctions relief package is contingent upon the representatives of the Nicolas Maduro regime upholding the commitments they have made with respect to the 2024 Venezuelan elections, with OFAC stating in the press release accompanying this action that it is “prepared to amend or revoke authorizations at any time, should representatives of Maduro fail to follow through on their commitments.”

U.S. Secretary of State Antony Blinken stated that it is the U.S. government’s expectation that Venezuela will take the following steps before the end of November 2023:

• Define a specific timeline and process for the expedited reinstatement of all candidates who want to run for president.
• Begin the release of all wrongfully detained U.S. nationals and Venezuelan political prisoners.

As a result, it will be important for persons considering doing business involving Venezuela to closely monitor the political calendar and process as it evolves in Venezuela in the coming months, as the extension of sanctions relief is directly tied to the Maduro regime’s election-related action. Additionally, and as noted above, OFAC’s October 18, 2023, actions were not a rollback of all Venezuela-related sanctions, and OFAC still maintains a significant number of other sanctions on Venezuela. Accordingly, persons considering doing business involving Venezuela should continue to assess any potential transactions or dealings involving Venezuela, particularly those with a U.S.-nexus, to ensure they are compliant with OFAC’s Venezuela-related sanctions.

If there were to be a “snap back” of sanctions (e.g., a revocation of the relief that is provided now), OFAC may choose to revert to the narrower authorization that was previously included in these GLs, or even issue more restrictive sanctions than were in place prior to October 18, 2023. OFAC’s revocation could be completed with little to no notice and may or may not be accompanied by a wind down period, meaning that engaging in the newly authorized activities enumerated above (e.g., investment in the Venezuelan oil and gas sector or purchases of PdVSA securities) involves some risk related to potential revocation.