The Crisis in Venezuela – New Sanctions Forthcoming?
On January 23, 2019, the leader of Venezuela’s National Assembly, Juan Guaidó, declared himself the acting President of Venezuela and announced he would assume the powers of the Venezuelan executive branch until new national elections are held. The move was a direct challenge to Venezuela’s sitting president, Nicolás Maduro, who was reelected to a second term in a widely denounced, allegedly rigged election last year. Several countries across the Americas, including, most notably, the United States, have recognized Mr. Guaidó as the legitimate Venezuelan President. As Vice President Mike Pence explained in an op-ed, “[t]his is a humanitarian crisis and also a matter of regional security.” He added, “[f]or the sake of [U.S.] vital interests, and for the sake of the Venezuelan people, the U.S. will not stand by as Venezuela crumbles.”
U.S. companies doing business in Venezuela should exercise caution, as reports indicate that new U.S. economic sanctions against Venezuela could be forthcoming. Current U.S. sanctions do not prohibit doing business in Venezuela or with the Venezuelan government, but instead focus on certain financial transactions involving the Venezuelan government and certain sanctioned individuals and companies, including those operating in the gold sector as well as Venezuelan government officials. With certain exceptions, current financial restrictions prohibit U.S. persons from engaging in transactions related to, the provision of financing for, or other dealings in certain new debt involving the Venezuelan government, including government-owned or -controlled entities such as Petróleos de Venezuela, S.A. (PdVSA); bonds issued by or dividend payments or other distributions of profits to the Venezuelan government; purchases of securities from or any debt owed to the Venezuelan government; any digital currency/coin/token issued by, for, or on behalf of the Venezuelan government; any debt owed to the Venezuelan government that is pledged as collateral on or after May 21, 2018; and any sale, transfer, assignment, or pledging as collateral by the Venezuelan government of any equity interest in any entity 50% or more owned by the Venezuelan government. In addition, U.S. persons are prohibited from engaging in transactions with any designated individuals/entities, and must ensure that any dealings with the Venezuelan government do not involve, directly or indirectly, any designated Venezuelan government officials.
While it appears that the U.S. government has been considering increasing sanctions against Venezuela for some time now, the current crisis in the country increases the likelihood that new sanctions will be imposed relatively soon. Reports indicate that the U.S. government is considering increased sanctions on the Venezuelan oil and gold sectors, as well as other sanctions, if Mr. Maduro resorts to force against his opponents. Any new sanctions targeting the oil sector, including PdVSA, could potentially include restrictions on Venezuelan oil import volumes or even a full ban on U.S. imports of Venezuelan oil. Other options could include sanctions against the Venezuelan military (assuming they remain under Mr. Maduro’s control) and the designation of additional Venezuelan government officials/entities. As one government official told the Wall Street Journal, all options are on the table.
Given the fluid situation in Venezuela, we expect that any new sanctions would go into effect quickly, as the Trump Administration seeks to facilitate a rapid end to the current crisis. U.S. companies operating in Venezuela, particularly in the oil sector, would thus be well advised to proceed with caution on any new transactions involving the Venezuelan government.
Jonathan Babcock, a Law Clerk in Wiley Rein's International Trade practice, contributed to this alert.