US Persons and Financial Institutions: Beware when engaging financially with Venezuela -JD Supra.
On 8/25/17, President Donald Trump signed an Executive Order (EO) restricting and prohibiting certain transactions between US Persons and Venezuela. The transactions that are prohibited by US Persons apply wherever a US Person is located. In addition, on 9/20/17, FinCEN issued an Advisory (FIN-2017-A006) to be shared with Private Banking Units, Risk and Compliance Officers, Analysts and Legal Departments to be on the alert to stop, deter, and prevent the proceeds tied to suspected Venezuelan public corruption from moving through the US financial system.
The EO signed 8/25/17 does not impose a complete blocking sanction on the Government of Venezuela. Only the Specially Designated Nationals (Specially Designated Nationals and Blocked Persons list – the SDN List) noted on the OFAC website are subject to US Sanctions. Venezuela currently has 59 names on the SDN List. OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries such as Venezuela as part of their enforcement efforts. The Individuals or entities on the SDN List have their assets blocked and US persons are generally prohibited from dealing with them. The FinCEN advisory issued on 9/20/17 specifically addresses government officials and their family members.
The EO prohibits transactions related to, provision of financing for, and other dealings in the following:
- New debt of Petroleos de Venezuela, S.A. (PDVSA) – owner of Citgo in the US – with a maturity of greater than 90 days.
- New debt or new equity, of the Government of Venezuela, other than debt of PDVSA with a maturity of greater than 30 days.
- Bonds issued by the Government of Venezuela prior to August 25, 2017.
- Dividend payments or other distributions of profits to the Government of Venezuela from any entity owned or controlled, directly or indirectly, by the Government of Venezuela.
- Purchasing, directly or indirectly, any securities from the Government of Venezuela, except for purchases that are permitted under the new debt restrictions.
- Should reject transactions or dealings that are prohibited in the EO.
- Must Report any rejected transactions within 10 business days to the Office of Foreign Asset Control (OFAC).
- Are NOT required to block the property or interests in property of the Government of Venezuela, and the Government of Venezuela will not be added to the List of Specially Designated Nationals and Blocked Persons (SDN List).
- Are prohibited from purchasing securities of any kind – including debt and equity securities – from the Government of Venezuela. The exception to this prohibition is purchasing securities that qualify as (a) new debt of PDVSA with a maturity of less than or equal to 90 days, or (b) new debt of any other part of the Government of Venezuela with a maturity of less than or equal to 30 days.
- Are authorized to deal with the Government of Venezuela as counterparty to transactions involving securities that fall into either of these two categories noted: (a) new debt of PDVSA with a maturity of less than or equal to 90 days, or (b) new debt of any other part of the Government of Venezuela with a maturity of less than or equal to 30 days.
- Are not authorized to purchase, directly or indirectly, bonds on the List of Authorized Venezuela-Related Bonds from the Government of Venezuela.
US Financial Institutions:
- May continue to maintain correspondent accounts and process U.S. dollar-clearing transactions for the Government, so long as those activities do not involve engaging in transactions related to, providing financing for, or otherwise dealing in transaction types prohibited by the EO.
- Cannot buy new bonds from the Venezuelan government or lend to the Venezuelan Government.
- Need to monitor transactions (wire transfers from shell corporations) for the purchase of real estate in South Florida and Houston that involve current or former Venezuelan government officials, family members or associates that do not correspond with their salaries.
- Need to identify Venezuelan officials that seek to use and abuse private banks or wealth management units via complex financial transactions.
FinCEN’s Advisory 2017-A also addresses Government Contracts and presents red flags that signal how corrupt government officials may use contracts with the Venezuelan government as a way to embezzle funds and receive bribes.
The people of Venezuela are not subject to US sanctions. The Sanctions do not preclude US persons from exporting or re-exporting items to Venezuela if doing so is authorized under other applicable US laws and regulations.