OFAC Issues Guidance on PdVSA Designation and Further Restricts Dealings in Venezuelan Debt

On February 1, 2019, the U.S. Department of Treasury’s Office of Foreign Assets Control issued FAQs providing guidance on the designation of Petróleos de Venezuela, S.A. under Executive Order 13850 and concurrent issuance of related general licenses.

OFAC also issued amended general licenses governing secondary trading of pre-sanctions Government of Venezuela and PdVSA debt (General License (“GL”) 3B and 9A).

Highlights of the new OFAC guidance and license amendments include that:

• holders of the PdVSA 2020 8.5 percent bond, including U.S. person bondholders, are licensed to execute on the underlying collateral despite the blocking of PdVSA property under GL 9A;
• authorized trades in pre-sanctions GoV bonds pursuant to GL 3B are now limited to sales to non-U.S. persons, as was the case for PdVSA bonds;
• technical fixes were added that are designed to permit settlement of open trades and securities transactions if the transactions were entered into before the effective time of the relevant sanctions (4:00 pm NY time on January 28 for PdVSA entities, and 4:00 pm NY time on February 1 for other GoV entities), regardless of whether the transferee is a U.S. person;
• U.S. financial institutions’ authority to reject (rather than block) “U-turn” funds transfers relating to PdVSA has been limited to maintenance or wind down activities involving U.S. persons authorized under GL 11, and all other unlicensed, PdVSA-related U.S. dollar clearing transactions must be blocked;
• U.S. and non-U.S. persons may continue to form and invest in funds providing synthetic exposure to PdVSA-related debt or equity where the underlying basket being tracked does not consist predominantly of blocked securities;
• Non-U.S. persons can engage in transactions with a U.S. nexus to purchase PdVSA petroleum and petroleum products outside of the United States until April 28, 2019.