On Monday, OFAC revised Venezuela General Licenses 3 and 9 and updated 3 Frequently Asked Questions:
650. What is the expected level of due diligence associated with ensuring that transfers or divestment of debt (and, in the case of Venezuela-related General License 9B, equity) in certain blocked persons (in the case of General License 9B) or the Government of Venezuela (in the case of General License 3C) are consistent with the terms of General Licenses 3C and 9B?
Paragraph (a) of General License 9B requires that any divestment or transfer by U.S. persons of debt of, or equity in, Petróleos de Venezuela, S.A. (PdVSA) (or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest), that was issued prior to August 25, 2017, be to a non-U.S. person, absent authorization from OFAC. Similarly, paragraph (a) of General License 3C requires that any divestment or transfer by U.S. persons of holdings in the bonds listed in the Annex to General License 3C (GL 3C Bonds) be to a non U.S. person, absent authorization from OFAC. General Licenses 3C and 9B also authorize U.S. persons to facilitate the transfer or divestment of such debt (and, in the case of General License 9B, debt and equity), so long as the divestment or transfer of any holdings in such debt or equity by a U.S. person is to a non-U.S. person, absent authorization from OFAC. Financial institutions or registered broker-dealers in securities may rely upon the information ordinarily available to them for purposes of conducting the activities authorized under General Licenses 3C and 9B.
Consistent with OFAC FAQ 116, if a U.S. broker or financial institution involved in a transfer or divestment of such debt (or, in the case of General License 9B, debt or equity) pursuant to paragraph (a) in either General License 3C and 9B has information in its possession leading it to know or have reason to know that the buyer is a U.S. person, then the U.S. broker or financial institution will be held responsible if it does not take appropriate steps to ensure that the trade is not consummated, absent authorization from OFAC. OFAC expects U.S. persons to conduct due diligence on their own direct customers, and OFAC will consider the totality of the circumstances surrounding the processing of the transaction to determine what, if any, enforcement action to take. [02-11-2019]
661. What does General License 9B authorize with respect to Petróleos de Venezuela, S.A. (PdVSA) securities and what are the implications for U.S. and non-U.S. persons?
General License 9B authorizes U.S. persons to engage in all transactions and activities that are ordinarily incident and necessary to dealings in any debt (including, but not limited to, the bonds listed in the Annex to General License 9B) of, or equity in, PdVSA, or any entity directly or indirectly owned 50 percent or more by PdVSA that was issued prior to August 25, 2017 (together, PdVSA securities), provided that if a U.S. person decides to sell or transfer any interests in such securities, it must sell or transfer the interests to a non-U.S. person absent authorization from OFAC. This authorization 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, including acting as a custodian for a non-U.S. person after that person has received PdVSA securities from a U.S. person in a divestment transaction.
Paragraph (c) of General License 9B authorizes all transactions and activities that are ordinarily incident and necessary to facilitating, clearing, and settling trades of holdings in the PdVSA securities, provided such trades were placed prior to 4:00 p.m. eastern standard time on January 28, 2019; this authorization aims to ensure that trades that were placed prior to the imposition of blocking sanctions on PdVSA are allowed to settle in the ordinary course, irrespective of whether the sale or transfer is to a non-U.S. person.
Paragraph (d) of General License 9B authorizes all transactions and activities, including transactions in securities and security derivatives, that are ordinarily incident and necessary to the wind down of financial contracts or other agreements that were entered into prior to 4:00 p.m. eastern standard time on January 28, 2019, involving, or linked to, PdVSA securities. This authorization is valid through 12:01 a.m. eastern standard time on March 11, 2019. This authorization allows certain financial contracts and agreements that were entered into prior to the imposition of blocking sanctions on PdVSA that involve or are linked to PdVSA securities to be wound down, including resolving the purchase and sale of securities, securities lending, repurchase agreements, and swaps and derivative contracts in securities.
Paragraph (e) of General License 9B authorizes all transactions and activities prohibited by Section 1(a)(iii) of Executive Order 13808 or Executive Order 13850 that are ordinarily incident and necessary to dealings in any bonds issued by PDV Holdings, Inc., CITGO Holdings, Inc., Nynas AB, or any of their subsidiaries, prior to August 25, 2017.
U.S. persons may continue to hold their interests in PdVSA securities, but are subject to certain restrictions on the sale of those interests in the secondary market. General License 9B does not generally authorize U.S. persons to purchase or acquire new interests in PdVSA securities, and as a result, such purchases are prohibited absent authorization from OFAC. However, U.S. persons may purchase or invest in PdVSA securities pursuant to paragraph (a)(2) of General License 9B, provided that such transactions are ordinarily incident and necessary to the divestment and transfer of holdings in PdVSA securities. While non-U.S. persons may continue to deal in PdVSA securities, to the extent transactions involve U.S. persons or the U.S. financial system, such transactions must comply with the terms of General License 9B and may not involve sales of interests in such securities to U.S. persons (other than as set forth in GL 9B and described above) as U.S. persons are largely prohibited from purchasing such interests. [02-11-2019]
662. What does General License 3C authorize with respect to Government of Venezuela debt, and what are the implications for U.S. and non-U.S. persons?
General License 3C 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 General License 3C (GL 3C Bonds), provided that any divestment or transfer of, or facilitation of divestment or transfer of, any holdings in such bonds be to a non-U.S. person absent authorization from OFAC. The authorization in GL 3C 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 3C Bonds, including acting as a custodian for a non-U.S. person after that person has received GL 3C Bonds from a U.S. person in a divestment transaction.
Paragraph (b) of General License 3C authorizes all transactions and activities that are ordinarily incident and necessary to facilitating, clearing, and settling trades of holdings in the GL 3C Bonds, provided such trades were placed prior to 4:00 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, irrespective of whether the sale or transfer is to a non-U.S. person.
Paragraph (c) of General License 3C authorizes all transactions and activities, including transactions in securities and security derivatives, that are ordinarily incident and necessary to the wind down of financial contracts or other agreements that were entered into prior to 4:00 p.m. eastern standard time on February 1, 2019, involving, or linked to, the GL 3C Bonds, through 12:01 a.m. eastern standard time on March 11, 2019. This authorization allows certain financial contracts and agreements that were entered into prior to February 1, 2019, that involve or are linked to the GL 3C Bonds to be wound down, including resolving the purchase and sale of securities, securities lending, repurchase agreements, and swaps and derivative contracts in securities.
Paragraph (d) of General License 3C 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 (the effective date of E.O. 13808), 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., Nynas AB, and any of their subsidiaries.
U.S. persons may continue to hold their interests in the GL 3C Bonds, but are subject to certain restrictions on the sale of those bonds in the secondary market. General License 3C does not generally authorize U.S. persons to purchase or acquire new interests in the GL 3C Bonds, and as a result, such purchases are prohibited absent authorization from OFAC. However, to the extent that divesting or transferring holdings in the GL 3C Bonds from U.S. persons to non-U.S. persons requires engaging in certain GL 3C Bond transactions, such as purchasing or settling purchases of holdings in the GL 3C Bonds, paragraph (e) of General License 3C authorizes U.S. persons to engage in such transactions. Note: paragraph (e) of General License 3C does not authorize U.S. persons to purchase or invest in bonds issued by the Government of Venezuela other than GL 3C Bonds.
While non-U.S. persons may continue to deal in the GL 3C Bonds, to the extent transactions involve U.S. persons or the U.S. financial system, such transactions must comply with the terms of General License 3C and may not involve sales of any interests in such bonds to U.S. persons (other than as set forth in GL 3C and as described above) as U.S. persons are largely prohibited from purchasing such interests. [02-11-2019]
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