OFAC’s FAQs on Venezuela Sanctions Omit the Most Frequently Asked Question

Posted by at 11:49 pm on August 30, 2017
Category: OFACVenezuela

CITGO Gas Station by Mike Mozart [CC-BY-SA-2.0 (], via Flickr [cropped]Last week the Office of Foreign Assets Control (“OFAC”) announced a set of new sanctions on Venezuela and it’s petroleum company Petroleos de Venezuela, S.A. (“PdVSA”) as set forth in the newly published Executive Order 13808. Under the Executive Order, U.S persons are prohibited from dealing in (1) new debt of the Government of Venezuela extended after August 24 with a maturity greater than 30 days, (2) new debt of PdVSA extended after August 25 with a maturity greater than 90 days, (3) bonds issued by the Government of Venezuela or (4) dividends or other profit distributions paid to the Government of Venezuela by entities owned by the Government of Venezuela. At the same time, it issued four general licenses authorizing, among other things, wind-down transactions, transactions involving CITGO and transactions involving agricultural commodities, medicine or medical devices.

The prohibitions on dealing in new debt closely parallel similar restrictions that OFAC imposed on certain Russian entities and, in fact, OFAC issued FAQs on the new Venezuela debt prohibitions that are identical to the FAQs on the Russian debt prohibitions. As a result, and once again, OFAC doesn’t answer in its FAQs what is in fact the most frequently asked question about new debt — namely, does new debt cover instances where PdVSA or the Government of Venezuela fails to pay for goods or services rendered within 30 or 90 days after the services are rendered or the goods are provided.

Certainly, it seems clear that it would be debt where the contract provides for and allows payment after these 30-day and 90-day periods as applicable. But suppose, you have a contract with PdVSA which provides for payment net 30. Does that become “new debt” with a maturity greater than 90 days when, on day 91, PdVSA fails to pay? And since the FAQs say that the prohibitions do not extend to debt extended prior to August 25, 2017, when was this debt extended if the goods or services were provided prior to August 25. Did that occur on Day 31? Or day 91? Given what appears to be the not uncommon practice of these two entities of not paying on time, these are not simply brain teasers that I have cooked up to tease the folks at OFAC.

Of course, it seems that there would be a good argument that an involuntary extension of debt in such a situation should not be covered, although nothing in the order or the FAQs makes this clear. If such involuntary extensions are included in the prohibitions, should the contracting party file a voluntary disclosure as soon as possible after PdVSA accounts receivable age out over 90 days? And even if involuntary extensions of debt are exempted, what does the party to the agreement with PdVSA or the Government of Venezuela have to do to prove that the extension of debt is involuntary. Sue? Withhold further services? Stop future deliveries? Send a nastygram from its lawyers demanding payment?

Rather than answer these questions, which, no doubt, large numbers of people with accounts receivable from PdVSA or the Government of Venezuela are asking at this very moment, OFAC’s FAQs dither around on the esoterica of, among other things, whether the new sanctions prohibit getting bank financing to purchase goods from PdVSA (no) or prohibit maintaining correspondent accounts for state-owned Venezuelan banks (no, as long as no debt of greater than 30 days is extended). This is all baffling and simply further evidence that the people at OFAC who administer these regulations have little idea of how business actually works.

Photo Credit: CITGO Gas Station by Mike Mozart [CC-BY-SA-2.0 (], via Flickr [cropped]. Copyright 2014 Mike Mozart



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