Archive for the ‘Venezuela’ Category



OFAC Doesn’t Understand How Money Works

Posted by at 1:13 pm on January 23, 2018
Category: OFACVenezuela

Nicolas Maduro via [Fair Use]
ABOVE: Nicolas Maduro

Venezuelan President Nicolas Maduro in December announced his plans to have Venezuela issue a commodity-backed cryptocurrency.  Although cryptocurrencies typically have no backing, there is no reason that they could not.  In such a situation, the blockchain would take over the validation function normally performed by a central bank.  Maduro’s cryptocurrency would, he says, be backed by oil, gas, diamond and gold reserves.  The opposition dismissed Maduro’s plan and called him a “clown” for even suggesting the new currency.

Not to be out-clowned, the Office of Foreign Assets Control last week issued its own FAQ on Maduro’s vague and unimplemented plan:

551. In December 2017, Venezuelan President Nicolas Maduro announced plans for the Government of Venezuela to launch a digital currency. According to public reporting, Maduro indicated that the digital currency would carry rights to receive commodities in specified quantities at a later date. Were the Venezuelan government to issue a digital currency with these characteristics, would U.S. persons be prohibited from purchasing or otherwise dealing in it under E.O. 13808?

A currency with these characteristics would appear to be an extension of credit to the Venezuelan government. Executive Order 13808 prohibits U.S. persons from extending or otherwise dealing in new debt with a maturity of greater than 30 days of the Government of Venezuela. U.S. persons that deal in the prospective Venezuelan digital currency may be exposed to U.S. sanctions risk. [1/19/2018]

Oh dear. They really said that? Seriously??

For starters, let’s address the notion that using currency issued by a government is an extension of credit to the government. Credit is extended to a government when goods or services are supplied to that government without a requirement for immediate payment. By that common and uncontroversial definition, accepting fiat money or representative money in exchange for goods and services from a private individual is not an extension of credit by the purchaser to the government that issued the currency because no goods or services were supplied by the purchaser to the government. This is even the case even if goods and services are provided to the government because the currency obtained can be immediately used for other transactions and there is no delayed payment. If the government paid with a debt instrument, such as a bond with a future maturity, then that would be an extension of credit to the government.

It appears that the genesis of OFAC’s misconception here is that the currency can be exchanged later with the government for the underlying commodity. Even were that an extension of credit to the government, OFAC’s rules would only be implicated if that exchange was delayed for more than 30 days. But, of course, the point of commodity backed currency is that it is immediately convertible. One could take the new Venezuelan currency and immediately demand to exchange it for oil, gas, gold or diamonds, so it does not have a “maturity of greater than 30 days.”

You know, you would think that the people at the Treasury, of all places, would understand how money works.

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Copyright © 2018 Clif Burns. All Rights Reserved.
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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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Copyright © 2017 Clif Burns. All Rights Reserved.
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Venezuela Joins the Axis of Evil

Posted by at 11:44 pm on November 12, 2014
Category: BISVenezuela

Venezuela Capitol Building by Márcio Cabral de Moura via [CC-BY-2.0 (]It is probably safe to say that no one was particularly shocked earlier this week when the Bureau of Industry and Security added Venezuela to the list of countries (currently Russia and China) to which certain dual use items may not be exported if these items are for military end use. The specific items subject to this restriction are those listed in Supplement 2 to Part 744 of the Export Administration Regulations. These items include, among other things, certain composite materials, lasers, and aircraft navigational equipment.

The rule was adopted in final form and went into immediate effect on November 7.

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Copyright © 2014 Clif Burns. All Rights Reserved.
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Sen. Landrieu Attempts to Clarify the Record … But Doesn’t

Posted by at 8:28 pm on September 10, 2014
Category: Economic SanctionsOFACSDN ListVenezuela

Sen. Landrieu [Official Portrait, Public Domain]

On Sunday, in Lafayette, LA, The Advertiser printed an opinion from Sen. Mary Landrieu entitled, “Sanctions, as written, will hurt La. workers.”  While we hoped Sen. Landrieu was writing to clarify the record in response to our post last week, she was writing instead to respond to an earlier opinion in The Advertiser written by Sen. Marco Rubio and Rep. Bill Cassidy.

Sen. Landrieu began by referring to the Lake Charles, LA oil refinery as “owned by Citgo, a Venezuelan company with a strong and respected reputation in Louisiana.”  Citgo, however, is quite clearly a U.S. company, founded and incorporated in the United States over a hundred years ago.  It became wholly owned U.S. subsidiary of Petróleos de Venezuela, the Venezuelan national oil company, in 1990, but remained a U.S. company.  The hawkish view on U.S. sanctions is, of course, that Citgo, even though a U.S. company employing U.S. persons, is not immune from the conduct of its foreign parent if, in this case, Petróleos de Venezuela’s conduct were found to be at variance with U.S. economic sanctions and was added to the SDN List, its subsidiary Citgo would be equally blocked and unable to employ U.S. workers.

In her opinion, Sen. Landrieu continued to defend her opposition to the Venezuela Defense of Human Rights and Civil Society Act of 2014 because she believed that “the legislation as written was too vague” and “will continue to oppose it unless the language of this resolution makes crystal clear that there will be no threat to the [Lake Charles] refinery.”  But, as we pointed out last week, Sen. Landrieu’s references to amending the Act have led to no clear (crystal or otherwise) suggestions on how to do so.  We think we can help her out.

The Act, like other sanctions bills, already permits the President to waive the application of sanctions against a person if he determines that such waiver is necessary for the “national security interests of the United States.”  The amendment we recommend to Sen. Landrieu is to rewrite the waiver in Section 5(c)(1) to read, “The President may waive the application of sanctions under subsection (b) with respect to a person if the President determines that such a waiver is in the national security or economic interests of the United States.”  By adding simply “or economic” to the waiver condition, the President has another avenue to defend not imposing sanctions against otherwise sanctionable foreign persons.  Again, as we pointed out last week, the President would not take lightly a decision to block Citgo’s assets in Louisiana or anywhere else in United States.  Congress, moreover, would be hard-pressed to oppose a waiver if the President were able to show that imposing sanctions would have tremendous economic ramifications.

If Sen. Landrieu wants to take the position that U.S. economic sanctions against human rights violators can’t come with a cost that significantly harms the U.S. economy, there is a way to protect that interest.  Whether or not her position wins the day on the Senate floor, we think the only practical way to do so is to give the President more discretion in how he may choose not to impose sanctions.  A tidy addition of the two words “or economic” should do the trick and put to bed another odd episode of “How a Bill Becomes a Law.”


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Copyright © 2014 Clif Burns. All Rights Reserved.
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Bizarre Sanctions Battle Brews in the Bayou

Posted by at 9:34 am on September 6, 2014
Category: Economic SanctionsOFACSanctionsSDN ListVenezuela

By User:Lunarsurface (Own work) [GFDL (, CC-BY-SA-3.0 ( or CC-BY-SA-2.5-2.0-1.0 (], via Wikimedia Commons

With the calendar turning to September, Sen. Mary Landrieu will be displayed prominently in election media coverage as an incumbent in the proverbial hot seat.  The most intriguing fodder her opponents have used against her has been her curious opposition to the Venezuela Defense of Human Rights and Civil Society Act of 2014.  The House passed its version by voice vote in May, but the Act has stalled in the Senate principally because Landrieu’s opposition has derailed others from bringing the Act to vote through unanimous consent.

The Act includes sanctions against individuals and entities associated with the Venezuelan government that the President determines committed, directed or “materially assisted, sponsored, or provided significant … support for” those who have committed or directed human rights abuses against anti-government protestors in that country.  Like many similar sanctions bills, Congress would give the President wide discretion in determining whether persons meet standards like “materially assisted” or provided “significant” support.  The Act would certainly not require the President to designate any company affiliated with the Venezuelan government as an SDN and, as a result, block their U.S. assets.

Sen. Landrieu, however, has opposed the bill out of fear that 2,000 workers at a Citgo oil refinery in Louisiana may be at jeopardy.  She has said that “once a simple sentence that protects these hard working Louisianans is added to the bill, I will be happy to support the legislation.”  So, what would Sen. Landrieu’s “simple sentence” look like?  It can’t possibly be a carve out for 2,000 workers at a Louisiana Citgo refinery; then every member of Congress with a Citgo presence in their state would want similar protection for their constituents.  It can’t possibly be a carve out to protect any U.S. companies owned by a Venezuelan parent, like Citgo is; then the sanctions would be bereft of any heft to affect possible change in Venezuela.

This week, Sen. Marco Rubio entered the fray in a letter to Sen. Harry Reid to ensure the Act is brought to the Senate floor for a vote over Sen. Landrieu’s opposition.  In his letter, Sen. Rubio described the Act as “target[ing] individuals only and pose[] no threat to American jobs or Venezuelan firms.”  Not so fast, Marco, the Act includes sanctions against “persons.”  Someone forgot to tell Sen. Rubio that every OFAC sanctions regime defines persons to mean individuals and entities.  Someone also forgot to tell him about the three Citgo storage facilities, hundreds of gas stations and thousands of affiliated jobs the company has in Florida.

One upshot of this situation is that members of Congress don’t understand how U.S. economic sanctions work.  It is odd that Sen. Landrieu has stuck her political neck out in a situation where the President would be the one under the Act who would have to designate Petróleos de Venezuela, Citgo’s Venezuelan parent, as an SDN if he determined it met the conditions under the Act.  Doing so would not be a decision taken lightly and would have repercussions beyond just Louisiana (ask any Boston Red Sox fan about what would happen to the Citgo sign above left field).  It is also odd that Sen. Rubio would put his name to a letter that declares no U.S. jobs would be threatened by these sanctions.  The fact is that threat remains under the Act, no matter how unlikely, and the President, not Congress, would be in control of imposing sanctions.

A simple moral to this story is a classroom adage: Read Carefully and Think Critically.  Here’s hoping politicians start doing a little bit more of both.

Clif adds: In my somewhat more cynical view, the likelihood that members of Congress will ever “Read Carefully and Think Critically” is exactly equal to the likelihood that I will ever debut as Wotan in a production of The Ring Cycle at the Met.

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Copyright © 2014 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)