On February 12, 2018, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) published new frequently asked questions (“FAQs”) regarding the meaning of “new debt” under Executive Order (“EO”) 13808 and the receipt of certain late payments from the Government of Venezuela (“GoV”) and Petroleos de Venezuela, S.A. (“PdVSA”).
EO 13808 prohibits “all transactions related to, provision of financing for, and other dealings in … new debt with a maturity of greater than 90 days” of PdVSA and “new debt with a maturity of greater than 30 days, or new equity, of the Government of Venezuela” by a US person or within the United States. See our previous post.
Newly published FAQ #553 defines new debt to mean “debt created on or after August 25, 2017.” The FAQ further explains that debt created prior to that date does not constitute new debt unless the terms of the debt instrument were changed on or after August 25, 2017. Under FAQ #511, the term debt includes “bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, bankers acceptances, discount notes or bills, or commercial paper.”
Newly published FAQ #554 explains that, absent a specific OFAC license or other authorization, US persons may not accept payment on new debt from the GoV or PdVSA if a payment is not received within the applicable time periods, referenced above. Therefore, OFAC advises that US persons “should ensure that payment terms accord with the applicable debt prohibition.”
To obtain payment on new debt from PdVSA outside the 90-day window or from the Government of Venezuela outside the 30-day window, a US person must obtain a license from OFAC. FAQ #554 notes that “to mitigate potential harm to US persons”, OFAC will grant specific licenses, on a case-by-case basis, to US persons meeting four criteria:
- (1) PdVSA or another segment of the GoV is in debt to the applicant based on an agreement that complies with applicable sanctions requirements and prohibitions;
- (2) the debt is “new debt” created before March 14, 2018;
- (3) the relevant segment of the GoV failed to pay its debt within the agreed-upon, authorized payment period; and
- (4) the transaction is not otherwise prohibited under E.O. 13808, E.O. 13692 (imposing targeted sanctions on Venezuela—see our previous advisory), or any sanctions regulations under 31 C.F.R. Chapter V.
License applications not meeting these four criteria will be reviewed on a case-by-case basis with a presumption of denial, with certain exceptions for activity in the US national security or foreign policy interest, such as humanitarian-related transactions, legal services, and personal communication-related services.
The March 14 deadline appears to be a wind down-like period, and US persons seeking an OFAC license to receive late payments related to new debt created after that date will likely face increased difficulty.
Notably, OFAC appears to be taking a harder line with regard to late payments under Venezuelan sanctions than under the similar Russia sanctions regime. In the Russia sanctions context, FAQ #419 states, “In the event that a US person believes that it may not receive payment in full by the end of the relevant payment period, the US person should contact OFAC to determine whether a license or other authorization is required.” Thus, the requirement to seek a license to receive a late payment is more definitively stated in the Venezuela-related sanctions program as compared to the Russia-related sanctions program. Also, in the Russia-related “new debt” sanctions program, there is no articulated period of time for which authorizations for late payments will be subject to a presumption of denial.