Monthly Archives: August 2017

August 28, 2017

Increased Sanctions on Venezuela Place Heavy Burden on Compliance Programs at Financial Institutions

by Jeremy Paner

On Friday, the United States significantly increased its sanctions targeting the Government of Venezuela.  These new sanctions, authorized under Executive Order, are generally similar to the sectoral sanctions targeting Russia following that country’s purported annexation of the Crimea region of Ukraine.  There is, however, an important distinction between the sanctions programs.  The Russian sectoral sanctions are generally list-based, and the prohibitions are limited to entities contained on the Sectoral Sanctions Identification List, including unlisted companies under the so-called 50 Percent Rule.  Compliance with these sanctions requires efficient resolution of screening hits on large Russian businesses such as Sberbank, Gazprom, and Lukoil.  In contrast with this screening and resolution exercise, Venezuela sanctions now require significant due diligence resources to identify prohibited dealings with the Venezuelan government.[1]  Whereas compliance with the sectoral sanctions on Russia requires banks to drink from a fire hose, the new sanctions on Venezuela require efforts analogous to finding a needle in a haystack.

The Executive Order prohibits United States persons from certain dealings in debt, securities, and distributions of profits involving the Government of Venezuela.  United States persons are prohibited from dealings in new debt with a maturity greater than 90 days of Petroleos de Venezuela, S.A. (PdVSA), and greater than 30 days for debt of the Government of Venezuela, other than PdVSA.  While the term “debt” includes bonds[2], the prohibition on dealings with bonds issued by the Government of Venezuela is not limited to those issued after the effective date of the Executive Order, or by maturity date. Continue reading