New OFAC Sanctions: Russia and Venezuela

August 13, 2019

The President and U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) have recently taken significant steps to tighten sanctions against Russia and Venezuela.

On August 1, 2019, the President issued Executive Order 13883 and on August 3 OFAC issued a Russia-related Directive (“CBW Act Directive”) and related FAQs regarding its administration of the President’s Executive Order implementing new sanctions against Russia. These new sanctions effectively preclude certain U.S. financial institutions from purchasing Russia sovereign debt on the primary markets.

Separately, on August 6, 2019, the President announced Executive Order 13884, which blocked the Government of Venezuela’s property and interests in property in the United States or in the possession or control of a U.S. person, further isolating the Government of Venezuela from the U.S. financial markets. OFAC subsequently issued several new and amended general licenses and related FAQs. The new Venezuela sanctions generally prohibit U.S. persons from doing business with the Government of Venezuela.

In short, these sanctions represent the President and OFAC’s continued efforts to further isolate the Venezuelan and Russian government regimes.

New Russia Sanctions

The new Russia sanctions, among other things, prohibit U.S. banks1 from:

  • Participating in the primary market for non-ruble denominated bonds issued by the Russian sovereign after August 26, 2019; and
  • Lending non-ruble denominated funds to the Russian sovereign after August 26, 2019.

The CBW Act Directive provides that “Russian sovereign” includes any ministry, agency, or sovereign fund of the Russian Federation, including the Central Bank of Russia, the National Wealth Fund, and the Ministry of Finance of the Russian Federation. However, the term does not include state-owned enterprises of the Russian Federation.

Notably, the prohibitions do not apply to bonds or loans denominated in rubles. The CBW Act Directive also does not prohibit U.S. banks from participating in the secondary market for Russian sovereign debt.

New Venezuela Sanctions

The new Venezuela sanctions require the blocking of all property and interests in property of the Government of Venezuela2 that are in the U.S., or come within the possession or control of a U.S. person. Such property cannot be transferred, paid, exported, withdrawn, or otherwise dealt in.

What this means is that U.S. persons are generally prohibited from engaging in transactions with the Government of Venezuela. There is also risk for non-U.S. persons doing business with the Government of Venezuela, as OFAC has in the past designated non-U.S. persons as Specially Designated Nationals (“SDNs”) for activity that it views as evading or otherwise weakening U.S. sanctions.

Concluding Thoughts

The imposition of additional sanctions on the Russian and Venezuelan governments signals an escalation in U.S. foreign policy, including that the U.S. intends to further target Russia and Venezuela’s access to the U.S. financial markets. Clients who transact in Russia sovereign debt should exercise caution that such activities are not otherwise prohibited. Clients doing business in Venezuela should exercise caution, including regarding transactions that might involve the Government of Venezuela. We will continue to closely follow events in this space and will report on any further developments.

If you have any questions or concerns about U.S. sanctions, please contact Bruce G. Paulsen (212-574-1533), Andrew S. Jacobson (212-574-1477), Noah S. Czarny (212-574-1642), or Paul B. Koepp (212-574-1613) at Seward & Kissel’s Sanctions Practice Group.

1 “U.S. bank” includes any entity organized under the laws of the U.S. or any jurisdiction within the U.S. (including foreign branches), or any entity in the U.S. that is engaged in the business of accepting deposits, making, granting, transferring, holding or brokering loans, or credits, or purchasing or selling foreign exchange, securities, commodity futures, or options, or procuring purchaser and sellers thereof, as principal or agent. The CBW Act Directive also makes clear that the term “U.S. bank” includes those branches, offices, and agencies of foreign financial institutions that are located in the U.S.

2 The “Government of Venezuela” is defined to include all entities that are owned, directly or indirectly, 50 percent or more by the Government of Venezuela, regardless of whether the entity appears on the Specially Designated Nationals and Blocked Persons list (“SDN List”). U.S. persons should also exercise caution in dealing with individuals who are members of the Government of Venezuela or are closely affiliated with the government.