Venezuela: Are New Sanctions Placing Pressure on U.S. Banks, Lawyers?

 In AML Surveillance, Compliance

Perhaps the top international story seen last week centered on the controversial and semi-unsettling re-election of Nicolás Maduro as President of the embattled country of Venezuela. The move further clouds the direction of a nation that was once considered one of the crown-jewels of South America, but for the better part of the last decade has been mired in what is undoubtedly its worst economic and political crisis ever; one marked by hyper-inflation, food and medication shortages, and increased crime and political corruption. The election results have been marred by allegations of vote-rigging and reports from Venezuela have indicated that total tallies showed a historically low voter turnout hovering at around 43%. Multiple media outlets have also noted that the electoral process was filled with misconduct that ranged from the barring of several popular candidates from running altogether, to the offering of unnamed government “prizes” to citizens who voted in favor of Maduro. In a press conference that took place shortly after the announcement of Maduro’s victory to yet another six-year term, Henri Falcón, his prime opposition, came forward to state his disapproval with what he views as an “invalid” electoral process, in addition to calling for a new election. Several notable Latin American countries have also shared the sentiments of Falcón, and the United States and European Union have also voiced their distaste for an election that they believe failed to meet democratic standards. Mike Pence, Vice President of the United States, had strong words himself for the dictatorship emerging in Venezuela, stating “The illegitimate result of this fake process is a further blow to the proud democratic tradition of Venezuela,” and adding, “The United States will not sit idly by as Venezuela crumbles and the misery of their brave people continues” (Davis, 2018). Sure enough the U.S. responded shortly thereafter to the outcome of this widely condemned election by issuing new sanctions on three Venezuelan citizens and a reported twenty companies tied to the incumbent President for their alleged roles in cross-border drug trafficking, calling for other countries to turn up the heat on the Venezuelan government as well.

U.S. President Donald Trump also acted quickly to prevent Maduro from selling off government debt for personal gain and further fostering corruption and economic turmoil in the crisis-ridden country. Last Monday, the New York Times wrote that Trump promptly signed “an executive order imposing the new penalties, which would bar United States companies or citizens from buying debt or accounts receivable from the Venezuelan government, including Petróleos de Venezuela, the government-owned oil company that is the parent of Citgo Petroleum Corporation” the day after the election (Davis, 2018). While this latest batch of sanctions, the third set that the Trump administration has placed on Venezuela since 2017, does limit the ability of government officials to siphon money from the pockets of their struggling followers, they did not enforce direct penalties on the Venezuelan oil sector amid fears that such a move could bring further economic harm to the citizens of the country, in addition to American companies as oil prices in the U.S. have steadily risen nearly 20% since the start of 2018 alone. As a result, U.S. companies and citizens remain free to import and export oil-related products to and from Venezuela. Overall however, the new sanctions are expected to have a significant impact on the global oil supply, perhaps even more so than those recently re-imposed by the U.S. on Iran.

The flurry of moves made by Trump and the U.S. government angered Maduro, who accused two American ambassadors within the country of being involved in a military conspiracy to overthrow the government – allegations that the U.S. has completely denied. Maduro subsequently ordered the two officials to leave the country within 48 hours. The controlled madness that has ensued in the U.S. and abroad over the last month has left professionals operating in many different business realms in the United States between a rock and a hard place, unsure of where or when the next limitation will be placed on their international interests in this political whirlwind. The article “International Trade Lawyers Make Hay as Sanctions Shine”, cited in BSA News Now on May 25th, discusses the growing complexity facing international trade attorneys specifically, who with this rapidly changing state of affairs and growing scope of international sanctions, have a perpetually evolving set of questions that require swift answers. The article notes, “one challenge is identifying to whom a given sanction actually applies, complicated by the 50 percent rule. If a sanctioned individual owns over 50 percent of a company, that entity is also subject to sanctions—a relationship that continues all the way down the list of subsidiaries” (Packel, 2018). This can become problematic in countries where ownership structure information is not up to the ever-evolving international standard of transparency on beneficial ownership (i.e. Russia), placing an increased due diligence burden on individuals dealing in the compliance space, as well as the lawyers that advise them.

The article concludes with writer Dan Packel finding that today’s fervid pace comes in “an environment where trade lawyers of all stripes already have their hands full. Along with the prospect of increased tariffs on a range of goods and even a potential of a trade war, they are grappling with the Committee on Foreign Investment in the United States’ growing vigilance over foreign purchases of domestic assets” (Packel, 2018). While many have expected the issuance of international sanctions to eventually slow following 9/11, it appears that the opposite has occurred. This has held true during the Trump term in particular, where there has been a sharp increase in both sanctions complexity and enforcement, with banks and law firms now taking sanctions more seriously than ever before. Thus the implications for professional services organizations within the U.S. are palpable and the operating procedures for these entities must be optimized to ensure they meet the requirements of the growing breadth of sanctions seen in 2018.

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