1123. In Crystallex Int’l Corp. v. Bolivarian Republic of Venezuela, 17-mc-00151 (D. Del.), the U.S. District Court for the District of Delaware has entered a Sale Procedures Order with respect to certain shares in PDV Holding (PDVH) to satisfy a U.S. district court judgment confirming an arbitral award against Venezuela. May persons participate in or comply with steps relating to a judicial sale of such shares?
OFAC will not take enforcement action against any individuals or entities for participating in, facilitating, or complying with the prefatory steps set out in the court’s Sale Procedures Order, or for engaging in transactions that are ordinarily incident and necessary to participating in, facilitating, or complying with such steps (such as serving as potential or actual credit counterparties). See also General License 42 and OFAC Frequently Asked Question (FAQ) 1125. As recognized by the judge in the Crystallex case, an additional license will be required before any sale is executed. As is standard for OFAC’s process before providing a license for the disposition of blocked property, the United States Government will engage in due diligence about the identity of a potential purchaser and will consider relevant details of the proposed transaction. Before a potential purchaser has been identified, it would be premature to issue any such license or express a definitive view on the issuance of a specific license in a future scenario. OFAC nevertheless intends to implement a favorable licensing policy toward such license applications in connection with the execution of a sale as contemplated in the Sale Procedures Order. As with all OFAC licenses and statements of licensing policy, this licensing policy would be without prejudice to reconsideration if U.S. foreign policy and national security interests materially change. In making these licensing determinations, OFAC is committed to fair and equivalent treatment of potential creditors.
This non-enforcement posture applies to OFAC sanctions only and does not relieve persons of obligations to comply with any other applicable regulatory requirements, reviews, or approvals that may be necessary to finalize any sale.
Released on May 01, 2023
On 5-1-23, OFAC issued FAQ # 1123, FAQ # 1124, FAQ # 1125 and Venezuela GL 42.
1) FAQ # 1123 reproduces part of the substance of DOJ Letter to Crystallex Court Special Master on Behalf of OFAC (April 2023). The FAQ articulates the OFAC "non-enforcement posture" (NEP), which applies retroactively and prospectively, to actions related to the "Sale Procedures Order with respect to certain shares in PDV Holding (PDVH) to satisfy a U.S. district court judgment confirming an arbitral award against Venezuela". A proposed Sale Procedures Order can be found at p. 406 of the Crystallex Docket File. The NEP articulated in this FAQ, which references Venezuela GL 42 and related FAQ # 1125, appears to operate concurrently with Venezuela GL 42, such that, to the extent not otherwise covered by the NEP, the negotiation of settlement agreements qualifying for GL 42 is authorized. However, it would appear as though the entry into definitive settlement agreements not authorized by GL 42 is not covered by the NEP. As discussed in section 3 of the comments to FAQ # 809, the wording of this FAQ suggests that OFAC did not regard the mere issuance of the Sales Procedures Order to be an action of a court that required a license. Instead, the license requirement applies to individuals and entities complying with the order.
2) FAQ # 1124, which articulates a NEP that is not referenced in DOJ Letter to Crystallex Court Special Master on Behalf of OFAC (April 2023), appears aimed at doing putting bondholders with "rights to the CITGO shares serving as collateral for the PdVSA 2020 8.5 percent bond" on a similar footing to those that are parties in the Crystallex case. More specifically, in Crystallex, there is a writ of attachment for shares of PDVH, which owns Citgo. In addition to the litigation involving Venezuela and its various judgment creditors holding or seeking writs to attach property of the Government of Venezuela in the U.S., holders of the defaulted “Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond” that is the subject to Venezuela GL 5 purport to have a claim to the majority of the shares of Citgo Holding, Inc., which is the Delaware holding company that wholly owns CITGO, since shares in the company were pledged as collateral for the PDVSA 2020 8.5 Percent Bond. (See p. 520 of the Crystallex Docket File for ownership chart). As with FAQ # 1123, FAQ # 1124 references Venezuela GL 42 and related FAQ # 1125 in a way that suggests that Venezuela GL 42 overlaps substantively with the NEP. While the scope of the NEP in FAQ # 1123 is relatively clear insofar as it relates to "participating in, facilitating, or complying with the prefatory steps set out in the court’s Sale Procedures Order," it is much less clear what OFAC has in mind in terms of otherwise prohibited, unlicensed activity for which one would need to rely on this NEP for "taking steps to preserve the ability to enforce bondholder rights to the CITGO shares serving as collateral for the PdVSA 2020 8.5 percent bond..." In addition, it is not clear whether this NEP is meant to apply prospectively, or only retrospectively. As with the above, it would appear as though the entry into definitive settlement agreements not authorized by GL 42 is not covered by the NEP.
3) Finally, FAQ # 1125 and Venezuela GL 42 relate to the new general license for the "negotiation of settlement agreements...[with IV National Assembly-related persons]...relating to any debt of the Government of Venezuela, Petróleos de Venezuela, S.A. (PdVSA), or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest." As noted above, this FAQ is designed to operate concurrently with the NEPs related to the Crystallex case Sales Procedures Order and "steps to preserve the ability to enforce bondholder rights to the CITGO shares serving as collateral for the PdVSA 2020 8.5 percent bond". Venezuela GL 42 clearly authorizes settlements that are unrelated to the 8.5 percent bond and debts at issue in the Crystallex case. There is no limitation on the type of "bonds, promissory notes, and other receivables of the Government of Venezuela, PdVSA, or a PdVSA Subsidiary" that are within the scope of the GL, i.e. they need not be the subject of current litigation.
4) See section 0.1 of Consolidated Comment on Crystallex International Corporation v. Bolivarian Republic of Venezuela (D. Del, 2017 - ), and Selected Documents Associated with the Litigation, for further commentary on this and related items.