511. What does OFAC interpret to be debt and equity? Can U.S. financial institutions continue to maintain correspondent accounts and process U.S. dollar-clearing transactions for the entities subject to these sanctions?
The term debt includes bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, bankers acceptances, discount notes or bills, or commercial paper. The term equity includes stocks, share issuances, depositary receipts, or any other evidence of title or ownership.
The prohibitions in Subsections 1(a)(i) of E.O. 13808 apply to all transactions involving debt issued on or after August 25, 2017, with a maturity of longer than 90 days; all financing in support of such new debt; and any dealing in, including provision of services in support of, such new debt.
The prohibitions in Subsections 1(a)(ii) of E.O. 13808 apply to all transactions involving debt issued on or after August 25, 2017, with a maturity of longer than 30 days or equity issued on or after August 25, 2017; all financing in support of such new debt or new equity; and any dealing in, including provision of services in support of, such new debt or new equity.
These E.O. 13808 prohibitions extend to rollover of existing debt, if such rollover results in the creation of new debt with a maturity of longer than 90 days (with respect to PdVSA debt) or longer than 30 days (with respect to the rest of the Government of Venezuela debt).
Engaging in transactions related to, providing financing for, or otherwise dealing in any equity issued by, on behalf of, or for the Government of Venezuela is permissible, if the equity was issued prior to August 25, 2017 and the transactions, financing, or other dealings are not prohibited by any other Venezuela-related E.O. or other applicable laws or regulations.
Engaging in transactions related to, providing financing for, or otherwise dealing in any debt issued by, on behalf of, or for the Government of Venezuela is permissible if the debt was issued prior to August 25, 2017, and, in the case of bonds, either (1) the bonds are included in the Annex to General License 3, or (2) the bonds were issued by U.S. person entities owned or controlled, directly or indirectly, by the Government of Venezuela (such as CITGO Holding, Inc.). The Annex to General License 3 is available as a stand-alone document on the Venezuela-related Sanctions page of OFAC's website. The list will also be published in the Federal Register, as will any changes to the list.
E.O. 13808 prohibits U.S. persons from purchasing securities of any kind – including debt and equity securities – from the Government of Venezuela. The exception to this prohibition is purchasing securities that qualify as (a) debt of PdVSA issued on or after August 25, 2017, with a maturity of less than or equal to 90 days, or (b) debt of any other part of the Government of Venezuela issued on or after August 25, 2017, with a maturity of less than or equal to 30 days. U.S. persons may deal with the Government of Venezuela as counterparty to transactions involving securities that fall into either of these two categories. U.S. persons are not authorized to purchase, directly or indirectly, bonds in the Annex to General License 3 from the Government of Venezuela.
Unlike the debt-related prohibitions of E.O. 13808, which address certain debt of the Government of Venezuela, including PdVSA, the debt-related provisions of E.O. 13835 address debt that is owed to the Government of Venezuela. The prohibitions in Subsections 1(a)(i) and (ii) of E.O. 13835 apply to all transactions related to, provision of financing for, and other dealings in (i) the purchase of any debt owed to the Government of Venezuela, including accounts receivable, and (ii) any debt owed to the Government of Venezuela that is pledged as collateral after May 21, 2018, including accounts receivable, respectively.
The equity-related prohibition in Subsection 1(a)(iii) of E.O. 13835 applies to any sale, transfer, assignment, or pledging as collateral by the Government of Venezuela of any equity interest in any entity in which the Government of Venezuela has a 50 percent or greater ownership interest; and any dealing in, including provision of services in support of, such transactions.
U.S. financial institutions may continue to maintain correspondent accounts and process U.S. dollar-clearing transactions for the Government of Venezuela, so long as those activities do not involve engaging in transactions prohibited by E.O. 13692 or any subsequent Venezuela-related E.O., or other applicable laws or regulations. [07-19-2018]
*Note: Since the time this FAQ was issued, OFAC radically altered the Venezuela program as a whole, in part by designating PdVSA and the Central Bank of Venezuela (EO 13850), and by subsequently blocking the Government of Venezuela (EO 13884). This FAQ was not amended to reflect either of those developments. Ensure that, even if the statements in the FAQ are still correct, they are not of practical utility in light of designations pursuant to other EOs.
1) Compare FAQ 371, treating the same issue for the Russia/Ukraine SSI Directives, and FAQ # 944 (Belarus directive). See comment concerning indirect dealings in prohibited debt and facilitation related thereto.
2) This FAQ contains the same language as FAQ 371 concerning "rollover of existing debt, if such rollover results in the creation of new debt," but FAQ 371 cross-references FAQ 394, which appears to specify that rollovers would not necessarily constitute "new debt" when pursuant to a "long-term credit facility or loan agreement prior to the sanctions effective date". See also FAQ 409, dealing with rollovers, but in the context of " short-term facilities created after the sanctions effective date".
* See generally General Note on the Prohibitions on Dealings in “New Debt” of Certain Sanctions Targets (System Ed. Note)