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524. I would like to engage in derivatives transactions, including credit default swaps, related to a reference bond that is in the Annex to General License 3. Is that permitted?
Paragraphs (a) and (b) of General License 3 authorize all transactions related to, the provision of financing for, and other dealings in bonds that are either listed in the Annex to General License 3 or that were issued both (i) prior to August 25, 2017, and (ii) by U.S. person entities owned or controlled, directly or indirectly, by the Government of Venezuela ("General License 3 bonds"). Buying, selling, or otherwise dealing in a derivative that references a General License 3 bond is a transaction related to the bond itself. General License 3 therefore authorizes such purchases and sales, as well as related transactions. One corollary to this authorization is that U.S. persons are not authorized to buy,...
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Note: this FAQ and comments thereto were posted/written prior to the blocking of the Government of Venezuela pursuant to EO 13884. Neither the FAQ nor the comment have been updated in light of that development.
1) Refer to comment to FAQ 372 re: jurisdictional issues pertaining to the inclusion of derivatives within the scope of the SSI directives. The same generally apply here.
2) As implied in this FAQ, the legal basis for the regulation of the derivatives here is that they are "related to" the prohibited reference asset debt, and EO 13808 prohibits "[a]ll transactions related to" prohibited debt. The SSI directives dealing with debt, on the other hand, prohibit "dealing in" such debt, which OFAC interprets in the FAQs to cover a wide range of indirect dealings, but it is possible that the Venezuela EO...