Venezuela General License 39 - Authorizing Certain Activities to Respond to the Coronavirus Disease 2019 (COVID-19) Pandemic

Date issued: Jun. 17 2021

TURBOFAC Commentary (1427 words)

Notes:

1) Background -Notes Common to the Three “COVID GLs” Issued 6-17-2021

On 6-17-2021, OFAC issued Added Venezuela GL 39, Syria GL 21 and Iran GL N. All three GLs (collectively “the COVID GLs”) are designed to address the same problem—i.e. OFAC-administered sanctions’ prevention of certain COVID-related trade—but the GLs are scoped differently in light of the nature of the three sanctions regimes to which they pertain.

2) Interpretive Issues Common to the Three COVID GLs


Interpretive issues connected to the GLs can be divided between those that are common to all three GLs, and those that are unique to each individual GL. OFAC’s FAQs issued concurrent with the issuance of the GLs, in particular FAQs, e.g. FAQ # 906, and FAQ # 910, leave little doubt that language that appears in each GL will be interpreted harmoniously across programs.

a) U.S. Person Involvement in Underlying Transactions Unrelated to the U.S.


All three COVID GLs authorize “all transactions” related to specified COVID-related activities; they do not state on their faces that the GLs authorize transactions by “U.S. persons.” In FAQ 906, OFAC confirms “[b]oth U.S. persons and non-U.S. persons whose activities are within U.S. jurisdiction — including exporters, nongovernmental organizations, international organizations, and financial institutions — may rely upon the authorizations in these COVID-19-related GLs provided they meet the applicable conditions.” This statement confirms that U.S. persons may “facilitate” or otherwise play an ancillary part in any transaction described by the GLs, even if the transaction does not otherwise involve a U.S. person. Compare FAQ # 883 (making a similar statement with respect to payment processing). The question is whether a person’s activities are “are within U.S. jurisdiction,” not whether they are facilitating a transaction for which the underlying transaction is subject to OFAC’s jurisdiction. For more on this issue generally, see General Note Pertaining to U.S. Person Engagement in Transactions Incident to Transactions by Foreign Persons.

b) The Relationship Between the Goods and Services as Issue and Intended End Use

All three COVID GLs authorize otherwise prohibited transactions:

“that are related to the prevention, diagnosis, or treatment of COVID-19 (including research or clinical studies relating to COVID-19).”

As with all such statements, the scope of the term “related to” is never easy to pin down. How close a relation must there be between COVID-19 and the otherwise prohibited activity? More specifically, is the requisite relation between COVID-19 and the good or service at issue one that is established at the level of the nature of the good or service, or is it one that requires an inquiry into the actual end use of the good or service in the context of a particular transaction? The FAQs associated with the COVID GLs suggest that the requisite relation between the otherwise prohibited activity is established without the need to inquire as to the actual intended end use of the good or service at issue.

In FAQ # 909, OFAC interprets the Venezuela GL, which on its face authorizes “all transactions and activities…that are related to the prevention, diagnosis, or treatment of COVID-19”, as authorizing transactions related to the import and export of “medical gowns” and “surgical gloves.” While some of the goods and activities listed are inherently specific to COVID, some, such as “medical gowns” and “surgical gloves,” are of general medical use, but there is nothing to suggest that such items are only within the scope of the GL if it can be shown that they will be used specifically for COVID-related activities.

The question takes on greater importance in the context of OFAC’s clarification that “ingredients or components required for the production of vaccines” are goods within the scope of the Iran and Venezuela GLs. It would appear that an “ingredient…required” for the production of COVID-19 vaccines is, on a per se basis, within the scope of the authorization. An example of one such ingredient that is not within the scope of the pre-existing authorizations for “medical devices” or “medicine” would be ribonucleic acid (“RNA”).

On this general question, compare e.g. FAQ 440 (a GL authorizing software “necessary to enable services incident to the exchange of personal communications” is interpreted by analyzing the nature of the software itself; one need not determine whether it can, or will as a practical matter in the context of any given exportation, be used for commercial purposes).

As a practical matter, the question addressed above is important inasmuch as due diligence on the actual intended end use of a product is difficult to do, particularly when the intended recipient is located in a country that is subject to a comprehensive embargo.

c) The Due Diligence “Safe Harbor”


In FAQ 909, OFAC says that “financial institutions may rely on the originator of the funds transfer with regard to compliance with Iran GL N, Syria GL 21, and Venezuela GL 39, provided that the financial institution does not know or have reason to know that the funds transfer is not in compliance with such GLs.”

As a technical matter, the FAQ does not make much of a concession, since “know[ing] or have reason to know” that a given transaction is prohibited is the standard that, in practice, OFAC always applies when determining whether to pursue an enforcement action. see generally General Note on the Terms "Knowingly," "Should Have Known" And "Reason to Know" In the Primary Sanctions, Secondary Sanctions and Derivative Designation Contexts (System Ed. Note).

Put differently, OFAC considers a person to have a “reason to know” that a transaction was prohibited it the person did not perform adequate due diligence into the nature of the facts and circumstances underlying the transaction, so here OFAC says that a financial institution “may rely” on (i.e. trust) an originator provided that there is no “reason to know” the originator is incorrect or otherwise not being truthful, but “reason to know” generally entails a degree of verification.

Notwithstanding the foregoing, in practice OFAC uses the “may rely on the originator” construction in situations where the authorization at issue is one for which “de-risking” is presumably discouraged. Compare the “personal remittance” GLs found in all embargo programs (510.511, 542.512, 560.550 and Ukraine GL 6), Iran GL E (Services in Support of Nongovernmental Organizations’ Activities in Iran); 542.523 (services to the National Coalition of Syrian Revolutionary and Opposition Forces) and FAQ # 650/ FAQ # 901 (divestments of Venezuela and China-related securities).

d) Relationship to Secondary Sanctions and “Derivative Designations”


In FAQ # 911 OFAC says “Non-U.S. persons do not risk exposure under U.S. sanctions for engaging in certain activities to respond to the COVID-19 pandemic that would be authorized under Iran GL N, Syria GL 21, or Venezuela GL 39, as appropriate, if engaged in by a U.S. person.”

This is generally consistent with OFAC’s across-the-board policy of not exercising its discretion to sanction a person for activities that would otherwise not be prohibited for a U.S. person. In the Venezuela context there are no formal “secondary sanctions,” but the derivative designation criterion for providing “material assistance” to a person blocked pursuant to EO 13850 has, as a practical matter, been deployed in a manner that produces the same effect as a “secondary sanction” provision applicable to significant trade transactions. (See e.g. PB Tankers S.P.A. (Italy)).

3) Notes Specific to Venezuela General License 39

As is the case with Iran GL N, the authorizations of Venezuela GL 39 overlap substantially with the pre-existing GL for TSRA-related goods. See Venezuela General License 4 (Authorizing Certain New Debt Transactions and Other Transactions Involving Certain Blocked Persons Related to the Exportation or Reexportation of Agricultural Commodities, Medicine, Medical Devices, Replacement Parts and Components, or Software Updates).

That GL, like this one, authorizes transactions involving certain banks blocked pursuant to EO 13850, as well as dealings in “new debt” otherwise prohibited by EO 13808. The primary benefit of GL 39 vis-à-vis GL 4 is that the range of goods authorized for export extend beyond the “agricultural commodities, medicine, and medical devices” covered by GL 4.

Where GL 39 is more significant is in the service sphere. GL 39 authorizes the provision of, and U.S. person involvement in, a broad range of services that is not otherwise within the scope of any pre-existing authorization.