On July 23, 2020, the New York ACAMS Chapter hosted an online webinar titled Deep Dive into Venezuela Sanctions. The discussion was moderated by New York ACAMS Chapter Co-Chair Howard Spieler and included the following subject matter experts:
Nicholas Schumann, former U.S. Treasury representative to U.S. Southern Command leadership on illicit finance issues in Latin America and the Caribbean, currently US Head of Engagement, Financial Crime Threat Mitigation, HSBC
Nicole Sayegh Succar, former OFAC Sanctions Officer and HSBC Sanctions Senior Management, currently Counsel at Crowell & Moring LLP. Her practice focuses on Economic Sanctions and Anti-Money Laundering (AML) advisory and investigations.
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Key drivers for current state of affairs in Venezuela:
1948 – 1998
Venezuela was a reliable partner for the US. Peaceful transfers of power between rival political parties for fifty years.
A leading economic power in the region that enjoyed close economic, military, and diplomatic ties with the United States and others.
1998
Election of Hugo Chavez as President and things began to move in decidedly different direction. The US was now to blame for most, if not all of Venezuela’s woes, and a tight partnership was formed between Venezuela and Cuba, then others, such as Russia and Iran, with anti-US rhetoric and actions.
Key events or trends pivotal in helping shape today’s landscape and illicit finance environment:
Election of Chavez in 1998.
After the 2002-2003 general strikes across the country, PDVSA transformed from a well-respected, professionally run oil company to a bloated, mismanaged firm that was a center for corruption.
Implementation of currency controls in/around 2002.
Important new route emerged for the movement of cocaine from South America to the north, which involved Venezuela, a new cocaine air bridge was created that saw drug-laden private planes depart from within Venezuelan territory, after cocaine had been transported into Venezuela from Colombia.
Evolution of US Government Response
US government respond to erosion of democracy, increased criminality, and rampant corruption. The US Government’s response from a sanctions-perspective included targeted sanctions at first with terrorism-related sanctions under Executive Order 13224.
In June 2008, the US Treasury, designated two Venezuela-based supporters of Hizballah, Ghazi Nasr al Din and Fawzi Kan'an and Venezuela was accused at the time of employing and providing safe harbor to Hizballah facilitators and fundraisers.
Then there were a few sanctions under the Kingpin Act, which of course focuses on the drug trade. For example, in May 2009, Walid Makled was sanctioned and was accused of moving cocaine from Colombia to Mexico on behalf of the FARC as well as the Sinaloa cartel. There was even a 5.5 ton shipment of cocaine seized in Mexico in 2006 that was tied to Makled.
September 2011, for example, several Venezuelan government officials were sanctioned for supporting the FARC.
In more recent years, the Obama administration, pursuant to E.O. 13808, implemented sectoral-like sanctions affecting debt issued by the Government of Venezuela. These actions have been expanded upon by the Trump administration, including E.O. 13884, which blocked the property of the Government of Venezuela.
When reviewing transactions involving Venezuela, the panel suggested using the following framework:
Does the transaction involve a designated or blocked person, including a nexus to the Government of Venezuela?
If no, then this Venezuela transaction may not be subject to sanctions, unless there is a nexus to the Petro (see below)
If yes, but the designated person is designated under non-Government of Venezuela sanctions then possibly only consider that other program’s prohibitions.
If yes, and the nexus is the Government of Venezuela you likely need to consider further.
Also, always consider if there is a nexus to the Petro. If yes, the transaction is likely prohibited, and analysis might start and end here. If there is a Government of Venezuela nexus to your transaction there are several more considerations:
Is there an exemption or license that relieves the transaction of Government of Venezuela blocking sanctions (pay attention to what executive order a license is issued against)?
If the answer is no, analysis likely ends here.
If yes, you may need to continue.
Does the transaction involve potentially prohibited debt or equity? If yes, can you rely on the same or another exemption or license (again pay attention to what executive order a license you are relying on is issued against).
Does the transaction involve any other prohibited activity (e.g., consider E.O 13835)?
The panel notes that the main takeaway to reviewing Venezuela related transactions is that even if you find an exemption or license that provides relief against Government of Venezuela blocking sanctions, your analysis may not yet complete. Consider the other prohibitions mentioned (the Petro, debt and equity prohibitions, etc.). Also, depending on the transaction and parties involved other international sanctions or export controls might be relevant.
Today / Future State
Late-July: The US Treasury sanctioned more Venezuelan targets. More specifically, OFAC designated two brothers providing support for Nicolas Maduro and the corrupt activities of members of Maduro’s illegitimate regime. According to the press release, these two brothers were responsible for distribute assets for Maduro and his family throughout the world and were hired by Maduro’s son to conduct business on the family’s behalf. More specifically, one of the areas these two were involved in was Venezuela’s gold industry, including the sale of gold mined in Venezuela and dispatched from the Central Bank of Venezuela.
Likely continue to see more indictments and other criminal measures. For example, the State Department’s Transnational Organized Crime Rewards Program announced a $5 million reward for information leading to the arrest and/or conviction of Venezuelan national Maikel Jose Moreno Perez, following multiple investigations by Homeland Security Investigations (HSI) and other U.S. agencies. Moreno who is the current Chief Justice of the Venezuelan Supreme Court, was charged via a criminal complaint in the Southern District of Florida with conspiracy to commit money laundering and money laundering in connection with the alleged corrupt receipt or intended receipt of tens of millions of dollars and bribes to illegally fix dozens of civil and criminal cases in Venezuela. The complains further alleged, for example, that Moreno authorized a seizure and sale of a General Motors auto plant with an estimated value of $100 million in exchange for a personal percentage of the proceeds. This is emblematic of the financial crime threat that Venezuelan poses and unfortunately it is showing no signs of abating whatsoever.
It was also discussed that in recent years Venezuela, a founding OPEC member, had oil production fall precipitously. This is in part because Venezuela’s “dirty crude” oil needs extra processing and specialized refinement, making it unique in the oil industry. Citgo, owned by the Government of Venezuela, has thousands of US employees, resulting in numerous licenses to maintain operations and complicating transactions. And PDVSA, the huge Government owned oil production company, has been designated an SDN, further damaging Venezuela’s oil sales and economy.
It was also noted by the panel that financial institutions should use caution on petroleum maritime transactions as there have been numerous designations related to shipping Venezuela oil. Examples include a subsidiary of Russian State controlled Rosneft Oil Company, sanctions on maritime firms and vessels transporting Venezuelan oil to Cuba, and Venezuela’s involvement in the Troika of Tyranny.
Please find the slides from the presentation here.