President Trump Issues New Executive Order Blocking Property of the Government of Venezuela

8 August, 2019

On August 5, 2019, President Trump issued a new Executive Order (“EO“), blocking all property and interests in property of the Government of Venezuela (defined to include the Central Bank of Venezuela and Petróleos de Venezuela (“PdVSA“)) in the US or in the possession of US persons. The EO also empowers the Secretary of Treasury, in consultation with the Secretary of State, to block the property and interests in property of individuals or entities that materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to, any “specially designated nationals” (“SDNs“) or blocked persons under the EO, or entities owned, controlled by, or acting on behalf of the foregoing. As is common practice, the US Department of Treasury’s Office of Foreign Assets Control (“OFAC“) has issued revised FAQs and a number of revised and new general licenses (“GLs“) authorizing certain limited activities by US persons involving the Government of Venezuela. These licenses relate primarily to the maintenance or winding down of existing activities with the Government of Venezuela, humanitarian efforts in the country, and other non-commercial and administrative tasks.

The EO follows months of incremental tightening of sanctions on Venezuela, meant to place increased pressure on the Maduro regime, and the expiration of a number of GLs authorizing certain activities in Venezuela. For US persons and companies, the EO further limits their ability to do business in Venezuela if that business involves the Government of Venezuela. For non-US persons and companies, the EO creates a new basis for the imposition of secondary sanctions, authorizing the sanctions designation of non-US persons who engage in material transactions with the Government of Venezuela.

The EO

The EO blocks all property and interests in property, in the US or in the possession of US persons, of the Government of Venezuela, including those entities owned, directly or indirectly, 50 percent or more by the Government of Venezuela (such as the Central Bank of Venezuela, as well as PdVSA). The EO also empowers the Secretary of Treasury, in consultation with the Secretary of State, to block the property and interests in property of individuals or entities that materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to, any SDNs or blocked persons under the EO, or entities owned, controlled by, or acting on behalf of the foregoing.

OFAC’s amended FAQs make clear that the US has stopped short of imposing a full embargo on Venezuela: “US persons are not prohibited from engaging in transactions involving the country or people of Venezuela, provided blocked persons or any conduct prohibited by any other Executive order imposing sanctions measures related to the situation in Venezuela, are not involved.”

General licenses

OFAC has revised several existing GLs to authorize certain transactions that would otherwise be prohibited by the new EO, namely:

  • GL 2A, authorizing certain dealings in debt, equity, and securities of PDV Holding, Inc. (“PDVH“) and CITGO Holding, Inc. (“CITGO“);
  • GL 3F, authorizing dealings in certain bonds of the Government of Venezuela;
  • GL 4C, authorizing certain transactions related to, inter alia, the export and re-export of agricultural commodities, medicine, and medical devices to Venezuela;
  • GL 7C, authorizing all transactions and activities with PDVH and CITGO, where they are the only Government of Venezuela entities involved, through January 2021 (subject to renewal), and authorizing those entities to purchase and import petroleum and petroleum products from PdVSA through April 28, 2019;
  • GL 8C, authorizing the maintenance of operations or contracts with PdVSA by Chevron Corporation, Halliburton, Schlumberger Limited, Baker Hughes, and Weatherford International through October 25, 2019;
  • GL 9E, authorizing certain dealings in the debt or equity of PdVSA;
  • GL 10A, authorizing US persons in Venezuela to purchase refined petroleum products from PdVSA for personal, commercial, or humanitarian uses;
  • GL 13C, authorizing certain transactions with Nynas AB through October 25, 2019;
  • GL 15B, authorizing activities by Mastercard Inc., Visa Inc., American Express Company, Western Union Company, and MoneyGram International with certain Venezuelan banks, through March 22, 2020;
  • GL 16B, authorizing transactions related to the maintenance, operation, or closure of accounts of US persons at certain Venezuelan banks, through March 22, 2020;
  • GL 18A, authorizing certain transactions relating to the maintenance or operation of Integracion Administradora de Fondos de Ahorro Previsional, S.A.; and
  • GL 20A, authorizing certain transactions and activities by specific humanitarian entities involving the Central Bank of Venezuela, through January 2021.

Additionally, OFAC has issued a number of new GLs:

  • GL 21, authorizing US financial institutions to debit accounts blocked under the EO or Executive Order 13850 (relating to entities operating in the gold or oil industry) at that institution in payment or reimbursement of normal service charges;
  • GL 22, authorizing the provision of certain goods or services in the US to Venezuela’s mission to the UN;
  • GL 23, authorizing US depository institutions, registered brokers or dealers, and money transmitters to process funds in relation to the operating expenses or other official business of third-country diplomatic or consular missions in Venezuela;
  • GL 24, authorizing all transactions involving the Government of Venezuela incident to the receipt and transmission of telecommunications, and all transactions of common carriers involving the Government of Venezuela incident to the receipt or transmission of mail and packages between the US and Venezuela;
  • GL 25, authorizing the exportation or re-exportation from the US or by US persons to or involving the Government of Venezuela of services, software, hardware, and technology incident to the exchange of communications over the Internet (e.g., through instant messaging);
  • GL 26, authorizing the provision of certain medical services involving the Government of Venezuela;
  • GL 27, authorizing certain transactions in connection with US patent, trademark, copyright, or other intellectual property protection;
  • GL 28, authorizing through September 4, 2019, transactions ordinarily incident and necessary to the wind down of operations, contracts, or other agreements involving the Government of Venezuela in effect before August 5, 2019;
  • GL 29, authorizing all transactions involving the Government of Venezuela ordinarily incident and necessary to certain activities of non-governmental organizations or “NGOs”;
  • GL 30, authorizing all transactions involving the Government of Venezuela ordinarily incident and necessary to the operation or use of ports and airports in Venezuela;
  • GL 31, authorizing US persons to engage in all transactions involving the Interim President of Venezuela, Juan Gerardo Guaidó Márquez, and his administration, including the Venezuelan National Assembly;
  • GL 32, authorizing US persons in Venezuela to engage in transactions involving the Government of Venezuela prohibited by the EO ordinarily incident and necessary to their personal maintenance in Venezuela (e.g., payment of housing expenses, acquisition of personal goods, payment of taxes or fees, and the purchase of permits, licenses, and public utilities); and
  • GL 33, authorizing the payment of fees to the Government of Venezuela related to emergency landings or other air-related medical emergencies.

We continue to monitor developments in this area. Please contact the authors or your usual Herbert Smith Freehills contact for more information.

Susannah Cogman
Susannah Cogman
Partner, London
+44 20 7466 2580
Daniel Hudson
Daniel Hudson
Partner, London
+44 20 7466 2470
Jonathan Cross
Jonathan Cross
Counsel, New York
+1 917 542 7824
Christopher Milazzo
Christopher Milazzo
Associate, New York
+1 917 542 7807

Corporate Crime & Investigations Podcast Episode 1: Deferred Prosecution Agreements

7 August, 2019

In our Corporate Crime & Investigations podcast we look to bring you timely and incisive commentary on key developments in the CC&I space.

In this inaugural episode we take a look at the Deferred Prosecution Agreements (DPAs) landscape. In particular we set in context the latest DPA agreed between the Serious Fraud Office (SFO) and a subsidiary in the Serco Group of companies.

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Commercial Court considers contractual discretion of bank to close customer account without notice where there is suspicion of money laundering

31 July, 2019

In a recent decision, the Commercial Court has upheld a financial institution’s decision to exercise its contractual right to close a customer’s accounts and terminate its relationship without notice, where the financial institution had a suspicion that its customer’s accounts were being used for money laundering purposes: N v The Royal Bank of Scotland plc [2019] EWHC 1770. The decision will be welcomed by financial institutions seeking to take action to prevent financial crime occurring through use of accounts provided to customers, under tight time pressure and notwithstanding that the consequences of the bank’s action for the business in question could be severe.

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HKMA rates level of money laundering and terrorist financing risk for SVF sector as medium

24 July, 2019

Last Friday, the Hong Kong Monetary Authority (HKMA) published its money laundering and terrorist financing (ML/TF) risk assessment report for the stored value facility (SVF) sector in Hong Kong.

The latest assessment confirms that the SVF sector continues to carry a medium level of ML/TF risk.

While the majority of the sector continues to be characterised by lower ML/TF risks (as indicated by the use of SVF products for low value transport and retail transactions), some pockets of higher ML/TF risks have emerged, arising from SVF products with functions such as overseas cash withdrawal and cross-border remittances.

SVF licensees should consider the HKMA’s report, and (where necessary) update their institutional ML/TF risk assessments and enhance their internal systems and controls.

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Moscow Corporate Crime and Investigations Newsletter – July 2019

19 July, 2019

This newsletter summarises recent Russian regulation, enforcement and court practice developments which may be relevant for doing business in Russia from a corporate crime and investigations perspective.

Additionally, this newsletter spots some US and other relevant developments which should be kept in mind by Russian businesses having foreign parents or operations.

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Approval of UK’s fifth DPA concludes SFO investigation into Serco companies

10 July, 2019

On 4 July 2019, Mr Justice William Davis approved a Deferred Prosecution Agreement (“DPA“) agreed between the Serious Fraud Office (“SFO“) and Serco Geografix Ltd (“SGL“), a wholly-owned subsidiary of outsourcing company Serco Group plc (“Serco Group“). SGL has agreed to pay £22.9 million, comprising a financial penalty of £19.2m and the full amount of the SFO’s investigative costs of £3.7m. This is in addition to the £12.8m in compensation Serco paid to the Ministry of Justice as part of a £70m civil settlement in 2013.

Following the introduction of DPAs in the UK in 2014 and the conclusion of the first DPA with the SFO in November 2015, the Serco DPA is the fifth and latest in a growing body of DPA case-law and confirms the importance placed by the SFO on the use of DPAs in tackling financial crime.

In this briefing, we provide some background on DPAs generally, an overview of the Serco DPA and discuss some of the emerging themes relating to DPAs and the SFO’s approach to enforcement.

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MAS EXTENDS AML/CFT REQUIREMENTS TO PAYMENT SERVICE PROVIDERS

1 July, 2019

On 6 June 2019, the Monetary Authority of Singapore (MAS) issued a Consultation Paper on proposed anti-money laundering and countering the financing of terrorism (AML/CFT) requirements which will apply to most payment service providers (PS Providers). Submissions close on 5 July 2019. The relevant AML/CFT requirements are set out in the following Notices (AML/CFT Notices) to be issued by MAS and come after the passing of the Payment Services Act (PS Act) on 14 January 2019 (see our bulletin here):

  1. Notice to Payment Services Providers (Specified Payment Services) on Prevention of Money Laundering and Countering the Financing of Terrorism (applies to all activities that carry money laundering/financing of terrorism (ML/FT) risks except digital payment token (DPT) services); and
  2. Notice to Payment Services Providers (Digital Payment Token Service) on Prevention of Money Laundering and Countering the Financing of Terrorism (applies to DPT services).

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EU adopts new sanctions framework targeting external cyber-attacks

28 May, 2019

Authors: Susannah Cogman, Daniel Hudson and Hannah Lau

On 17 May, the EU adopted legislation which will enable it to impose sanctions against persons and entities who engage in cyber-attacks against the EU and its member states. The sanctions will be designed “to deter and respond to cyber-attacks with a significant effect which constitute an external threat to the EU and its Member States”. The new regime underlines a clear commitment by the EU to continue to strengthen its capability to address its “[concern] at the rise of malicious behaviour in cyberspace”.

BACKGROUND

In recent years, the EU has taken a series of actions to tackle cyber threats. On 19 June 2017, the EU developed a framework for a joint response to malicious cyber threats (known as the “Cyber Diplomacy Toolbox”), and subsequent implementing guidelines envisaged sanctions as one of the tools available. The timing of the announcement of the new regime is also notable given its proximity to the EU Parliament elections which started on 23 May.

Reported concerns amongst officials from the EU and certain member states in the past have related to hacking incidents or threats linked to China, Russia and North Korea. However, the legislation explicitly states that the imposition of sanctions against a person or entity does not amount to attribution of responsibility to a third state, which is a political decision.

SCOPE OF THE SANCTIONS REGIME

The sanctions will target persons involved in cyber-attacks with a significant effect which constitute an external threat to the EU and/or its member states. It also covers attempted attacks with a potentially significant effect.

“External”

Cyber-attacks constituting an external threat include those which:

  1. originate, or are carried out, from outside the EU;
  2. use infrastructure outside the EU;
  3. are carried out by any person or entity established or operating outside the EU; or
  4. are carried out with the support, at the direction of or under the control of any person or entity operating outside the EU.

“Threat to member states or the EU”

Attacks which are a threat to member states are envisaged to be cyber-attacks targeting: (a) critical infrastructure; (b) social and economic services (such as in the energy, health and financial markets sector); (c) critical state functions (such as areas of defence and public elections); and (d) classified information.

Threats to the EU include cyber-attacks carried out against its various institutions and its common security and defence policy (“CFSP”). The legislation also reserves the right to apply sanctions in relation to cyber-attacks against third States and international organisations where deemed necessary to achieve CFSP objectives, giving it a potentially broad scope.

“Significant effect”

Whether an attack has a “significant effect” will depend on a range of factors including the scale of disruption, the number of persons or entities concerned, the loss caused, and the nature of the data stolen.

Who can be penalised

There is a broad scope for those who could be listed. The sanctions could target individuals or entities who:

  1. carry out (attempted) cyber-attacks;
  2. provide financial, technical or material support for such attacks including facilitating such attacks by action or omission; or
  3. are associated with those in (a) or (b) above.

The type of sanctions imposed

The sanctions available will include a ban on any listed persons from travelling to the EU and asset freezes. EU persons and entities will also be forbidden from making funds or economic resources available directly or indirectly to those listed.

PRACTICAL CONSIDERATIONS

The new regime emphasises the continuing willingness of the EU to use sanctions to address concerns, noting the similarity of these sanctions to recent EU sanctions aimed at targeting the use of chemical weapons. While no one has yet been listed under this framework, there is a continuing need for companies to ensure that they have thorough, up-to-date and ongoing screening to identify any listed persons they might directly or indirectly deal with.

It is noted that the UK government has said that in the event of a “no deal” Brexit, it will look to carry over all EU sanctions through regulations made under the Sanctions and Anti-Money Laundering Act 2018, in order to ensure a smooth transition. These UK regulations will come into force on 11 June 2019.

Susannah Cogman
Susannah Cogman
Partner, London
+44 20 7466 2580
Daniel Hudson
Daniel Hudson
Partner, London
+44 20 7466 2470
Hannah Lau
Hannah Lau
Associate, London
+44 20 7466 2314

Andrew Moir
Andrew Moir
Partner, London
+44 20 7466 2773
Elena Hogg
Elena Hogg
Associate, London
+44 20 7466 2590