On November 30, OFAC designated China National Electronics Import and Export Corporation (“CEIEC”) to its Specially Designated Nationals and Blocked Persons list (“SDN List”). The OFAC press release is available here.
CEIEC is a Chinese state-owned technology corporation. According to its website, CEIEC claims that it is a “close partner of many foreign government[s], military and security department[s], to help them fulfill their mission of securing citizen’s confidence to health, safety, economic growth and public governance.”
OFAC designated CEIEC pursuant to Executive Order (“E.O.”) 13692, for “its role in undermining democracy in Venezuela.” OFAC further alleged that “CEIEC has provided software, training, and technical expertise to Venezuela government entities, which was then used against the people of Venezuela.”
OFAC’s actions underscore the increasing risk of secondary sanctions that non-U.S. corporations face by conducting business in Venezuela.
The Wind Down Period
OFAC also issued General License 38, Authorizing the Wind Down of Transactions Involving CEIEC (“GL 38.”). GL 38 available here.
GL 38 authorizes all transactions and activities that are ordinarily incident and necessary to the wind down of transactions and activities involving CEIEC, or any entity in which CEIEC owns, directly or indirectly, a 50% or greater interest. The authorization expires at 12:01 a.m. EST, on Thursday, January 14, 2021.
Absent a General License or other authorization, these transactions would be prohibited by E.O. 13692 of March 8, 2015, as amended by E.O. 13857 of January 25, 2019, each as incorporated into the Venezuela Sanctions Regulations, 31 C.F.R. part 591 (the “VSR”).
However, OFAC clarified that GL 38 does not authorize:
- Any debit to an account of CEIEC, or any entity in which CEIEC owns, directly or indirectly, a 50% or greater interest, on the books of a US financial institution;
- Any transactions or activities otherwise prohibited by the VSR, or any other part of 31 C.F.R. chapter V; nor
- Any transactions or activities with any blocked person other than CEIEC.
After the expiration of GL 38, unless exempt or authorized by OFAC, US persons will be prohibited from engaging in transactions with CEIEC, and must block property or interests in property of CEIEC.
OFAC also clarified that non-US persons may wind down transactions and activities with CEIEC, provided that such wind-down activity is consistent with GL 38. OFAC recommended that non-U.S. persons unable to wind down activities with CEIEC prior to January 14, 2021 seek guidance from OFAC. Finally, OFAC cautioned that it will not consider entering into new business involving CEIEC as “wind-down activity.”
Finally, OFAC issued Frequently Asked Question (“FAQ”) 854, to provided additional guidance related to its November 30 actions. FAQ 854 is available here.
We will continue to monitor developments in this area. Please contact the authors or your usual Herbert Smith Freehills contacts for more information.