Publish in Perspectives - Wednesday, March 28, 2018
Venezuelan president Nicolas Maduro announcing the Petro. (Photo: MIPPCI)
Trump Administration blocks chain for Venezuelan cryptocurrency transactions.
Hunton & Williams
On Monday, March 19, 2018, the White House released a new executive order titled “Taking Additional Steps to Address the Situation in Venezuela.” The short executive order deals with the topic of Venezuelan cryptocurrencies and prohibits all transactions related to, the provision of financing for, and other dealings in, by a United States person or within the United States, any digital currency, digital coin, or digital token, that was issued by, for, or on behalf of the Government of Venezuela on or after January 9, 2018. Contemporaneously with the issuance of this new executive order, the Treasury Department’s Office of Foreign Assets Control (OFAC) updated its Frequently Asked Questions with respect to U.S. sanctions toward Venezuela to clarify that Venezuela’s traditional fiat currency, the Bolivar (i.e., the bolivar fuerte), is not considered a “digital currency, digital coin, or digital token.”
The executive order, which became effective immediately upon release on March 19, 2018, defines “United States person” as any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches of such entities), or any person within the United States. It is also worth noting that the executive order broadly defines “Government of Venezuela” as including the Government of Venezuela, any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela and Petroleos de Venezuela, S.A. (PdVSA), and any person owned or controlled by, or acting for or on behalf of, the Government of Venezuela. Thus, the executive order prohibits not only a cryptocurrency that may be issued by the Central Bank of Venezuela, but also by any other subdivision of the Government of Venezuela or any private entity acting for or on behalf of the Government of Venezuela. In turn, this broad definition is likely to have a chilling effect on any present or future cryptocurrency related in any way to Venezuela, even if issued by a private party.
This executive order should come as no surprise to those following recent developments in U.S. sanctions toward Venezuela. Following Venezuelan President Nicolas Maduro’s December 2017 announcement that the government of Venezuela planned to launch a digital currency that would carry rights to receive commodities in specified quantities at a later date, OFAC quickly issued guidance on the currency. OFAC revised its FAQs and stated that currency with these characteristics (i.e., the right to receive commodities in specified quantities at a later date) “would appear to be an extension of credit to the Venezuelan government,” and thus prohibited by Executive Order 13808 issued on August 24, 2017.
Although transacting in, financing or otherwise dealing in such a Venezuelan cryptocurrency would likely have been interpreted by OFAC as a violation of Executive Order 13808, this new executive order now makes it expressly clear that any such transacting, financing or dealing will unquestionably be considered a violation of U.S. sanctions toward Venezuela.
Entities and individuals conducting business in or with respect to Venezuela should be wary about transacting or dealing in such a cryptocurrency, particularly those businesses in the oil and petroleum industry that may consider accepting such currency, granting the right to receive future productions of crude oil, as payment for contractual or other obligations.
Finally, concurrently with the release of the executive order, OFAC announced that it had added four (4) additional individuals to its Specially Designated Nationals List with which United States persons are prohibited from dealing with.
This column is based on a client alert from Hunton & Williams prepared by partners Gustavo J. Membiela and Uriel A. Mendieta, counsel Juan Azel and associate Rail Seoane.