Trade Compliance Flash: President Trump Issues Executive Order Sanctioning Venezuelan Cryptocurrency; OFAC Designates Additional Venezuela SDNs and Issues Guidance on Application of Sanctions to Virtual Currency
On Monday, March 19, President Trump issued an executive order imposing sanctions on Venezuela's nascent cryptocurrency, the petro, as well as any other digital currency that the Government of Venezuela may issue in the future. Effective immediately, U.S. persons are prohibited from dealing in such currencies. In addition, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) issued guidance regarding the application of U.S. sanctions to virtual currency, and designated additional current and former officials of the Government of Venezuela under Executive Order 13692, issued in 2015, for engaging in public corruption and human rights abuses and undermining democratic processes in Venezuela.
New Venezuela Sanctions
The March 19 executive order prohibits U.S. persons – i.e., U.S. citizens, green card holders, entities established in the United States, and individuals or entities in the United States or otherwise subject to U.S. jurisdiction – from all transactions related to, provision of financing for, and other dealings in, any digital currency, coin, or token issued by or on behalf of the Government of Venezuela on or after January 9, 2019. As confirmed by an FAQ issued by OFAC simultaneously with the issuance of the executive order, this includes the petro as well as petros acquired through the Venezuelan government's February 20 "pre-sale" of the cryptocurrency. Persons engaging in prohibited transactions – which include buying, selling, or using the petro – risk civil penalties imposed by OFAC or, in the event of "willful" violations, criminal prosecution by the U.S. Department of Justice.
The new executive order was accompanied by the addition of four current and former officials of the Government of Venezuela to the List of Specially Designated Nationals and Blocked Persons (SDN list) under Executive Order 13692, issued in 2015, for engaging in public corruption and human rights abuses and undermining democratic processes in Venezuela. Our prior alert on Executive Order 13692 and the August 2017 Executive Order imposing restrictions on Venezuelan debt and equity can be reviewed here.
Venezuela's petro has faced sanctions risk since its inception, so the new executive order does not come as a surprise. However, the March 19 executive order does represent a refinement in OFAC's approach to the sanctioning of dealings in the petro, as it appears to supersede the view expressed by OFAC in a January 19 FAQ that dealings in the petro represented impermissible dealings in debt of the Government of Venezuela under the August 2017 executive order. The new executive order makes explicit that the U.S. government views Venezuela's issuance of the petro as an attempt to evade U.S. sanctions.
Broader Implications of the OFAC Virtual Currency Guidance
More significant, however, are the broader implications of OFAC's guidance, issued simultaneously with the new executive order, on virtual currency. U.S. persons are now on notice that their U.S. sanctions compliance obligations are the same, regardless of whether a transaction is denominated in digital currency or traditional currency. To begin with, the OFAC guidance offers a definition of a "digital" currency that would appear to encompass all of the most highly traded cryptocurrencies – such as Bitcoin, Ethereum, Litecoin, and Ripple – by including almost any non-fiat "digital representation of value." To add further credence to this interpretation, OFAC's guidance on the mechanics of designating a particular cryptocurrency wallet includes an explanation of the identifiers for all of these popular cryptocurrencies (as well as the petro).
The guidance makes clear that OFAC considers digital or virtual currencies to be property interests subject to blocking as property of persons on the SDN list or entities owned in the aggregate, directly or indirectly, 50 percent or more by such persons. This has implications for all U.S. persons, including financial institutions; technology companies; administrators, exchangers, and users of digital currencies; and other payment processors. The guidance emphasizes that persons dealing in such currencies should develop a "tailored, risk-based compliance program" to address these emerging currencies and related sanctions risks, which "should include sanctions risk screening and other appropriate measures."
Perhaps the most far-reaching implication of the new guidance is OFAC's apparent intent to focus its enforcement efforts more broadly on digital currencies and key players in the cryptocurrency market, including crypto wallets. OFAC explicitly highlighted digital currencies as a tool to evade U.S. sanctions and reiterated its longstanding prohibitions on transactions that "evade or avoid, have the purpose of evading or avoiding, cause a violation of, or attempt to violate prohibitions imposed by OFAC" or provide "financial, material, or technological support" to persons currently under U.S. sanctions. While this focus means that merely investing in or using cryptocurrencies issued by persons other than the Government of Venezuela is not necessarily a sanctions violation, individuals who trade cryptocurrencies with parties outside the United States or even technology companies that support such transactions may face additional sanctions risk. This risk could be amplified in the near future as both Russia and Iran have indicated that they, too, are working to introduce state-supported cryptocurrencies, at least in part, to alleviate the impact of U.S. sanctions on their economies.
For more information, please contact:
Barbara D. Linney*
*Former Miller & Chevalier attorney
This, and related communications, are protected by copyright laws and treaties. You may make a single copy for personal use. You may make copies for others, but not for commercial purposes. If you give a copy to anyone else, it must be in its original, unmodified form, and must include all attributions of authorship, copyright notices, and republication notices. Except as described above, it is unlawful to copy, republish, redistribute, and/or alter this presentation without prior written consent of the copyright holder.