OFAC Issues General License 56 for Contingent Negotiations in Venezuela

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has just issued General License 56, a pivotal shift in the regulatory landscape that permits parties to sit at the negotiating table with the Government of Venezuela (GoV).

The What: Summary of GL 56

General License 56 authorizes transactions ordinarily incident and necessary to engaging in commercial-related negotiations of contingent contracts with the Government of Venezuela.

Key aspects of this license include:

• Contingency Requirement: The entry into and performance of any contract must be expressly contingent upon separate, specific authorization from OFAC.
• Broad Definitions: The term "contingent contracts" covers executory contracts, pro forma invoices, agreements in principle, bids for public tenders, and binding Memoranda of Understanding (MOUs).
• Scope of the GoV: This includes the state, any political subdivision, agency, or any entity owned or controlled by the Venezuelan government.

The Impact: Analysis for Investors and Energy Firms

This license serves as a "pre-clearance" for the deal-making phase, allowing domestic and international firms to bridge the gap between interest and execution.

• Operational Flexibility: Firms can now finalize terms, conduct technical bids, and sign MOUs without violating E.O. 13884, provided no performance occurs without further OFAC licenses.
• Strict Exclusions: The license does not allow for transactions involving individuals or entities on the SDN List, or projects involving partners from Russia, Iran, North Korea, Cuba, or China-controlled entities.
• Financial Restrictions: Payment terms involving debt swaps, gold, or Venezuelan digital currencies (like the Petro) remain strictly prohibited.

Disclaimer

This report is prepared for informational purposes only and does not constitute a legal advice. The interpretation and application of OFAC sanctions regulations are a complex area of U.S. law. Companies are strongly encouraged to consult qualified U.S. sanctions counsel before taking any action in reliance on GL 56. LEC Abogados is a Venezuelan law firm and does not practice U.S. law or provide advice on OFAC regulations. Information is current as of the date of publication.