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Could Venezuela Sanctions Bring New Opportunities for US Businesses?

A man holds a sign that reads in Spanish "They attack for oil" during a march of in support of the state-run oil company PDVSA, in Caracas, Venezuela, Thursday, Jan. 31, 2019. The government called for a mass rally to denounce U.S. sanctions against PDVSA that could starve Maduro's government of billions in export revenue but turnout was no more than a few hundred people. (AP Photo/Ariana Cubillos)

A man holds a sign that reads in Spanish "They attack for oil" during a march of in support of the state-run oil company PDVSA, in Caracas, Venezuela, Thursday, Jan. 31, 2019. The government called for a mass rally to denounce U.S. sanctions against PDVSA that could starve Maduro's government of billions in export revenue but turnout was no more than a few hundred people. (AP Photo/Ariana Cubillos)

As some U.S. companies anticipate a coup in Venezuela, which could open the door for new business opportunities, others are screening their transactions for potential sanctions-related risks, according to international trade lawyers.

In January, the U.S. announced it would impose new sanctions on Venezuela’s state-owned oil company Petróleos de Venezuela SA, or PDVSA, the parent company of Citgo and several other subsidiaries, as part of an effort to pressure Venezuelan President Nicolas Maduro to resign. 

“I will continue to use the full weight of United States economic and diplomatic power to press for the restoration of Venezuelan democracy,” President Donald Trump said in a Jan. 23 statement in which he recognized opposition leader Juan Guaido as Venezuela’s interim president.

The latest sanctions, which are set to take effect April 28, make PDVSA a Specially Designated National, which means its assets are blocked and U.S. residents are generally prohibited from dealing with the company. The sanctions would prevent Maduro’s regime from benefiting from the proceeds of PDVSA’s exports of crude to the U.S. and also prohibit American firms from exporting goods or services to PDVSA.

Venezuela's oil revenues account for 98 percent of export earnings, according to OPECand the sanctions could shove the country’s already fragile economy over the brink.  

“Corporate clients and persons, including my neighbors, some of whom recently arrived in South Florida from Venezuela, are enthusiastic that there will finally be a change in the leadership of what is widely recognized as a failed and corrupt government in Venezuela,” said Miami-based lawyer Peter Quinter, a shareholder at GrayRobinson who chairs the firm’s customs and international trade law group.

Business transactions between the U.S. and Venezuela have “drastically fallen over the last 10 years,” added Quinter, who said the “sooner there is a change in the government in Venezuela, the sooner the international business will return, especially for the benefit of companies located in South Florida.”

Jorge Salcedo, another Miami attorney who represents domestic and international businesses, echoed Quinter, saying that his clients, who operate primarily in the aviation and energy industries, have “good hope that there’s going to be a regime change very soon” so they can “start doing business in Venezuela freely.”

But if that change doesn’t come, Salcedo predicted that “you’ll be looking at a very complex situation where I don’t think there will be an appetite from foreign investors to touch Venezuela at all.”

Ama Adams, a partner at Ropes & Gray in Washington, D.C., has been having a different Venezuela-related conversation with her clients, which include energy companies, financial service providers and real estate and construction businesses.

Many of the companies that she advises are considering whether they have risks associated with sovereign wealth debt issues connected to the U.S. sanctions on Venezuela. She added her clients are “looking at various counterparty relationships to see if they can continue … and if there are any subsidiaries that PDVSA might own overseas or in the U.S. that could be impacted.”

“We have clients who have counterparty relationships with PDVSA, clients who are dealing with debt and equity securities related to PDVSA and have to continue to assess security implications,” she added.

While Salcedo and Quinter, the Miami lawyers, said their clients were eager for a regime change in Venezuela, Adams said her clients are simply hoping for a resolution that will lift the sanctions impacting a range of industries.

Until that happens, those businesses are going to have to be vigilant about risk and compliance screening. 

“The new sanctions now requires companies to really look at their transactions and dealings with PDVSA,” she said.

 

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