Recently imposed sanctions on Venezuela have posed new compliance risks for U.S. and international financial institutions as they seek to untangle business ties between the two countries to meet evolving requirements.
The Treasury Department has ramped up sanctions with more designations and guidance in recent weeks. Gradually increasing U.S. measures targeting the government of Venezuela, and the country’s state-owned oil giant in particular, have made banks more reluctant to touch accounts that might relate to Venezuela for fear of sanctions violations. The scenario is complex because the economic and business connections between the two countries have a foundation in the oil-and-gas industry, which can affect automobile and heavy machinery manufacturing, as well as elements of insurance and finance, said Cari Stinebower, a sanctions lawyer at Crowell & Moring LLP.
“Anyone that touches the petroleum industry is affected by the sanctions,” Ms. Stinebower said.
The U.S.’s campaign picked up early in the new year, with sanctions targeting a Venezuelan media mogul. Then the U.S. Treasury Department imposed sanctions on Venezuela’s state-owned oil company, Petróleos de Venezuela SA, or PdVSA, and its subsidiaries, including refiner Citgo Petroleum Corp. Washington, has been pushing a broad campaign against the government of Nicolás Maduro, who the Trump administration says is corrupt and illegitimate. On Jan. 23, it moved to recognize opposition leader Juan Guaidó as the interim president. On Monday, the U.S. increased the pressure, adding governors who support Mr. Maduro to its sanctions blacklist. The sanctions on Venezuela’s financial and oil sectors are designed to cripple the Maduro regime, which the U.S. has accused of human rights abuses and curtailing freedom of speech. But the interconnectedness of the U.S. and Venezuelan economies might make it more challenging for banks to stay compliant, sanctions experts said.
Intricacies stemming from the sanctions are particularly disruptive for the banking industry, said Daniel Gutierrez, who chairs the anti-money-laundering compliance committee at the Florida International Bankers Association.
Banks are responsible for vetting their customers to ensure they don’t have relationships with people or companies on the sanctions list. They are also required to flag and block questionable transactions, including clearing U.S. dollar-denominated transactions.
In the case of Venezuela, where the list of the Maduro government officials is broad and unclear, and where PdVSA has many subsidiaries and tends to outsource to third-party vendors, banks are finding they need to pull more resources to holistically analyze each instance on a case-by-case basis, said Mr. Gutierrez.
“The question the industry has is how far down that outsourcing chain do I have to go to determine if I have a sanction on Venezuela or not,” Mr. Gutierrez.
If not carefully managed, banks could face penalties and reputational damage, said Raul Gallegos, who leads the political risk practice in the Andean region at consulting company Control Risks.
Goldman Sachs Group Inc. in 2017 came under fire when it was revealed that the company bought about $2.8 billion in Venezuelan bonds, which were seen as a lifeline to the Maduro government. Goldman Sachs declined to comment. Write to Mengqi Sun at email@example.com