On 9 March, the United States Government imposed sanctions against seven Venezuelan officials alleging that they had engaged in public corruption and committed serious human rights violations during the anti-government protests that broke out in Venezuela last year. The sanctioned officials included a prosecutor in Venezuela’s Public Ministry and a director of Venezuela’s Bolivarian National Police.
The human rights abuses allegedly involved the detention of anti-government protesters, in addition to pervasive public corruption in Venezuela. In his executive order, President Barack Obama described the situation in Venezuela as ‘an unusual and extraordinary threat to the national security and foreign policy of the United States’.
The executive order freezes the United States assets of the seven officials and bans citizens of the United States from doing business with them. Subsequent to the order, the Office of Foreign Assets Controls (OFAC) placed the names of these officials on its Special Designated Nationals and Blocked Persons List (SDN List).
The order also authorised the Secretary of the Treasury to determine additional individuals against whom the sanctions may be imposed. This might include, for example, persons ‘responsible for or complicit in significant acts of violence or conduct that constitutes a serious abuse or violation of human rights in Venezuela’. In addition, ‘current or former officials of the Government of Venezuela’ may be identified by the Secretary of the Treasury and subject to sanctions that include the freezing of assets and suspension of visas.
The imposition of sanctions intensified tensions between the two countries. The United States State Department insists that the sanctions only target the seven officials, rather than the people of Venezuela and its economy, while also helping to clamp down on the illicit financial flows from Venezuela. In response, however, the Venezuelan Government has demanded that Washington cut the number of its officials at the United States embassy in Caracas from 100 to 17. It has also insisted on visas from United States tourists travelling to Venezuela.
This is not the first time that the United States Government has imposed sanctions on Venezuelan officials. On 18 December 2014, the Venezuela Defense of Human Rights and Civil Society Act was enacted in the United States, empowering the United States Government to impose visa sanctions on Venezuelan officials. The enactment was claimed to be a response to the human rights violations that occurred during the Venezuela anti-government protests, which led to 43 deaths. As a result, a number of current and former Venezuelan officials were sanctioned with visa restrictions in February this year.
According to a recent poll, these unilateral sanctions programmes are opposed by the majority of the Venezuelan domestic population. The intentions of the United States Government has also been questioned by the Venezuelan public, and it is believed that the United States does not have the right to unilaterally impose such restrictions on governments that are democratically elected.
Despite the tensions, it is believed that the trading relationship between the United States and Venezuela, especially in the energy sector, will remain strong with Venezuela being one of the top crude oil suppliers to the United States.
The imposition of sanctions also potentially affects relations between the United States and South America on a wider scale. For almost two centuries, United States foreign policy towards Latin America has followed the Monroe Doctrine, which was first introduced by President Monroe. The United States interpreted the doctrine as an obligation for it to protect Latin American countries from colonisation by European countries. However, Latin American countries have long interpreted this as an excuse for the United States to interfere with their sovereignty and to dictate to the region.
Since the United States Secretary of State John Kerry declared the end of the Monroe Doctrine in 2013, the United States Government has been trying to normalise relations with countries in Latin America. In December of 2014, the United States even loosened travel, trade and financial restrictions against her long-term enemy Cuba, as discussed in the March–April 2015 issue of Compliance Insider®. Unfortunately, the recent Venezuela sanctions have had the effect of undermining such efforts and worsening relations between the United States and South American countries.
The sanctions were criticised by several Latin American countries including Uruguay, Argentina, Ecuador and Cuba. In addition, the Union of South American Nations, which represents 12 countries in South America, demanded that the United States drop the sanctions and respect the sovereignty of Venezuela. Furthermore, the Community of Latin American and Caribbean States (CELAC) also opposed the sanctions.
In light of the fierce backlash, President Obama admitted in April that Venezuela does not pose a threat to the United States. However, the sanctions will remain effective for the purposes of promoting human rights. Critics highlighted the fact that the promotion of human rights should not be used as justification, as there are a number of other United States-friendly countries that are not sanctioned even though they have serious human rights issues. The United States Government has even provided foreign aid to these countries, which include Mexico and Saudi Arabia.
Sanctions as a tool
Economic sanctions have long been a tool for the United States Government to achieve human rights objectives, even though they are not always effective. For example, the United States Government, together with the European Community and Japan, imposed sanctions on South Africa in 1986 as a means to pressure the South African Government to end the Apartheid system. More recently, the United States Government imposed sanctions on Sudan in 1997 for its support of terrorism and human rights violations in the region.
In addition to sanctions being used as a tool of foreign policy, companies can also be caught and fined for violating such sanctions. A recent landmark case proves that these penalties can be huge. In June 2014, BNP Paribas agreed to pay US$8.9 billion to settle a sanctions violation case. The French bank allegedly conducted business transactions with entities in Iran, Sudan, Myanmar and Cuba from 2004 to 2012. As these countries were at the time subject to sanctions imposed by the United States, BNP Paribas attempted to conceal any record of these transactions in order to mislead the authorities. As a result, certain US dollar transactions by the bank were banned for one year in addition to the financial penalty.
Other high profile institutions that have been subject to fines for sanctions violations include HSBC, which paid US$1.9 billion in 2011, and Commerzbank AG, which paid US$1.45 billion in 2015.
Companies incorporated in the United States are strictly prohibited from conducting business with individuals on the SDN List. They should take extra caution when choosing potential business partners in Venezuela to avoid significant monetary fines. Due diligence analysis, including constantly checking the names of their business partners against the SDN List and watchlists, should be performed.
In addition, it is highly recommended that companies ensure that their third party partners in Venezuela do not fall under the scope prescribed in the executive order, which may lead to the risk of sanctions. United States companies and individuals considering trading with entities in Venezuela should seek advice from legal consultants or compliance specialists in order to avoid potential violations of sanctions programmes.