On January 19, 2018, the U.S. Office of Foreign Assets Control (OFAC), in response to a question, warned that a U.S. person’s acquisition of, or dealing in, a cryptocurrency that Venezuela intends to issue in the future may violate OFAC sanctions.  In an effort to refinance the country’s soaring debt, the President of Venezuela, Nicolás Maduro, announced a plan to offer 100 million “petros”—backed by barrels from the state-run oil company.  Based on a Venezuelan oil price of $60 a barrel, the offering would amount to around $6 billion.  Although the currency will be backed by oil, it apparentlycannot be traded for oil.  Venezuela has not indicated the exchange on which the petros will be released, but it has indicated that traders will have to register with the Venezuelan government.

This proposed currency is designed to enable Venezuela to avoid the impact of U.S. sanctions.  On August 24, 2017, President Trump signed Executive Order 13808 forbidding Americans from making new debt and equity transactions with Petróleos de Venezuela, S.A., the state-run oil company that largely underwrites the national budget. The sanctions also prohibited transactions in bonds owned by the Venezuelan government and any dividend payments to the Venezuelan government.

On January 19, 2018, OFAC warned that a U.S. person who deals in Venezuela’s prospective cryptocurrency may violate U.S. sanctions because the currency appears to be an extension of credit to the Venezuelan government.  More specifically, OFAC’s response was as follows:

  1. In December 2017, Venezuelan President Nicolas Maduro announced plans for the Government of Venezuela to launch a digital currency.  According to public reporting, Maduro indicated that the digital currency would carry rights to receive commodities in specified quantities at a later date.  Were the Venezuelan government to issue a digital currency with these characteristics, would U.S. persons be prohibited from purchasing or otherwise dealing in it under E.O. 13808?

A currency with these characteristics would appear to be an extension of credit to the Venezuelan government.   Executive Order 13808 prohibits U.S. persons from extending or otherwise dealing in new debt with a maturity of greater than 30 days of the Government of Venezuela.  U.S. persons that deal in the prospective Venezuelan digital currency may be exposed to U.S. sanctions risk. [1/19/2018]