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Wednesday, October 30, 2019

Why Has My Bank Account Been Frozen? The IEEPA and Its Historical Underpinnings

By John H. Friedhoff and Alonso E. Sanchez

As published in the Daily Business Review on October 29th, 2019

Given that South Florida is home to many businesses engaged in commerce with Venezuela, it is uniquely situated with respect to issues arising from the recent executive order issued by President Donald Trump Aug. 5.

Trump issued the executive order pursuant to the International Emergency Economic Powers Act (IEEPA) in order to further similar orders issued by President Barack Obama on March 8, 2015, which blocked property and suspended entry of certain persons contributing to the Maduro regime in Venezuela. This more recent order seems to be an attempt to prop up the interim president, Juan Guaido, and the Venezuelan National Assembly’s exercise of legitimate authority in Venezuela by blocking “all property and interests in property” of persons related to and supporting the illegitimate Maduro regime.

The order delegates to the Secretary of the Treasury, in consultation with the Secretary of State the ability to issue regulations and establish a list of blocked persons pursuant to the order. Given that regulations will be issued pursuant to matters of national security there will be no public comment period prior to their taking effect. Of note is that a person need not be on OFAC’s list of specially designated nationals (SDN)  to be blocked under this order since the order covers persons who have assisted any SDN.

The IEEPA has a storied history from a legal perspective. The precursor to the IEEPA is the Trading with the Enemy Act (TWEA), which was promulgated in 1917 to allow the executive branch to act quickly during periods of national emergencies; over time, powers under the TWEA were increased to allow the president to regulate international transactions with enemy powers, allow the president to declare a national emergency in times of peace and assume sweeping powers over both domestic and international transactions, and, finally, to impose sanctions as part of U.S. Cold War strategy.

In 1973, the Senate created a Special Committee on the Termination of the National Emergency to investigate the emergency powers and found that four presidential declarations of national emergency remained in effect such that the United States had been in various states of emergency for more than 40 years. Congress thereafter passed the National Emergencies Act (NEA) in 1976 and the IEEPA in 1977. Both were attempts to impose limits on the executive’s power to declare a national emergency.

The TWEA was amended to authorize presidential action only during war, while the IEEPA provided the executive branch with economic power for international transactional emergencies.

The Aug. 5 order is not a full economic embargo of Venezuela, or as comprehensive as the sanctions targeting countries such as North Korea or Cuba. For example, U.S. persons may continue to transact with Venezuelans that are not affiliated with the government and that are not otherwise subject to U.S. sanctions. Significantly, transactions with the Venezuelan opposition government of Guaido and the Venezuelan National Assembly are exempt from sanctions. Additionally, several general licenses were issued to cover continuing operations in transportation, communication, diplomatic functions and other areas.

However, the order expands upon prior Venezuelan sanctions by now extending to all transactions with the government of Venezuela, as defined in the order, and by also applying to domestic and foreign persons and that provide “material support” to activities involving all agencies of the Venezuelan state.

The term government of Venezuela is comprehensive. It includes state and political subdivisions and agencies of the Venezuelan government, including the Central Bank and PdVSA, as well as any person who has acted on behalf of such agencies or as a member of the Maduro regime. Those meeting the definition of government of Venezuela are blocked under the order, regardless of whether such persons appear on the OFAC’s SDN list.

While transactions with businesses unaffiliated with the Venezuelan government are allowed, U.S. persons should exercise caution when entering into commerce that could indirectly involve Venezuelan state actors. For example, the sale of material by a U.S. business to a Venezuelan, or non-U.S., private company that is ultimately destined for sale and delivery to the Venezuelan government would likely fall within the ambit of the order.

The sanctions also come amid deteriorating relations between the U.S. and China due to their ongoing trade war. Both China and Russia continue to back the Maduro regime and are currently PdVSA’s largest customers, continuing to import oil as part of a debt relief program. Both countries stand to lose if oil shipments are halted. However, the Trump administration is betting that continued access to U.S. markets is more important to China and Russia than their continued support of Maduro. This bet may prove accurate, given that the Chinese state company, CNPC, recently canceled purchases of Venezuelan oil, at least temporarily, and as a result, Venezuela’s oil exports fell in August to their lowest level in 2019.

Despite support by Russia and China, and a few others, notably Cuba, Maduro is more alienated than ever.

 

John H. Friedhoff is a shareholder at Fowler White Burnett. Friedhoff is a Florida Bar Board Certified Specialist in international law and focuses his practice on international, intellectual property and entertainment/sports law. Contact him at jfriedhoff@fowler-white.com.

Alonso E. Sanchez is a shareholder in the firm’s tax practice group where he focuses his practice on domestic and international taxation, corporate law, estate planning and wealth preservation. He can be reached at aesanchez@fowler-white.com.


 

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