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Section 890 of the 2020 National Defense Authorization Act further isolates the Maduro regime by prohibiting the Defense Department from entering into procurement contracts with persons doing business with the regime.

Authors: Leigh T. Hansson Liza V. Craig Alexander Brandt Eli Rymland-Kelly

Introduction

The Trump Administration continues to tighten the screws on Venezuela’s President Maduro, who refuses to cede power despite the deepening crisis in Venezuela and pressure from the United States. On January 23, 2019, President Trump officially recognized the President of the Venezuelan National Assembly, Juan Guaido, as the Interim President of Venezuela, and committed to using “the full weight of United States economic and diplomatic power to press for the restoration of Venezuelan democracy . . . and constitutional legitimacy.” On January 25, 2019, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions on Petróleos de Venezuela, S.A. (PdVSA), and on August 5, 2019, OFAC imposed sanctions on the Government of Venezuela in its entirety.

Following the imposition of these sanctions, on December 16, 2019, the U.S. Congress passed the Venezuela Emergency Relief, Democracy Assistance, and Development Act of 2019 (the VERDAD Act) as part of the appropriations package for fiscal year 2020. The VERDAD Act, among other things, removed sanctions on persons that recognize and pledge support for Interim President Guaido and increased sanctions on officials of the Maduro regime and their families.

In its latest move, Congress passed, and President Trump signed, the National Defense Authorization Act for Fiscal Year 2020 (the NDAA 2020), which may further isolate the Maduro regime.

Procurement restrictions

The NDAA 2020 contains a specific provision related to the Maduro regime that prohibits the award of certain government contracts to any person that continues to do business with the regime. Section 890 of the NDAA 2020 provides that the U.S. Department of Defense (DOD) “may not enter into a contract for the procurement of goods or services with any person that has business operations with an authority of the Government of Venezuela that is not recognized as the legitimate Government of Venezuela by the United States Government.” This prohibition went into effect on December 20, 2019, the date the NDAA 2020 was signed into law. These new restrictions are in addition to those already set forth in part 25 of the Federal Acquisition Regulation (FAR) related to Cuba, Iran, and Sudan, and to imports from North Korea and Burma. Additionally, other sanctions-related provisions found in the NDAA 2020 relate to Russia (section 7503), Syria (section 7412), and North Korea (title LXXI).

Section 890 defines “person” broadly to include not only natural persons, private entities and government entities, but also any successor to, parent of, subsidiary of or “any entity under common ownership or control with” a private or government entity. By including affiliates, this definition likely captures an entity’s entire corporate group.

The definition of “business operations” is also broad, encompassing almost any form of business or commerce, including “acquiring, developing, maintaining, owning, selling, possessing, leasing, or operating equipment, facilities, personnel, products, services, personal property, real property, or any other apparatus of business or commerce.”

While section 890 describes the covered business operations in the present tense without reference to a cut-off date by which such operations must have ceased for purposes of the procurement restriction, a person may be able to cease such operations just prior to submitting a proposal for a contract and thus maintain eligibility to enter into the contract. As of the date of this alert, the DOD is promulgating supplemental regulations that may provide additional clarity.