Venezuela's Exit From U.S. Sanctions? Show Maduro the Door

(Bloomberg) -- The Trump administration has given Venezuela’s state-owned oil giant, Petroleos de Venezuela SA, and President Nicolas Maduro’s associates a clear path to escape U.S. sanctions: Help bring down the authoritarian leader.

The Treasury Department said Friday it would “consider lifting sanctions” on those who take concrete steps to “restore democratic order” in the country, as it imposed fresh penalties on five of Maduro’s close associates, including Venezuelan Oil Minister and PDVSA Chairman Manuel Quevedo.

Venezuela's Exit From U.S. Sanctions? Show Maduro the Door

The move is the latest in a series of steps the U.S. has taken to chip away at Maduro’s inner circle. Offering a pathway back out of crippling sanctions and back into the U.S. financial markets marks a new and potentially effective strategy, according to Michael Dobson, a lawyer at Morrison Foerster in Washington who previously worked in Treasury’s sanctions unit.

“Part of what makes for an effective sanctions program is having clear off-ramps so that people know what the behavior they need to change and exactly what they need to do,” Dobson said. The move sows distrust among Maduro’s closest aides, he added. “It’s a division tactic.”

Darshak Dholakia, a partner in the law firm Dechert who works in the Washington office, said offering sanctions relief “is a great signaling method,” but it isn’t entirely clear what Maduro’s associates would have to do to earn it.

While Treasury said it would offer sanctions relief for a positive change of behavior, the U.S. probably wouldn’t lift the penalties until Maduro had fallen, Dholakia said. “That’s the question: How do you trust these bad guys?”

And returning to the American financial system after sanctions can be a lengthy process. Just ask United Rusal Co. PLC, the world’s second-largest aluminum supplier. It took the company eight months of negotiations to prove to Treasury it had sufficiently untangled itself from Oleg Deripaska, a billionaire ally of Russian President Vladimir Putin. Treasury had also stated a clear path for Rusal to get off the sanctions list, which required Deripaska relinquish control of the company.

Treasury Secretary Steven Mnuchin also needed Congressional approval to lift the sanctions. He faced opposition from both Republican and Democratic lawmakers on the deal with Rusal. Deripaska remains sanctioned.

Mnuchin will not need lawmakers’ approval to lift Venezuela sanctions because Congress hadn’t mandated them.

In Venezuela, the U.S. may need to expedite sanctions relief if Maduro falls from power, so that a new leader could have quick access to cash as the country’s humanitarian crisis deepens.

When the U.S. announced restrictions on PDVSA on Jan. 28, Mnuchin said that relief would be offered “through the expeditious transfer of control to” Juan Guaido, whom the U.S. has recognized as the country’s leader, or a democratically elected government. According to Treasury, PDVSA is Maduro’s main vehicle for cash.

©2019 Bloomberg L.P.