Saturday, September 16, 2017

What the Venezuela Sanctions Mean for Baseball

This week, the Chicago Cubs’ Venezuelan catcher Willson Contreras came off the disabled list after suffering a hamstring pull on August 9. While Contreras was rehabbing, the Trump Administration placed additional sanctions on Venezuela as the government of President Nicolás Maduro screeched toward dictatorship.

What do these sanctions mean for MLB – and for MLB hopefuls in Venezuela?

At the beginning of 2017, MLB rosters included a record 77 players of Venezuelan origin, including stars like Miguel Cabrera and Jose Altuve. But most of those players entered professional baseball before conditions in Venezuela significantly deteriorated in the past few years. Now, MLB clubs are pulling out of the Venezuelan scouting market.

While the new sanctions don’t prohibit clubs from continuing to scout and sign Venezuelan players, the deteriorating conditions and escalating political tensions spell dark days for Venezuelan baseball hopefuls. Here’s a look at the evolving sanctions program against the country and what it might mean for baseball prospects in the near term.

Trump’s August 24 Sanctions Order

On August 24, President Trump issued an executive order that prohibits U.S. persons from financing most Venezuelan government debt, transacting in Venezuelan bonds or securities, or distributing profits to the government of Venezuela by any Venezuelan-owned entity. Excepted is the issuance of debt with a maturity of less than 90 days to the state-controlled oil company, Petróleos de Venezuela SA, and debt with a maturity of less than 30 days to any other Venezuelan government entity.

What’s the upshot of this? Economically speaking, not much. Venezuela is already way too big a risk for the private markets. As one Latin America finance expert told The Washington Post, “It won’t have any important impact in terms of financial flows to Venezuela, because there aren’t any to speak of right now.” The only thing it might meaningfully prevent is a refinancing by Venezuela of its debt in a way that buys the Maduro government a little more time.

The executive order still allows for imports and exports, including trade in Venezuelan crude oil – a trade that is important for Gulf Coast oil refineries and crucial to the Venezuelan economy. The White House press secretary has stated that Treasury will issue licenses for financing of imports and exports and certain other types of transactions, calculated to “mitigate harm to the American and Venezuelan people.”

Treasury’s Venezuela-Related Sanctions Program

These (mostly political) sanctions have some history – this isn’t a wholly Trump-created program. The U.S. began to step up sanctions against the Maduro government in late 2014 when Congress passed and President Obama signed the Venezuela Defense of Human Rights and Civil Society Act.

The Act takes notice of the rising human rights abuses, government-sponsored violence and repression, and economic crisis in Venezuela, and authorizes the President to freeze assets, block transactions, and deny visas for anyone responsible.

The presidential power to freeze and block assets under the act is based on the International Emergency Economic Powers Act. This law, passed in 1977, was first used by President Jimmy Carter in 1979 to freeze Iranian assets during the hostage crisis at the U.S. Embassy in Teheran and is currently the basis for sanctions against numerous countries and organized criminal enterprises. The scope of the President’s powers under the IEEPA (broad) was considered by the Supreme Court in the 1981 case Dames & Moore v. Regan.

The Act (maybe) avoids infringing on GATT protections by including an “Exception relating to importation of goods,” which states that “the requirement to block and prohibit all transactions in all property and interests in property … shall not include the authority to impose sanctions on the importation of goods.” Hence, the President doesn’t have the authority (at least not under IEEPA) to block Venezuelan crude oil imports.

Up to last month, the Venezuela sanctions program had mostly been used to block assets of or transactions with individuals in the Venezuelan government. By executive order in 2015, Obama recognized an emergency in Venezuela and invoked IEEPA to block assets of a list of Venezuelan nations. The Specially Designated Nationals list, monitored by Treasury’s Office of Foreign Assets Control, includes 38 Venezuelans since Trump added Maduro and other officials of Maduro’s government to the list in late July.

Law and Baseball in Venezuela

So the new Venezuelan sanctions order protects goods coming into the U.S. It doesn’t explicitly protect foreign direct investment in Venezuela like MLB player development academies, but it doesn’t prohibit those transactions either.

Where MLB clubs could run into trouble is if signing a Venezuelan player requires transacting with someone on the sanctions list, which might happen if, say, top players are represented by agents who have close business ties with sanctioned government officials. But unless OFAC or another federal law enforcement agency gets heavily involved in investigating those ties, MLB clubs can probably continue to sign young Venezuelan talent.

The possibility of further sanctions and even military intervention, however, is not off the table if the Maduro regime continues to ignore international demands such as respecting democratic elections.

In a press briefing about the latest sanctions, National Security Advisor General H.R. McMaster said that the President had asked his cabinet to analyze how the situation might deteriorate and what the range of U.S. and international response to such scenarios might be. General McMaster emphasized that any response would be multi-faceted:

“In terms of military options or others options, there’s no such thing really anymore as only a military option, or a diplomatic option, or an economic option. We try to integrate all elements together.”

Could the U.S. go so far as to prohibit all transactions with Venezuelan entities, as it does in Cuba? The realist answer is that it’s unlikely: the U.S. imports 6 to 9 percent of its crude oil from Venezuela.

The Bottom Line for Venezuelan Baseball

As of now, there’s no real legal impediment to MLB clubs continuing to scout and develop and sign Venezuelan players. The obstacles are mostly related to safety and efficacy, not legality. But those obstacles are enormous. In addition to concerns about the personal safety of scouting personnel, teams are reluctant to spend money on development programs and travel if street violence may prevent scouts from ever making it to the ball field. At some point the risks outweigh the potential competitive edge of finding the next big star.

The growing reluctance of MLB clubs to devote resources to Venezuela has already caused the collapse of most of the infrastructure for developing pro ballplayers in the country. In 2000, 22 MLB clubs had academies for young players in Venezuela. As of this year, only four remain (Tigers, Rays, Cubs, and Phillies). As the teams pulled out, down went the Venezuelan Summer League, which operated from 1997 to 2016.

A few Venezuelan players will still be signed – those who look, from a young age, like star prospects worth moving to the Dominican Republic for development. But players like Contreras, today a rising star in the Cubs lineup who no one considered a top prospect early on, are unlikely to get a shot.

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