United States: US Sanctions PdVSA To Increase Pressure On Maduro Regime

Yesterday, the US Department of the Treasury's Office of Foreign Assets Control (OFAC) designated Petróleos de Venezuela, S.A. (PdVSA) pursuant to Executive Order 13850, adding the state-owned Venezuelan oil company to its Specially Designated Nationals and Blocked Persons (SDN) List. OFAC accompanied the designation with an announcement that President Trump had signed a new executive order on January 25, 2018, that expands the scope of existing US sanctions against the government of Venezuela by targeting persons acting on behalf of the Nicolás Maduro regime. These new actions, coupled with sanctions already imposed and multinational diplomatic effort, are intended to bring about the transfer of political power in Venezuela from Nicolás Maduro to the president of Venezuela's National Assembly, Juan Guaidó, who last week declared himself interim president of Venezuela. In a press statement, Secretary of the Treasury Steve Mnuchin stated that "[t]he path to sanctions relief to PdVSA is through the expeditious transfer of control to the Interim President or a subsequent, democratically elected government." The Treasury Department described PdVSA as a "vehicle for corruption" and the "primary source of Venezuela's income and foreign currency."

PdVSA's designation creates new restrictions and compliance challenges for companies that have financial or commercial ties to Venezuela or to PdVSA, including through their portfolio holdings. Because PdVSA is an SDN, all its property and property interests that are in the United States or under the possession or control of a US person must be blocked and may not be part of any transactions or dealings with a US nexus. This action significantly escalates sanctions imposed against PdVSA, which previously targeted—among other transactions— dealings by US persons in bonds and certain other forms of PdVSA debt. With this SDN designation, the blocking requirements and transaction prohibitions applicable to PdVSA are very broad, and US companies and financial services firms must now reassess whether and to what extent they face exposure in commercial relationships, investments or financial holdings that may involve PdVSA and its property interests.

In conjunction with the designation, OFAC issued several new general licenses intended to relieve key areas of immediate collateral harm caused to US companies. OFAC stated that it soon would publish frequently asked questions (FAQs) to provide further guidance in interpreting these general licenses and addressing ensuing concerns.

The general licenses are similar in type and scope to authorizations provided by OFAC under other sanctions programs, as they amend existing authorizations and extend limited relief from broad prohibitions but only in narrow circumstances that involve specific parties, specific periods of duration and specific types of transactions.

  • OFAC amended existing General License 3 with General License 3A. General License 3 had authorized certain transactions related to bonds of the government of Venezuela, including bonds of PdVSA, issued prior to August 25, 2017. General License 3A now authorizes all transactions related to those previously issued bonds other than bonds issued by Nynas AB, PDV Holding, Inc. (PDVH), CITGO Holding, Inc., and their subsidiaries. The limited authorization related to such bonds is now reflected in a new General License 9.
  • OFAC issued General License 7, authorizing otherwise prohibited transactions with respect to PDVH, CITGO Holding, Inc., and their subsidiaries, where those are the only PdVSA entities involved. This authorization sunsets on July 27, 2019. Under this general license, those two companies and their subsidiaries may also engage in otherwise prohibited transactions that are "ordinarily incident and necessary to the purchase and importation of petroleum and petroleum products from PdVSA" and its subsidiaries.1 This latter authorization sunsets on April 28, 2019.
  • OFAC issued General License 8, authorizing otherwise prohibited transactions "ordinarily incident and necessary to operations in Venezuela involving PdVSA" and its subsidiaries by five companies: Chevron Corporation; Halliburton; Schlumberger Limited; Baker Hughes, a GE Company; and Weatherford International, Public Limited Company. This authorization sunsets on July 27, 2019. It does not permit the exportation or reexportation of diluents from the United States to Venezuela.
  • OFAC issued General License 9, authorizing otherwise prohibited transactions "ordinarily incident and necessary to dealings in any debt . . . of" PdVSA and its subsidiaries issued prior to August 25, 2017, provided that any divestment or transfer of any holdings in such debt, or facilitation thereof, is made only to non-US persons. The authorization does not sunset, and includes authorization for "facilitating, clearing, and settling transactions to divest to a non-U.S. person PdVSA-related debt, including on behalf of U.S. persons." General License 9 also authorizes transactions otherwise prohibited by Sec. 1(a)(iii) of Executive Order 13808 (concerning bonds issued by the government of Venezuela prior to August 25, 2017) involving bonds issued by PDVH, CITGO Holdings, Inc., or Nynas AB, or their subsidiaries.
  • OFAC issued General License 10, authorizing US persons in Venezuela to purchase refined petroleum products from PdVSA or its subsidiaries for personal, commercial or humanitarian use. The general license does not permit US persons to resell, transfer, export or reexport refined petroleum products. It does not sunset.
  • OFAC issued General License 11, authorizing US person employees and contractors of third-country (non-US, non-Venezuelan) companies to engage in otherwise prohibited transactions "ordinarily incident and necessary to the maintenance or wind down of operations, contracts, or other agreements involving PdVSA" or its subsidiaries that were in effect prior to January 28, 2019. This authorization sunsets on March 29, 2019. General License 11 also authorizes US financial institutions to reject funds transfers involving both PdVSA and certain of its subsidiaries and third-country companies, provided the funds originate and terminate outside the United States and neither the originator nor beneficiary is a US person and the funds are not intended for a blocked account (so-called U-turn transactions that would otherwise be blocked by US financial institutions). This authorization sunsets on March 29, 2019. The general license specifically excludes from its scope transactions involving ALBA de Nicaragua or its subsidiaries.
  • OFAC issued General License 12, authorizing otherwise prohibited transactions "ordinarily incident and necessary to the purchase and importation into the United States of petroleum and petroleum products" from PdVSA and its subsidiaries. Generally, payments for such transactions must be paid into a blocked account. This authorization sunsets on April 28, 2019. General License 12 also authorizes, through February 27, 2019, otherwise prohibited transactions "ordinarily incident and necessary to the wind down of operations, contracts, or other agreements" involving PdVSA and its subsidiaries that were in effect prior to January 28, 2019.
  • OFAC issued General License 13, authorizing otherwise prohibited transactions "where the only {PdVSA} entities involved are Nynas AB or any of its subsidiaries." This authorization sunsets on July 27, 2019.
  • OFAC issued General License 14, authorizing otherwise prohibited transactions "that are for the conduct of the official business of the United States Government by employees, grantees, or contractors thereof."

As noted, these general licenses contain numerous conditions and limitations. Given the interpretive uncertainty that currently exists about these newly issued authorizations and the potentially severe consequences for OFAC violations, it is important to proceed cautiously before relying on these general licenses. We expect that some questions may be resolved with OFAC's planned issuance of additional FAQs in the coming weeks. US companies and financial services firms should continue to monitor ongoing OFAC actions targeting transactions involving Venezuela and assess their respective sanctions risks and compliance requirements as the situation evolves.


1 PdVSA subsidiaries are those in which it owns, directly or indirectly, a 50 percent or greater interest.

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