United States: OFAC's Designation Of PdVSA Escalates Venezuela Sanctions

On January 28, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) added Petróleos de Venezuela, S.A. (“PdVSA”), Venezuela’s state-owned oil and gas company, to its List of Specially Designated Nationals and Blocked Persons (the “SDN List”). OFAC’s action represents a significant escalation of U.S. sanctions targeting Venezuela. Despite OFAC’s effort to mitigate the collateral consequences of this action on U.S. business interests, Monday’s designation of PdVSA will have immediate implications for investors and businesses who deal in the Venezuelan oil and gas industry, and may presage additional sanctions activity in the short term.

U.S. Sanctions Targeting Venezuela under the Trump Administration: A Primer

On August 24, 2017, President Trump strengthened existing sanctions targeting Venezuela through the issuance of Executive Order 13808, which prohibits U.S. persons from engaging in most transactions and dealings involving new debt of the government of Venezuela, as well as certain bonds issued by the Venezuelan government. Executive Order 13808, however, treated PdVSA with greater leniency than the broader Venezuelan government. In particular, Executive Order 13808 (1) established a higher value threshold for prohibited dealings in new debt of PdVSA; and (2) was accompanied by a general license that authorized dealings with PdVSA’s majority-owned subsidiary, CITGO Holding, Inc. (“CITGO”), parent company of U.S.-based Citgo Petroleum Corporation (“Citgo Petroleum”).

During 2018, the Trump administration continued to strengthen sanctions targeting Venezuela through the issuance of new executive orders:

  • Executive Order 13827, issued on March 19, 2018, which prohibits dealings in cryptocurrencies backed by the Government of Venezuela;
  • Executive Order 13835, issued on May 21, 2018, which prohibits dealings in debt owed to the Government of Venezuela, such as accounts receivable; and
  • Executive Order 13850, issued on November 1, 2018, which authorizes OFAC to designate to the SDN List, inter alia, individuals and entities who operate in Venezuela’s gold sector or engage in “transactions involving deceptive practices or corruption and the Government of Venezuela.”

Although initially primarily targeted at Venezuela’s gold sector, Executive Order 13850 broadly authorizes OFAC to target parties operating “in any other sector of the Venezuelan economy” that the Department of the Treasury, in consultation with the Secretary of State, deems to be engaged in corrupt activities.

The PdVSA Designation

On January 28, 2019, OFAC added PdVSA to the SDN List. As a result, U.S. persons are immediately prohibited from dealing with either PdVSA or entities majority-owned by PdVSA, subject to the limited exceptions detailed below.

In a press release, Treasury Secretary Steve Mnuchin stated that the United States was “holding accountable those responsible for Venezuela’s tragic decline” and that the “designation of PdVSA will help prevent further diverting of Venezuela’s assets by [President Nicólas] Maduro and preserve these assets for the people of Venezuela.”1 According to the press release, the Department of the Treasury concluded “PdVSA has long been a vehicle for corruption,” and explained that the PdVSA designation “follows a determination by Secretary Mnuchin pursuant to E.O. 13850 that persons operating in the oil sector of the Venezuelan economy may be subject to sanctions.”2

In connection with the PdVSA designation, OFAC released an Executive Order signed by President Trump on January 25, 2019 and titled “Taking Additional Steps to Address the National Emergency with Respect to Venezuela.” The new Executive Order amended the term “Government of Venezuela” in all prior executive orders to include PdVSA and other persons that have acted, or purported to act, on behalf of the Government of Venezuela, including members of the Maduro regime.

Consistent with recent practice, OFAC attempted to mitigate the immediate impact of the action on U.S. business interests through the issuance of eight new general licenses:3

  • General License No. 7, Authorizing Certain Activities Involving PDV Holding, Inc. and CITGO Holding, Inc., authorizes dealings with PDV Holding, Inc. (“PDV”) and CITGO, as well as their subsidiaries, so long as these companies are the only PdVSA-related entities involved in the transaction. (Both PDV and CITGO are majority-owned by PdVSA and are, therefore, considered blocked parties pursuant to OFAC’s 50 percent rule.) Due to Citgo Petroleum’s ownership by CITGO, General License No. 7 authorizes continued dealings with Citgo Petroleum within the United States. However, the license currently is set to expire on July 27, 2019.
  • General License No. 8, Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Prohibited by Executive Order 13850 for Certain Entities Operating in Venezuela, authorizes major U.S. oil and gas companies—including, inter alia, Halliburton, Schlumberger Limited, Baker Hughes, and Weatherford International—to continue to engage in transactions involving PdVSA and its majority-owned subsidiaries through July 27, 2019.
  • General License 9, Authorizing Transactions Related to Dealings in Certain Debt, authorizes dealings in debt (including bonds, promissory notes, and other receivables) of PdVSA, PDV, CITGO, and Nynas AB that were issued prior to August 25, 2017 (the effective date of Executive Order 13808).
  • General License No. 10, Authorizing the Purchase in Venezuela of Refined Petroleum Products from Petróleos de Venezuela, S.A. (PdVSA), authorizes U.S. persons in Venezuela to purchase refined petroleum products for personal, commercial, or humanitarian use from PdVSA and entities majority-owned by PdVSA.
  • General License No. 11, Authorizing Certain Activities Necessary to Maintenance or Wind Down of Operations or Existing Contracts with Petróleos De Venezuela, S.A. (PdVSA), authorizes U.S. persons and employees of non-U.S. entities in third countries (i.e., countries other than the United States or Venezuela) to participate in transactions otherwise prohibited by Executive Order 13850 that are necessary for the maintenance or wind down of operations, contracts, or other agreements involving PdVSA or entities majority-owned by PdVSA. General License No. 11 also authorizes U.S. financial institutions to reject certain non-U.S. funds transfers involving PdVSA and non-U.S. entities. General License No. 11 expires on March 29, 2019.
  • General License No. 12, Authorizing Certain Activities Necessary to Wind Down of Operations or Existing Contracts with Petróleos de Venezuela, S.A. (PdVSA), authorizes (1) all transactions and activities prohibited by Executive Order 13850 that are ordinarily incident and necessary to the purchase and importation into the United States of petroleum and petroleum products from PdVSA or entities majority-owned by PdVSA, through April 28, 2019; and (2) all transactions and activities prohibited by Executive Order 13850 that are ordinarily incident and necessary to the wind down of other operations, contracts, or other agreements, including the importation into the United States of other goods, services, or technology, through February 27, 2019.
  • General License No. 13, Authorizing Certain Activities Involving Nynas AB, authorizes dealings with Nynas AB, as well as its subsidiaries, so long as they are the only PdVSA-related entities involved in the transaction. Like General License No. 7—covering PDV and CITGO—General License No. 13 expires on July 27, 2019.
  • General License 14, Official Business of the United States Government, carves out a generally applicable exception and authorizes all transactions that are for the conduct of the official business of the U.S. government by government employees, grantees, or contractors thereof.

Collectively, the general licenses are intended to allow U.S. businesses a period of time to wind down their dealings with PdVSA, and in particular PdVSA-owned entities with a larger relationship with the United States, such as PDV, CITGO, and Nynas AB. However, most of these general licenses are set to expire by July 27, 2019 (or earlier), signaling that the relief is intended to be temporary.

Key Takeaways

Venezuela Is in the Crosshairs

Monday’s action underscores that Venezuela is a key foreign policy priority for the Trump administration, as well as a “must win” proposition from a domestic and international politics perspective. In contrast to recent Iran-related developments, there are signs of an emerging, international coalition to maintain pressure on the Maduro regime. For example, on January 26, following recognition of Venezuelan opposition leader Juan Guaidó as Venezuela’s interim president by the Trump administration, several European nations issued an ultimatum to the Maduro administration to call new elections within eight days (and, if the demand is not met, the countries pledged to recognize Guaidó as Venezuela’s leader).4 By contrast, China, Iran, Russia, Syria, and Turkey have opposed any U.S. intervention in Venezuela, a reminder of the broader geopolitical uncertainty against which the crisis in Venezuela is unfolding.5

OFAC Has Room to Maneuver

In late 2018, National Security Advisor John Bolton grouped Venezuela with Cuba and Nicaragua as the so-called “Troika of Tyranny.”6 In addition to the immediate effects of the PdVSA designation, it is foreseeable that sanctions targeting Venezuela—and, potentially, other countries in Latin America—may increase in the near future.

With respect to Venezuela, Monday’s designation of PdVSA leaves the U.S. government several sanctions-related options for ratcheting up pressure on the Maduro regime. Among other steps, OFAC could restrict all exports of Venezuelan petroleum products to the United States, or impose sanctions against leaders of the Venezuelan military who continue to support Maduro. In addition, the European Union and/or other nations may impose their own, complementary sanctions targeting Venezuela (as the European Union did following Russia’s annexation of Crimea).

Notably, the Department of the Treasury’s press release clarified that the designation of PdVSA “need not be permanent,” explicitly stating that sanctions relief could be forthcoming in exchange for the Maduro regime relinquishing power.7 In particular, the press release advises, “The path to sanctions relief for PdVSA is through the expeditious transfer of control to the Interim President or a subsequent, democratically elected government. . . . The United States has made clear that we will consider lifting sanctions for those who take concrete, meaningful, and verifiable actions to support democratic order and combat corruption in Venezuela, including PdVSA.”8

OFAC Did Not Impose a Wind-Down Reporting Requirement

On April 6, 2018, OFAC designated to the SDN List seven Russian oligarchs, 12 companies they owned or controlled, 17 senior Russian government officials, a state-owned Russian weapons trading company, and a Russian bank. As with Monday’s designation of PdVSA, OFAC issued a series of general licenses authorizing covered parties to wind down contracts and operations within a specified period. However, the Russia-related general licenses required U.S. persons to submit to OFAC “a comprehensive detailed report of each transaction” executed pursuant to the general licenses.

By contrast, the PdVSA-related general licenses do not impose reporting obligations on U.S. persons (although transactions executed pursuant to the general licenses are subject to general OFAC recordkeeping requirements). This change in approach will reduce the compliance burden on U.S. companies that engage in transactions under the general licenses.

Conclusion

The Trump administration continues to pursue foreign policy objectives through aggressive use of U.S. sanctions. U.S. companies with dealings with Venezuela should assess whether the designation of PdVSA affects their operations as soon as possible. As the situation in Venezuela continues to unfold, investors and multinational companies should continue to monitor for new developments and consult with sanctions counsel regarding the risks of current and anticipated dealings involving Venezuela.

Footnotes

1 OFAC, Treasury Sanctions Venezuela’s State-Owned Oil Company, Petroleos de Venezuela, S.A. (Jan. 28, 2019), https://home.treasury.gov/news/press-releases/sm594 [hereinafter “Treasury Press Release”].

2 Id.

3 OFAC also amended General License 3, “Authorizing Transactions Related to, Provisions of Financing for, and Other Dealings in Certain Bonds,” to cross-reference the new general licenses.

4 Venezuela crisis: Maduro given ultimatum by European leaders, BBC NEWS (Jan. 26, 2019), https://www.bbc.com/news/world-latin-america-47014322.

5 Rick Noack, The divide on Venezuela: Who’s supporting Maduro, and who’s following the U.S. lead in recognizing Guaidó, WASHINGTON POST (Jan 28, 2019), https://www.washingtonpost.com/world/2019/01/28/divide-venezuela-whos-supporting-maduro-whos-following-us-lead-recognizing-guaid/.

6 Rafael Bernal, Bolton dubs Cuba, Venezuela and Nicaragua the ‘Troika of Tyranny’, THE HILL (Nov. 1, 2018, 1:47 PM), https://thehill.com/latino/414333-bolton-dubs-cuba-venezuela-and-nicaragua-the-troika-of-tyranny.

7 Treasury Press Release.

8 Id.

Originally published in Law360 on January 31, 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions