United States: New Sanctions Against Venezuela's State-Owned Oil Company

Continued political turmoil in Venezuela has led to additional U.S. sanctions. On Jan. 25, 2019, President Donald Trump amended the various executive orders that authorize sanctions against the government of Venezuela to allow sanctions against members of the Maduro regime, which the United States no longer recognizes as the legitimate government of Venezuela. In addition, on Jan. 28, 2019, the United States determined that persons operating in Venezuela's oil sector are subject to sanctions pursuant to Executive Order (E.O.) 13850, issued on Nov. 1, 2018, and added Venezuela's state oil company, Petróleos de Venezuela, S.A. (PdVSA), to the Specially Designated Nationals and Blocked Persons (SDN) List maintained by the Department of the Treasury's Office of Foreign Assets Control (OFAC). This action places transactions with PdVSA and its subsidiaries off limits to U.S. persons and requires U.S. persons to block (or "freeze") PdVSA assets within their possession or control unless authorized by OFAC. Simultaneously, OFAC issued several general licenses authorizing various transactions with PdVSA and its subsidiaries, including CITGO Holding, Inc., PDV Holding, Inc., and Nynas AB. However, care must be taken before relying on any of the general licenses, as each general license is subject to specific terms and conditions, including validity periods.

PdVSA's designation is the latest in a series of actions taken by the U.S. government to impose sanctions in response to Venezuelan President Nicolas Maduro's increasingly authoritarian regime. Since March 2015, a total of five E.O.s have imposed a variety of Venezuela-related sanctions, including blocking of persons who undermine democracy, commit human rights violations or engage in public corruption (E.O. 13692); debt and equity restrictions (E.O. 13808 and E.O. 13835); a ban on transactions involving Venezuela's digital currency (E.O. 13827); and sectoral sanctions targeting and authorizing blocking of persons operating in the Venezuelan gold and oil sectors or engaging in deceptive practices or corruption (E.O. 13850). While most of the sanctions impact activities of U.S. persons, E.O. 13850 also authorizes blocking of non-U.S. persons who provide material assistance or financial, material or technological support for, or goods or services to or in support of, persons designated under the E.O. – which now includes PdVSA.

Since August 2017, PdVSA has been subject to debt and equity restrictions, but as a result of its addition to the SDN List, U.S. persons cannot engage in any transactions with PdVSA or any of its direct or indirect subsidiaries in which it owns a 50 percent or greater interest, unless otherwise authorized by an amended or newly issued general license.

Of particular significance to persons operating in the oil sector, General License No. 7 provides that, at least through July 26, 2019 and subject to certain conditions, all transactions and activities by U.S. persons otherwise prohibited by E.O. 13850 with respect to PdVSA's U.S. subsidiaries, CITGO Holding, Inc., and PDV Holding, Inc., as well as their subsidiaries, are authorized. In addition, these entities may continue to purchase and import petroleum and petroleum products from PdVSA and its subsidiaries through April 27, 2019, provided that payments for such purchases must be made to a blocked account in the United States.

Also of interest to U.S. persons operating in the oil sector is General License No. 8, which authorizes transactions ordinarily incident and necessary to the operations of certain companies operating in Venezuela – again, subject to certain conditions.

A complete list of general licenses applicable to the PdVSA designation is as follows:

  • General License No. 3C, amending General Licenses 3, 3A, and 3B and authorizing transactions related to, provision of financing for, and other dealings in certain bonds.
  • General License No. 7, authorizing certain activities involving PDV Holding, Inc., and CITGO Holding, Inc.
  • General License No. 8, authorizing transactions involving PdVSA prohibited by E.O. 13850 for certain entities operating in Venezuela.
  • General License No. 9B, authorizing transactions related to dealings in certain securities.
  • General License No. 10, authorizing the purchase in Venezuela of refined petroleum products from PdVSA.
  • General License No. 11, authorizing certain activities necessary to the maintenance or wind down of operations or existing contracts with PdVSA.
  • General License No. 12, authorizing certain activities necessary to the wind down of operations or existing contracts with PdVSA.
  • General License No. 13, authorizing certain activities involving Nynas AB.
  • General License No. 14, authorizing official business of the U.S. government.

OFAC has issued a number of new and amended frequently asked questions (FAQs) to provide guidance on the designation of PdVSA and the general licenses. These are available on OFAC's website. As noted above, however, care must be taken before relying on any of the general licenses, as each general license is subject to specific terms and conditions, including validity periods. The complexity of the issues posed by attempts to determine what activities are authorized by the general licenses is illustrated by the fact that two of the licenses issued on Jan. 28, as well as a few of the FAQs, were reissued on Feb. 11 to provide further clarification.

The Trump administration has framed the new Venezuela-related sanctions as conditional, indicating that they might be lifted after a meaningful regime change. It therefore remains to be seen how long the sanctions will persist and what effect they will have on the oil market. In the meantime, we would be happy to work with you to determine the applicability of the new sanctions to proposed activity as well as whether contemplated transactions related to the Venezuelan oil industry qualify under any of the general licenses authorizing certain aspects of otherwise sanctionable conduct.

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.

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