Latest Thinking | International Trade Currents

United States Imposes New Sanctions on Venezuelas State Owned Oil Company

On January 28, 2019, the Office of Foreign Assets Control (“OFAC”), an agency of the Department of the Treasury, designated Petroleos de Venezuela, S.A. (“PdVSA”), Venezuela’s state-owned oil company, as a specially designated national (“SDN”). The designation was made pursuant to Executive Order 13850 of November 1, 2018, which blocks the property and interests in property of, among others, “any person determined by the Secretary of the Treasury, in consultation with the Secretary of State . . . to operate in the gold sector of the Venezuelan economy or in any other sector of the Venezuelan economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State.” In this case, the Secretary of the Treasury in consultation with the Secretary of State had determined that persons operating in Venezuela’s oil sector are subject to sanctions pursuant to Executive Order 13850.

As a consequence of its SDN designation, property or interests in property of PdVSA that are in the United States, that come within the United States, or that come within the possession or control of any U.S. person are blocked and may not be “transferred, paid, exported, withdrawn, or otherwise dealt in.” The SDN designation also brings other consequences, including a prohibition on any U.S. person’s “making of any contribution or provision of funds, goods, or services by, to, or for the benefit of” PdVSA and “the receipt of any contribution or provision of funds, goods, or services from” PdVSA. These restrictions are subject to certain exceptions as set forth in general licenses issued by OFAC, as discussed below.

In addition to OFAC’s designating PdVSA an SDN, on January 25, 2019, in response to growing political unrest in Venezuela and concerns that the Maduro regime would seek to undermine Venezuela’s Interim President, Juan Guaidó, and its National Assembly, President Trump issued an executive order entitled “Taking Additional Steps to Address the National Emergency With Respect to Venezuela.” The new executive order amended earlier executive orders to include PdVSA in the defined term “Government of Venezuela” (to the extent not already included) along with “any person owned or controlled, directly or indirectly, by the foregoing, and any person who has acted or purported to act directly or indirectly for or on behalf of, any of the foregoing, including as a member of the Maduro regime.” Inclusion of PdVSA in the defined term “Government of Venezuela” (to the extent not previously included) may expose PdVSA to additional sanctions over and above those flowing from its SDN designation.

Concurrently with its designation of PdVSA as an SDN, OFAC issued eight general licenses and modified an earlier issued general license (G.L. 3) to authorize certain dealings with PdVSA that otherwise would now be prohibited. Briefly, those general licenses permit dealings as follows:

  • General License 3A: Subject to exceptions, authorizes dealings in bonds specifically identified in an annex, and provision of financing for and other dealings in bonds that were issued both (i) prior to August 25, 2017, and (ii) by U.S. person entities owned or controlled, directly or indirectly, by the Government of Venezuela (other than Nynas AB, PDV Holding, Inc. (PDVH), CITGO Holding, Inc., and any of their subsidiaries).
  • General License 7: Authorizes transactions with PDVH, CITGO Holding, Inc., and any of their subsidiaries (until July 27, 2019). Also authorizes transactions by PDVH, CITGO Holding, Inc., that are ordinarily incident and necessary to the purchase and importation of petroleum and petroleum products from PdVSA (until April 28, 2019). Nevertheless, any payment to a blocked person other than PDVH, CITGO Holding, Inc., and any of their subsidiaries that is incidental to giving effect to the above transactions must be made into a blocked, interest-bearing account.
  • General License 8: Authorizes Chevron Corporation, Halliburton, Schlumberger Limited, Baker Hughes (a GE Company), and Weatherford International, Public Limited Company, and their subsidiaries to engage in transactions and activities ordinarily incident and necessary to operations in Venezuela involving PdVSA (until July 27, 2019). However, the export of dilutents to Venezuela is not authorized.
  • General License 9: Authorizes transactions and activities that are ordinarily incident and necessary to dealings in any debt of PdVSA issued prior to August 25, 2017, provided that any divestment of such debt must be to a non-U.S. person. Also permitted are transactions and activities that are ordinarily incident and necessary to dealings in any bonds that were issued prior to August 25, 2017 by PDV Holdings, Inc., CITGO Holdings, Inc., and Nynas AB and their subsidiaries.
  • General License 10: Authorizes U.S. persons in Venezuela to purchase refined petroleum products from PdVSA and its subsidiaries for personal, commercial, or humanitarian uses in Venezuela. The license does not authorize the resale, transfer, exportation, or re-exportation of such products.
  • General License 11: Except for any transactions or dealings with ALBA de Nicaragua (ALBANISA), this license authorizes, until March 29, 2019, U.S. person employees and contractors of non-U.S. entities located in a country other than the United States or Venezuela to engage in transactions and activities that are ordinarily incident and necessary to the maintenance or winding down of operations, contracts, or other agreements involving PdVSA and its subsidiaries that were in effect prior to January 28, 2019. In this regard, U.S. financial institutions may reject funds transfers involving PdVSA and non-U.S. entities located in a country other than the United States or Venezuela, if the funds transfers do not originate or terminate in the United States, and neither the originator nor the beneficiary is a U.S. person (until March 29, 2019).
  • General License 12: Except for any transactions or dealings with ALBANISA, this license authorizes, until April 28, 2019, transactions and activities that are incident and necessary to the importation into the United States of petroleum and petroleum products from PdVSA or its subsidiaries. Also allowed until February 27, 2019, are transactions and activities that are incident to the winding down of operations, contracts, or other agreements, including the importation into the United States of goods, services, or technology involving PdVSA or its subsidiaries, if the operations, contracts, or other agreements were in effect prior to January 28, 2019. Any payment to or for the direct or indirect benefit of a blocked person must be made into a blocked, interest-bearing account. The export from the U.S. of dilutents to Venezuela or PdVSA is not authorized.
  • General License 13: Authorizes until July 27, 2019, all transactions and activities where the only PdVSA entity involved is Nynas AB or any of its subsidiaries. Any payment to a blocked person other than Nynas AB or any of its subsidiaries that is incident to giving effect to the above transactions must be made into a blocked, interest-bearing account.
  • General License 14: Authorizes transactions related to the official business of the United States Government, its employees, grantees, or contractors.

This Current is not intended to provide legal advice. If you have any questions regarding its content, please contact Ted Posner, Timothy Welch, or Glenda Bleiberg.

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