US Sanctions - Venezuela oil sector and PDVSA

The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has added Venezuela’s State-owned oil company, Petroleos de Venezuela SA (“PdVSA”) to the SDN list as of Monday 28 January 2019 – a copy of the press release is available here. This is pursuant to Executive Order 13850 which mandates that persons operating in the oil sector of the Venezuelan economy may be subject to sanctions.

APPLICATION OF THE SANCTIONS TO US ENTITIES/PERSONS

The designation of PdVSA as a SDN means that (i) all property and interests in property of PdVSA subject to US jurisdiction are blocked and (ii) US entities/persons are generally prohibited from engaging in transactions with PdVSA, except under the terms of the relevant Licenses.

Mindful of the disruption to many contracts currently in existence, OFAC has issued general licenses that authorize US entities to carry out certain transactions and activities with PdVSA and its subsidiaries within certain winding down periods, including:-

General License 12 – Section (a): authorises the purchase and importation into the US of petroleum and petroleum products from PDVSA until 28 April 2019.
General License 12 – Section (b): authorises the winding down of operations or contracts (eg. shipments to PdVSA from the US) until 27 February 2019, providing the operations or contracts were in effect prior to 28 January 2019.
General License 11 – Section (a): authorises US employees and contractors of non-US entities located in a country other than the US or Venezuela to engage in the winding down of operations or contracts involving PDVSA until the 29 March 2019.
General License 7 – Section (b): authorises transactions with respect to PDV Holding Inc. and CITGO Holding Inc. (and their subsidiaries) that relate to the purchase and importation of petroleum and petroleum products from PDVSA until 28 April 2019.
General License 7 – Section (a): authorises transactions with respect to PDV Holding Inc. and CITGO Holding Inc. (and their subsidiaries) until 27 July 2019.
PdVSA transactions involving Nynas AB or any subsidiaries are authorised until 27 July 2019 under General License 13 – Section (a)

Click here to access the press release on the Executive Order and General Licences issued.

APPLICATION OF THE SANCTIONS TO NON US ENTITIES/PERSONS

Whilst the US SDN list does not have extra-territorial effect itself, Executive Order 13805 calls for the for the blocking of all property in the US of “any person” (not just a US person) who is determined “to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of … any person whose property and interests in property are blocked pursuant to this order.”

However, the Club’s understanding from US legal advice provided by Bill Juska of Freehill, Hogan & Mahar LLP is that E.O. 13850 was not drafted with the specific intent of blocking PDVSA’s shipments to third countries. Further, FAQ 657 indicates that non-US persons can continue to purchase PDVSA oil, which should mean that non-US shipowners can continue to transport that oil.

In the circumstances, it is the Club’s understanding that non-US persons/entities dealing with PDVSA are still free to trade with and carry PDVSA cargoes subject to the following:

1. Such cargoes must not be delivered to the United States after 28 April 2019 (and can only be delivered to the US up until then as part of the winding down of existing contracts).
2. All such trade (ie. worldwide – not just to the US) should avoid USD as a currency (and avoid the Venezuelan Cryptocurrency).
3. Any US employees or contractors of Members or Assureds should not be involved in any such transactions beyond 29 March.

Given the developing situation in Venezuela and with it the developing attitudes of countries and banks, the Club recommends that Members and Assureds exercise careful consideration of the latest developments when entering into contracts. This includes carrying out due diligence on the latest sanctions and banking situation, as well as having appropriate sanctions clauses in such contracts.

OFAC’s webpage setting out the sanctions relating to Venezuela and related guidance, can be accessed by clicking here.