Web Alert: Venezuela - US sanctions imposed on PDVSA

On 28 January 2019, the Venezuelan state-owned oil company Petroleos de Venezuela SA (PDVSA) was designated by US OFAC (Office of Foreign Assets Control) to the US Specially Designated Nationals List (SDN List) under Executive Order 13850. 

This means that all of PDVSA’s property and interests in property that are subject to US jurisdiction are frozen and US persons are generally prohibited from engaging in transactions with them.

General Licenses

However, at the same time as designating PDVSA as a sanctioned entity, the US Treasury Department issued eight general licenses which enable US persons to continue to transact business with PDVSA for limited periods of time. The licenses which are relevant to shipping are as follows:

General License 7 – Section (a): authorises transactions prohibited by EO 13850 with respect to PDV Holding Inc. and CITGO Holding Inc. (and their subsidiaries) until 27 July 2019.

General License 7 – Section (b): authorises transactions prohibited by EO 13850 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 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 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 (other than the importation of PDVSA petroleum and petroleum products into the US) until 27 February 2019, providing the operations or contracts were in effect prior to 28 January 2019.

General License 13 – Section (a): authorises transactions involving Nynas AB (which is majority owned by PDVSA) or any of its subsidiaries until 27 July 2019.

Impact on non-US persons

The US SDN list does not of itself have extra-territorial effect. However, EO 13805 provides that the property in the US of any person (ie not just a US person) should be blocked if it is determined that they 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' which would include PDVSA.

On 31 January 2019 US OFAC issued 13 new FAQs: https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_other.aspx#650.

This includes FAQ 657: 'I am a non-US entity that purchases petroleum and petroleum products from Petróleos de Venezuela, S.A. (PdVSA) or an entity in which PdVSA owns, directly or indirectly, a 50% or greater interest. Am I now prohibited from purchasing petroleum and petroleum products from these companies? Transactions to purchase petroleum and petroleum products from PdVSA or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest, and that involve US persons or any other US nexus (eg transactions involving the US financial system or US commodity brokers) must be wound down by 28 April 2019 pursuant to Venezuela-related General License 12. In addition, under General License 11​, US person employees and contractors of non-US companies located in a country other the United States or Venezuela are authorised to engage in certain maintenance or wind-down transactions with PdVSA, or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest, through 12:01am eastern daylight time, 29 March 2019.'

The response to this FAQ suggests that US OFAC does not intend to target non-US persons however the position remains unclear, as the general licenses issued by US OFAC does not contain a specific winding down period that applies to non-US persons or the shipment of PDVSA cargoes to countries other than the US. 

Since there is some ambiguity, we would advise our non-US members that they should exercise caution and seek legal advice before they enter into any transaction with PDVSA or their subsidiaries.

Category: Sanctions