INSIGHT: Venezuela Sanctions
The United States first imposed sanctions targeting the Venezuelan government in 2015. Both the US and EU have designated individuals associated with the regime. The US measures against the government of Venezuela were significantly extended in January 2019 to target PdVSA. While initially thought to have limited direct impact on non-US persons engaged in trade with no US nexus, statements emerging from the US administration during March and April 2019 included warnings that non-US persons dealing with PdVSA might be exposed even in the absence of a US nexus. The situation was further escalated by the designation on 5 and 12 April 2019 of operators and vessels said to have been engaged in transport of Venezuelan oil to Cuba (see US Treasury press release). While some of these designations were removed on 3 July, the Cuban oil company CUBAMETALES was added to the SDN list on the same date.
An International Group Circular on US Sanctions against the Government of Venezuela and PdVSA was published on 12 September 2019.
A further significant development took place with the publication of Executive Order 13884 on 5 August 2019, together with amended and new FAQs and general licenses. All property of the Government of Venezuela in the US or within the control or possession of US persons is blocked. The term "Government of Venezuela" is widely defined and includes PdVSA (see EO Sec 6(d)). As with earlier measures, the question arises of application to non-US persons – see EO 13850 Sec 1(a)(iii) below. EO 13884 authorises asset freezing on "any person" determined to (i) have materially assisted or supported any person or entity whose property is blocked pursuant to the EO, or (ii) be owned or controlled by or to have acted on behalf of any such person or entity. The carriage of cargo may well fall within the scope of material assistance. A 30 day wind-down period ended on 4 September 2019.
The intention behind the EO therefore appears to be to expose non-US persons and entities to US sanctions or at the very least to deter them from doing business with the Maduro regime. The US National Security Advisor has warned that “We are sending a signal to third parties that want to do business with the Maduro regime: Proceed with extreme caution”. OFAC has published Guidance on humanitarian assistance which includes not only food, agricultural products and medicines but also telecommunications and internet.
It should be noted that sanctions regulations are subject to change without notice and with immediate effect. The situation in Venezuela is volatile and the US, EU and other States may expand or remove sanctions to reflect political developments. Since the designation of PdVSA, the US has continued to make regular additions to the SDN list.
A significant ramping up of US sanctions took place on 28 January 2019 with issue of Executive Order 13857 which extended the scope of Executive Order 13850 by designating Petroleos de Venezuela, S.A (PdVSA) as a Specially Designated National ("SDN"). This includes entities in which PdVSA owns, directly or indirectly, a 50 percent or greater interest, subject to some limited relief for PdVSA's US subsidiaries CITGO and PDV Holdings.
The designation prohibits US persons from engaging in transactions with PdVSA or its subsidiaries unless they are able to bring themselves within the scope of a General License. Some Licenses have subsequently been amended. All PdVSA property which is subject to US jurisdiction is blocked.
The designation does not on the face of it have extraterritorial effect, but non-US persons may be affected in a number of ways. Some months after the new measures were introduced in January 2019, there were signs of a hardening attitude on the part of the US administration. A State Department Briefing on 29 March 2019 discloses efforts to persuade foreign oil traders not to buy Venezuelan oil with a warning that "you should not be buying oil from this regime... we have a wide broad net with sanctions... be careful not to get caught in that net by activities you may think don't come into it but actually are caught by it".
- The US government can impose sanctions an "any person" (apparently including non-US persons) 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." (EO 13850 Section 1(a)(iii)). The administration did not initially indicate that it intended this provision to apply to non-US persons and OFAC FAQ 657 could be read as implying that it did not so intend. However there remained an element of doubt and recent statements by the US administration (see above) indicate that it considers non-US persons may after all be susceptible to sanctions if they deal with PdVSA.
- Non-US companies involved in the transportation of PdVSA cargo to the US must comply with US sanctions.
- Non-US companies which make or receive PdVSA related payments in USD bring the transaction under US jurisdiction even in relation to cargo which is not carried to the US.
- Vessels carrying petroleum products originating from Venezuela to Cuba face a clear risk of being sanctioned.
- It is possible that there may be some banking delays in PdVSA related transactions even in a currency other than USD. This will depend upon how banks frame their policies in the light of the designation.
- It is possible (but not clear) that a foreign entity listed on the NYSE may be treated as US person.
- The Venezuelan cryptocurrency the "Petro" is unlikely to provide a solution and its use by US persons is likely to be a breach of sanctions.
- A non-US entity should not assist or facilitate a US person (such as a US employee) in acting in contravention of the measures applicable to US persons.
For further information members are referred to the US Treasury Resource Center for Venezuela-related Sanctions.
A check on the OFAC Sanctions Search will identify designated individuals and entities.
The European Union sanctions against the Venezuelan regime are far more limited in scope. There are measures which ban travel and freeze assets of 18 individuals closely connected with the Maduro regime and an embargo on arms and equipment for internal repression. A brief description is provided in the European Council Press Release published on 6 November 2018. These provisions have been implemented in Norway.
Whilst some of the sanction provisions are inherently vague, and possibly subject to change, their effects on operations are nevertheless already being felt. Vessel owners or operators who have contracts directly with PdVSA, or PdVSA subsidiaries, which oblige the vessels to carry the cargoes to the US, will be affected. The sanctions will likely impinge most directly upon vessels already on charter to PdVSA, or any subsidiary, to carry cargoes to the US, and more particularly those vessels already loaded. Ensuing delays, or other issues regarding the disposition of loaded cargo, may give rise to disputes between owners and charterers. More generally, vessels scheduled to call in Venezuela, but which might not otherwise be subject to sanctions (no carriage to the US) may still encounter problems if they are deemed facilitators (see above) or may be subject to delays or other issues due to the general conditions now prevailing in Venezuela.
There are no specific sanctions against insurance providers. However, members conducting business which involves PdVSA or its subsidiaries should exercise caution, particularly if there is a US nexus, and seek legal advice. This is particularly important in the light of the volatile situation and the increasing indications from the US administration that it considers that sanctions may apply to non-US persons. Members attention is drawn to Skuld Rule 30.4.6 which excludes "liabilities, costs or expenses where payment by the Association or the provision of cover in respect thereof may expose the Association to the risk of being subject to a sanction, prohibition or any adverse action by a state or international organisation or competent authority". In addition, it is unlikely that Skuld would be able to make a full recovery under the reinsurance contract because a number of the participants on the reinsurance programme are subject to US primary sanctions and such payments would be unlawful. Such shortfalls under the Skuld Rule 32.6. would fall to the Member, if they arose as a result of an inability to pay as a result of sanctions. Terms and Conditions for non-mutual products contain the same provision.