Sanctions - Venezuela
Sanctions and restrictive measures relative to Venezuela have been introduced by the United States, and to a lesser extent the EU, over the past few years. This page provides a general overview of the current position.
In February 2018 the Venezuelan government launched a new cryptocurrency, the “Petro”. The introduction of the Petro was designed to minimize the impact of the U.S. prohibition on the extension of new debt resulting from an Executive Order issued in August 2017.
In response, President Trump introduced a further Executive Order 13827, which prohibits U.S. persons, and persons within the U.S., from providing financing for, or engaging in, any dealings in “any digital currency, digital coin or digital token” issued by Venezuela on or after 9 January 2018, which would include the Petro.
In March 2018 the Venezuelan maritime authority, INEA, issued a circular to Venezuelan shipping agents requiring that payment for all services provided to foreign flag vessels are to be paid in Petros.
The Club's U.S. attorneys Freehill Hogan & Mahar advise that foreign shipowners trading with Venezuela should exercise caution to be certain that any remittances made through the U.S. financial system in connection with their Venezuelan trade are not ultimately being used to purchase Petros. In the wake of EO 13827 and the INEA Circular, it is expected that U.S. banks will scrutinize all financial transactions relating to Venezuela with great care, particularly those involving shipping.
Members are consequently advised to consider the use of alternate currencies for payments to agents and any other non-sanctioned parties involving Venezuela, such as the Euro routed through non-U.S. banks.
U.S. Sanctions Against PDVSA
On 25 January 2019 President Trump issued Executive Order 13857 to the effect that Petroleos de Venezuela SA (PDVSA) is included in the definition of “Government of Venezuela” as referred to in several Executive Orders including 13808 of August 2017 and 13850 of November 2018, thereby bringing PDVSA within the terms of those Executive Orders.
On 28 January 2019 the U.S. Department of the Treasury designated PDVSA to the U.S. Specially Designated Nationals List (the “SDN List”). This means that U.S. persons are generally prohibited from engaging in transactions with PDVSA and must block any property of PDVSA in the United States.
The U.S. SDN list does not in itself have extraterritorial effect. That is, it does not apply to non-U.S. persons, and hence non-U.S. persons are not prohibited from dealing with persons or entities placed on the U.S. SDN list. The exception is where a U.S. sanctions regime, such as those against Iran or Russia, incorporate the SDN List. However, the U.S. sanctions against PDVSA and Venezuela do not incorporate the list and it was believed that non-U.S. persons therefore remained free to transact business with PDVSA, though with some restrictions. However, Members are referred to the section below "Can non-U.S. entities trade with PDVSA?".
As of 28 January 2019, the U.S. prohibited the exportation from the United States of any diluents to Venezuela or to PDVSA. Therefore, a non-U.S. vessel could not engage in the transport of diluents from the United States to Venezuela or PDVSA.
On the same day that PDVSA was placed on the SDN List, the U.S. issued a number of General Licenses, the texts of which can be found here.
General License 12 permits U.S. persons to continue to purchase and import petroleum and petroleum products from PDVSA into the United States until 28 April 2019. However, payment for the petroleum and petroleum products cannot be made directly to PDVSA, but must be paid into a blocked, interest-bearing account in the United States. As to all other contracts with PDVSA other than those for the importation of petroleum and petroleum products into the United States, General License 12 provides if the contracts pre-date 28 January 2019, then U.S. persons have until 27 February 2019 to wind down those contracts.
General License 11 pertains to U.S. persons, employees and contractors of non-U.S. entities located in a country other than the United States or Venezuela. It authorises those U.S. persons, employees and contractors to wind down operations, contracts or other agreements involving PDVSA until 29 March 2019.
General License 7 authorises U.S. persons to continue transactions with CITGO (a PDVSA subsidiary) until 27 July 2019, and paragraph (b) of General License authorizes CITGO to continue to purchase and import petroleum and petroleum products from PDVSA until 28 April 2019.
General License 8 gives five companies, including Chevron, until 27 July 2019 to engage in all transactions and activities ordinarily incident necessary “to operations in Venezuela involving PDVSA.”
Carriage of oil & petroleum products from Venezuela to Cuba
PDVSA was designated under Executive Order 13850 and the Treasury Department press release said that it was being designated pursuant to that Executive Order for "operating in the oil sector of the Venezuelan economy.” As reported in our News Item of 11 April 2019, in reaction to call from the Venezuelan National Assembly led by the main opposition leader to halt exports of oil and petroleum products to Cuba, the US administration deemed that vessels engaged in that trade were likewise “operating in the oil sector of the Venezuelan economy” and therefore liable to be designated for being in breach of sanctions. The U.S. National Security Advisor, John Bolton, issued a tweet on 12 March 2019 noting that:
“The Venezuelan National Assembly has decreed the suspension of crude exports to Cuba following the collapse of the national electrical grid. Insurance companies and flag carriers that facilitate these give-away shipments to Cuba are now on notice."
This warning was subsequently acted upon and ten vessels and a number of owners and managers were designated and added to the U.S. SDN list because of their involvement in these trades. It is consequently now clear that any vessel and entity – irrespective of whether or not they are a U.S. person – engaged in the carriage of oil and petroleum products from Venezuela to Cuba is liable to be designated.
Further sanctions against the Venezuelan Government
As noted is our News Item of 8 August 2019, the U.S. significantly increased sanctions against Venezuela by virtue of President's Trump Executive Order 13884 issued on 5 August 2019. These now prohibit any U.S. person from undertaking transactions with and any non-U.S. person from providing "material assistance to, or goods or services in support of" the Government of Venezuela, its agencies and any entity in which it holds a 50% or greater interest - note that this includes PdVSA.
Whether ocean transportation constitutes "material assistance" has not been clarified but there is clear scope for the sanctions to be aggressively interpreted and expose any shipowner carrying cargoes for the benefit of the Venezuelan Government – including PdVSA – to the full force of U.S. sanctions, potentially including designation. Further details on the impact of this Executive Order can be found in a Freehill Hogan & Mahar Client Alert.
Members considering trades involving the Government of Venezuela, its agencies and any entity in which it holds a 50% or greater interest including PdVSA are therefore strongly advised to read the Client Alert as well as all the materials on this webpage and to carefully assess the potential risks of doing so. Becoming designated and placed on the SDN list would have grave consequences for the future trading and sale of any vessel and for the continued operation of insurance cover.
Other Venezuelan sanctions
Aside from the specific sanctions against PDVSA, more general sanctions have been in place since 2015.
These are primarily aimed at President Maduro and the Government of Venezuela. The applicable Executive Order can be found here.
These sanctions were expanded resulting in 37 persons being added to the SDN list. The list of those persons can be found here.
Amongst those listed was the VP of Finance for PDVSA, Mr Simon Alejando Zerpa Delgardo, but who has since stepped down from the position.
In July 2017 President Trump declared that sanctions are to be imposed personally on President Maduro, requiring that his property and interests in property in the U.S., or in the control of U.S. persons, are blocked and effectively freezing him out of U.S. financial system.
OFAC has published a number of FAQs relating to all aspects of sanctions against Venezuela and which can be found here.
For further information on the general sanctions applicable to Venezuela please see the News Item of 16 August 2017.
The EU has not currently introduced measures of the same force or magnitude as those adopted by the United States They relate primarily to embargoes on arms, and a travel ban and asset freeze of named Venezuelan officials.
Further details can be found on the European Counsel policies pages:
The information provided by the Club and in particular through its website is not and is not intended to be exhaustive. Every effort is made to ensure the accuracy of the information provided. However this cannot be guaranteed given that sanctions measures are subject to alteration by Governmental organisations at short notice. Further the information on this site is not, and should not be relied upon as, independent legal advice.
Members are strongly advised to undertake due diligence before fixing any business to or from a sanctioned country in order to ensure that neither the prospective cargo nor the parties to the planned venture are sanctioned. The Club is willing to assist Members where possible but they may nevertheless wish to take independent legal advice.