No. 9 2019/2020: U.S Sanctions on the Government of Venezuela & Petroleos de Venezuela
The US administration increased its sanctions programme against the Government of Venezuela, with Executive Order 13884 which blocks all property in the US of the Government of Venezuela, and prohibits US persons from engaging in any transaction with the Government of Venezuela.
(a) General License 28 which gave US persons until 4th September 2019 to wind-down their operations, contracts or other agreements, involving the Government of Venezuela. The Government of Venezuela, for these sanction purposes includes all government agencies and any entity owned or controlled, directly or indirectly, by the Venezuelan government or its agencies including PdVSA.
(b) General License 30 which authorises all transactions and activities involving the Government of Venezuela that are ordinarily incident to operations or use of ports or airports in Venezuela, save where related to (a) the exportation or re-exportation of diluents, directly or indirectly, to Venezuela or (b) where otherwise prohibited,
Executive Order 13884 is in addition to the sanctions provisions of Executive Order 13850 under which, among others, the oil sector of Venezuela and PdVSA are also targeted. Executive Order 13850 remains in effect.
Trade with PdVSA or Venezuela’s oil sector
Potential enforcement against US and non-US persons
The US administration has, however, made it clear via various media, including Tweets from senior White House advisors, as well as more conventional routes through State Department and US Treasury announcements, that its sanctions regime on Venezuela will expand. This may expose non-US persons to a heightened risk of sanctions, if they provide material assistance to the Government of Venezuela (which is widely defined in EO 13850 and EO 13884).
The effect of so-called secondary sanctions on non-US persons could result in listing as a specially designated entity (SDN), which could and is likely to result in exclusion from using the US Dollar currency and banking system. Trade partners and counterparties of SDNs may find it difficult to continue with business relationships. Contracts may contain sanctions clauses, which allow parties to extricate themselves from contractual obligations, if such counterparties could or would be exposed to a risk of sanctions, potentially resulting in contractual penalties if or when contracts cannot be fulfilled.
Based on past practices, there exists a strong possibility that after 4th September, being the date on which the wind-down period ended for US persons, the US authorities may turn closer attention to non-US persons if they are perceived to be providing the Venezuelan Government (including PdVSA) with material assistance. Members are therefore advised to exercise caution if they engage in activities that involve Venezuelan interests, particularly the Venezuelan oil sector and/or PdVSA, which was designated to the SDN list by the Department of the Treasury’s Office Foreign Assets Control on 28th January 2019.
Impact of Venezuela sanctions on P&I cover
Members are reminded that claims arising out of unlawful trading or blockade running are excluded from cover and pooling, and the Club may under its rules terminate or suspend cover for any period during which it is unlawful to provide P&I insurance to a Member arising out of the imposition of sanctions. Further, the Club would not normally be able to provide insurance to a vessel or owner that had been designated by the US for breach of sanctions.
In addition, it is unlikely that the Club would be able to make a full recovery under the Group Excess Loss reinsurance contract, in respect of a claim in excess of the Pool Retention (currently US$100million) connected with Venezuela, because a number of the participants on the reinsurance programme are subject to US primary sanctions and such payments would be unlawful. Such shortfalls in recovery may run to many millions of Dollars and under the rules of all International Group Clubs would fall to the Member, if they arose as a result of an inability to pay as a result of sanctions.
Are Diesel and Kerosene cargoes to Venezuela exempt?
Venezuela Property EO 13884 PDF (285.7 KB)
Venezuela EO 13850 PDF (175.7 KB)