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Further US Sanctions imposed against Venezuela

  • United Kingdom
  • USA
  • Fraud and financial crime

01-02-2019

The United States has expanded the sanctions imposed on Venezuela in a bid to hold accountable “those responsible for Venezuela’s tragic decline”.

U.S. sanctions on Venezuela have steadily increased since March 2015 in response to the alleged abuse of human rights by the Venezuelan Government in their treatment of anti-government protestors. The Executive Orders (E.Os) currently in force are set out in detail in our previous briefing on the 30 November 2018.  

On Monday 28 January 2019, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated Petroleos de Venezuela, S.A. (PdVSA) as a Specially Designated National and Blocked Person (SDN) pursuant to E.O. 13850 for operating in the oil sector of the Venezuelan economy.

PdVSA is a Venezuelan state-owned oil company and a primary source of Venezuela’s income and foreign currency. PdVSA has long been alleged to be a vehicle for corruption. 

The latest U.S. sanctions are a direct response to the ongoing challenge from President Nicolás Maduro to the legitimacy of the election of the opposition leader Juan Guaidó in his place in 2018.

As a result of the SDN designation, all property and interests in property of PdVSA (or its subsidiaries owned for 50% or more) that are in the U.S. or subsequently come within the U.S. or the control or possession of any U.S. person are to be blocked and U.S. persons are prohibited from transferring or otherwise dealing with such property or providing funds, goods or services.

Accompanying the designation is confirmation that OFAC is replacing General License 3 with a new General License 3A and is issuing 8 completely new General Licenses authorising certain transactions and activities related to PdVSA and its subsidiaries within specified timeframes. The scope of the new General Licenses is set out below:

  • General License 3A - authorises transactions related to, provisions of financing for, and other dealings in certain bonds;
  • General License 7 - authorises certain activities with PDV Holding, Inc. and CITGO Holding, Inc. (i.e. US-based subsidiaries of PdVSA);
  • General License 8 - authorises transactions involving PdVSA prohibited by E.O. 13850 for certain entities operating in Venezuela;
  • General License 9 - authorises transactions related to dealings in certain debt;
  • General License 10 - authorises the purchase in Venezuela of gasoline from PdVSA;
  • General License 11 - authorises certain activities necessary to the maintenance or wind down of operations or existing contracts with PdVSA;
  • General License 12 - authorises certain activities necessary to the wind down of operations or existing contracts with PdVSA;
  • General License 13 - authorises certain activities involving Nynas AB (i.e. a Swedish subsidiary of PdVSA); and
  • General License 14 – authorises all transactions that are for the conduct of the official business of the United States Government by employees, grantees, or contractors.

It is worth noting that certain General Licences permit payments for the direct or indirect benefit of PdVSA that are necessary to give effect to the relevant transactions authorised under the General License, subject to the condition that any payment is made to a blocked, interest bearing account in the U.S.

OFAC has confirmed their intention to publish new FAQs (and update existing ones) in connection with this action and the issuance of the General Licenses to provide further guidance to affected parties.

Our thoughts

In their announcement OFAC have reiterated that “as with previous OFAC designations of certain Venezuelan officials and their supporters, U.S. sanctions need not be permanent”. The U.S. will consider lifting sanctions for those who take “concrete, meaningful, and verifiable actions to support democratic order and combat corruption in Venezuela, including PdVSA”.

This decision comes quickly after the announcement over the weekend by OFAC of the lifting of sanctions imposed on EN+ Group plc, UC Rusal plc, and JSC EuroSibEnergo as part of the Russia/Ukraine sanctions programme. This decision came about following negotiations relating to the reduction by Oleg Deripaska of his direct and indirect shareholding stake in, and control over, these companies. 

The Secretary of the Treasury Steven T. Mnuchin states that “the path to sanctions relief for PdVSA is through the expeditious transfer of control to the Interim President or a subsequent, democratically elected government”. Clearly, until steps are taken to return control of the oil sector to the U.S. recognised Government of Venezuela it is unlikely that sanctions will be lifted against PdVSA. We await to see whether these sanctions apply the desired political pressure.

Financial institutions and other businesses should consider any exposure linked to PdVSA in light of this recent action, keeping in mind the long stop dates for the activities and transactions that are the subject of many of the new General Licenses. They should also be mindful of relying solely on third party screening providers in identifying a hit on the PdVSA subsidiaries in particular, as it is not always the case that the automated software will recognise a hit on an entity that does not appear on the SDN list itself. Conducting careful due diligence would always be advised.

Failure to cease carrying out the relevant activities by the set dates, and subject to there being no extension to the General Licenses, financial institutions and other businesses risk being in breach of U.S. sanctions.

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