Venezuela Sanctions - PdVSA

On 28 January 2019 PdVSA was designated by the U.S. pursuant to Executive Order 13850.  This means that all property and interests in property of PdVSA subject to U.S. jurisdiction are blocked as from that date and U.S. persons are now generally prohibited from engaging in transactions with PdVSA. PdVSA is now a Specially Designated National (“SDN”). 

A number of General Licenses were, however, also issued on 28 January. Of particular note are the following:

(a)    General License 7 – which provides some limited exemptions to deal with PDV Holding Inc and CITGO Holding Inc (and their subsidiaries) through to July 27 2019.

(b)   General License 8 – which permits certain transactions and activities with PdVSA or any entity it owns, through to July 27 2019 but only for the five companies named in the General License (namely Chevron Corporation, Halliburton, Schlumberger Limited, Baker Hughes and Weatherford International).

(c)    General License 11 – which authorises US persons who are employed and contracted by non-US entities, located in a country other than the US or Venezuela, to wind down all operations, contracts or agreements involving PDVSA by March 29 2019.

(d)   General License 12 – which permits, with some exceptions including the exportation or re-exportation of any diluents from the US to Venezuela or PdVSA (which is therefore not permitted), the following:

(1)    All transactions and activities incident and necessary to the purchase and importation into the US of petroleum and petroleum products from PdVSA or entity they own through to April 28 2019.

(2)    All transactions ordinarily incident to allow the winding down of contracts and operations which involve PdVSA that were in effect prior to January 28, but only through to February 27 2019.

(e)   General License 13 – which permits transactions where the only PdVSA entities involved are Nynas AB or any of its subsidiaries, through to July 27 2019.

On 31 January 2019 the U.S. released a series of FAQs on these new sanctions and these should be read in conjunction with the full terms of the General Licenses.

These sanctions directly impact U.S. persons and any trade with a U.S. nexus (e.g. transactions involving the U.S. financial system). The question of their impact where there is no U.S. persons or nexus has also been raised by our Members, as Executive Order 13850 also provides for the blocking of all property in the United States of “any person” (i.e. potentially U.S. or not) who is 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” (which now includes PDVSA).

The newly released FAQs now address the question of the impact on non-U.S. persons and specifically whether non-U.S. entities can purchase petroleum and petroleum products from PdVSA:

657. I am a non-U.S. 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 percent 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 percent or greater interest, and that involve U.S. persons or any other U.S. nexus (e.g., transactions involving the U.S. financial system or U.S. commodity brokers) must be wound down by April 28, 2019 pursuant to Venezuela-related General License 12.  In addition, under General License 11, U.S. person employees and contractors of non-U.S. companies located in a country other the United States or Venezuela are authorized to engage in certain maintenance or wind-down transactions with PdVSA, or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest, through 12:01 a.m. eastern daylight time, March 29, 2019. 

Although it therefore appears that business involving non-U.S. persons with no U.S. nexus is not the intended focus of the sanctions, non U.S. persons should still exercise caution. There is also the possibility of further sanctions being introduced and practical issues around, for example, making and receiving payments, even where U.S. dollars are not involved.