Sanctions - Venezuela

Petro Cryptocurrency

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.

For further details on the Petro, Members are advised to refer to the Club’s News Item of 16 April 2018 and a Client Alert from Freehill Hogan and Maher.

Further developments

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 details are available in our News Items of 11 April and 14 April 2019 and which include a recent Client Alert from the Club’s U.S. attorneys Freehill Hogan & Mahar.

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.

The carriage of gasoline to Venezuela

We refer to our Notice No 9.

The Association has received a number of queries in relation of the transport to Venezuela of gasoline/petroleum products.There is sanctions risk in conducting such trade.

Firstly, for operating in the oil sector of the Venezuelan economy. Under Executive Order 13850, the oil sector of the Venezuelan economy has been designated as a sector subject to sanctions. E. O. 13850 refers to the gold sector of the Venezuelan economy or “any other sectors of the Venezuelan economy as may be determined by the Secretary of the Treasury.” On January 28, 2019, in conjunction with the designation of PdVSA to the SDN List, the Secretary of the Treasury announced that it had been determined that the oil sector of the Venezuelan economy was also subject to sanctions.

Secondly, for providing material assistance to or support for PdVSA. Section 1(a)(iii) of E. O. 13850 authorizes sanctions against any person (not just a U.S. person) determined to have materially assisted or provided goods or services to or in support of any entity whose assets are blocked under the Executive Order. PdVSA is such an entity and, therefore, the delivery of gasoline to PdVSA or any of its subsidiaries could be considered either material assistance to or a service in support of that entity.

As regards cargoes of “Blendstock” or similar, it is understood that the State Department considers such cargoes to be gasoline.

Members should exercise caution in considering whether to carry such cargoes for delivery in Venezuela.

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 Sanctions Programs and Country Information.

For further information on the general sanctions applicable to Venezuela please see the News Item of 16 August 2017.