Venezuela Sanctions *Update*

7 June 2019

Our industry news items of 16 April and 17 May highlighted the designation by the U.S. under Executive Order 13850 of companies and vessels that were alleged to operate in the oil sector of the Venezuelan economy.

Yesterday, 6 June, OFAC published FAQ 672:

Can I export or reexport diluents to Venezuela?

No. Diluents (including, for example, crude oil and naphtha) play a key role in the transportation and exportation of Venezuelan petroleum, a primary source of revenue for the illegitimate and corrupt Maduro regime, which the United States seeks to restrict further.  OFAC is amending General Licenses (GLs) 7A, 8, and 13  effective as of June 6, 2019, to restrict U.S. persons engaging in transactions and activities authorized by those GLs from exporting or reexporting diluents, directly or indirectly, to Venezuela, or from engaging in transactions or activities related thereto…

The new FAQ also highlights the risks for non-US persons:

Non-U.S. persons could be subject to designation pursuant to Executive Order 13850, as amended, for operating within the oil sector of the Venezuelan economy, or for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of PdVSA, including the exportation or reexportation of diluents to PdVSA. 

Given PdVSA’s role as Venezuela’s state-owned oil company, exports or reexports of diluents to Venezuela likely include a direct or indirect interest of PdVSA.  As a result, persons directly or indirectly exporting or reexporting diluents to Venezuela should exercise enhanced due diligence to verify the ultimate end user and ensure that the transaction does not involve a direct or indirect interest of a sanctioned person, including PdVSA, even if the sanctioned person is not identified as a participant in the transaction.

As set out in our industry news item of 17 May, there is no reason why future designations will be limited to vessels and companies which are said to have been trading between Venezuela and Cuba, which has been the focus of the designations thus far. All trade with Venezuela in the petroleum sector now poses a risk of sanctions, and this has now been made even clearer by the new guidance issued by the U.S.

These sanctions impact on the ability of the Club to assist its Members and Members are advised to contact a member of North’s Sanctions Advice Team and seek US legal advice for further guidance. Members are further reminded that  Rule 38(h) of our P&I Rules provides for a cesser of a vessel’s entry if that vessel is employed in a carriage, trade or on a voyage which, or the provision of insurance for which, will in any way howsoever expose the Club to the risk of being or becoming subject to any sanctions.

17 May 2019 

Our industry news item of 16 April highlighted the designation by the U.S. under Executive Order 13850 of four companies and nine vessels that were alleged to operate in the oil sector of the Venezuelan economy.

On 10 May an additional two companies and two vessels, also said to have operated in the oil sector of the Venezuelan economy, were designated. The “Ocean Elegance” is said to have delivered crude oil from Venezuela to Cuba from late 2018 until March 2019, and the “Leon Dias” is said to have delivered crude oil from Venezuela to Cuba from late 2018 until March 2019.

There is no reason why future designations will necessarily target vessels and companies which are said to have been trading between Venezuela and Cuba. All trade with Venezuela in the petroleum sector now poses a risk of sanctions.

These heightened risks impact on the ability of the Club to assist its Members and Members are advised to contact a member of North’s Sanctions Advice Team and seek US legal advice for further guidance. Members are further reminded that  Rule 38(h) of our P&I Rules provides for a cesser of a vessel’s entry if that vessel is employed in a carriage, trade or on a voyage which, or the provision of insurance for which, will in any way howsoever expose the Club to the risk of being or becoming subject to any sanctions.

Members can also access our Guide to Sanctions, which contains information on the latest sanctions developments and advice on completing due diligence.

16 April 2019

US uses Executive Order 13850 to designate non-US vessels and companies.

On 12 April 2019, OFAC designated four companies and nine vessels that are alleged to operate in the oil sector of the Venezuelan economy. The press release can be read here. OFAC indicate that some of the vessels transported oil from Venezuela to Cuba.

The designations on 12 April mark another significant escalation in the use of sanctions against Venezuela.

All four owners and nine vessels were designated under Executive Order 13850 on the grounds that they were operating in the oil sector of the Venezuelan economy. Executive Order 13850 provides for the designation of any person determined “to operate in the gold sector of the Venezuelan economy or in any other sector of the Venezuelan economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State;”. The Venezuelan state oil company PDVSA had been designated on 28^th January 2019, because it operated in the oil sector of the Venezuelan economy,  which meant that the oil sector was a “sector of the Venezuelan economy…determined by the Secretary of the Treasury”. 

The designations on 12 April follow the designation on 5 April of two companies operating in the oil sector of the Venezuelan economy and of one vessel transporting oil from Venezuela to Cuba.

It is now clear from the implementation of Executive Order 13850 that there are heightened risks for any non-US persons trading with PDVSA and not just in respect of trade with Cuba.  Members are advised to contact a member of North’s Sanctions Advice Team and seek US legal advice for further guidance.