January 28, 2019: PDVSA sanctioned by OFAC

Issuance of a New Venezuela-related Executive Order and General Licenses; Venezuela-related Designation

Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) is designating Petróleos de Venezuela, S.A. (PdVSA) pursuant to Executive Order (E.O.) 13850 for operating in the oil sector of the Venezuelan economy, following a determination by Secretary of the Treasury Steven T. Mnuchin, in consultation with Secretary of State Michael Pompeo, that persons operating in Venezuela’s oil sector are subject to sanctions pursuant to E.O. 13850.  In addition, OFAC is amending General License 3  “Authorizing Transactions Related to, Provisions of Financing for, and Other Dealings in Certain Bonds,” and issuing the following eight new Venezuela-related general licenses in connection with this designation: General License 7 “Authorizing Certain Activities with PDV Holding, Inc. and CITGO Holding, Inc.,” General License 8 “Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Prohibited by Executive Order 13850 for Certain Entities Operating in Venezuela,” General License 9 “Authorizing Transactions Related to Dealings in Certain Debt,” General License 10 “Authorizing the Purchase in Venezuela of Gasoline from Petróleos de Venezuela, S.A. (PdVSA),” General License 11 “Authorizing Certain Activities Necessary to Maintenance or Wind Down of Operations or Existing Contracts with Petróleos de Venezuela, S.A. (PdVSA),” General License 12 “Authorizing Certain Activities Necessary to Wind Down of Operations or Existing Contracts with Petróleos de Venezuela, S.A. (PdVSA),” General License 13 “Authorizing Certain Activities Involving Nynas AB,” and General License 14 “Official Business of the United States Government.” 

 

OFAC expects to publish in the near term new FAQs and update existing FAQs, in connection with today’s action and the issuance of these general licenses.  

 

In addition, on January 25, 2019, the President signed an Executive Order “Taking Additional Steps to Address the National Emergency with Respect to Venezuela.” OFAC is publishing a frequently asked question in connection with the issuance of the Executive Order.

 

In addition, OFAC has updated its SDN list.


The following entity has been added to OFAC’s SDN List:

PETROLEOS DE VENEZUELA, S.A. (a.k.a. PDVSA; a.k.a. PETROLEOS DE VENEZUELA S A; a.k.a. PETROLEOS DE VENEZUELA S.A; a.k.a. REFINERIA EL PALITO), Edificio Petroleos De Venezuela, Torre Este, Piso 9, Avenida Libertador con calle El Empalme, La Campina, Caracas 1010, Venezuela; Torre Este Piso 9, Edif Petroleos de Venezuela, Avenida Libertador, Urb La Campina, Caracas, Distrito Federal, Venezuela; RIF # J-00095036-9 (Venezuela) [VENEZUELA-EO13850].

Actually, the amended General License 3 is technically General License 3A and says, in part:

(a) Except as provided in paragraph (c) of this general license, all transactions related to, the provision of financing for, and other dealings in bonds specified in the Annex to this general license that would be prohibited by Subsection l(a)(iii) of Executive Order 13808 of August 24, 2017, are authorized.

(b) Except as provided in paragraph (c) of this general license, all transactions related to, the provision of financing for, and other dealings in bonds that were issued both (i) prior to August 25, 2017 (the effective date of Executive Order of August 24, 2017), and (ii) by U.S. person entities owned or controlled, directly or indirectly, by the Government of Venezuela, other than Nynas AB, PDV Holding, Inc. (PDVH), CITGO Holding, Inc., and any of their subsidiaries, are authorized.

Also, since the meaning of some of these General License is less than clear (see #9, 11 and 12, for example), I will post at least the most prominent sections in separate posts.

The new FAQ sums up things nicely:

649. What does Executive Order of January 25, 2019 “Taking Additional Steps to Address the National Emergency with Respect to Venezuela” do and how does this impact OFAC’s Venezuela-related sanctions?  

Executive Order of January 25, 2019 “Taking Additional Steps to Address the National Emergency with Respect to Venezuela”broadens the definition of the term “Government of Venezuela” to include persons that have acted, or have purported to act, on behalf of the Government of Venezuela, including members of the Maduro regime, for purposes of Executive Orders 13692, 13808, 13827, 13835, and 13850.  All existing Venezuela-related sanctions remain in effect. [01-28-2019] 

And the Treasury Department issued the following press release:

Treasury Sanctions Venezuela’s State-Owned Oil Company Petroleos de Venezuela, S.A.

Action Intensifies Pressure on Maduro and Regime Insiders, Demonstrates U.S. Commitment to Leverage Economic Pressure to Support the Venezuelan People’s Transition to Democracy

Washington – Today the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated Petroleos de Venezuela, S.A. (PdVSA) pursuant to Executive Order (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, to include U.S. dollars and Euros. 

“The United States is holding accountable those responsible for Venezuela’s tragic decline, and will continue to use the full suite of its diplomatic and economic tools to support Interim President Juan Guaidó, the National Assembly, and the Venezuelan people’s efforts to restore their democracy,” said Secretary of the Treasury Steven T. Mnuchin.  “Today’s designation of PdVSA will help prevent further diverting of Venezuela’s assets by Maduro and preserve these assets for the people of Venezuela.  The path to sanctions relief for PdVSA is through the expeditious transfer of control to the Interim President or a subsequent, democratically elected government.” 

As with previous OFAC designations of certain Venezuelan officials and their supporters, U.S. sanctions need not be permanent.  Sanctions are intended to change behavior.  The United States has made it clear that we will consider lifting sanctions for those who take concrete, meaningful, and verifiable actions to support democratic order and combat corruption in Venezuela, including PdVSA. 

As Venezuela’s state owned oil company, PdVSA has long been a vehicle for corruption.  A variety of schemes have been designed to embezzle billions of dollars from PdVSA for the personal gain of corrupt Venezuelan officials and businessmen.  For example, a 2014 currency exchange scheme was designed to embezzle and launder around $600 million from PdVSA, money obtained through bribery and fraud.  By May 2015, the conspiracy had allegedly doubled in amount, to $1.2 billion embezzled from PdVSA.  Abraham Edgardo Ortega, a Venezuelan national who was PdVSA’s executive director of financial planning, pled guilty to one count of conspiracy to commit money laundering for his role in the billion-dollar international scheme to launder funds embezzled from PdVSA.  In a separate case, U.S. prosecutors have alleged that, from 2011 to 2013, senior Government of Venezuela and PdVSA officials, including Nervis Villalobos, the former Venezuelan vice minister of energy; Rafael Reiter, who worked as PdVSA’s head of security and loss prevention; and Luis Carlos de Leon, a former official at a state-run electric company, sought bribes and kickbacks from vendors in exchange for helping them secure PdVSA contracts and gain priority over other vendors for outstanding invoices during its liquidity crisis.

Today’s action designating PdVSA follows a determination by Secretary Mnuchin pursuant to E.O. 13850 that persons operating in the oil sector of the Venezuelan economy may be subject to sanctions.

Concurrent with this action, OFAC is issuing general licenses that authorize certain transactions and activities related to PdVSA and its subsidiaries within specified timeframes. 

As a result of today’s action, all property and interests in property of PdVSA subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them. 

For additional information about the methods that Venezuelan senior political figures, their associates, and front persons use to move and hide corrupt proceeds, including how they try to exploit the U.S. financial system and real estate market, please refer to FinCEN’s advisories FIN-2017-A006, “Advisory on Widespread Public Corruption in Venezuela,” and FIN-2017-A003, “Advisory to Financial Institutions and Real Estate Firms and Professionals.”

Links:

OFAC Notice

Executive Order

General Licenses: 3A, 7, 8, 9, 10, 11, 12, 13, 14

New FAQ

Treasury Press Release

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