CLIENT UPDATE
PdVSA Added to OFAC’s SDN List; RUSAL De-Listed
Yesterday, the Department of Treasury Office of Foreign Assets Control (“OFAC”) designated Petróleos de Venezuela, S.A. (“PdVSA”) as a Specially Designated National (“SDN”) for operating in Venezuela’s oil sector. This is the one of the U.S. government’s harshest trade sanctions possible and designed to increase pressure on the Maduro regime to transfer control to the opposition leader.
As a result of this action, U.S. companies, as well as U.S. citizen and permanent resident individuals anywhere located and all persons physically in the U.S., are prohibited from engaging in or facilitating virtually any transaction or dealing with or involving PdVSA, or any entity owned 50% or more directly or indirectly by PdVSA. Assets of PdVSA and its 50%+ owned entities that are in the U.S. or that will enter the U.S. are blocked and cannot be dealt with.
Examples of activities that are now banned include supplying goods or services directly to or indirectly for end-use by PdVSA or its subsidiaries, and financial transactions with such entities. Importing oil or petroleum products from PdVSA will be banned after a three-month grace period, although beginning immediately, proceeds cannot be paid to PdVSA but must be placed into blocked accounts.
Non-U.S. companies, though not prohibited from dealing with PdVSA, could still face exposure in any such dealings. Any U.S. person involvement, ties to the U.S. or U.S. person employees or officers could be problematic. The denomination of transactions in U.S. currency can sometimes indicate that a U.S. bank is involved, which would likewise be problematic. Moreover, the U.S. may impose sanctions upon any person determined to have provided material assistance, goods or services to SDNs. These authorities are broadly drawn and enforced with great discretion.
Any company doing direct or indirect business involving Venezuela should assess the impact of the new designation on its operations. Short grace periods (as brief as one month) are available for winding down existing business with PDVSA, and temporary authorizations allow PdVSA-owned U.S. refiner CITGO to continue operating, and for some U.S. oil companies to continue operating in Venezuela, for six months. All such authorizations are limited in scope and must be reviewed carefully.
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Meanwhile, in other sanctions news, on January 27, 2019 OFAC removed aluminum producer United Company Rusal plc (“RUSAL”) from the SDN List, in recognition of the company’s reduction of the shareholding stake held by Russian oligarch Oleg Deripaska and severance of Deripaska’s control. Also removed from the SDN List were Russian power company JSC EuroSibEnergo (“ESE”) and aluminum producer En+ Group plc (“En+”).
The sanctions on Deripaska and other entities still owned 50% or more by him remain in force. Other Russian oligarchs and firms, such as the Rotenbergs, Viktor Vekselberg, Gazprom Burenie, Renova Group and numerous others, remain listed as SDNs.