first type of applicable sanctions laws are “primary” sanctions, which are
traditional U.S. sanctions, and apply only to prohibited transactions with a
U.S.nexus. The second type of applicable sanctions laws are “secondary”
sanctions, which apply to transactions that are entirely outside of the
jurisdiction of the U.S. but seek to sanction specific types of conduct that
the U.S. deems particularly contrary to U.S. policy.
words, while the U.S. Department of the Treasury’s Office of Foreign Assets
Control (OFAC) generally limits its jurisdiction to U.S. persons, in some
instances the national security imperative is so great the OFAC will decide to
use secondary sanctions even when there is no U.S. person involved at all, such
as targeted sanctions against oil tankers delivering PDVSA’s crude oil.
sophistication of the sanctions regime is reaching new levels, specifically
within the Oil & Gas sector. Notably, OFAC is targeting all types of
actions that are currently seeking to circumvent its sanctions regime, with
broader consequences to the targeted companies and persons.
Rosneft & PDVSA Case
PDVSA, and international companies delivering crude oil have been targeted by
OFAC. More than 25 oil tankers and 17 shipping companiesthat were selling crude
oil for PDVSA have been sanctioned. This new trend of OFAC sanctions began in
April 2019, when 4 shipping companies and 10 ships related to oil trading with
PDVSA were targeted.
February 2020, Rosneft Trading, S.A., and its President Didier Casimiro were
subject to OFAC sanctionsfor the trading of Venezuelan oil. The U.S. Department
of the Treasury determined that 80% of the oil tankers used by PDVSA to export
oil were from Rosneft. As a result of the sanctions, some crude oil deliveries
by Rosneft to China were rejected by potential buyers.
in March 2020, TNK Trading international S.A. (TTI), a subsidiary of Rosneft,
was targeted by OFAC for replacing Rosneft Trading, S.A. trading operations
with PDVSA in order to evade OFAC sanctions. In January 2020, 14 million
barrels of crude oil were purchased by TTI from PDVSA. Rosneft stated that the
trades were repayments arising out of a $6.5 billion loan to PDVSA with $800
still outstanding by the third quarter of 2019.
Access to International Financial Markets
billions of dollars borrowed from major investment banks and global bond
emissions, PDVSA’s access to international financial markets was severely
affected by its OFAC designation in January 2019.
this meant that PDVSA assets under U.S jurisdiction were blocked,OFAC also
prohibited allof PDVSA’s related transactions within U.S. jurisdiction, unless
otherwise licensed, authorized, or under the scope of the SDN designation. U.S.
companies like Chevron, Schlumberger, Baker Hughes, and Weatherford operating
in Venezuela requested general licenses to OFAC in order to keep its operations
on going with PDVSA.
the Sanctions Regime
Mexico, individuals, and companies have been trying to bypass the OFAC
sanctions regime. In May 2020, the U.S. Department of State, OFAC, and the U.S.
Coast Guard issued an advisory to international shipping companies to be aware
of tactics to evade sanctions like ship-to-ship transfers and by not using the mandatory
tracking devices. Such techniques were implemented in crude oil, refined
petroleum, and petrochemicals deliveries between Iran and Venezuela.
Mexico based individuals and entities that were part of a PDVSA sanctions
scheme to bypass sanctions were targeted in June 2020. OFAC SDN Alex Nain Moran
(Saab) and associates, were evading U.S. Sanctions by doing “oil for food”
schemes to sell Venezuelan crude oil. The Mexico based companies, brokered the
re-sale of over 30 million barrels of PDVSA’s crude oil by largely replicating
Rosneft Trading’s operations and Asian buyers, which did not result in food
deliveries to Venezuela according to OFAC.
last year was charged with money laundering in connection with a bribery scheme
by the U.S. Department of Justice (DOJ). The DOJ stated in the indictment that
Saab violated the Foreign Corrupt Practices Act (FCPA) by paying bribes to
Venezuelan government officials in order to access the controlled exchange rate
by the Venezuelan government, with import documents for goods and materials
that were false and fraudulent and that were never imported in Venezuela.
the DOJ alleges that $350 million of bribe payments were transferred through
bank accounts located in the Southern District of Florida and then to overseas
accounts owned or controlled by Saab. To date, Saab is undergoing an
extradition process in Cape Verde to the U.S. in relation to this indictment.
Effects of the Sanctions Regime
collateral effects of the sanctions regime have affected the operations of
global oil & gas companies. PDVSA lost three oil supertankers to PetroChina
Co Ltd, OFAC sanctions left the ships without insurance, since the insurance
companies did not want to be subject to sanctions, this led to the bankruptcy
of the joint venture between PDVSA and PetroChina.
joint venture was created in order to export PDVSA’s oil to China, and other
markets. Protection & Indemnity (P&I) insurance for vessels is
mandatory pursuant to Singapore law, without the P&I the oil tankers are
not able to navigate.
other hand, Rosneft announced the sale of its Venezuelan assets to a company
100% owned by the Russian Government, it also terminated all its operations in
Venezuela. The selling of the assets is a way to protect Rosneft from current
and future sanctions targeted against PDVSA.
latest escalation to enforce OFAC sanctions is the U.S. seizure of four Iranian
fuel tankers heading for Venezuela. A civil forfeiture complaint alleged that a
businessman of the Iranian Revolutionary Guard Corps, designated by the U.S. as
a foreign terrorist organization, arranged the fuel sale.
officials threatened the ship owners, insurers, and the captain of the four
Iranian fuel tankers with targeted sanctions to force them to hand over the
cargo. As a result, a total of 1.116 million barrels of petroleum are now in U.S.
custody, and the websites of the Iranian companies accused of shipping fuel to
Venezuela were seized by the DOJ.
Trump administration has been stepping up the pressure with targeted sanctions
and other measures on Venezuela to comply with sanctions against international
oil companies like PDVSA, Rosneft, ship owners, and any other entity or person
dealing with PDVSA’s crude oil.
the Atlantic, E.U. sanctions have proven to be far less aggressive and
targeted, with less notable enforcement proceedings against E.U sanctions
violations, and with no direct sanctions against PDVSA or towards oil tankers
delivering Venezuelan oil.
collateral effect of targeted U.S. sanctions designation encompasses
far-reaching implications since foreign companies must withdraw their business
with the sanctioned targetor they could also be barred from accessing the U.S.
financial system and economy. Material assistance and any transaction with a
company sanctioned by the U.S. could be seen by OFAC has assistance in order to
bypass the sanctions regime which is the case of the targeted sanctions against
of OFAC sanctions is possible, targeted oil tankers subject to PDVSA’s
sanctions have been delisted when the companies have agreed to expand its
risk-based sanctions compliance programs based on the OFAC public guidance
model. Moreover, the companies have also pledged to terminate participation in
the oil sector of the Venezuelan economy so long as the Maduro government
remains in power.
due to the complexity and ramifications of the U.S. sanctions regime against
energy companies like PDVSA and Rosneft, global financial institutions, energy
companies, and service providers should implement strong compliance programs to
prevent targeted sanctions by OFAC.