On June 18, 2020, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the addition of three individuals and eight entities to its list of Specially Designated Nationals and Blocked Persons (SDN List), pursuant to Executive Order 13850, for “their activities in or associated with a network attempting to evade United States sanctions on Venezuela’s oil sector.” OFAC also identified two vessels as blocked property belonging to the designated persons and issued a general license authorizing wind-down activities with certain of the designated persons, as well as an FAQ regarding the general license. Finally, OFAC announced the delisting of two entities previously included on the SDN List for operating in the oil sector of the Venezuelan economy.
The actions are the latest in a string of recent designations targeting entities involved in the Venezuelan oil sector, which has been a particular focus for OFAC of late. The latest actions offer a number of insights for companies doing business with Venezuela and operating in the oil and shipping industries more broadly. We highlight three key takeaways below.
- Designated Companies Sought to Structure their Dealings in a Sanctions Compliant Manner
According to media reports, Libre Abordo SA (Libre Abordo) and Schlager Business Group (Schlager), the two entities at the center of the alleged scheme, believed their dealings did not violate US sanctions and in fact made “legal revisions” to the oil-for-food agreement underpinning their dealings to “make sure it did not violate US sanctions.” The companies reportedly believed their actions did not violate US sanctions because of an OFAC general license authorizing the supply of certain humanitarian goods to Venezuela, including food. The fact that Libre Abordo and Schlager took a number of measures to promote compliance with US sanctions, but were ultimately designated, demonstrates the complexity of US sanctions and the importance of consulting with experienced counsel prior to engaging in conduct that may present sanctions risks.
- OFAC Issues Rapid Delisting of Entities and Vessels
In the same press release in which OFAC announced the new designations it also announced the delisting (removal from the SDN List) of two shipping companies and two vessels owned by those entities. The entities were designated on June 2, 2020 for “operating in the oil sector of the Venezuelan economy.” According to OFAC, “both companies have committed to enhanced risk-based sanctions compliance programs based on the model OFAC has recommended in its published guidance and pledged to cease involvement in the oil sector of the Venezuelan economy so long as the Maduro regime remains in power.”
While OFAC has delisted a number of entities previously designated for operating in the Venezuelan oil sector, these delistings are notable for the rapid pace at which they occurred (just over two weeks from the entities’ initial designation). See our earlier blog post about the delisting of several Chinese shipping entities and an affiliated individual, with some background on the delisting process. OFAC has repeatedly stated in the Venezuela context that “U.S. sanctions need not be permanent” and are “intended to bring about a positive change of behavior” and that “removal is available for individuals and entities … who, among other things, take concrete and meaningful actions to restore democratic order, refuse to take part in human rights abuses, speak out against abuses committed by the illegitimate Maduro regime, cease involvement in the oil, gold, financial, and defense and security sectors of the Venezuelan economy, or combat corruption in Venezuela.” The applicable delisting policy differs under other sanctions programs.
The very rapid two week delisting of these entities and vessels demonstrates the high priority that OFAC has placed on the delisting process in this instance, in the wake of rumors and concerns in the market about significant targeting of vessels that have served Venezuela and possible increases in global shipping rates.
- OFAC Authorizes Certain Wind-down Activities for Maritime Shipping Companies
In conjunction with the announced designations, OFAC published General License 37 authorizing certain activities “ordinarily incident and necessary to the wind down of transactions” with two shipping companies and two vessels involved in the alleged scheme. The license adds that “entry into any new commercial contracts” with the identified entities and vessels is not authorized under the license.
Similarly, new FAQ 834 states that “Non-U.S. persons may wind down transactions with the persons or vessels listed in … GL 37 without exposure to sanctions under E.O. 13850, provided that such wind-down activity is consistent with GL 37.” OFAC issued a similar FAQ in conjunction with General License 36 (authorizing certain wind-down activities involving Rosneft Trading S.A. and TNK Trading International S.A.), but has declined to issue a similar FAQ for certain other general licenses under the Venezuela Sanctions Program, creating some ambiguity for non-US persons considering the secondary sanctions risks in engaging in activity that may be covered by a general license.