Venezuela’s controversial plan to issue its own digital currency, theoretically backed by its oil reserves, in order to bypass US sanctions that have made dollar dealings difficult, has hit a roadblock.
The Venezuelan action was in part a response to Introduction Executive Order 13808, issued on August 24th last year. The US administration has responded to the Venezuelan plan with Executive Order 13827, which prohibits any US persons (including US shipowners and US banks) from engaging in any transactions relating to the so-called Petro.
The Petro crypto-currency was announced by President Maduro of Venezuela on January 9th. It was designed to create a new way to pay for goods and services and thereby minimize the impact of a previous US Executive Order that targeted financial dealings with the Venezuelan government and state-owned Petróleos de Venezuela SA.
A notice from US lawyers Freehill, Hogan & Mahar has raised the concern that non-US shipowners calling at Venezuelan ports could be affected by the prohibitions set out in the latest EO.
On March 23rd the National Institute of Aquatic Spaces (INEA), which acts as the Venezuelan maritime authority, issued a Circular to all shipping agencies in Venezuela, advising that payment for all services rendered to foreign flag vessels in future would have to be paid in Petros. This meant that foreign shipowners would have to pay for such services as pilotage and towage in Petros, although as of April 6th it appeared that the mechanism for Petros payments had not yet been implemented and payments were still being made in US dollars. Reportedly there was a possibility that the requirement for Petros payments might be extended to other maritime services provided by government agencies in Venezuela.
North P&I Club warned members that there was a risk that any advance paid by a foreign shipowner to local Venezuelan shipping agents in US dollars could be used by them to purchase the cryptocurrency, which would be a potential violation by the bank and also the shipowner, which has caused that violation by the bank.
Freehill Hogan & Mahar said that it was its understanding that foreign shipowners often remitted funds on account to Venezuelan ship agents in order to pay port charges and vessel disbursements. Such remittances were often made in US dollars and moved through the US banking system. “Since it now appears that a portion of such advances paid by foreign shipowners may be used by local Venezuelan shipping agents to purchase Petros, in order to make the required payments in that digital currency, U.S. banks would be engaged in a transaction “related to” Petros”, the lawyers said. They also noted that informal discussions with the US Office of Foreign Asset Control (OFAC) indicated that a bank which processed an advance payment to a Venezuelan port agent, a portion of which would be used to purchase Petros, would be in violation of EO 13827.
Furthermore, the foreign vessel owner who instructed the bank to make such a remittance, knowing that a portion of the remittance would be used in dealing in Petros, would also be in violation of E O 13827, because it would have caused a violation of the EO by a US bank.
The legal firm, and various P&I clubs, have advised that foreign shipowners trading with Venezuela should exercise caution to be certain that any remittances made through the US financial system in connection with their Venezuelan trade were not ultimately being used to purchase Petros.
“In the wake of EO 13827 and the INEA Circular, it is anticipated that U.S. banks will scrutinize all financial transactions relating to Venezuela with great care, particularly those involving shipping”, Freehill, Hogan and Mahar concluded.
American Club also noted in itsw alert that “Members are reminded that pursuant to American Club rules there is no cover for voyages where the extension of cover would violate or pose a risk of violating sanctions prohibitions and also that causing a violation could entail the imposition of sanctions or penalties. Members are accordingly reminded to proceed with extreme caution in dealing with or involving Venezuela and Venezuelan entities and to conduct additional sanctions compliance due diligence to ensure their own and the American Club’s compliance with sanctions prohibitions.”