On January 28, 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) designated Petroleos De Venezuela, S.A. ("PDVSA") as a Specially Designated National ("SDN") pursuant to Executive Order (“E.O.”) 13850 for operating in the oil sector of the Venezuelan economy.  In addition, the definitions of “Government of Venezuela” in E.O.s 12692, 13808, 13827, and 13850 have been amended to include PDVSA. 

As a result of these actions, all PDVSA property and interests in property subject to U.S. jurisdiction are blocked, and U.S. persons are prohibited from engaging in any unlicensed transactions involving PDVSA, its property, or its property interests.  This also means that entities PDVSA owns by 50% or more, or otherwise controls, are considered blocked persons and subject to all the same restrictions as PDVSA except as otherwise noted by a general license.

The designation was accompanied by eight general licenses that authorize certain activities related to PDVSA and its subsidiaries.  Many of these authorizations are set to expire in the following months.  Generally speaking, the general license framework allows companies to maintain certain large-scale operations while preventing PDVSA from receiving U.S. funds and payments for these activities.  Secretary of the Treasury Mnuchin also announced that “[t]he path for sanctions relief for PDVSA is through the expeditious transfer of control to the Interim President or a subsequent, democratically elected government.” 

The general licenses reference several companies that are owned or controlled by PDVSA, and that are now considered blocked persons except where otherwise noted by the general licenses:

• PDV Holding, Inc. (“PDVH”):  PDVH is a Texas-based subsidiary of PDVSA that, through its subsidiaries, operates oil refineries and oil and gas pipelines in the U.S.
• CITGO Holding, Inc. (“CITGO”):  CITGO is a Texas-based subsidiary of PDVH that—through its subsidiaries such as CITGO Petroleum Corporation (“CITGO Petroleum”)—refines, markets, and transports fuels, lubricants, petrochemicals, and industrial products through its subsidiaries.
• Nynas AB (“NYNAS”):  NYNAS is a Swedish manufacturer of bitumen and other petrochemical-based products.  NYNAS is owned in equal parts by Neste Oil and PDVSA. 

Accordingly, CITGO Petroleum is now considered a blocked person and transactions with CITGO Petroleum are prohibited unless authorized by a general or specific license.  The eight new general licenses and pre-existing general licenses, however, create a complex framework authorizing companies to maintain, wind down, or enter into certain business with CITGO Petroleum and PDVSA, subject to various wind-down periods.  We are available to discuss the applicability of these general licenses and their conditions to a specific activity.  In the meantime, we have outlined the major wind down and other authorizations applicable to the forwarding and shipping industry below.

30-Day Wind Down Period (Authorizations Expire February 28, 2019)

• General PDVSA Wind Down (GL 12(b)):  Companies are authorized to maintain or wind down existing business involving PDVSA and its subsidiaries, provided the underlying operations and agreements existed prior to January 28, 2019.  To the extent payments are being made to or for the direct benefit of PDVSA, however, those payments need to be transferred into appropriate blocked accounts at U.S. banks.  Companies should work with their U.S. banks to determine how to handle blocked payments.
  • The term “maintenance” includes the entrance into new contracts after January 28, 2019, as long as the new contracts are consistent with an existing business arrangement, agreement, or transaction history between the parties.

60 Day Wind Down Period (Authorizations Expire March 29, 2019)

• U.S. Employees and Contractors (GL11(a)):  There is an extended wind-down period available for U.S. employees and contractors of non-U.S. entities located in countries other than the U.S. authorizing the maintenance or wind down of business involving PDVSA or its subsidiaries, provided the operations or agreements were in place before January 28, 2019. 
• Rejecting U-Turn Transactions (GL 11(b)):  U.S. banks are authorized to reject, rather than block, U-Turn transactions involving PDVSA.  “U-Turn transactions” are USD funds transfers where the only nexus to the U.S. is that the USD funds pass through a U.S. bank for clearing.  To qualify as a U-Turn transaction, the remitter, remitting bank, beneficiary, and beneficiary’s bank must be non-U.S. persons located outside the U.S.  By having a transaction rejected rather than blocked, the parties have a second chance to route a payment in a manner that does not involve USD or U.S. banks. Once this GL expires, banks will be required to block these U-Turn transaction transfers. 

90 Day Wind Down Period (Authorizations Expire April 28, 2019)

• Importation of Petroleum from PDVSA (GLs 7(b) and 12(a)):  Companies are authorized to import petroleum and petroleum products from PDVSA and its subsidiaries.  All payments to or for the benefit of a blocked person other than CITGO Petroleum or other subsidiaries of PDVH and CITGO must be placed into a blocked account.  Accordingly, payments to and from CITGO Petroleum for PDVSA-related petroleum imports are authorized until April 28, 2019, provided the other conditions of the license are met. 

180 Day Wind Down Period (Authorizations Expire on July 27, 2019)

• Dealings with PDVH, CITGO, and NYNAS (GLs 7(a) and 13(a)): Companies are authorized to engage in transactions with CITGO Petroleum and other subsidiaries of PDVH, CITGO, and NYNAS that do not otherwise involve PDVSA.  This would include, for instance, the movement of crude oil originating from a non-PDVSA source.  All payments to or for the benefit of a blocked person other than CITGO Petroleum (and other PDVH or CITGO subsidiaries) must be placed into a blocked account.
• Exempt Projects in Venezuela (GL 8): The following companies can engage in transactions and activities ordinarily incident and necessary to operations in Venezuela involving PDVSA and its subsidiaries.  Where one of these exempt companies is a party to the transaction, U.S. forwarders and other companies would be authorized to provide services ordinarily incident and necessary to the exempt company’s operations in Venezuela. 
  • Chevron Corporation
  • Halliburton
  • Schlumberger Limited
  • Baker Hughes, a GE Company
  • Weatherford International, Public Limited Company

Open-Ended General Licenses:

• Purchasing Refined Petroleum Products in Venezuela (GL 10):  U.S. persons located in Venezuela can purchase refined petroleum products for personal, commercial, or humanitarian uses from PDVSA and its subsidiaries.  This authorization includes the purchase of refined petroleum products to fuel aircraft and vessels but does not include commercial transactions where petroleum products are purchased simply for resale, transfer, or export.

Please note, the general licenses may have additional conditions not mentioned below, so we recommend you review any applicable general licenses before engaging in any PDVSA-related transaction.  In particular, GLs 8 and 12 prohibit the exportation of diluents from the U.S. to Venezuela without a specific license.

For companies in the forwarding and shipping sectors, the major takeaways are the following:

• (1) Enhanced Scrutiny:  The general licenses all have specific conditions, so any activity with PDVSA or its subsidiaries (including PDVH and CITGO) should be reviewed carefully.
• (2) General Wind Down: Companies are authorized to wind down PDVSA-related operations and agreements until February 28, 2019, subject to certain conditions.
• (3) Extended U.S. Employee and Contractor Wind Down:  An extended wind-down period for U.S. employees and contractors working for non-U.S. firms in third countries authorize the wind down of PDVSA-related operations until March 28, 2019, subject to certain conditions.
• (4) U-Turn Transactions:  Banks will begin blocking U-Turn transactions involving PDVSA on March 28, 2019, so foreign companies should develop appropriate procedures for routing authorized PDVSA-related payments outside the U.S.
• (5) Importing Petroleum:  Companies are allowed to import petroleum from PDVSA and its subsidiaries into the U.S. until April 28, 2019, subject to certain conditions.
• (6) PDVH/CITGO:  Companies can continue doing business with CITGO Petroleum and other PDVH or CITGO subsidiaries until July 27, 2019, provided that PDVSA is not otherwise involved in the transactions and the other conditions of the general license are met.
• (7) U.S. Activity in Venezuela:  Companies can still purchase refined petroleum from PDVSA within Venezuela as long as the purchase is not for commercial resale, export, or transfer of the petroleum.  This authorizes purchasing refined petroleum for fueling purposes.
• (8) Authorized Operations in Venezuela:  The five named companies in GL 8 are authorized to continue PDVSA-related operations in Venezuela until July 27, 2019.  Forwarders can provide services to these five named companies during this time if those services are ordinarily incident and necessary for the operations, as long as the applicable GL conditions are met. 
• (9) PDVSA Payments Blocked:  Except where otherwise noted, companies should not be transferring any funds to PDVSA or its non-U.S. subsidiaries.  Companies should take care that payments to or for PDVSA are being transferred to a blocked account.

We hope this is helpful, and please do not hesitate to contact our office at 202.342.5277 or egreenberg@gkglaw.com if you have any questions.

Under the current Antitrust laws, large companies seeking to merge must file a Hart-Scott-Rodino Report with the Federal Trade Commission (FTC) or the Department of Justice (DOJ) describing the proposed transaction.  The respective antitrust agencies then review the information in the report and, within a given time period, must inform the parties to the transaction whether they will approve the transaction.  In many instances, the antitrust agencies and the companies involved will negotiate modifications to the proposed merger resulting in a spin-off of part of the business in a manner that will lessen the chance of harm to competition and thus, avoid litigation.

Under current law, the DOJ or FTC may sue to enjoin a proposed merger.  In such a suit, the government must show that the merger would substantially harm competition.  Senator Klobuchar, the ranking Democrat on the Senate Judiciary Committee, has proposed legislation that would reallocate the burden of proof from the government to the merger parties.  Under the proposed legislation, the companies proposing the merger would be required to prove that the transaction would not substantially lessen competition.  This legislation presents an interesting conflict for associations in industries with both large and small competitors.  Large companies, whose mergers are more likely to have a significant impact on competition, are more likely to oppose the legislation than smaller companies. Associations would be wise to alert those members who may be affected by this proposed legislation.

For further information, please contact Steve Fellman (sfellman@gkglaw.com) or David Monroe (dmonroe@gkglaw.com).

Over the past several years, there have been many examples of the need for companies acting as forwarders, and NVOCCs and customs brokers to properly vet the trucking companies they utilize in order to be assured that those companies are competent, have trained drivers and appropriate safety ratings from the Federal Motor Carrier Safety Administration and also possess adequate insurance coverage. There have been many examples of situations where persons injured have filed suit not only against the trucking company but also against the forwarder, broker or other intermediary who engaged the trucker. That is particularly the case in those situations where the trucking company does not have sufficient assets to cover the judgments that have been issued, some of which have resulted in multimillion-dollar awards.

Civil actions initiated by injured parties are not, however, the only reason why it is important to carefully review the background of trucking companies before retaining them. Among other things, there is a growing trend by various states to pass legislation that makes the parties who have engaged trucking companies responsible, financially, in situations where the trucker defaults on its obligations to its driver employees or even independent owner-operators.

For example, the State of California recently enacted a bill (SB-1402) that makes intermediaries and shippers liable to pay any judgments or assessments arising out of a trucker’s nonpayment of wages or expenses, inappropriate deductions, penalties for unpaid unemployment insurance or other judgments in favor of the drivers. This law, which just went into effect in January 2019, requires the California Division of Labor Standards Enforcement to post on its website each month a list of port drayage motor carriers who have been found to owe their drivers unpaid wages and expenses, failed to remit payroll taxes or paid workmen's compensation coverage, or who have misclassified owner-operators as independent contractors rather than as employees. The legislation further provides that anyone using one of these motor carriers after its name appears in the list "shall share with the motor carrier or the motor carrier’s successor all civil legal responsibility and civil liability owed to a port drayage driver for port drayage services obtained after the date the motor a carrier appeared on the list…."

The theory behind this legislation is that imposing this liability on customers of the offending motor carriers will cause them to cease using these companies and protect the rights of the drivers. This is not an insignificant issue, as drivers have been awarded more than $48 Million in the past several years against the trucker. This new liability imposed by SB-1402 now provides a mechanism by which forwarders, brokers and shippers could be compelled to pay those judgments if the trucker defaults.

Another recent and related trend by various states relates to the premiums for workers compensation insurance. There have been several recent illustrations where insurers have included the payments made by forwarders to trucking companies as if the drivers were employees of the forwarder for the purpose of determining unemployment compensation premiums. In a case that is currently pending in a New Jersey state court of appeals, a trial court determined that the insurer was entitled to demand of its ensured forwarder information pertaining to all of the compensation paid to its underlying truckers. The forwarder had challenged this demand on the basis that the trucking companies were independent contractors, each of whom was separately liable to comply with state law requiring unemployment insurance coverage, and that the forwarder should not be liable to cover those costs. The case is entitled, Fournier Trucking, Inc. v. New Jersey Manufacturer’s Insurance Company (Sup. Ct. NJ, Dkt. No. BER-L-2953-16). Although the court has not yet decided whether the forwarder is responsible for all of those premiums, the insurance carrier will now undoubtedly make that demand. Consequently, the litigation of the forwarder’s potential responsibility for covering unpaid insurance compensation premiums is going to remain an issue of growing concern.

These examples illustrate the importance of making sure that motor carriers, whether large or single owner-operators, have been vetted carefully, that they have all the necessary operating licenses, satisfactory safety records, and all required insurances. Otherwise, there is a significant risk that those costs could be passed along to the forwarder, broker or other intermediary.

There are a number of companies that provide this vetting service. One notable example is Ex Works, which provides this service free of charge for members of the National Customs Brokers and Forwarders Association of America, Inc. Regardless of which vendor is chosen, however, any cost that may be incurred in reviewing the background of the trucking companies utilized pales in comparison to the risk of not doing so.

If you have any questions, please contact us at 202.342.5277 or egreenberg@gkglaw.com.