Mexican Companies Face Risk of Secondary Sanctions From Mexican President’s Offer to Sell Gasoline to Venezuela

Morgan Lewis

Mexican President Andrés Manuel López Obrador recently announced that Mexico is willing to ship gasoline to Venezuela notwithstanding the threat of US sanctions against such activity. Mexico’s plans could be subject to US secondary sanctions even if the potential transactions do not have a US nexus and be subject to US primary sanctions if they do. The US has expanded existing sanctions on Venezuela in response to Venezuelan President Nicolás Maduro’s authoritarian leadership—a presidency the US does not formally recognize.

Mexico’s stated offer to conduct oil- and gas-related transactions with Venezuela through Pemex, Mexico’s state-owned petroleum company, poses considerable risk not only to US-based oil and gas services companies that operate in or with Mexico, but also to Mexican and other foreign companies and vessels providing material support to the Maduro government for transactions that have no nexus to the United States. The latter was emphasized on June 18 by the prohibition to conduct business with Mexican companies and individuals involved in a “sanctions evasion network.” According to the US Treasury Department, Office of Foreign Asset Controls (OFAC), the three individuals, eight entities, and two vessels were engaged in activities designed to circumvent US sanctions under the flag of “humanitarian activities” that were touted as aid to Venezuela but in fact were intended to support President Maduro.

US oil and gas companies, which are subject to US primary sanctions, must take precautionary measures to ensure their products and property are not re-exported to Venezuela through any intermediary in order to ensure compliance with US sanctions. Confirming the final destination of any oil and gas export remains paramount.

Under Executive Order 13850, issued by President Donald Trump on November 1, 2018, the US government can and has sanctioned foreign trading companies, individuals, and vessels that have “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any activity or transaction” involving a blocked or designated person. For example, in March 2020, OFAC designated TNK Trading, a Swiss entity, for brokering the sale and transport of Venezuelan crude oil.

On January 28, 2019, the Treasury Department designated Petroleos de Venezuela, S.A. (PdVSA), Venezuela’s state-owned oil and gas company, as operating in the oil sector of the Venezuelan economy, subjecting PdVSA to US sanctions. While there have been certain general licenses issued or specific licenses granted by OFAC for a narrow range of activities, many trading activities remain prohibited. The recent OFAC action against Mexican individuals, vessels, and companies follows earlier designations of additional vessels and trading companies, including Russian enterprises.

Mexican companies may bristle at the thought of feeling like they can be compelled to comply with US sanctions, perceiving themselves to be beyond OFAC’s jurisdiction. However, even if they are not subject to OFAC jurisdiction for purposes of an enforcement action, they can be added to the list of Specially Designated Nationals (SDN), making them untouchable to US companies and other foreign persons who do not wish to risk becoming an SDN.

With the US emphasis on isolating the Maduro regime, Mexican entities participating in such transactions could find themselves added to the SDN list, and cut off from the US economy.

This issue is likely to be on the agenda of the current summit between President Lopez Obrador and President Trump, which includes the US Mexico Canada Agreement and a number of other trade related topics.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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