Venezuelan Sanctions: Actions for any Compliance Officer managing Latin America

By Scott Lane (Hong Kong), Maria Rili (Manila) & Eduardo Reusche (Panama), The Red Flag Group® 

The economic distress in Venezuela has continued after the United States imposed additional sanctions in August, targeting its oil industry and President Nicolas Maduro’s administration as a response to the ongoing political and humanitarian crisis in the country. 

However, in what appears to be a response to the latest sanctions, authorities in Venezuela arrested and detained six top executives of a US-based oil company on corruption charges.

The six executives from Citgo, including US citizens, were arrested on allegations that they attempted to defraud the country through a US$ 4 billion deal and placing the oil giant “in danger”.

Analysts believe that the arrests are attempts by the Maduro administration to tighten grip and maintain full control of strategic oil and gas companies given that the oil industry is the only source of cash in the country.

The prosecutor’s office in Venezuela has filed corruption charges against 50 individuals linked to the state-owned, Petróleos de Venezuela S.A. (PDVSA) - the parent company of US-based Citgo. 

The government on the other hand contend that the arrests are not political but are part of the effort by President Maduro to rid the country of corruption and corrupt elements. 

On 24 August 2017, Executive Order 13808 was issued by President Donald Trump. The Order aims to take additional steps in relation to actions of the Venezuelan government involving serious abuses of human rights and freedoms.  

The White House stated that the additional sanctions consist of “carefully calibrated measures to deny the Maduro dictatorship a critical source of financing to maintain its illegitimate rule and protect the United States financial system from complicity in Venezuela’s corruption.” 

Under this Order, any American individual or entity is prohibited to finance, carry out transactions or other types of dealings with any subject of the sanctions.  

Since 2010, at least twelve multinational companies have pulled out of the country and shut down operations as a response to various illegal judicial seizures of facilities. These include companies such as; Louis Vuitton, Mattel, Brahma, Air Canada, General Mills, Bridgestone Americas, and others.  Other multinationals such as Halliburton and Schlumberger, as well as Ford Motors, and Spanish clothing store Zara, opted to deconsolidate their Venezuelan operations from their financial results to prevent losses that would lower the profits of the company. More others have simply minimised their operations by closing a few stores. In May 2017, General Motors announced the deconsolidation of its Venezuelan subsidiary after judicial authorities unexpectedly seized its operation facilities.  

In early November 2017, the European Union (EU) approved an arms embargo halting EU defence companies from selling military artillery to Venezuela. The EU indicated that it will also consider imposing targeted sanctions, asset freezes and travel restrictions to Europe on certain individuals and entities considered to be supporting the Maduro’s administration. 

The continuing market restrictions and worsening exchange rate controls in the country’s plummeting economic and political environment has reached a point where many companies no longer can sustain their businesses.  

Compliance can drive the dialogue. The action for compliance officers is to engage in the business management, talk to them about the restrictions and know that if you are going to continue in that market, then you need to implement additional measures. There is a great opportunity for compliance to be engaged at the seat of the table and provide advice and counsel to help the company continue its operations or shut them down. You can be providing advice on the continuance of operations and managing the sanctions risks as well as the possible exit. 

Know your customers, distributors, partners and supply chain. Understanding your third parties is essential. Every person or entity you deal with should be screened and screened daily.  You should have a monitoring system to alert you to changes or additions to the sanctions programmes. Checking and then monitoring these second and third parties, and then building contingencies around them should they be added to any lists will be important. Make sure you look at every supplier, including your landlord.  It is rather unfortunate if you can’t even pay your landlord rent if they are on a sanctions list or related to someone who is.  If you are going to continue to operate in the country – start a full risk assessment on compliance immediately. 

Extractions need to be managed. If you are going to exit the business, then we suggest that you consider very carefully that exit plan when it comes to Compliance. Some contracts will need to be reviewed and reviewed very carefully.  Ongoing obligations might need to be carefully maintained for a period of time as these could also create challenges. 

We can help. The Red Flag Group® helps companies working in Venezuela manage the risks of trading with individuals and entities on (or near) a sanctions list.  We have worked on numerous screening projects that address these complex areas, often on a reactive ‘bulk’ screening basis. 

We can assist by: 

  • checking and screening third parties against all globally-recognised lists of sanctioned entities using our IntegraWatch® | Compliance Screening database; 
  • reviewing the operations of third parties with enhanced due diligence through our IntegraCheck® | Integrity Due Diligence reports; 
  • providing analysis and local insights of any issues are identified as well as suggesting possible steps to consider; 
  • continuously monitoring and assessing the 30 risk areas throughout the supplier lifecycle – from supplier onboarding, to ongoing monitoring, to supplier renewal or end of life through Supplier Integrity®, an enterprise software solution which centralises supplier data allowing you to make faster decisions while also minimising risks. 

*This article was updated after publication to include the arrest of six executives from Citgo, including US citizens

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