Special Report: UAE emerges as hub for companies helping Venezuela avoid U.S. oil sanctions

[December 29, 2020]  By Luc Cohen and Marianna Parraga

NEW YORK (Reuters) - In June, the United States imposed sanctions on half a dozen oil tankers managed by established shipping firms. It was a major escalation of American attempts to choke off Venezuela’s oil trade.

Within weeks, a little-known company based in the United Arab Emirates took over management of several tankers that had been shipping Venezuelan oil. The vessels got new names. And then they resumed transporting Venezuelan crude.

The company, Muhit Maritime FZE, is one of three UAE-based entities identified by Reuters that have shipped Venezuelan crude and fuel during the second half of this year. Their role emerges from an examination of internal shipping documents from Venezuela’s state oil company as well as third-party shipping and vessel tracking data. Tankers managed by the firms have transported millions of barrels of oil produced by state-run Petroleos de Venezuela SA, or PDVSA, since June, according to the internal documents and a publicly available shipping database.

The activity shows how the UAE, one of Washington’s closest allies in the Middle East, is a hub for companies helping Venezuela skirt American sanctions. Washington hopes to topple socialist President Nicolas Maduro by cutting off the oil-rich nation’s crude exports.

The three companies - Muhit Maritime, Issa Shipping FZE and Asia Charm Ltd - did not respond to letters sent to their listed addresses, or to emails sent to their registered email addresses. Reuters was unable to determine the ultimate owners of the three. Their ownership and management details aren’t listed in the UAE’s publicly-available corporate registry.

The role of the three companies in transporting Venezuelan oil underscores how a raft of little-known entities has filled the void as Washington has sought to deter established buyers and shipping companies from facilitating the South American country’s crude exports.

Hitherto unknown companies surfaced this year as major buyers of Venezuelan crude, Reuters reported in November. Most of those buyers were registered this year by a Moscow-based trading firm. Russia is one of Venezuela’s closest allies.

Now, a similar pattern is emerging with companies involved in transporting the oil. The three UAE entities identified by Reuters have built their fleets since early 2019 with vessels that have since made mainly Venezuela-related journeys, according to Refinitiv Eikon vessel tracking data and Equasis, the shipping database. New York-based Refinitiv is part-owned by Reuters’ parent company, Thomson Reuters.

The three companies’ shipments of Venezuelan crude and fuel represented about 3.9% of the South American country’s total oil exports in 2020 through Dec. 18. That oil was worth around $208.5 million at market prices for the country’s flagship crude grade, known as Merey. Crude sales provide much-needed support to Maduro’s government, though Reuters could not determine how much was added to state coffers. PDVSA often sells its crude at steep discounts, and some of the proceeds go to pay down debt rather than generate cash.

“We are closely tracking these kinds of creative efforts by companies to evade sanctions,” a U.S. State Department spokesman said in response to questions about the UAE-registered firms. “Those behind shell companies would not be wise to consider themselves shielded from sanctions.”

The spokesman declined to comment on possible future sanctions, but added: “U.S. friends and adversaries alike should know that their companies, front companies, and tankers remain vulnerable to sanctions if they are complicit in activities that facilitate PDVSA’s exports abroad and the Maduro regime’s efforts to evade sanctions.”

The UAE government said in a statement that “a thorough and comprehensive investigation is fully underway into” Muhit Maritime, Issa Shipping and Asia Charm. That includes using recent legislative changes “designed to improve corporate transparency through a framework for reporting and registering beneficial ownership,” it said.

“The UAE takes its role in protecting the integrity of the global financial system extremely seriously. This means actively administering and enforcing economic and trade sanctions,” the government added.

A representative of the Fujairah Free Zone, where Issa Shipping and Asia Charm are based, said he was not aware of the two companies’ involvement in transporting Venezuelan oil. He said the authority is not responsible for policing the activities of companies registered there.

The authority responsible for the Jebel Ali Free Zone, where Muhit Maritime is based, did not respond to requests for comment.

Venezuela’s Information Ministry didn’t respond to a request for comment. The country’s oil ministry, its embassy in the UAE and state oil company PDVSA also didn’t respond.

Washington has accused another country under heavy sanctions, Iran, of using Emirati companies to facilitate crude exports. The U.S. Treasury has sanctioned more than half a dozen UAE-based entities this year, alleging they were involved in purchasing or brokering the sale of Iranian oil and petrochemical products in violation of its sanctions, and in some instances falsifying documents to conceal the origin.

Iran’s mission to the United Nations did not respond to a request for comment.

EXPANDING SANCTIONS

The United States significantly expanded Venezuelan sanctions in the aftermath of Maduro’s 2018 re-election, which was described by the United States and many other Western nations as fraudulent.

In January 2019, Washington imposed trade sanctions on PDVSA, the state-owned oil company. U.S. refineries, which had been the top purchasers of Venezuela crude, could no longer do business with PDVSA.

In early 2020, the United States blacklisted two units of Russia's state oil company Rosneft that had become key intermediaries for PDVSA. The units stopped lifting Venezuelan crude in March.

Then, in June, Washington sanctioned the vessels that it accused of transporting Venezuelan oil and their registered owners.

Determining who’s behind a tanker can be difficult. Oil tankers often are run by a management firm that is in charge of the crew and can administer freight contracts. The management company can be a separate entity from the registered owner, which is typically a special purpose vehicle that owns just that vessel. But it is also common for the manager to own the special purpose vehicle.

For most in the industry, the main point in using special purpose vehicles is to insulate owners and managers from liability, not avoiding law enforcement. Still, changes to a ship’s ownership and management registrations can blur who’s in control, especially if the vessel is registered in jurisdictions with loose disclosure requirements.

Until recently, companies based in Emirati free zones often weren’t required to disclose beneficial ownership, according to Lakshmi Kumar, policy director at Global Financial Integrity, a Washington-based think tank. Since October, new UAE rules require most types of Emirati companies to disclose beneficial owners to authorities. But the new rules don't require public disclosure, according to accounting firm PwC.

Among the vessels the U.S. Treasury sanctioned in June was an oil tanker called Euroforce, then managed by Greece-based ship operator Eurotankers Inc. The Treasury later lifted the sanctions on the vessels.

Between July and August, Muhit Maritime took over management of three other Eurotankers-operated vessels, according to Equasis, a database maintained by a group of national maritime administrations.

All three tankers had transported Venezuelan oil prior to the change in management, according to the internal PDVSA documents reviewed by Reuters.

A Eurotankers representative told Reuters the firm sold two of the tankers in the summer to Muhit Maritime. “We don’t have any kind of equity connection with the buyer,” he said. He didn’t say what Eurotankers did with the third ship; Equasis records show it too came under Muhit Maritime’s management.

The registered owners of the three ships also changed in July and August, Equasis shows. Two of the vessels’ registered owners list their addresses only as “Care of Muhit Maritime.” The third lists an entity in Monrovia, Liberia. None of the owners could be reached for comment.

A worker collects a crude oil sample at an oil well operated by Venezuela's state oil company PDVSA in Morichal, Venezuela, July 28, 2011. REUTERS/Carlos Garcia Rawlins

ASIA BOUND

The three tankers also got new names this summer, according to Equasis -- the Alsatayir, Almada and Alasfal.

A shipping document shows that on July 31, the newly rebranded Almada set sail carrying some 650,000 barrels of Venezuelan Boscan crude after a ship-to-ship transfer from the Alasfal off Venezuela’s coast.

Three weeks later, on Aug. 21, the Alsatayir loaded 650,000 barrels of Boscan crude in a similar ship-to-ship transfer. Together, those shipments were worth around $40 million based on market prices for Venezuelan oil at the time.

The Alsatayir and Almada proceeded to waters off Malaysia, where they transferred their cargoes onto other tankers at sea in mid-October, according to Refinitiv Eikon data.

The Alsatayir’s cargo was received by a tanker named the Afra Royal, according to the data and Emma Li, a Singapore-based analyst at Refinitiv. The Afra Royal proceeded to China's Qingdao port, where it offloaded 644,715 barrels on Nov. 5, Refinitiv Eikon data show. The ship’s listed owners and managers didn’t respond to requests for comment.

The vessel tracking data doesn’t make clear the ultimate destination of the Almada’s cargo. The Almada in October again changed its name as well as its registered owner and shipping manager, according to Equasis. Reuters was unable to identify who’s behind the new entities.

Reuters reported in June that 19.7 million barrels of oil arrived in China by way of ship-to-ship transfers in 2019, a process that disguised the true origin of the crude. China is a close ally of Venezuela.

A representative of China’s Ministry of Foreign Affairs said in a statement that Beijing was “not aware” of Venezuelan crude continuing to arrive in China. Nonetheless, China pledged to keep cooperating with Caracas and criticized Washington’s “unilateral” sanctions and attempted use of “long-arm jurisdiction.”

“WE CANNOT DO POLICING”

Muhit Maritime’s tanker transactions resemble earlier ones by the two other Emirati companies, Issa Shipping and Asia Charm.

Issa took over management of three very large crude carriers from Greece-based Altomare SA between January and May of this year, according to Equasis. Altomare didn’t respond to a request for comment.

The three ships are the only vessels in Issa Shipping’s fleet, the database shows. Issa Shipping was established in the second half of 2019, according to the Fujairah Free Zone Authority.

The three supertankers - the Kelly, Marbella and Rene - each transported nearly 2 million barrels of Venezuelan crude and fuel in the first half of 2020 after coming under Issa’s management, a batch of internal PDVSA shipping documents show.

Those PDVSA documents list destinations for the ships: The Rene was bound for China, the Kelly for Asia and the Marbella for Fujairah in the UAE. Reuters was unable to locate where the oil ended up.

Asia Charm, meanwhile, took over management of a tanker from Finland's Lundqvist Rederierna AB in July 2019, according to Equasis.

Dick Borman, quality and safety management advisor at Lundqvist Rederierna, said selling the tanker “was simply a business decision” because it no longer fit the fleet’s age profile.

The paper trail shows some connections between the fleets of Issa and Asia Charm.

One tanker Asia Charm took over management of is now called the Yoselin. In recent months, the Yoselin has carried Venezuelan crude and fuel to other tankers off the country’s coast that then proceeded to export it. Among the ships that took on Yoselin’s oil are the Marbella, Kelly and Rene, now run by Issa. Yoselin is one of 15 vessels in Asia Charm’s fleet, Equasis shows. All 15 have exclusively made Venezuela-related voyages, Refinitiv Eikon vessel tracking data show.

Another thing Asia Charm and Issa Shipping share in common: Both are registered to an address in the same office block in Fujairah, according to Equasis. The Yoselin’s registered owner did not respond to a request for comment sent via an email address for Asia Charm.

The Fujairah Free Zone Authority’s director general, Sharief Al Awadhi, said the authority is aware of the identities of the beneficial owners of all companies registered there, including Issa Shipping and Asia Charm, but that it does not publicly disclose that information. He said Issa Shipping is owned by an individual on his own behalf; he declined to identify him. Al Awadhi said that Asia Charm’s parent company was a Liberian firm of the same name.

Al Awadhi said Fujairah provides information about listed companies to law enforcement agencies if requested. He added that if there was any indication of rule-breaking, the authority would stop it.

"We're not here to be incubators for anybody who wants to play with international systems and law," he said. But the authority isn’t responsible for monitoring the activities of companies registered in its jurisdiction, he said. "We cannot do policing.”

CARIBBEAN RETURN

Washington hasn’t succeeded in ousting Maduro, but the U.S. sanctions have crushed Venezuela’s oil sector. Exports plummeted by a third in 2019 to around 1 million barrels a day. By this October, they hit a decades-low level of 359,000 barrels a day.But Caracas keeps trying to move the crude. In November, daily exports nearly doubled, thanks to the emergence of new, little-known customers.

The rebound also followed a wave of changes of control in tanker fleets.

Thirty-eight of the 75 tankers that transported Venezuelan crude or fuel between July and November got new owners, managers or both in 2020, according to internal PDVSA documents and Equasis.

Many of the new owners or managers were little-known companies such as Muhit Maritime. Before this year’s shipping sanctions, the bulk of tankers handling Venezuelan crude were owned by established shipping companies.

The 38 vessels hauled what amounts to just over half of Venezuela’s total exports from July to November, according to PDVSA documents. That oil was worth just over $1 billion based on the estimated price of Venezuela's flagship crude grade, Merey, at the time of the exports.

Ships managed by the three Emirati-based companies are now in the Caribbean.

The Marbella, managed by Issa Shipping, journeyed to Venezuela and loaded nearly 2 million barrels in early December. The Kelly was scheduled to transport the same amount between late December and early January, PDVSA documents show.

Muhit Maritime’s fleet is back in the neighborhood, too, Refinitiv Eikon data shows. As of mid-December, its Alsatayir was 48 km (30 miles) off Venezuela's north coast.

And anchored off the Paraguana Peninsula is the Nabiin. Muhit Maritime took over that vessel in November, according to the Equasis database. It used to go by another name, the Euroforce - one of the tankers Washington sanctioned in June.

(Reporting by Luc Cohen in New York and Marianna Parraga in Mexico City; Additional reporting by Rania El Gamal, Lisa Barrington and Aziz El Yaakoubi in Dubai, Matt Spetalnick in Washington, DC, Michelle Nichols in New York, Chris Scicluna in Malta, Muyu Xu in Beijing, Lefteris Papadimas in Athens, Mircely Guanipa in Maracay, Venezuela and Jonathan Saul in London.)

[© 2020 Thomson Reuters. All rights reserved.]

Copyright 2020 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.