WASHINGTON, D.C. -- Under questioning from Senator Robert Menendez of New Jersey -- who had sent him a bipartisan letter on Citgo from the Senate in April -- Treasury Secretary Steven Mnuchin told Senators that Russia's state-controlled oil company Rosneft's stake in Citgo would get a review from the Committee on Foreign Investment in the United States (CFIUS).
"This is an issue that I am aware of, not just from your letter but from other people who have raised the concern," said Mnuchin. "I can assure you that this, like any other national security issue, will be reviewed at CFIUS, and as appropriate, where national security issues [are] also discussed in other confidential settings. At the appropriate time, I will be more than happy and as issues progress on a classified basis, we would be more than happy to have a classified discussion."
After an investigation by the Latin American Herald Tribune (LAHT) helped uncover the transaction in December and testimony by LAHT editor Russ Dallen before Congress on March 28 (Testimony below), Senate leaders had joined House leaders in calling for a CFIUS review of Venezuela's hypothecation of Citgo to Russia's Rosneft.
“I applaud Secretary Mnuchin’s recognition that the recent PDVSA-Rosneft-Citgo deal amounts to a U.S. national security issue, as we have urged. Given the breadth of Citgo’s refineries, pipelines, and terminals throughout our country, a future Venezuelan default on its debt obligation to Russia’s Rosneft could have very serious implications for U.S. energy infrastructure," said Representative Jeff Duncan, Chairman of the House Foreign Affairs Subcommittee on the Western Hemisphere. "I am glad to hear this issue will receive a CFIUS review and the attention it warrants, and I look forward to working with the Trump Administration on this matter in order to promote greater U.S. energy security.”
House Foreign Affairs Western Hemisphere Ranking Member Albio Sires concurred.
“I am glad Secretary Mnuchin is taking the PDVSA-Rosneft-Citgo deal seriously and plans on taking the necessary steps to protect U.S. security and energy interests," said Sires. "Venezuela is on the brink of collapse thanks to Maduro’s reckless and violent actions and the U.S. needs to take the proper precautions to protect our energy infrastructure from Russian and Venezuelan influence.”
Six prominent Senate leaders joined House Foreign Affairs leaders in calling upon U.S. Treasury Secretary Steven Mnuchin -- as head of the Committee on Foreign Investment in the United States (CFIUS), a panel comprised of cabinet-level officials charged with assessing such transactions for threats to national security -- to review the Russian government controlled Rosneft's transaction for half of Citgo in the U.S.A.
“Over the course of the last year, Russia has escalated its attacks on the United States in various ways including cyber campaigns intended to sow distrust of our democratic institutions and violating arms control agreements,” the senators wrote to Secretary Mnuchin. “Russia has also expressed strong opposition to existing sanctions. As such, we are extremely concerned that Rosneft’s control of a major U.S. energy supplier could pose a grave threat to American energy security, impact the flow and price of gasoline for American consumers, and expose critical U.S. infrastructure to national security threats.”
In December LAHT discovered and publicized that PdVSA had mortgaged 49.9% of CITGO as collateral for a loan it took last year from Rosneft. Rosneft could also hold other PdVSA debt that would give it a majority stake in CITGO.
Rosneft was quick to reply. Igor Sechin, the Rosneft's head, said the company received a stake in Citgo as collateral in its deal with Venezuela's state oil company PDVSA.
Sechin said it got the collateral as Rosneft made prepayment to PDVSA for oil supplies and that there was nothing illegal in the deal.
"Rosneft has not invested in U.S. company Citgo," Sechin said in Berlin. "Rosneft made a prepayment to PDVSA for oil supplies and got the Citgo stake as collateral under that deal."
Rosneft, a majority Russian government-owned oil company run by a former deputy of Russian President Vladimir Putin, loaned Venezuela $1.5 billion for the 49.9% share of Citgo in the U.S. (just under the majority change of control that would have to be reported).
Venezuela’s current economic crisis is undermining PdVSA’s financial stability, increasing the possibility of default.
CITGO operates a notable portion of the nation’s energy infrastructure with 48 petroleum product terminals in 20 states, three refineries in Texas, Louisiana and Illinois, three fully-owned Texas pipelines, and six partially-owned pipelines.
Senator Bob Menendez of New Jersey, one of the signers of the letter, expressed his concern, as his state of New Jersey has within it the Citgo Trembley Point facility in Linden.
“Russia has used cyberattacks to disrupt energy grids in Ukraine. Likewise, Putin has used the Russian oil and gas industry to manipulate energy prices in Eastern European economies. We cannot let that happen here in the United States,” Democratic Senator Menendez of New Jersey said. “We cannot give Putin any opening to affect the flow of oil or toy with Americans’ prices at the pump. And we cannot play Russian roulette with America’s energy infrastructure. The risk to our national security and our economy is not one I’m willing to take.”
U.S. sanctions were imposed on both Rosneft and its head Igor Sechin in retaliation to Russia’s 2014 invasion of Ukraine and its growing aggression towards the U.S. and its allies.
“Russia’s ongoing efforts to interfere in the affairs of countries around the world is not up for debate,” said Menendez. “That’s why we must be vigilant about any attempts by Russia to gain any foothold in our country by any means, including through efforts that could put Russia in control over any of America’s critical energy infrastructure. Such access would pose a real threat to U.S. national security and have a potentially devastating economic impact on American consumers.”
Senate Joins House in Call for Review
In addition to Menendez, the call for review by CFIUS was cosigned by Senators Marco Rubio (R-Fla.), John Cornyn (R-Texas), Dick Durbin (D-Ill.), Bill Cassidy (R-La.) and Ted Cruz (R-Texas).
The letter followed on the heels of a similar call from Chairman Jeff Duncan and Ranking Member Albio Sires of the House Committee on Foreign Affairs Subcommittee on the Western Hemisphere which called on the U.S. Department of the Treasury to give the CITGO matter immediate review.
“The United States has a clear national interest in achieving energy independence," said Chairman Duncan, of the bipartisan House call for a CFIUS investigation. "The recent loan agreement between Russia and Venezuela involving Citgo refineries, pipelines, and terminals presents a clear threat to U.S. energy security."
POLICY RECOMMENDATION #1: CFIUS ANALYSIS OF CITGO
During his Testimony, Dallen had recommended that Congress call on CFIUS to review the Citgo transaction.
"A preliminary search of the database of the Committee on Foreign Investment in the United States (CFIUS) does not show that the purchase of Citgo by Venezuela has ever undergone a CFIUS review. Under the Exon-Florio Amendment, if a party has never availed itself of the voluntary CFIUS notification and review process, there is no limitations period on the President’s authority to investigate a past transaction, which since the 2007 Foreign Investment and National Security Act includes “energy security.”
"Second, we have gained access to only 2 pages of the Rosneft contract with Venezuela. We do not know what the trigger is for Rosneft to take control of their 49.9% of Citgo or even if that triggering event has already happened. (Our Citgo investigation sparked additional lawsuits from Canadian goldminer Crystallex [which this weekend had its $1.4 billion judgment against Venezuela from the World Bank’s International Center for the Settlement of Investment Disputes (ICSID) upheld and registered by the U.S. Federal District Court in Washington, D.C.] and ConocoPhillips against Venezuela, PDVSA, Citgo, and Rosneft under Delaware’s Uniform Fraudulent Transfer Act. Those plaintiffs are seeking discovery in an attempt to find out similar information which Venezuela has so far blocked with an appeal to the U.S. Federal Court of Appeals.)"
"A CFIUS review would be able to access the Venezuela-Russia contract to know if Rosneft is already the owner of Citgo."
"Third, in October 2016, in an attempt to stave off default, PDVSA cajoled holders of $2.8 billion of its $7.2 billion in maturing debt to swap into $3.4 billion of new PDVSA debt collateralized by the other 50.1% of Citgo. It is possible that Rosneft owns a large share of those bonds, with the possibility of giving Russia majority control of Citgo. Again, a CFIUS committee would be able to get access to those details to be able to determine the potential owners of that other half of Citgo," Dallen testified.
"Allowing Venezuela to fall further into the hands of drug kingpins -- with close relationships with Cuba, Iran, Hamas, Hezbollah, Russia and China -- intent on doing us harm while sitting on top of the world’s largest oil reserves must not be an option. Likewise, allowing Venezuela to fall further into anarchy and chaos will only open the door to further death and destruction, heightening regional insecurity and Latin American instability. If the United States is unable to bring democracy to its own backyard, what chance does it have for bringing it to the rest of the world?"