In June 2022, the Group of Seven (“G7”) countries – Canada, France, Germany, Italy, Japan, the United Kingdom and the United States – decided to pursue a policy aimed at capping the price of Russian oil. In December 2022, the G7 countries, joined by Australia and the supranational European Union (together, the “Price Cap Coalition”) officially implemented measures to ban a series of services related to maritime oil transport crude of Russian origin, whatever the price. paid for this oil exceeded a capped threshold. The aim of the price cap was to maintain the flow of Russian oil to world markets, as it is vital to the global economy, while simultaneously reducing revenues going to Russia and, therefore, the capacity of the Russia to maintain its actions in Ukraine. The Price Cap Coalition implemented similar measures for petroleum products in February 2023.
Over the past year, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has intensified its enforcement of price caps by sending requests for information to maritime industry participants and imposing sanctions on entities involved in the transportation of Russian crude oil. sold above the ceiling price. The Price Cap Coalition has expressly supported OFAC’s actions, including in an October 2023 statement noting that “Russian oil tax revenues were down 45%” and confirming a focus “on supporting compliance and application.[1]
The Price Cap Coalition, which includes the U.S. government, also continually issues guidance to promote compliance with price caps. For example, alongside the October 2023 statement, the Price Cap Coalition issued an advisory to the maritime oil industry and related sectors, outlining the risks associated with maritime oil trade and offering recommendations as best practices .[2] OFAC also recently updated its guidance on the implementation of the price cap policy, setting new expectations for maritime transportation service providers.[3]
In this first article, we focus on OFAC’s recent enforcement activities and its guidance on compliance requirements.
Price caps explained
On November 21, 2022, OFAC issued a determination pursuant to Executive Order 14071 implementing the price cap policy for crude oil of Russian origin.[4] OFAC issued a similar determination on February 3, 2023 for petroleum products of Russian origin.[5]
The determinations prohibit “the export, re-export, sale, or furnishing, directly or indirectly, from the United States, or by U.S. persons, wherever located, of any of the covered services to any person located in the Russian Federation. “U.S. Persons” means collectively U.S. citizens and permanent residents, U.S. corporations (including foreign branches), and any person located in the United States (which generally includes U.S. branches of foreign entities, as well as any person physical located in the United States). United States). “Covered Services” includes commodity brokerage, financing, shipping, insurance, flag and customs brokerage as it relates to the maritime transportation of Russian crude oil and petroleum products.
The determinations authorize the provision of these covered services when the price of the underlying crude oil or petroleum products does not exceed the relevant ceiling price. The U.S. Department of the Treasury subsequently issued additional determinations defining the relevant price caps, as agreed to by the Price Cap Coalition, which remain in effect as of this writing. The ceiling price for crude oil is USD 60 per barrel;[6] the ceiling price of the rebate on crude oil products is USD 45 per barrel;[7] and the ceiling price for premium petroleum products relative to crude petroleum products is USD 100 per barrel.[8]
OFAC’s Recent Enforcement Activities Related to Price Caps
Since October 2023, OFAC has imposed price cap sanctions on more than 10 entities based in Liberia, Hong Kong, and the United Arab Emirates (“UAE”).[9] These entities include ship owners who transported Russian crude oil above the price ceiling, a Russian government-owned ship manager, and “discreet” active traders of Russian oil with opaque ownership structures. OFAC also identified the affected vessels as stranded goods.
In all cases, OFAC imposed sanctions pursuant to Executive Order 14024, which broadly authorizes OFAC to designate persons operating in the maritime sector of the Russian economy and persons belonging to the Russian government. OFAC prohibits U.S. persons from participating in most transactions with designated persons (specially designated nationals and blocked persons, or “SDNs”), while requiring all U.S. persons to block any ownership or interest in property owned by SDNs that come into their possession or control. . U.S. persons may be subject to civil and criminal penalties for violating this prohibition/requirement.
The recent sanctions send a strong message to the shipping industry that OFAC actively reviews all shipping-related intelligence and monitors for indications of price cap violations. Indeed, at the end of 2023, OFAC sent notices to shipping management companies located in around 30 countries, requesting information on 100 vessels that it suspected of violating the price cap.[10] This followed earlier warnings from OFAC to U.S. service providers regarding sanctions evasion practices, particularly involving oil exports via the East Siberian and Pacific Ocean Pipeline and East Coast ports of Russia.[11] According to OFAC, it is aware that non-U.S. companies use a range of deceptive practices to obtain covered services from U.S. persons, such as:
- Providing incomplete or false documentation to disguise the true sale/purchase prices;
- Offer bundled pricing that merges oil and/or petroleum product prices with ancillary costs such as shipping, freight, customs, and insurance to mask the true sale/purchase prices; and or
- Manipulation of the Automatic Identification System (“AIS”), which is a ship tracking technology, to hide ship-to-ship transfers or true ports of call, in a practice known as “spoofing”. identify “.
Additional Considerations
In our second article on this topic, we will examine recent OFAC guidance that created a safe harbor process through which U.S. service providers can rely on a recordkeeping and attestation process of “ good faith” to avoid strict liability for unintentional sanctions violations, as well as an advisory opinion. published by the Price Cap Coalition highlighting several compliance and due diligence recommendations for the marine oil industry, designed to promote compliance with restrictive price cap measures.
Please stay tuned.
[1] “Statement by the G7 and Australia on measures taken to impose price caps on oil and petroleum products of Russian origin transported by sea» (October 12, 2023), https://home.treasury.gov/news/press-releases/jy1796.
[2] Coalition on price caps, “Consultancy for the maritime oil industry and related sectors Best practices in response to recent developments in the maritime oil trade» (October 12, 2023), https://finance.ec.europa.eu/document/download/bf46eab4-771e-4944-a071-74e2b18fe0ca_en?filename=price-cap-coalition-advisory-maritime-safety_en.pdf.
[4] OFAC, “Prohibitions on certain services related to the maritime transport of crude oil originating in the Russian Federation» (November 21, 2022), https://ofac.treasury.gov/system/files/126/determination_11222022_eo14071.pdf.
[5] OFAC, “Bans on certain services related to the maritime transport of petroleum products originating in the Russian Federation, November» (February 3, 2023), https://ofac.treasury.gov/system/files/126/determination_eo14071_20230203.pdf.
[6] US Treasury Department, “Determination Pursuant to Sections 1(a)(ii), 1(b) and 5 of Executive Order 14071 Price Caps for Crude Oil Originating in the Russian Federation,» https://ofac.treasury.gov/media/929776/download?inline.
[7] US Treasury Department, “Determination in accordance with Sections 1(a)(ii), 1(b) and 5 of Executive Order 14071 Price Caps on Petroleum Products Originating in the Russian Federation,» https://ofac.treasury.gov/system/files/126/price_cap_determination_20230203.pdf.
[8] Ibid.
[9] US Treasury Department, “Treasury Sanctions Entities for Transportation Oil Sold Above Coalition Ceiling Price to Restrain Russia’s War Machine» (October 12, 2023), https://home.treasury.gov/news/press-releases/jy1795; US Treasury Department, “Treasury sanctions other shipping companies and oil-carrying ships sold above coalition price ceiling» (November 16, 2023), https://home.treasury.gov/news/press-releases/jy1915; US Treasury Department, “Treasury imposes additional sanctions linked to price caps» (December 1, 2023), https://home.treasury.gov/news/press-releases/jy1940; and the U.S. Department of the Treasury, “Treasury tightens price cap with new sanctions and updated guidelines» (December 20, 2023), https://home.treasury.gov/news/press-releases/jy2008.
[10] Reuters, “US investigates 30 ship managers for alleged violations of Russian oil sanctions» (November 13, 2023), https://www.reuters.com/business/energy/us-sends-notices-30-ship-managers-over-suspected-russia-oil-violations-2023-11-13/.
[11] OFAC, “Alert on possible circumvention of Russian oil price cap» (April 17, 2023), https://ofac.treasury.gov/media/931641/download?inline.
