Price Cap Coalition implements latest Russian sanctions efforts

The Price Cap Coalition, which includes the EU, Australia, the UK and the US, has issued a “Compliance and Enforcement Alert” designed to call attention to the key evasion methods being used by Russia to evade the oil price cap imposed in December 2022.

The changes are designed to support the implementation of the Price Cap and disrupt circumvention. The intention is to reduce “opportunities for bad actors to use opaque shipping costs to disguise oil purchased above the cap”.

The changes will come into effect on February 19th in the UK and US and for cargoes loaded on or after February 20th in the EU.

One of the major changes is that annual attestations re price caps will no longer be acceptable. Attestations will have to be provided on a per-voyage basis. Where the cargo is transferred to another vessel via STS, this will constitute a new voyage, and will therefore require further attestations.

The US guidance emphasized that attestations received by shipowners from charterers or other contractual counterparts must be obtained prior to loading. The EU guidance says that “shipowners are required to do the necessary due diligence such that it would be reasonable to rely on the attestation they have been provided by their customer”.

The International Group said that attestations provided by shipowners to P&I clubs must be provided within 30 days of loading. No cover will be available unless an attestation is provided within this timescale.

It had been felt that some bad actors were getting round the price cap by shifting the price paid to “other items”. In an attempt to close this loophole, the requirement form the implementation dates will be that itemized price information for ancillary costs will have to be recorded by those entities with access to price information, and then provided to shipowners and P&I Clubs upon request. Shipowners must ensure they have a right to ancillary costs information within 30 days.

Accordingly, Members should include in their contracts appropriate provisions to enable them to exercise such rights. If Members fail to do so, this may affect their ability to discharge their own information obligations to their Club, and potentially jeopardise their P&I cover. P&I clubs are to ensure that shipowners obtain and share this information with them on request.

EU Regulation 833/2014 has been amended to provide that service providers should have the right, upon request, to itemized price information.

The IG said that Club Members “should therefore consider ensuring a right to such information within a much shorter timescale than 30 days, so as to be able to share the information promptly with P&I Clubs and other service providers”.

The itemised ancillary costs include:

  • the cost of insuring the shipment up until the buyer’s goods have been delivered at the port of destination.
  • the cost of shipping the freight via sea or waterway from the seller’s port to the buyer’s port of destination.
  • any other costs that demonstrate compliance with the general licence and provide assurance that the transaction is being conducted legally.
  • costs of packaging the exported items, any charges for loading the product onto transport and delivering the goods to the seller’s port, export taxes, customs duty and costs, and any transfer, handling and loading charges associated with loading the product onto the ship.

Members will also have to conduct appropriate due diligence on the reliability and accuracy of the information provided.

Parties engaged in Price Cap oil shipments were originally placed into one of three tiers. Tier 3 entities were those, including shipowners and P&I clubs, without direct access to information on the price of the cargo.

The UK and EU have now split tier 3 entities into tiers 3A and 3B:

  • Tier 3A entities comprise P&I Clubs, H&M insurers, cargo insurers, insurance brokers, shipowners, and ship management companies.
  • Tier 3B entities are reinsurers and financial institutions providing general financing facilities. The changes to the attestation model set out in the UK and EU guidance do not apply to 3B entities.

The release of the alert came just days after a UK Parliamentary committee warned that there was growing evidence of Russia’s evasion of the price cap. The committee called for more decisive action by the UK and its allies.

The UK report said that Russia was using the shadow fleet and buying old tankers through third parties as it avoided the price cap. AFP cited data showing that 179 shadow fleet tankers had loaded Russian oil in November 2023.

The new alert notes various evasion methods: false documents; opaque shipping; flag-changing; and voyage irregularities.

The alert warns that industry stakeholders involved in the Russian oil and oil products trade should consider the details and take steps such as developing trusted providers.

Industry stakeholders were instructed to pay “particular attention to evasion types. Evasion methods outlined in this alert could be seen separately or be interlinked and part of a broader set of illicit activity”.

One red flag could be ships shifting away from industry standard classification societies. The alert also recommends carefully checking insurance, making sure it covered the entire voyage, had been issued by “legitimate insurance providers,” and that there was sufficient coverage for international requirements.

https://www.american-club.com/files/files/cir_05_24.pdf

https://britanniapandi.com/wp-content/uploads/2024/02/Russian-Sanctions-Update-Britannia-02-2024-1.pdf

https://www.londonpandi.com/knowledge/circulars/5642/

https://www.swedishclub.com/news/circulars/p-and-i-circulars/russian-sanctions-update

Meanwhile, the EU has now clarified its position by adding wording to its FAQ18a: “Is it prohibited for an EU vessel to bunker Russian petroleum products?”

“The bunkering by an EU vessel of Russian petroleum products in Russia is possible provided this purchase is required to meet the essential needs of the purchaser in Russia (Article 3m paragraph 9), meaning bunkering for the operation of the tanker pursuing the voyage”.

Although the FAQ refers to the bunkering being possible if required for the operation of the “tanker” pursuing the voyage, this is in the context of an update to the “Oil Price Cap” FAQs and it is assumed that the position would be the same for all ship types.

https://ofac.treasury.gov/media/931036/download?inline

https://assets.publishing.service.gov.uk/media/6582b050ed3c34000d3bfc21/OFSI_OPC_Guidance_-_December_2023.pdf

https://finance.ec.europa.eu/publications/oil-price-cap_en

https://home.treasury.gov/system/files/136/Coalition-Statement-on-Price-Cap-Rule-Updates.pdf