Russian Oil Price Cap Update: Evasion Alert, and Russian Bunkers

A UKPandi news source deals with Circular 05/23: Russian Oil Price Cap update: Reporting requirements, Evasion alert and Russian origin bunkers.

UK Reporting Requirements

On 4 December 2022, the UK Government issued General Licence INT/2022/2469656 (“GL”) to implement the EU/G7 price cap in respect of Russian origin crude oil, which was amended on 3 February 2023 to implement the separate price cap in respect of petroleum products.

Insurers domiciled or operating from the UK (“UK insurers”) who wish to rely upon the GL are required to keep a record of the maritime transportation of Russian origin crude oil or petroleum products from Russia to a third country or from a non-Russian port or via ship-to-ship (“STS”) transfer operations.  

These record-keeping requirements are broader than under the terms of the General Trade Licence (“GTL”) issued by the UK Government in March 2022, which permits UK insurers to provide insurance for vessels calling at Russian ports or transiting Russian territorial waters providing they keep a record of each occasion the GTL is used, as the vessel does not need to have called at a Russian port or have transited Russian waters. An International Group (IG) Circular dated 18 May 2022 advised shipowner members that they are required to notify their UK domiciled P&I clubs or UK domiciled subsidiaries, branches, and management companies of Clubs  of each occasion they call at a Russian port or transit Russian territorial waters to enable their club to rely upon the GTL.

EU import ban

In addition Members are reminded that under Article 3m of EU Council Regulation 833/2014, it is prohibited, subject to certain very limited exceptions and derogations,  to import Russian crude oil / oil products into the EU. This prohibition covers any leg of a voyage, ie the prohibition does not cover just the vessel which delivers the cargo to the EU. If Russian cargo banned by the EU is imported into the EU, then any vessel which has had that oil / products on board will be in breach of sanctions. The same article also prohibits financing or any financial assistance, thus including insurance, for the maritime transport of such cargo to the EU. The cesser or termination provisions of the insurance may further be triggered by a sanctions breach so the member may find itself without insurance cover. There may be a defence available for the vessel and its owner and insurer if they did not know, and had no reasonable cause to suspect, that the cargo was destined for the EU.

Thus, for example, where Vessel A has Russian oil on board and transfers it to Vessel B, and that oil or some of it is delivered to the EU, both vessels and potentially their insurers will have breached EU and possibly other sanctions. This follows from the principle that the EU sanctions look at the cargo in question – rather than merely looking at the carrying vessel or vessels.

In summary:

• Voyage details must be provided to the Club for all Russian port calls and transits of Russian waters.
• For the transport of Russian origin crude oil or petroleum products that fall within the price cap, voyage details must be provided irrespective of whether or not the vessel calls at a Russian port or transits Russian waters AND an attestation must also be provided to the Club.
• Any vessel involved in STS operations of Russian crude oil/oil products where the cargo ends up in the EU risks being in breach of EU sanctions. Thorough due diligence is thus recommended to ensure a defence is available to an inadvertent  sanctions breach.

We have updated our circular of 18 May 2022 as attached at the end of this circular (the new text is highlighted in bold) to advise members about the reporting requirements under the GL in respect of the price cap.

Possible evasion of the Russian Oil Price Cap

Volatility in worldwide crude oil and products prices may increase the risk of Russian cargoes being traded above the applicable price caps. Clubs are unable to provide cover for the carriage of a cargo sold at a price above these caps, so Members looking to lift Russian oil cargoes should ensure that they exercise due diligence and obtain appropriate attestations from their charterers to confirm that the cargo has been purchased at a below cap price, particularly since an increase in prices to above cap levels may cause shippers and others involved in the sale chain to seek to obfuscate the true value of the cargo.

Members are also reminded that as per our Circular 17/22, the price cap requirements apply not just at the point of loading but “from the time [the cargo] is loaded until it has cleared customs at the port of destination”, i.e., throughout the time it is on board the vessel. Members are therefore strongly advised to implement due diligence procedures to satisfy themselves that the relevant attestations remain valid throughout the venture such that the cargo is not sold at a price over the cap levels either upon shipment or at any time during the voyage should it be traded onwards, perhaps in reaction to further market movements. There will be no  Club cover if a sale above the relevant cap price take place at any point during the voyage. Members are also reminded that price cap attestations in the format indicated in our circular dated 09/12/2022 must be provided to the Club before the first voyage with cargo subject to the price cap. Clubs may require an updated attestation at the beginning of subsequent policy years if Members continue to carry price capped cargoes.

On 2 March 2023 US issued a Tri-Seal Compliance Note: Cracking Down on Third-Party Intermediaries Used to Evade Russia-Related Sanctions and Export Controls warning about the evasion of Russia-related sanctions and export controls via use of third-party intermediaries and transshipment points to circumvent restrictions and obscure the true identities of Russian end users. The Compliance Note also highlights common evasion tactics and identifies red flags:

• The use of corporate vehicles to obscure ownership, source of funds and/or countries involved, particularly sanctioned jurisdictions
• A customer’s reluctance to share information about the end use of a product, including reluctance to complete an end-user form
• The use of shell companies to conduct international wire transfers
• A payment coming from a third-party country or business not listed on the end-user form
• The use of personal email accounts instead of company email addresses
• Transactions involving entities with little or no web presence
• Routing purchases through certain transhipment points to illegally redirect restricted items to Russia or Belarus. Such locations may include China (including Hong Kong and Macau), Armenia, Turkey, and Uzbekistan

On 17^th April 2023 the US Office of Foreign Assets Control (OFAC) published an alert highlighting the possible evasion of the price cap on crude oil, particularly involving oil exported through the Eastern Siberia Pacific Ocean (ESPO) pipeline and ports on the eastern coast of the Russian Federation such as Kozmino. Of particular note is the concern that some tankers may be manipulating their Automatic Identification Systems (AIS) to disguise the facts that the vessel has called at the port of Kozmino or other ports on the Russian Federation’s eastern coastline. Members are urged to read the alert in full: download (treasury.gov) and are also referred to our February 2022 circular on recent deceptive practices. Members are reminded of the importance of not turning off, “spoofing” or in any other way manipulating vessels’ AIS transmission.

Attached circular: Circular 03/22: General Trade Licence dated 17 March 2022 – Reporting of vessel calls to Russia and transiting Russian territorial waters (ukpandi.com)

We have updated our circular of 18 May 2022 as appended and linked at the end of this circular as follows:

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Source: UKPandi

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