Treasury's Office of Foreign Assets Control (OFAC) has issued an updated Maritime Oil Industry Advisory for both government and private sector actors involved in the global maritime industry.
Prepared by the Price Cap Coalition, (G7, the European Union, Australia, and New Zealand, the Advisory makes ":reccomendations" which are routinely ignored by the relevant players, notably buyers China and India,
The “strong” new sanctions could be unveiled as soon as next week, Treasury Secretary Janet Yellen told reporters earlier this week.
The United States and its allies will continue to respond with sanctions to Russia’s war with Ukraine, she said. “For more than two years, the coalition we formed in the immediate aftermath of Russia’s invasion of Ukraine has stood strong. Our novel price cap on Russian oil has restricted Russia’s revenues while keeping global energy markets well-supplied.”
Convenience Registries (Liberia, Maldives, Eswatini and the like), as well as firms located in G-7, EU or other third countries who disregard "advisories" when there is money to be made.
Panama’s President Jose Raul Mulino issued an executive decree on October 18 that would revoke the national registration of maritime vessels if they were sanctioned by the US, the United Kingdom, the United Nations Security Council or members of the European Union (EU).
John Feeley, who served as the US ambassador to Panama from 2015 to 2018, told Al Jazeera the move was a “welcome step by Panama’s new government, which is working hard to improve the business climate”.]
Bloomberg reports that rogue owners are increasingly turning to Russian insurers. Other policies are written by insurers Cameroon and Kyrgyzstan.
Russian National Reinsurance Co., or RNRC, reinsures policies against spills and collisions for tankers transiting the Danish and Turkish straits. The state-backed reinsurer is under sanctions from the US, UK and EU.
Until the Coalition is willing to take concrete action to halt the shipping in unsafe and underinsured vessels, likely after a catastrophic spill, these exercises are having little to no effect on the flow of Russian Oil into the world market.
The Price Cap Coalition is issuing this updated advisory to provide recommendations concerning specific best practices for “industry stakeholders
The Coalition is committed to facilitating conditions to allow for the responsible maritime trade of crude oil and petroleum products within a reputable, safe, and secure market. The Coalition is also committed to ensuring maritime safety, which may include safety-related exemptions or licenses issued by national authorities.
Recent developments in the maritime oil trade, described below, expose stakeholders to increased safety, environmental, economic, reputational, financial, logistical, and legal risks. This advisory outlines best practices stakeholders should adopt to reduce risks while promoting the safe flow of oil on the market.
These recommendations build upon previous guidance issued by Price Cap Coalition members such as the
By adopting the recommendations included in this advisory and previous guidance documents, stakeholders can continue to reduce their exposure to possible risks associated with recent developments in the maritime oil trade.
Geopolitical changes continue to impact and shape the world’s maritime oil trade, shifting trade routes, broadening the scope of shipping service providers, and, at times, resulting in a loss of transparency.
A “shadow” trade has become more pronounced, often involving actors and cargo affiliated with countries and/or persons subject to sanctions, or associated with other illicit activity. This shadow trade is characterized by irregular and often high- risk shipping practices that generate significant concerns for both the public and private sectors.
These heightened risks include, but are not limited to:
The following recommendations are best practices that the Coalition continues to encourage stakeholders to adopt, subject to applicable laws and regulations and, as appropriate according to their risk, based on: (i) their role; (ii) the information available to them; and (iii) the types of transactions in which they engage:
The shadow trade involves ships that may rely on unknown, untested, sporadic, or fraudulent insurance. Without legitimate, continuous insurance coverage, these ships may be unable to pay the costs of accidents in which they are involved, including oil spills, which entail tremendous environmental damage and safety risks and associated costs.
The Coalition encourages stakeholders to require that vessels have continuous and appropriate maritime insurance coverage for the entirety of their voyages.
The Coalition further recommends that stakeholders require vessels to be insured by legitimate insurance providers with sufficient coverage for Civil Liability Convention and Oil Pollution Act (CLC)12 liabilities.
If an industry participant is engaging with a ship that is not insured by such a legitimate insurance provider, the industry participant should conduct sufficient due diligence to ensure that the insurer can cover all relevant risks.
Such due diligence could include, as feasible, a review of an insurer’s financial soundness, track record, regulatory record, and/or ownership structure.
The information gathered by classification societies is useful in enabling insurers, port states, and other stakeholders to make informed decisions about the seaworthiness of vessels.
Some ships involved in the shadow trade have shifted away from industry standard classification societies, and instead use societies that are not a part of, or have been removed from, the International Association of Classification Societies.
The Coalition encourages14 stakeholders to ensure
counterparties receive classification from IACS member classification societies to ensure vessels are fit for the service intended.
Consistent with the International Convention for the Safety of Life at Sea (“SOLAS”), stakeholders should promote the continuous broadcasting of AIS throughout the lifetime of a voyage. If a ship needs to disable its AIS in response to a legitimate safety concern, the ship should document the circumstances that necessitated disablement.
Industry stakeholders should also vigilantly monitor irregular AIS patterns or data that are inconsistent with actual ship locations. By requiring that ships with which they engage use AIS in accordance with the SOLAS, industry stakeholders will improve their understanding of vessels’ activities, and reduce their exposure to criminal actors and associated risks.
If accessible, complement AIS Tracking with Long-Range Identification and Tracking (“LRIT”). In instances of AIS outages or suspected AIS manipulation, stakeholders such as flagging registries that have access to LRIT should use it to determine the true location of vessels, including, where feasible, those leased to third parties. For those industry stakeholders who have access to LRIT, combining AIS and LRIT is a best practice for mitigating risk.
Stakeholders should ensure all ship-to-ship (STS) activities are consistent with the MARPOL convention rules and regulations and any national regulations, as referenced in the IMO’s December 2023 Resolution on STS activities and the shadow fleet.
While STS transfers (the transfer of cargo between ships at sea) are often conducted for legitimate purposes, such transfers can also be used to conceal the origin or destination of cargo in circumvention of sanctions or other regulations.
Furthermore, STS transfers of crude oil or petroleum products outside of safe and sheltered waters entail heightened environmental and safety risks. Stakeholders should recognize these enhanced risks and, as appropriate to their role, conduct enhanced due diligence in the context of STS transfers, including the notification of STS oil cargo transfers as required by Annex I of the International Convention for the Prevention of Pollution from Ships (“MARPOL“), especially in areas at higher risk for illicit trading activity or AIS manipulation.
Industry stakeholders should also verify oil record logs hold an accountable record of cargo movements aboard vessels.
The inflation of shipping and ancillary costs (e.g., freight, customs, insurance), or the bundling of such costs, are tactics that may be used to conceal that Russian oil was purchased above the price cap.
The billing of commercially unreasonable or opaque shipping and ancillary costs should be viewed as a sign of potential price cap evasion.
Shipping, freight, customs, and insurance costs are not included in the price caps and must be invoiced separately and at commercially reasonable rates.
Industry stakeholders involved in the Russian oil trade should require an itemized breakdown of all known costs negotiated at the start of the trade transaction (e.g., port dues, freight, and insurance costs).
As of early 2024, coalition service
providers are required to request such information in certain circumstances, including, but not limited to, requests from relevant authorities. This entails industry stakeholders updating contractual terms and conditions with sellers or counterparts or adjusting invoicing models to show the price of the oil until the port of loading and the price for transportation and other services separately.
Industry stakeholders should carry out appropriate due diligence. Heightened diligence may be appropriate for ships that have undergone numerous administrative changes such as re-flagging, vessel name changes, and ownership changes or otherwise have elevated risk profiles based on age, incident history, deficiencies, and/or inspection history.
Industry stakeholders may also wish to conduct increased diligence when dealing with intermediary companies (e.g., management companies, traders, brokerages, etc.) that conceal their beneficial ownership or otherwise engage in unusually opaque practices. Such companies may be more likely to engage in deceptive practices and expose counterparties to heightened risks.
Industry stakeholders’ due diligence should be calibrated according to the specificities of their business and the related risk exposure. Due diligence is especially important where market assessments indicate that Russian oil prices exceed the price cap, and Coalition services are being used or sought.
If an industry participant is aware of potentially illicit or unsafe maritime oil trade, including suspected breaches of the oil price cap, they should report this to relevant authorities and, depending on national regulations, may be required to do so.
Stakeholders should reference the Coalition’s February 2024 Compliance and Enforcement Alert, which contains an annex with relevant reporting information.
By reporting these concerning behaviors, industry stakeholders can collectively help protect the trade from malign activity, while promoting safety and integrity across the market.
Flag States play a critical role in promoting safety and upholding agreed-upon standards across the maritime oil trade. In particular, Flag States are responsible for upholding standards and duties under SOLAS, MARPOL, STCW, and CLC.
Port State Controls (PSC) can also play an important role in ensuring that foreign flagged tankers entering ports (other than those of the Flag State itself) meet the requirements of international regulations and maintain high safety and environmental standards.
In line with the 2023 IMO resolution, flag states should ensure vessels are not conducting illegal operations or evading compliance with safety or environmental regulations, and PSCs and/or other relevant authorities should consider actions to address that behavior, e.g., detaining or preventing those vessels from entering national ports.
Coastal States should also ensure compliance with maritime safety and pollution prevention standards by monitoring ship-to-ship operations in their territorial waters and exclusive economic zone (EEZ). Industry stakeholders should engage with Flag States, Port States, Coastal States, and relevant authorities on vessels of particular concern.
If an industry stakeholder is aware of potentially illicit or unsafe maritime oil trade, including suspected breaches of the oil price cap, they should report this to relevant authorities, as referenced in Recommendation 7.
Those involved in the sale and brokering of tankers should remain vigilant of potential evasive or illicit purchase structures and end- uses, especially for aging tankers, including tankers previously designated for recycling.
While new participants may enter the industry, the Coalition strongly encourages stakeholders to conduct enhanced due diligence on these transactions, including ultimate beneficial ownership due diligence, and to understand if buyers or associated ship management companies have a previous association with vessels engaged in potentially illicit or unsafe behavior.
Appropriate due diligence should include obtaining information such as contact details, source of funds, and copies of identification of the buyer’s beneficial owner or owners. The Coalition recommends that this information be verified against third party databases, media, and market intelligence, and reviewed periodically, consistent with regulations of each jurisdiction and in line with Recommendation 6.
Stakeholders should be aware that the European Union has introduced measures to more closely monitor the sale of tankers to third countries and prevent their use in the transport of oil priced above the cap established by the Coalition.
Coalition members have taken a series of sanctions actions against illicit oil traders, opaque intermediaries, companies that own vessels, and vessels themselves.
Stakeholders should constantly monitor their exposure to ensure they are not interacting with sanctioned parties unless a relevant national authority has granted a license or exemption.
Stakeholders should consider not only checking counterparties and vessels against national sanctions lists, but also undertaking proactive investigations to ascertain sanctions exposure, including to understand whether their unsanctioned counterparties may have recently engaged with sanctioned entities.
Stakeholders should, where possible, deny attempts by sanctioned vessels or parties to enter port, conduct ship-to-ship transfers, and sell or buy tankers, and report these attempts to relevant authorities.
Stakeholders should be aware that owners and operators of sanctioned vessels may attempt to engage in deceptive practices to obfuscate their status, such as renaming, reflagging, obscuring their IMO number, or falsifying documents, increasing sanctions risk for non-sanctioned counterparties.
As appropriate, industry stakeholders should develop targeted training programs for their employees and associated partners focused on the risks of shadow fleet activities and deceptive practices.
These trainings should address topics such as
In addition, stakeholders should, where possible, prioritize open communication and collaboration to combat deceptive practices, including information and data sharing with industry partners.
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