As a follow up to our alert of September 7th regarding the G7 proposal to implement a price cap with respect to seaborne Russian-origin crude oil and petroleum products, the Office of Foreign Assets Control (OFAC) issued preliminary guidance on the “maritime services policy” and “price exception” for the transport of seaborne Russian oil globally. Similar to the end of the wind-down period under the EU embargo, this new policy will come into effect on December 5, 2022 for crude oil and February 5, 2023 for petroleum products.
Specifically, the supply, directly or indirectly, from the United States or by a United States person, of services related to the maritime transportation of seaborne Russian oil or petroleum products will be prohibited if the oil is sold above the price cap, which has yet to be set. The price will be set by “a coalition of countries.” Those “jurisdictions or actors” that purchase seaborne Russian oil at or below the price cap (the price exception) will expressly be able to receive otherwise prohibited services.
To use the price exception, purchasers will have to demonstrate to US service providers that the purchase complies with the cap and maintain records (going back five years) to demonstrate. The applicable recordkeeping and attestation processes would depend on the category of actor, as described below:
- “Tier 1 Actors,” such as refiners, importers, commodities brokers, traders, and customs brokers must retain and share price information and provide an attestation to Tier 2 and 3 Actors.
- Records to be maintained include invoices, contracts, receipts and account payable documentation.
- OFAC recommends that Tier 1 Actors update their contracts, documentation and recordkeeping practices accordingly to demonstrate the itemized price for the purchase, excluding additional costs and expenses.
- “Tier 2 Actors,” such as banks and shippers, should “request and retain” records and attestations of compliance with the price cap.
- Records to be maintained include invoices, contracts, receipts, account payable documentation and attestations.
- OFAC recommends Tier 2 Actors provide guidance to relevant personnel and update requests for information and bills of lading to include price cap attestations.
- “Tier 3” service providers (Tier 3 Actors), such as insurers, reinsurers, insurance brokers and P&I Clubs should obtain “attestations” from policyholders to abide by the cap.
- OFAC recommends for Tier 3 Actors to update their policies and terms and conditions and provide guidance to personnel.
All actors are advised of certain “deceptive shipping practices” that may indicate an effort to evade sanctions or circumvent the price cap policy. These include voyage or vessel irregularities, flag-hopping, and complex ownership or opaque management structures. OFAC highlights particular “red flags” of possible sanctions evasion, such as refusal or reluctance to provide price information, unusually favorable payment terms, inflated costs, insistence on using circuitous or opaque payment mechanisms, documentation discrepancies, newly formed companies and intermediaries, and abnormal shipping routes
Significant purchasers of oil above the cap who “knowingly” rely on subject (US) service providers, as well as persons who “knowingly” provide false information or attestations will violate the policy. Those service providers who reasonably rely on recordkeeping or attestation will enjoy “safe harbor.” In other words, where a service provider without direct access to price information reasonably relies on a customer attestation, that service provider will not be held liable for potential sanctions breaches by someone who provides falsified records or makes a material representation.
If requested to participate in a transaction that does not comply with the price cap, US companies will be required to reject and report that request. Failure to report is a violation of OFAC regulations.
Meanwhile, the import of Russian-origin oil or petroleum products into the United States continues to be prohibited. As discussed in our alert dated March 10, 2022, the importation of Russian-origin crude oil, petroleum, and petroleum fuels, oils, and products of their distillation into other countries besides the United States is otherwise permitted.