OFAC Issues Russian Oil Service Restrictions, Guidance Ahead of Price Cap
The Office of Foreign Assets Control this week issued a determination that will prohibit certain shipping services related to Russian oil, and said it will soon announce a price cap on Russian fuel alongside its G-7 partners. The agency also issued a guidance outlining how it plans to implement the price cap -- including compliance requirements for U.S. service providers -- and three related general licenses.
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The determination, effective 12:01 a.m. EST Dec. 5, will apply to a range of maritime transport services involving Russian oil, including trading or commodities brokering, financing, shipping, insurance, flagging and customs brokering except when the price of the covered oil is below the price cap. OFAC said the cap will be set after a "technical exercise conducted" by the Price Cap Coalition, which includes G-7 members, the EU and Australia.
Although the prohibition takes effect Dec. 5, U.S. service providers can provide the covered services for Russian crude oil as long as it's loaded onto a vessel prior to 12:01 a.m. EST on Dec. 5 and unloaded at the port of destination before 12:01 a.m. EST on Jan. 19. OFAC also said emergency services, health, travel or liability insurance for individual crew members are not prohibited by the directive, nor are "classification, inspection, bunkering and pilotage services."
Shipping, freight, customs and insurance costs are "not included in the price cap and must be invoiced separately and at commercially reasonable rates," OFAC said. The agency added that it will "view the billing of commercially unreasonable shipping, freight, customs, or insurance costs as a sign of potential evasion of the price cap." If and when the price cap changes, OFAC said it will "authorize a period" that will allow service providers to complete their ongoing services "in accordance with the previous price cap."
OFAC also established a "safe harbor" protocol to protect U.S. service providers from penalties if they "comply in good faith with recordkeeping and attestation process." Under this process, each party in the supply chain must confirm that the Russian oil has been bought at or below the price cap. This is designed to "shield" service providers from "strict liability for breach of sanctions," OFAC said, including in cases "where service providers inadvertently deal in the purchase of Russian oil sold above the relevant price cap owing to falsified or erroneous records provided by those who act in bad faith or make material misrepresentations."
OFAC's guidance includes a sample attestation that U.S. providers can require others to sign. Although the agency stressed that service providers aren't required to use a "particular form of attestation to be afforded the safe harbor," they must retain relevant records for five years. Certain providers, including insurers, can meet safe harbor requirements by using a "sanctions exclusion clause."
Even with an attestation, U.S. service providers should "continue to implement and perform the standard due diligence practices that are customary for their industry," OFAC said. The agency's guidance lists due diligence expectations for three tiers of service providers, with the first tier covering traders and commodities brokers; the second tier covering financial institutions, ship and vessel agents, and customs brokers; and the third tier covering ship owners and carriers, insurers and flagging registries.
In order to qualify for safe harbor, Tier 1 service providers generally must maintain information showing that the Russian oil was purchased at or below the price cap. Tier 2 providers generally must "request and retain price information" or a signed attestation from their customers, said the guidance, which includes slightly differing due diligence expectations for each type of provider. Ship owners or carries under Tier 3 must generally "obtain and retain an attestation from their customer/contractual counterparty regarding compliance with the price cap to be afforded the safe harbor," while insurers can qualify for a safe harbor through a sanctions exclusion clause in its policies or contracts. A Tier 3 flagging registry can qualify for safe harbor "through the use of contractual terms with or signed attestations from their customers."
OFAC also issued three new general licenses that authorize certain activities under the service prohibitions. General License 55 authorizes, through 12:01 a.m. EDT Sept. 30, 2023, certain transactions related to crude oil originating from the Sakhalin-2 project, an oil and gas development business based in Russia. The license only authorizes transactions if the Sakhalin-2 byproduct is "solely for importation into Japan." General License 56 authorizes certain transactions related to Russian oil shipping services for imports of the oil into Bulgaria, Croatia or certain landlocked EU member states. General License 57 authorizes certain transactions related to vessel emergencies, including for the health or safety of the crew or environmental protection. This includes transactions related to safe docking and anchoring, emergency repairs and salvage operations. The license authorizes the offloading of Russian oil only if necessary to address vessel emergencies.