On April 17, 2023, the United States Treasury Department's Office of Foreign Assets Control (OFAC) issued an alert warning U.S. persons about possible evasion of the price cap on Russian Federation origin crude oil, particularly involving oil exported through the Eastern Siberia Pacific Ocean (ESPO) pipeline and ports on the eastern coast of the Russian Federation.
In the alert, OFAC warns that U.S. ship owners and other service providers, including P&I clubs and flagging registries, may have been unknowingly providing covered services involving Russian oil purchased above the price cap, under circumstances where the non-U.S. persons involved in the exports may have provided incomplete or false documentation or used other deceptive practices. Deceptive tactics referenced by the alert include manipulation or "spoofing" of tanker Automatic Identification Systems (AIS) signals to disguise that those vessels called at ports on Russia's eastern coast, such as the port of Kozmino, or to mask ship-to-ship transfers of Russian oil.
OFAC also directed a portion of its alert to warn U.S. person commodities brokers and oil traders of possible evasion of the price cap, noting that counterparties may be failing to separately itemize shipping, freight, customs and insurance costs in order to obfuscate whether the purchase of Russian oil was made in compliance with the relevant price cap. In order to ensure that documents reflecting compliance with the price cap fall within the safe harbor, those costs must be invoiced separately from the purchase price of the Russian oil at commercially reasonable rates in order to demonstrate that the purchase of Russian oil or petroleum products was made at or below the relevant price cap.
OFAC is expected to vigorously enforce compliance with the Russian oil price cap. All providers of covered services subject to U.S. jurisdiction should evaluate their compliance and due diligence processes to ensure that they are adequately mitigating these risks.
We will continue to closely monitor developments in this space.
Originally published 19 April 2023
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