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Client Alert- Treasury Issues Preliminary Guidelines on the Russian Oil Price Caps

Sep 12, 2022
  • FisherBroyles News

A copy of this Client Alert can be found HERE .

On September 9, 2022, the Department of the Treasury has issued Preliminary Guidance on Implementation of a Maritime Services Policy and Related Price Exception for Seaborne Russian Oil (“Preliminary Guidelines”).

Treasury notifies that the United States, as part of the G7 and the EU coalition, will implement policy banning maritime transportation of Russian crude oil effective December 5, 2022, and maritime transportation of petroleum products effective February 5, 2022. The ban on services, will have an important exception: jurisdictions or actors that purchase seaborne Russian oil at or below a price cap to be established by the coalition (the “price exception”) will expressly be able to receive such services. The price cap has three objectives: (i) maintain a reliable supply of seaborne Russian oil to the global market; (ii) reduce upward pressure on energy prices; and (iii) reduce the revenues the Russian Federation earns from oil after its own war of choice in Ukraine has inflated global energy prices.

To implement this policy, the Office of Foreign Assets Control (“OFAC”) anticipates issuing a determination pursuant to Executive Order (E.O.) 14071 (“Prohibiting New Investment In And Certain Services To The Russian Federation in Response to Continued Russian Federation Aggression”), which will (i) permit the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of services related to the maritime transportation of seaborne Russian oil, if the seaborne Russian oil is purchased at or below the price cap and (ii) prohibit such services if the seaborne Russian oil is purchased above the price cap.

Importers that purchase seaborne Russian oil at or below the price cap can continue to receive maritime services related to that oil, and service providers in countries implementing the maritime services policy can provide those services for shipments of seaborne Russian oil sold at or below the price cap.

Service providers for seaborne Russian oil will not face an OFAC sanctions enforcement action, provided that the service provider obtains certain documentation or attestations that the purchase price of the oil is at or below the price cap. OFAC will issue additional guidance on how the level of the price cap will be published and updated.

Importantly, the prohibitions for important of Russian oil and oil products imposed by the E.O. 14066 will remain in place alongside the U.S. implementation of the maritime services policy and price exception.

Treasury emphasizes that all supply chain participants will be required to comply with recordkeeping and attestation process in addition to standard due diligence a service provider may have in place for sanctions risk, including the risk of violation of the maritime services policy through evasion. The type of recordkeeping and attestation requirements depend on whether the actors have regular access to price information and are divided into three tiers.

This recordkeeping and attestation process is designed to create a “safe harbor” for service providers from liability for breach of sanctions in cases where service providers inadvertently deal in the purchase of seaborne Russian oil above the price cap due to falsified records provided by those who act in bad faith and make material misrepresentations. More detailed guidelines will be published by OFAC. Importantly, U.S. persons will be required to reject participating in an evasive transaction or a transaction that violates the maritime services policy and price exception, and report such a transaction to OFAC.

Preliminary Guidelines provide details of potential red flags for price cap evasion, such as: evidence of deceptive shipping practices; refusal or reluctance to provide requested price information; unusually favorable payment terms, inflated costs, or insistence on using circuitous or opaque payment mechanisms; indications of manipulated shipping documentation, such as discrepancies of cargo type, voyage numbers, weights or quantities, serial numbers, shipment dates, etc.; newly formed companies or intermediaries, especially if registered in high-risk jurisdictions; and abnormal shipping routes.

OFAC expects service providers to retain relevant records for five years. Persons that make significant purchases of oil above the price cap and knowingly rely on service providers subject to the maritime services policy, or persons that knowingly provide false information, documentation, or attestations to such a service provider, will have potentially violated the maritime services policy and may be a target for a sanctions enforcement action.

Treasury and the U.S. Government broadly anticipates working with other members of the coalition implementing the maritime services policy to enforce the price cap, including by sharing information.

 

For questions regarding this article or other issues relating to sanctions, contact Gene M. Burd at [email protected] or by phone at 202-750-0529.

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