U.S., EU, and UK Price Cap Sanctions Prohibiting Services for Maritime Transport of Russian Oil

Effective December 5, 2022, a coalition of G7 countries, Australia, and the European Union have generally forbidden service providers to provide certain services relating to the maritime transport of Russia-origin crude oil (“Russian Oil”) purchased above $60 per barrel (the “Price Cap”).

Below we discuss the U.S., EU, and UK guidance on the implementation of the Price Cap and related prohibitions and exceptions (the “Price Cap Policy”). United States, EU, and UK service providers should implement risk-based compliance measures reasonably designed to ensure compliance with the Price Cap Policy. In addition, U.S., EU, and UK service providers should determine into which “tier” they fall, depending on their roles in the transactions, and implement the relevant recordkeeping and attestation requirements described below.

Service providers may employ various measures to mitigate risk, including, but not limited to, the following:

• Update contractual terms by developing Price Cap-specific sanctions exclusion clauses. For insurance companies, currently existing sanctions exclusion clauses in insurance policies may be sufficient.
• Where possible, ensure that invoices include itemized prices for Russian Oil, excluding shipping, freight, customs, and insurance costs.
• Ensure that clear lines of communication are in place with each customer to expeditiously receive information that may be necessary in connection with the Price Cap Policy.
• Train/educate employees regarding the Price Cap Policy.
• Commence Price Cap-specific due diligence and implement know-your-customer procedures for any transactions involving Russian Oil by:
  • Keeping records of price information;
  • Obtaining and retaining customer attestations;
  • Obtaining and scrutinizing certificates of origin from counterparties; and
  • Obtaining and scrutinizing price information from counterparties to determine compliance with the Price Cap and to detect any commercially unreasonable shipping, freight, customs, or insurance costs or other signs of evasion.

The Price Cap is subject to adjustment. Similar measures on services that facilitate the maritime transportation of Russian refined oil products are expected to come into force on February 5, 2023.

A general ban on U.S. imports of Russian Oil remains in place. In addition, the EU and UK have added a Russian Oil import ban effective December 5, 2022.

I. United States Price Cap Policy

Starting December 5, 2022, pursuant to a Determination issued on November 21, 2022 by the U.S. Secretary of the Treasury, U.S. service providers are not permitted to provide the following services relating to the maritime transport of Russian Oil purchased above the Price Cap, without an authorization from the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”):

• Trading/commodities brokering;
• Financing, which does not include processing, clearing, or sending of payments by intermediary banks;
• Shipping;
• Insurance, including reinsurance and protection and indemnity;
• Flagging; or
• Customs brokering.

OFAC clarified the following regarding application of the Price Cap Policy in its Guidance issued on November 22, 2022:

• The Price Cap applies when a Russian entity sells Russian Oil for maritime transport until the oil clears customs in a non-Russian jurisdiction.
• Shipping, freight, customs, and insurance costs are not included in the Price Cap and must be invoiced separately at commercially reasonable rates.

The services prohibition does not apply to:

• Russian Oil purchased at any price, including above the Price Cap, if such oil was loaded onto a vessel at the port of loading for maritime transport prior to 12:01 a.m. eastern standard time on December 5, 2022, and is unloaded at the port of destination prior to 12:01 a.m. eastern standard time on January 19, 2023.
• Russian Oil that undergoes “substantial transformation” in a jurisdiction other than Russia.
• Non-Russian Oil, including crude oil that transits through a pipeline in Russia that is loaded and certified with a certificate of origin verifying its non-Russian origin.
  • To assess the origin of the oil, U.S. persons may reasonably rely upon a certificate of origin but should exercise caution if they have reason to believe such certificate has been falsified or is otherwise erroneous.

In a departure from OFAC’s ordinary strict liability regime, U.S. service providers that comply in good faith with a recordkeeping and attestation process established by OFAC and conduct standard due diligence related to sanctions risks will be covered by a “safe harbor” shielding them from liability for breach of the services prohibitions. OFAC describes three “tiers” of service provider. Each tier must conduct specified due diligence to be eligible for OFAC’s safe harbor, as set forth in the table below. Those who are directly involved in transactions and have access to pricing information (Tier 1) must retain invoices or contracts documenting commercial terms. Further removed actors (Tier 2 and 3), such as financial institutions and insurance brokers, are subject to lesser requirements. To qualify for the safe harbor, U.S. service providers generally:

• Must retain for five years price information or customer attestations, as appropriate by tier, showing purchase of Russian Oil at or below the Price Cap;
• Should treat a counterparty’s refusal or reluctance to provide the documentation or attestation as a potential red flag; and
• Must continue to implement and perform the standard due diligence practices customary for their industry and their role in a particular transaction.

Category	Actors	Requirement to be afforded safe harbor	Examples of information or documentation	Recommendations for risk-based measures for compliance
Tier 1 — Actors with direct access to price information	Commodities brokers/traders	Retain price information and provide information/attestation to Tier 2 or Tier 3, as needed	Invoices, contracts, receipts/proof of payment	Updating terms and conditions of contracts, updating invoice structure to include itemized price for oil purchase (excluding shipping, freight, customs, and insurance costs), providing guidance to staff
Tier 2 — Actors sometimes able to request price information	Financial institutions providing trade finance, customs brokers, ship/vessel agents	Request and retain price information (to the extent practicable) or attestation from Tier 1 or customer/Counterparty (when direct receipt of price information is not practicable)	Invoices, contracts, receipts/proof of payment; price cap attestation	Providing guidance to trade finance department/ relationship managers/compliance staff, updating requests for information (RFIs) or sanctions questionnaire templates
Tier 3 — Actors without direct access to price information	Insurers, reinsurers, P&I clubs, ship owners/carriers, flagging registries	Receive attestation from Tier 1 or Tier 2 or customer/ counterparty regarding compliance with the price cap	Sanctions exclusion clause within policy, clause within policy that excludes coverage for activities related to the maritime transport of Russian oil purchased above the price cap, price cap attestation	Updating policies and terms and conditions, providing guidance to staff

The following services are not subject to the services prohibition regardless of the price at which Russian Oil was sold:

• Maritime transport of crude oil originating from the Sakhalin-2 project for importation to Japan;
• Services related to the importation of Russian Oil into Bulgaria, Croatia, or landlocked EU Member States; and
• Emergency services for vessels related to the health or safety of the crew or environmental protection.

II. European Union Price Cap Policy

EU service providers are generally forbidden from insuring or financing the maritime transport of Russian Oil purchased above the Price Cap to third countries, as well as from providing, directly or indirectly, technical assistance, brokering services, or financing or other financial assistance related to the transport, including through ship-to-ship transfers, of Russian Oil to third countries. “Financing or financial assistance” includes all types of insurance and reinsurance.

The EU has a more specific definition of Russian Oil subject to the services prohibitions, listing the covered products in Annex XXV of Regulation (EU) 833/2014 with a reference to CN codes 2709 00 and 2710.

The EU services prohibition does not apply with respect to crude oil and petroleum products that originate outside of Russia and are only being loaded in, departing from, or transiting through Russia, if both the origin and the owner of the goods are non-Russian. Similar to the U.S. regime, there is no reporting requirement for operators, but operators must retain necessary attestation(s) for a minimum of five years from the date of transport. The EU Commission in its FAQs related to the Price Cap Policy also describes requirements for a recordkeeping and attestation process, in addition to standard due diligence, for three tiers of operators depending on their access to price information, similar to the U.S. tiered approach described above.

For Russian Oil at sea on December 5, 2022, a 45-day wind down period applies, which can be extended in case of proven force majeure hindering the unloading of the goods at the final port of destination prior to January 19, 2023.

The EU is yet to publicize the details on the implementation of the Price Cap Policy.

III. United Kingdom Price Cap Policy

The UK services prohibition generally forbids UK persons and persons in the UK from:

• Supplying and delivering by ship Russian Oil from a place in Russia to a third country or from a third country to another third country; or
• Providing financial services, funds, or brokering services to anyone globally who is supplying or delivering by ship Russian Oil, from a place in Russia to a third country, or from a third country to another third country.

The services prohibitions cover:

• Transfer of Russian Oil and oil products between ships;
• Any type of vessel used in navigation (except military vessels from any country); and
• Persons who own, control, charter or operate a vessel.

Prohibited services include the provision of financial services, funds, or brokering services in pursuance of, or in connection with, an arrangement whose object or effect is the maritime supply or delivery of Russian Oil, from a place in Russia to a third country or from a third country to another third country. “Funds” and “financial services” are defined in sections 60(1) and 61(1) of the Anti-Money Laundering Act 2018, and “brokering services” is defined in Regulation 21(1) of the Russia (Sanctions) (EU Exit) Regulations 2019/855. Processing, clearing, and sending of payments by intermediary banks are excluded from the scope of prohibited services.

The UK services prohibition is subject to a general license for Russian Oil purchased or sold below the Price Cap. The UK Office of Financial Sanctions Implementation (“OFSI”) will administer a three-tier system similar to the U.S. system described above. Tier 1 entities are required to report to OFSI each time they undertake an activity purported to fall under the general license. Tier 2 and Tier 3 entities are required to ask and receive confirmation from a Tier 1 entity that it has reported the transaction to OFSI. If the Tier 1 entity does not provide the requested confirmation, Tier 2 and Tier 3 entities must inform OFSI and withdraw their services as soon as reasonably practicable. Guidance issued by His Majesty’s Treasury illustrates the reporting requirements under the general license with the following flow chart:

Tier 1, 2 and 3 entities must keep records of the transactions for a period of four years.

In the UK, the Price Cap is subject to two exceptions:

• The Price Cap does not apply to emergencies requiring the urgent prevention or mitigation of an event likely to have a serious and significant impact on: (i) human health or safety; (ii) infrastructure; or (iii) the environment.
• The Price Cap does not apply to oil and oil products which do not originate from Russia, are not owned or controlled by a person connected with Russia (as defined in Regulation 19A(2) of the Russia (Sanctions) (EU Exit) Regulations 2019/855), but are simply loaded in, departing from, or transiting through Russia.