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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:
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.
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”):
OFAC clarified the following regarding application of the Price Cap Policy in its Guidance issued on November 22, 2022:
The services prohibition does not apply to:
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:
|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:
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.
The UK services prohibition generally forbids UK persons and persons in the UK from:
The services prohibitions cover:
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: