On April 17, 2023, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) published an Alert warning U.S. persons about possible evasion of the price cap set on Russian-origin oil (see Update of December 5, 2022) and Russian-origin petroleum products (see Update of February 8, 2023) pursuant to Executive Order 14071. In particular, the Alert forewarns U.S. persons of the “deceptive practices” given recent reports of trading above the oil/petroleum price caps through the Eastern Siberia Pacific Ocean (ESPO) pipeline and ports on Russia’s eastern coast, such as the port of Kozmino. The Alert reminds U.S. persons that they “are required to reject participating in an evasive transaction or a transaction that violates the price cap determinations, and to report such a transaction to OFAC.”
As reminded by the Alert, U.S. persons are not only prohibited from trading above the price caps, but also barred from providing certain services related to the maritime transport of crude oil and petroleum products from Russia (see Update of November 29, 2022).
OFAC’s Alert warns ship owners, protection and indemnity clubs, and flagging registries that, for example, evasion may be occurring due to the transmittal of incomplete or falsified documentation. Additionally, some tankers may be evading the price cap by manipulating their Automatic Identification Systems — a practice known as “spoofing” – to disguise the fact that such tankers have actually called at Russian ports situated alongside the Pacific Ocean. Spoofing may be used to hide illegal ship-to-ship transfers as well.
In addressing commodities brokers and oil traders, the Alert also notes that because certain costs—shipping costs, freight fees, customs charges, and insurance costs—are factored out of the price of Russian-origin oil or a petroleum product, bad actors may purposefully fail to itemize these charges separately, thereby evading the two price caps by presenting a sole invoice with just one sum total price. The Alert notes, “the failure to itemize these costs can be used to obfuscate the fact that Russian oil was purchased above the price cap.”
To safeguard against such evasion, the Alert advises U.S. persons to be mindful of the specified evasion strategies and to counteract such practices with “appropriate due diligence measures.” Failure to do so, the Alert suggests, may be grounds for denying the protection afforded by the price cap policy’s “safe harbor” provision (see Update of November 29, 2022).
As a reminder, the Alert—and the two price caps—do not remove the separate, ongoing prohibition on the importation of Russian petroleum and petroleum products into the United States that went into effect pursuant to Executive Order 14066 (see Update of March 9, 2022).