OFAC Tightens Enforcement of Russian Oil Price Cap With Revised Guidance

December 22, 2023

On December 20, 2023, OFAC revised its prior guidance on implementation of the price cap policy for crude oil and petroleum products of Russian Federation origin, issued on February 3, 2023. A redline comparison reflecting the substantial revisions made to OFAC’s guidance is available here.

OFAC’s press release announcing these developments, as well as additional sanctions designations issued against a UAE-based (and Russian government-owned) ship manager, and other traders of Russian oil from Hong Kong and the UAE, may also be found here.

In order to maintain the benefits of the safe harbor, OFAC has advised a deadline of February 19, 2024 for U.S. service providers to come into compliance with the revised guidance:

The headline takeaways from OFAC’s revised guidance are as follows:

  • Itemized Ancillary Cost Information: Under the revised guidance, in order to be afforded the safe harbor, actors with direct access to price information (such as traders and commodities brokers) must maintain and retain information showing that Russian oil or Russian petroleum products for maritime transport were purchased at or below the relevant price cap, “including itemized ancillary cost information as relevant for a given contract or transaction.” This includes obtaining itemized prices for shipping, freight, customs, and insurance costs. OFAC notes that for both “Free on Board” (FOB) and “Cost, Insurance, and Freight” (CIF) transactions,“[a]n itemized record should be kept for all known costs negotiated at the start of the trade transaction,” and for CIF trades, this should also include “port dues and service charges at the point of loading/export, and relevant insurance and freight costs.”
  • Per-Voyage Attestations: Under the revised guidance, for covered service providers who do not already receive direct evidence of price information in compliance with the oil price cap, or when direct receipt of price information is not practicable, attestations are required to be obtained “each time a vessel lifts or loads Russian oil or Russian petroleum products.”
    • Shipowners/Carriers: For shipowners or other carriers, this attestation must be received “prior to each loading or lifting of Russian oil or Russian petroleum products.”
    • Other Tier 2 / Tier 3 Actors: For other Tier 2 and Tier 3 actors (including ship/vessel agents, customs brokers, insurers, P&I clubs, and flagging registries) attestations must be obtained “within 30 days of each lifting or loading of Russian oil or Russian petroleum products.” In addition, shipowners/carriers, insurers and P&I clubs must also require their counterparties “up the chain” to obtain and share additional information upon request (including, at minimum, the itemized ancillary cost information referred to above). Reinsurers may continue to rely on the use of a sanctions exclusion clause within an annual policy, or clauses that exclude coverage for activities related to the maritime transport of Russian oil or Russian petroleum products purchased above the price cap.
  • Information Requests: Throughout the revised guidance, OFAC also indicates that certain Tier 3 actors (including shipowners/carriers, insurers, P&I clubs, and flagging registries), may be required to request additional information from their counterparties in order to obtain the benefit of OFAC’s safe harbor. OFAC suggests that “[e]xamples of triggers for requests for additional information (including ancillary cost information) include if a Tier 3 Actor becomes suspicious about a possible violation in the course of their own due diligence or if a Tier 3 Actor receives information about a suspected violation (i.e., from open source reporting or a request from relevant authorities).”

We will continue to closely monitor developments in this space. If you have any questions regarding the matters covered in this e-mail, please contact Bruce Paulsen (212) 574-1533, Brian Maloney (212) 574-1448, Noah Czarny (212) 574-1642, Carmella O’Hanlon (212) 574-1351 or your primary Seward & Kissel attorney.