Latest price /sanctions against Russia not identical in EU, UK, G7

0
272

The price cap rules relating to Russian sales of crude
oil (implemented December 5th 2022) and refined oil products
(implemented February 5th 2023) are generally consistent within the
EU, the G7 (including UK), UK itself, and Australia, but the International
Group of P&I Clubs (IG) has highlighted that they are not identical –
meaning that insurers, financial institutions and shipowners / charterers
needed to be aware that they do not have just one set of regulations to look
at.

On February 5th, two price caps were set

A shipowner or charterer that intends to transport
Russian petroleum product cargoes after February 5th 2023 will now
need to provide its P&I club with an attestation that, it will not, for the
duration of the period of insurance, carry Russian petroleum product cargoes
which have been sold at a price that for the period it is on board the vessel
has exceeded the Price Cap.

However, individual countries of significance to marine
insurance have issued regulations that need to be assessed on a bespoke basis.

On February 3, 2023, the US Department of Treasury issued
a Determination pursuant to section 1(a)(ii) of EO 14071, effective February 5th prohibiting certain services as they relate to the maritime transport of
petroleum products of Russian Federation origin. On the same date, the
Department of Treasury also published a document titled “OFAC Guidance on
Implementation of the Price Cap Policy for Crude Oil and Petroleum Products of
Russian Federation Origin”:

On the same date, the Department of Treasury / OFAC also
published (i)“General Licence No. 57A Authorizing Certain Services Related to
Vessel Emergencies”:

along with (ii)‘’General License No. 56A Authorizing
Certain Services with Respect to the European Union”:

Under the US Price Cap Scheme, it will be lawful for US
persons to transport and provide services for the transportation of Russian
origin Crude Oil and Petroleum Products to countries outside the EU/G7
coalition, provided that the price paid for the oil is at or less than the
Price Cap from the point at which the Crude Oil or Petroleum Products are sold
by a Russian entity for maritime transport until the first landed sale after passing
customs clearance in a jurisdiction other than the Russian Federation.

If, however, after clearing customs, the Russian Crude
Oil or Russian Petroleum Products are taken back out on the water (i.e., using
maritime transport) without being substantially transformed outside of the
Russian Federation, the price cap still applies. For Russian Crude Oil, a
substantial transformation would be a refining process or a substantial
transformation such that the product loses its identity and is transformed into
a new product having a new name, character, and use, in a jurisdiction other
than the Russian Federation. The latter applies to Petroleum Products as well;
per OFAC clarification though, blending operations will be considered as
substantial transformation only if it would result in a tariff shift of the
Russian Petroleum Product (e.g., a change in the applicable Harmonized Tariff
code).

On the same date, the UK also published a General Licence
to give effect to the Price Cap Scheme:

The IG noted that the effect of the UK Price Cap scheme
largely mirrors that of the US, but does contain some significant differences.
To fall within the scope of the General Licence the price of the relevant cargo
must remain at or below the Price Cap from the “…receipt of cargo on a ship up
to the point where it is delivered and passes through customs controls in a
third country or is substantially transformed into a different good in line
with the non-preferential Rules of Origin.”

Similar to the position under the US Guidance, the UK
Guidance provides that “…if the oil or oil products pass customs in a third
country and then re-enter trade by maritime transportation without being
substantially processed, the price cap will still apply.”

As with the US Guidance, the UK requires parties
participating in the Price Cap Scheme to obtain evidence that the cargo
complies with the Price Cap and the extent of a party’s obligations in this
regard depends on its proximity to the sale contract.

The “Tier” structure is adopted, and the descriptions of
each Tier are largely the same as for the US.

Participating entities are also required to keep records
of Price Cap transactions for a period of four years, beyond the end of the
calendar year in which the attestation was created if the parties are relying
on a General Licence.

However, the reference to the concept of a “safe harbour”
in the US Guidance does not appear in the UK Guidance. Instead, a party
subject to UK jurisdiction (which includes British nationals irrespective of
domicile) will need to demonstrate to OFSI “… that they have fulfilled the
requirements of the attestation process …in a timely manner and in full to
OFSI’s satisfaction and undertaken appropriate due diligence…” if they are to
avoid enforcement action, where the price cap scheme has not been complied
with.”

It is now a criminal offence for a British company or
citizen to provide financial services, funds, or brokering services to anyone
globally who is transporting Russian origin Crude Oil or Petroleum Products by
ship from a place in Russia to a third country, or from one third country to
another third country, if the Crude Oil or Petroleum Product has been purchased
above the price cap after the relevant dates (December 5, 2022 in respect of
Crude Oil and February 5, 2023 in respect of Petroleum Products). The range of
enforcement action available to OFSI also includes civil fines that may be
imposed on a strict liability basis, and which can be as high as 50% of the
value of the breach of the Price Cap scheme.

The UK also introduced significant reporting obligations
on a party participating in the Price Cap scheme. For instance, a UK service
provider is required both to report any breach of the Price Cap prohibitions to
OFSI and must “…withdraw their services as soon as reasonably practicable
should they suspect a breach of UK sanctions has occurred”.

The EU Price Cap scheme mirrors much of that contained in
the US and UK schemes, but, again, there are some important differences
reflecting existing EU legislation. In line with the UK and US legislation,
under the EU scheme where the oil has cleared customs at the third country
destination in circumstances where it then “…becomes seaborne again without
being substantially transformed into a different good in line with
non-preferential rules of origin. (i.e., without being refined) … the price cap
will still apply.”

Again, parties are expected to obtain appropriate
attestations of cargo price the nature of which will depend on which Tier they
fall into. The definition of the Tiers is the same as that adopted by the UK
and US with shipowners and P&I clubs identified as Tier 3 Actors. The FAQs
go on to say that: “In cases when an EU operator without direct access to price
information reasonably relies on an attestation, after performing appropriate
due diligence, and such an attestation was falsified or provided by
illegitimate actors, the EU operator would not be considered in breach of the
price cap provided it has acted in good faith.”

Parties are required to keep records of Price Cap
transactions for a period of five years.

The IG observed that “there had been concern about how
Article 3n(7) of EU Regulation /2014 would be interpreted, as it had
appeared to prohibit the provision of financial and technical services to a
vessel found carrying Russian crude oil and Petroleum Products at a price that
exceeded the Price Cap in perpetuity”. IG said that the interpretation of the
article was addressed by FAQs 32-34, which explain that, in respect of non-EU
vessels, such a prohibition would be limited to a situation in which the Price
Cap was intentionally breached and the prohibition on the provision of maritime
and technical services to subsequent voyages applied only to Russian cargoes
and for a period of 90 days. EU vessels that breach Article 3n(7) will be dealt
with in accordance with the relevant Member State law.

On the matter of Russian bunkers, IG said that owner and
charterer Members that were looking to stem bunkers were recommended to seek
clarification on the legality of stemming Russian origin bunker fuel in Russia
or elsewhere.

“The current situation in regard to EU and UK Regulations
and Guidance is not entirely clear, especially since the types of products
which typically comprise ships’ bunkers would fall under a CN 2710 code and,
consequently, be subject to the price caps”. IG said that It was “currently
seeking clarification from the relevant regulatory authorities and further
guidance will be provided in due course”.

On the matter of Cover in Emergencies IG noted that the
price cap legislation appeared to recognize the need to ensure that sanctions
did not prevent persons from responding to marine emergencies.

The UK legislation has an exception for activities of
persons dealing with a marine emergency that assist with prevention or
mitigation of harm to human health or safety, infrastructure, or the
environment.

Similar provisions, although perhaps of narrower scope,
are found in the EU legislation, while the US General License 57A authorizes
maritime services transactions that are ordinarily incident and necessary to
addressing vessel emergencies related to the health or safety of the crew or
environmental protection.

IG warned that the Price Cap scheme advanced by the EU/G7
coalition (which also includes Australia) presented unique compliance
challenges. “Russia is opposed to the Price Cap scheme and there is a risk that
attempts to evade sanctions by creating false documentation /or using
multiple ship to ship transfers to mix and or obscure the origin of the cargo
may become common place”.

While a shipowner or charterer might not be breaking any
law if it had conducted appropriate due diligence and received an ostensibly
valid attestation, providers of maritime services and technical assistance such
as insurers, reinsurers, flag states and banks would be obliged to withdraw
their services in the event they had reasonable grounds to suspect that the
Price Cap had not been complied with, the International Group said.

“Where a breach is identified after loading vessels may
be left uninsured and without access to normal banking services for an extended
period whilst the authorities determine how best to dispose of the cargo.”