This week OFAC, the financial intelligence and enforcement agency of the US Treasury, published (click here) an update to the Price Cap Coalition Advisory for the Maritime Oil Industry and Related Sectors. The advisory relates to the restriction imposed by the Price Cap Coalition (click here) – and arrangement that places an oil price cap on Russian seaborne oil and oil products. The update contains specific recommendations regarding best practices. The seven-page advisor may be found here. The recommendations are summarised briefly as follows:
Recommendation 1: Require Appropriately Capitalized P&I Insurance
- Stakeholders should mandate that vessels engaged in maritime trade possess continuous and appropriate Protection and Indemnity (P&I) insurance;
- If engaging with a vessel lacking legitimate insurance, industry participants must conduct thorough due diligence on the insurer’s financial health, track record, and regulatory compliance.
Recommendation 2: Receive Classification from an IACS Member Society
- To assess the seaworthiness of vessels, stakeholders should ensure that ships receive classification from an International Association of Classification Societies (IACS) member;
- The Coalition highlights the importance of using established classification societies, as some vessels involved in shadow trade have shifted to non-IACS societies.
Recommendation 3: Best-Practice Use of Automatic Identification Systems (AIS)
- In accordance with the International Convention for the Safety of Life at Sea (SOLAS), stakeholders should promote continuous AIS broadcasting throughout a vessel’s voyage;
- If AIS must be disabled due to safety concerns, the ship should document the reasons;
- Stakeholders should monitor AIS data for inconsistencies and patterns that may indicate criminal activity;
- Complement AIS Tracking with Long-Range Identification and Tracking (LRIT) - combining AIS and LRIT is recommended to enhance risk mitigation.
Recommendation 4: Monitor High-Risk Ship-to-Ship Transfers
- Stakeholders must ensure that all ship-to-ship (STS) operations comply with MARPOL regulations and relevant national laws;
- While STS transfers can serve legitimate purposes, they may also mask illicit cargo origins;
- Stakeholders should conduct enhanced due diligence for STS transfers, especially in high-risk areas, and verify that oil record logs accurately reflect cargo movements.
Recommendation 5: Request Associated Shipping and Ancillary Costs
- To prevent the concealment of transactions involving Russian oil above the price cap, stakeholders should require a detailed breakdown of all shipping and ancillary costs at the outset of any trade transaction;
- Inflated or bundled costs may indicate price cap evasion;
- As of early 2024, coalition service providers must request this information under certain circumstances, including regulatory inquiries.
Recommendation 6: Undertake Appropriate Due Diligence
- Stakeholders should conduct thorough due diligence, especially for vessels with complicated histories (e.g. frequent re-flagging or ownership changes);
- Enhanced diligence is particularly important for intermediary companies that may conceal their ownership or engage in opaque practices;
- Due diligence should align with specific business risks, especially when market assessments indicate potential price cap breaches.
Recommendation 7: Report Ships That Trigger Concerns
- Industry participants should report any knowledge of potentially illicit or unsafe oil trading practices to relevant authorities;
- This may include reporting breaches of the oil price cap, as outlined in the Coalition’s Compliance and Enforcement Alert.
Recommendation 8: Ensure Vessels Meet International Maritime Safety and Environmental Obligations
- Flag States should prevent vessels from conducting illegal operations and uphold SOLAS, MARPOL, and other relevant standards;
- Port State Controls (PSC) should verify that foreign-flagged vessels meet these requirements and act against non-compliance, such as detention or denial of port entry.
Recommendation 9: Monitor Tanker Sales
- Stakeholders involved in tanker sales and brokerage should remain vigilant regarding potentially evasive purchase structures, particularly for ageing tankers;
- Enhanced due diligence should include verifying the ultimate beneficial ownership and ensuring buyers have no links to illicit activities;
- Stakeholders must maintain accurate and verified records of buyers’ identities and fund sources.
Recommendation 10: Avoid Interactions with Sanctioned Parties
- Stakeholders must continuously monitor their exposure to ensure they do not engage with sanctioned entities unless authorized by relevant authorities;
- This includes proactive investigations to identify any links between unsanctioned counterparties and sanctioned parties;
- Stakeholders should deny entry or transactions involving sanctioned vessels and report any such attempts to the authorities.
Recommendation 11: Raise Awareness and Enhance Market Transparency
- Stakeholders should implement targeted training programmes for employees and partners on the risks associated with shadow fleet activities and deceptive practices;
- These programmes should cover identifying red flags, understanding the implications of deceptive practices, reporting protocols, sanctions risks, and the importance of transparency;
- Additionally, open communication and collaboration with industry partners are vital for combatting deceptive practices and sharing pertinent information.