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Lockton P.L. Ferrari wish to advise about the latest updates from the Price Cap Coalition regarding the maritime trade of Russian-origin crude oil and petroleum products.
The circular titled "Updated Advisory for the Maritime Industry" issued by the Price Cap Coalition on October 21, 2024 (as attached to this document) provides updated best practice recommendations for those involved in the trade of Russian-origin crude oil and petroleum products.
The update introduces new recommendations focusing on maritime safety and environmental obligations, enhanced due diligence on tanker sales, and raising internal awareness about the risks associated with the shadow fleet. It emphasized the increased safety, environmental, financial, and legal risks arising from the maritime oil trade outside the agreed price cap framework.
Key risks highlighted include the use of older ships with substandard certifications and maintenance, lack of proper P&I insurance, complex corporate structures, and deceptive practices like AIS manipulation. The advisory also reminds the industry of the potential legal and sanctions risks due to deceptive practices in the shadow trade.
Best practices recommended include requiring appropriate P&I insurance, ensuring vessels are classified by IACS member societies, promoting continuous AIS broadcasting, monitoring high-risk ship-to-ship transfers, and conducting thorough due diligence on ships with administrative changes or elevated risk profiles. The advisory also stresses the importance of avoiding interactions with sanctioned parties and raising awareness through targeted training programs.
Case studies are also provided to assist in identifying sanctions evasion and promoting compliance.
Lockton P.L. Ferrari encourages its clients to review the updated advisory and OFAC compliance communique, conduct thorough due diligence throughout the trade chain, and keep records of their investigations and findings.
Herewith the key points of the "Updated Advisory for the Maritime Industry":
MAIN UPDATES AND NEW RECOMMENDATIONS (N°’S. 8-11 OF THE UPDATED ADVISORY FOR THE MARITIME INDUSTRY)
-Maritime Safety and Environmental Obligations
Emphasizes the importance of meeting international safety and environmental standards.
-Enhanced Due Diligence on Tanker Sales
Focuses on avoiding interactions with sanctioned counterparties.
-Raising Internal Awareness
Encourages stakeholders to increase awareness about the risks associated with the shadow fleet.
KEY RISKS HIGHLIGHTED
-Maritime Safety and Marine Environment
Older ships with substandard certifications and maintenance.
Inexperienced crew and inadequate safety standards.
-Insurance and Economic Risks
Lack of proper P&I insurance and insufficient capital to handle marine casualties.
-Reputational, Logistical, and Financial Risks
Complex corporate structures and deceptive practices like AIS manipulation.
-Legal and Sanctions Risks
Potential violations of sanctions due to deceptive practices in the shadow trade.
BEST PRACTICES RECOMMENDED
-Require Appropriate P&I Insurance
Ensure sufficient coverage and conduct due diligence on insurers.
-Classification from IACS Member Societies
Confirm vessels are fit for service.
-Best-Practice Use of AIS
Promote continuous AIS broadcasting and monitor irregular patterns.
-Monitor High-Risk Ship-to-Ship Transfers
Ensure compliance with MARPOL and national regulations.
-Request Associated Shipping and Ancillary Costs
Obtain itemized breakdowns to avoid concealing purchases above the price cap.
-Undertake Appropriate Due Diligence
Conduct heightened due diligence on ships with administrative changes or elevated risk profiles.
-Report Ships that Trigger Concerns
Report potentially illicit or unsafe maritime oil trade to relevant authorities.
-Ensure Vessels Meet International Obligations
Engage with Flag States, Port States, and Coastal States to uphold standards.
-Monitor Tanker Sales
Conduct due diligence on potential evasive or illicit purchase structures.
-Avoid Interactions with Sanctioned Parties
Monitor exposure and investigate sanctions exposure proactively.
-Raise Awareness and Enhance Market Transparency
Develop training programs and prioritize open communication to combat deceptive practices.
CASE STUDIES
The Office of Foreign Assets Control (OFAC) issued a Compliance Communique on October 31, 2024, providing some case studies to assist maritime sector stakeholders (such as commodities brokers, insurers, ship management service providers, shipbroking companies, port authorities, and other industry participants) to identify sanctions evasion and promote compliance.-
Case n°1 - Deceptive Shipping Practices
One scenario involves an international oil trading company, ABC Trade, which has a long-term contract with a Middle East-based commodities trader, XYK Trade. During a voyage, the vessel MT VESSEL has a minor collision and must call at a Mediterranean port.
The port agent, upon reviewing the bill of lading and certificate of origin, suspects that the cargo did not originate from Oman as claimed. Further investigation reveals that the vessel had manipulated its Automatic Identification System (AIS) data to conceal the true origin of the cargo, which was actually from a sanctioned country.
This scenario highlights the importance of verifying trade documentation and monitoring AIS data for inconsistencies.
Case n°2 - Voyage Documentation and Data Manipulation
OFAC emphasizes the need for maritime stakeholders to check for AIS abnormalities, such as extended periods without transmission, abnormal traffic patterns, and other forms of data manipulation.
It is recommended to remain vigilant about misclassification of vessels, sudden changes in shipping instructions, and refusals to provide additional information.
Case n°3 - Identification of Specially Designated Nationals (SDNs)
U.S. ship management company, WKZ Shipping, which discovers that a freight forwarder listed on a bill of lading is an SDN. Upon further investigation, it is found that the SDN was involved in facilitating transactions with sanctioned entities.
This scenario underscores the importance of thorough due diligence and the need to terminate business relationships that pose sanctions risks. It also highlights the necessity of filing voluntary self-disclosures with OFAC when potential violations are identified.
The case studies highlight the need of best practices to enhance sanctions compliance, such as:
-Enhanced Due Diligence
Conduct thorough checks on vessel ownership, cargo origins, and counterparties, especially in high-risk jurisdictions.
-AIS Monitoring
Continuously monitor AIS data for irregularities and ensure that vessels maintain accurate and consistent location data.
-Documentation Verification
Scrutinize trade documents for signs of falsification or manipulation, and verify the authenticity of certificates of origin and other critical documents
-Training and Awareness
Develop targeted training programs for employees and partners to recognize red flags and understand the implications of sanctions evasion.
-Collaboration and Information Sharing
Foster open communication and collaboration with industry partners to share information and combat deceptive practices effectively.
SOURCE
Office of Foreign Assets Control (OFAC)
https://ofac.treasury.gov/media/933506/download?inline
