On February 1, 2024, the G7+ Coalition (consisting of the G7, the European Union, and Australia) published an Oil Price Cap (OPC) Compliance and Enforcement Alert (the “Alert”), identifying notable OPC evasion methods and recommending various methods to reduce the risk of evasion and its negative impacts.  The OPC was enacted in December 2022 in response to the Russian incursion into Ukraine and related disruptions to global oil flows and energy security.  The Alert seeks to bolster legitimate commercial efforts to comply with the OPC and provides guidance to regulators on how to combat the innovative methods by which bad actors are attempting to circumvent it.  The G7+ Coalition is further encouraging regulators to supplement its findings and recommendations with their own detailed advisories, sector-specific guidance, and case studies.

Common OPC Evasion Methods

The Coalition identified a number of evasion tactics based on reports by its members’ maritime enforcement and compliance agencies.  The outlined tactics have been observed both separately and as interlinked parts of larger operations of illicit activity:

• Falsified Documentation and Attestations: Falsified documentation can be used to conceal the true price paid for Russian oil and oil products, the origin of a merchant vessel, its goods, destination, or the legitimacy of the vessel itself.
• Opaque Shipping and Ancillary Costs: Manipulation and lack of itemized accounting of shipping, freight, customs, and insurance costs can be used to conceal whether Russian oil was purchased above the price cap.
• Supply Chain Intermediaries and Complex Corporate Structures: The increase in third-country supply chain intermediaries, shell companies, and multilayered management and ownership companies has allowed OPC circumventors to profit off of Russian oil with little transparency. 
• Deceptive Flagging: Vessels seeking to violate the OPC use false flags, claim other countries’ flags, and change flags on multiple occasions in a brief period of time to obfuscate their true ownership and/or conceal their associations with Russia.
• Shadow Fleets: Russia is increasingly relying on older, “shadow” vessels that are anonymously owned or have opaque corporate structures in order to trade sanctioned oil and circumvent sanctions.  These vessels are also less likely to have consistent, reliable insurance or subject themselves to proper maintenance, resulting in collateral environmental damage, including accidents and oil spills.
• Unconventional Voyage Maneuvers: In order to impede tracing of vessels’ ports of loading and final destinations, bad actors use indirect routing and unscheduled detours, turn off their Automatic Identification System, and ship cargo using multiple ships or through unrelated third countries. 

Compliance and Enforcement Recommendations

The G7+ Coalition outlined a number of measures for both commercial entities and regulators to better realize the goals of the OPC and reduce the risk of circumvention.  The list is not exhaustive and stakeholders are encouraged to remain vigilant in anti-circumvention efforts.

Commercial Entities

• Enhanced Due Diligence: Documentation from vessels that is incomplete, inconsistent, or contradictory could indicate circumvention activity and warrant enhanced due diligence.  Red flags warranting further review include vessels that have undergone multiple administrative changes; are involved in complex and irregular corporate structures; have a lack of transparency in their business practices; or are being used as shipping intermediaries. 

• Establishment of a Compliance “Whitelist”: Commercial entities doing business at all levels of the Russian oil supply chain should cooperate and share due diligence assessments to help build risk profiles for particular vessels and entities.  This can assist in the formation of an internal registry based on risk exposure (to be updated regularly).  Stakeholders are also advised to consider the possibility of illicit partnerships between multiple vessels, so suspect vessel behavior is not considered in isolation.

• Enhanced Monitoring of Voyage Irregularities: Before entering into new contracts or engaging in ongoing business, commercial stakeholders should investigate signs and reports of altered ship identification systems.  Measures can also be taken to incorporate express language into contracts that prohibit manipulation of ship identification systems that is inconsistent with the International Convention for the Safety of Life at Sea’s standards.  Stakeholders should also demand a full accounting of a voyage’s route and shipment details, with particular focus on voyage irregularities, manipulated navigation and identification systems, and illicit ship-to-ship transfers.  They should also stay abreast of routes and destinations known for deceptive or evasive activity, particularly in combination with system manipulations and any previous voyage history. 

Maritime Regulatory and Enforcement Agencies

• More Scrutiny from State Flagging Registries: States seeking to register or grant licenses to commercial vessels to fall under their maritime jurisdiction and regulations should first inform the registrants and owners of these vessels that sanctionable or illicit conduct will be cause for immediate removal of registration. They should also share relevant OPC evasion guidance and information with other flag registries and maritime authorities.  International maritime organizations, like the International Chamber of Shipping, provide helpful resources on the performance of vessels travelling under the flags of particular states.

• Raising Insurance and Vessel Standards: To mitigate the increased environmental and safety risks associated with the operation of sub-standard “shadow” vessels, regulators should require such vessels to (1) have continuous and appropriate maritime insurance coverage for the entirety of their voyage; (2) be insured by either a legitimate insurance provider with sufficient coverage against oil pollution damage or a non-established provider with sufficient financial soundness, track record, regulatory record, and ownership structure; and (3) verify that they have been inspected for fitness of service by the relevant classification society.

• Heightened Scrutiny from Port Authorities: Where a vessel has unaccounted for irregularities in their voyage or they are found to have travelled routes known for deceptive or evasive activity, port authorities should consider prohibiting entry to their ports or other appropriate action.

Key Considerations for Commercial Businesses

The guidance in the Alert is in line with the Coalition’s recent revisions to the OPC designed to combat Russia’s circumvention efforts, as well as existing Russia-related sanctions associated with the ongoing war in Ukraine.  It is likely that compliance and regulatory agencies will increase pressure on all supply chain participants to heighten their disclosure and vetting protocols, particularly those with access to vessels’ itemized cost lists, insurance, and tracking information.

Commercial entities are advised to refer to the Office of Foreign Asset Control’s (OFAC) guidance on the OPC issued and revised on February 3 and December 20, 2023, respectively.  OFAC has specified the commercial services covered by or exempt from the OPC and established criteria for a “safe harbor” provision to protect against penalties for inadvertent violations.  The OFAC guidance also references red flags associated with certain service providers; namely, the refusal to provide documentation and attestations as requested. More specific information on Coalition members’ respective domestic guidance and reporting policies can be found here.