Clifford Chance

On 1 February 2024, new international guidance was published by the Price Cap Coalition on the Oil Price Cap ("OPC"), setting out recommendations for identifying key OPC evasion methods and information on how to report suspected breaches.

The OPC was introduced in December 2022 by the Price Cap Coalition (the "Coalition"), comprised of the G7, the European Union and Australia. The OPC was designed to constrain Russian revenues in light of the war in Ukraine while maintaining global energy security.

The compliance and enforcement alert was published by the UK's Office of Financial Sanctions Implementation ("OFSI"), the EU and the Office of Foreign Assets Control of the U.S. Department of the Treasury. The updated guidance highlights the need for continued vigilance for circumvention of the OPC, and serves as a warning of more proactive enforcement of evasion.

The alert highlights various illicit OPC evasion methods, and encourages industry stakeholders to be observant for the following 'OPC evasion red flags':

• Falsified documentation and attestations which may fabricate the actual price that was paid for Russian oil or oil products, or hide the true origin of a vessel, its goods, destination, or its legitimacy.
• Opaque shipping and ancillary costs including bundling such costs as freight, customs and insurance, or failing to itemise such costs or charge for them at reasonable rates.
• Third country supply chain intermediaries and complex and irregular corporate structures. Factors such as shell companies, multiple levels of ownership and management to disguise the ultimate beneficial owner, frequent changes in ownership of the companies or vessels involved should all raise OPC evasion red flags.
• Shadow fleet. The alert states that there is "ample" evidence that Russia has utilised a "shadow" or "ghost" fleet to transport its oil or oil products. This refers to older vessels that are anonymously owned or have opaque corporate ownership structures and are deployed in the trade of sanctioned oil or other deceptive shipping practices.
• Flagging and reflagging may indicate a vessel is attempting to obscure its true ownership or affiliation, and the vessel should therefore be considered high risk and warrant enhanced due diligence.
• Voyage irregularities should raise a red flag, as voyages should be known and traceable from the port of loading to the final destination. Any irregularities should be scrutinised in combination with the automatic identification system history of the voyage, and any partner vessels for the risk of ship-to-ship transfers.

The alert's central recommendation is that industry stakeholders should undertake appropriate due diligence of customers and counterparties across the supply chain when engaging in the trade of Russian oil and oil products, especially where Coalition services are being used or sought and there are OPC evasion red flags. The alert gives the following guidance on due diligence:

• Due diligence should be calibrated according to the specificities of individual businesses and the related risk exposures in each case.
• Businesses should institutionalise effective sanctions compliance programmes and monitoring for OPC evasion red flags.
• Businesses should identify and manage risks including through appropriate due diligence and Know Your Customer (KYC) and Know Your Customer's Customer (KYCC) procedures.
• Any documents which appear incomplete, inconsistent or contradictory to previously shared or publicly available information should be risk assessed for illicit activity.
• Businesses are encouraged to retain documents that evidence that Russian oil or oil products were purchased at or below the relevant price cap.
• Enhanced due diligence may be appropriate for ships that have undergone numerous administrative changes, involve complex and irregular corporate structures, or intermediary companies that conceal their beneficial ownership.

In all instances, where information indicates that Russian oil or oil product prices exceed the price cap, industry stakeholders should not provide the service and should notify the relevant authorities.

The alert lists the authorities responsible for enforcement across each of the countries in the Coalition. In the UK, civil enforcement of the OPC is overseen by OFSI, while criminal enforcement will be considered by HM Revenue and Customs and the National Crime Agency. All suspected breached should be reported to OFSI via the OPC breach reporting form.