OFAC Outlines Deceptive Practices Used by Russia to Evade Price Cap

The U.S. this week warned ship owners and service providers of new “deceptive practices” being used by Russia to evade the oil price cap, particularly for oil exported through the Eastern Siberia Pacific Ocean (ESPO) pipeline and ports on the eastern coast of Russia. Shippers, traders and others should watch for several red flags to avoid helping Russia evade the cap, the Office of Foreign Assets Control said in an April 17 alert.

OFAC said Russia is using U.S. service providers to trade above the price cap through the ESPO and its Pacific ports, including Kozmino. Those providers “may be unaware” that they're providing services in violation of the price cap, OFAC said, adding that they may have been given “incomplete or false documentation,” or Russia may be using other “deceptive” practices.

Tankers may be manipulating their Automatic Identification Systems, a practice OFAC said is known as “spoofing,” to “disguise the fact that they have called at the port of Kozmino or other ports” on Russia’s east coast. Basic vessel tracking data may show the tanker at one location, but “more sophisticated reporting from maritime intelligence services may show that the vessel called” at Kozmino or another eastern port, OFAC said. The agency also said Russia may use spoofing to hide illegal ship-to-ship transfers.

“U.S. persons providing covered services to tankers should view AIS manipulation that disguises a tanker’s port of call in the Russian Federation as evidence of possible evasion of the price cap,” OFAC said.

Shippers and service providers should follow the recordkeeping and attestations described in OFAC’s price cap guidance, the agency said, which establishes a "safe harbor" protocol to protect U.S. service providers from penalties if they "comply in good faith” with the cap (see 2211230047). But OFAC also said shipowners, protection and indemnity clubs, and flagging registries should be “mindful of the risk of evasion for some ESPO and other crudes exported via Pacific ports” and should take appropriate due diligence measures.” That includes sharing the alert with counterparties and using “maritime intelligence services to improve detection of AIS manipulation.”

OFAC also reminded commodities brokers and oil traders about “opaque” shipping costs. Shipping, freight, customs and insurance costs are “not included in the price caps,” the agency said. “The failure to itemize these costs can be used to obfuscate the fact that Russian oil was purchased above the price cap.”

The agency also stressed that invoices, contracts and receipts don’t need to “make any mention of the price cap” in order for the Tier 1 actors outlined in its price cap guidance “to be afforded the safe harbor.” But “shipping, freight, customs, and insurance costs must be invoiced separately from the purchase price of the Russian oil and must be at commercially reasonable rates,” OFAC said. “A refusal by a counterparty to provide documentation showing Russian oil or Russian petroleum products were purchased at or below the price cap (when, for example, the total price inclusive of other costs is above the cap) should be considered a red flag for possible evasion of the price cap.”