Best Practices for the Maritime Oil Industry

The Advisory highlights several best practices for stakeholders to ensure they are compliant with laws and regulations, including the price limit on Russian oil. Seven recommended actions are intended to help industry participants identify risky behavior that might be indicative of evasion of the $60 per barrel oil price cap.

1. Require appropriate and sufficient maritime insurance coverage by legitimate insurance providers. Industry participants should conduct due diligence on the insurance provider to include a review of an insurer’s financial soundness, track record, regulatory record, and ownership structure.
2. Receive classification from an International Association of Classification Societies member society. This information can enable insurers, port states, and other industry stakeholders to make informed decisions about the seaworthiness of vessels, since the vessels used by Russia’s “dark” fleet may no longer be seaworthy and may use classification societies that are not a part of or have been removed from industry-standard societies.
   • The International Association of Classification Societies is a non-governmental organization whose members set technical and engineering standards to enhance maritime safety. Marine classification is a system that establishes and verifies compliance with technical and engineering standards for the design, construction, and life-cycle maintenance of ships, offshore units, and other marine-related facilities.
3. Urge best-practice use of AIS. Industry stakeholders should promote the continuous broadcasting of AIS throughout the lifetime of a voyage. If a ship needs to disable its AIS in response to a legitimate safety concern, it should document the reasons and details that prompted AIS to be disabled. Treasury in 2019 flagged deceptive shipping practices, including disablement of AIS as a means by which North Korea evades international sanctions, and Russian “dark” vessels are reportedly engaging in similar techniques. Industry stakeholders should also vigilantly monitor irregular AIS patterns or data that are inconsistent with actual ship locations.
4. Monitor high-risk ship-to-ship (STS) transfers. Although there are legitimate uses for STS, these transfers are a known evasion methodology and can be used to conceal the origin or destination of cargo in circumvention of sanctions or other regulations. In addition, STS transfers of crude oil or petroleum products outside of safe and sheltered waters increase environmental and safety risks. The Advisory recommends that stakeholders conduct enhanced due diligence on vessels that engage in STS transfers, especially in areas at higher risk for illicit trading activity or AIS manipulation, as well as examine and verify oil record logs.
5. Request associated shipping and ancillary costs. The inflation of shipping and ancillary costs, such as freight, customs, and insurance, is a tactic that may be used to conceal that Russian oil was purchased above the price cap. These ancillary costs are not included in the price caps and must be invoiced separately and at commercially reasonable rates. Therefore, the billing of commercially unreasonable or opaque shipping and ancillary costs should be viewed as a sign of potential price cap evasion. Industry stakeholders may want to update contractual terms and conditions with sellers or counterparts or adjust invoicing models to specify the price of the oil before it is loaded and transported.
6. Undertake appropriate due diligence. Enhanced diligence may be appropriate for ships that have undergone numerous administrative changes, such as renaming or reflagging, or if intermediary companies that conceal their beneficial ownership or are engaged in other opaque practices are involved in the transaction. Due diligence is especially important in areas where market assessments indicate that Russian oil prices exceed the price cap, and Coalition services are being used or sought.
7. Report ships that trigger concerns. By reporting suspicious behaviors that may exhibit red flags, industry stakeholders can collectively help protect the trade from malign activity, promote safer shipping and environmental practices, and help ensure compliance with appropriate laws and regulations.

The Coalition Advisory reflects the partners’ efforts to detect and disrupt sanctioned trade. The US government has previously published advisories about deceptive shipping practices, highlighting these and other strategies illicit actors, such as Iran, North Korea, and Syria use to evade sanctions using the maritime sector, including falsifying vessel identification numbers and registering ships with new flag states, especially in countries with weak beneficial ownership regulations. Russia uses similar methodologies to ship its oil above the price cap set by the Coalition, hiding the origin of the cargo, changing ship identification, and suppressing vessel ownership behind complex structures.

The Advisory, coupled with US Treasury’s recent designation of two vessels that transported oil sold above the Coalition price cap, underscore the Coalition’s increased commitment to reducing Russian government oil profits and constraining President Putin’s ability to fund his aggression in Ukraine. Stakeholders involved in the maritime oil industry and related sectors should review this Advisory, ensure they incorporate its recommendations into their compliance programs, monitor new sanctions evasion methodologies and risky geographies, and document and report irregular activities that may indicate evasion.

Visit DOLFIN for more information on Russia and Ukraine-related sanctions, Russian sanctions evasion typologies and case studies, and U.S. and international sanctions-related guidance for companies operating in the shipping sector.