OFAC Publication Of Price Cap Coalition Alert

• Published date: 14 February 2024
• Subject Matter: International Law, Transport, Technology, Compliance, Marine/ Shipping, Export Controls & Trade & Investment Sanctions, New Technology
• Law Firm: Herbert Smith Freehills
• Author: Mr Jonathan Cross, Christopher Boyd, Brittany Crosby-Banyai, Kelly Adams and Yash Dattani

On February 1, 2024, the United States Department of Treasury's Office of Foreign Assets Control ("OFAC") published a Price Cap Coalition Compliance and Enforcement Alert (the "Alert"). Per the Alert, the "Price Cap Coalition," which consists of the G7, the European Union, and Australia, has two key objectives: (1) constraining Russian revenues that could otherwise be used to fund Russia's war against Ukraine, while (2) maintaining global oil flows and protecting energy security. The Alert contains an overview of key oil price cap ("OPC") evasion methods and recommendations for identifying such methods and mitigating their risks and negative impacts as well as information of how to report OPC suspected breaches across the Price Cap Coalition. The Alert also noted that it builds on multiple previous alerts issued by the Price Cap Coalition.

Per OFAC, the Alert should be considered in full by any industry stakeholder involved in the trade of Russian oil and oil product and should adopt the recommendations included in the Alert along with those included in previous guidance documents. OFAC also notes that the guidance can help governments and industry stakeholders improve their compliance with the OPC and reduce their exposure to possible risks associated with circumvention and evasion of the measure.

OPC Evasion Methods and Recommendations

In the Alert, OFAC highlights the following common evasion methods of the OPC:

1. Falsified documents and attestations
   Falsified documentation can be used to disguise the true price paid for Russian oil and oil products and obscure the origin of a vessel, its goods, destination, and even the legitimacy of the vessel itself. This could lead to Coalition services inadvertently being used to support non-price cap compliant transactions.
2. Opaque shipping and ancillary costs
   Manipulation of shipping and ancillary costs (including shipping freight, customs, and insurance costs), the bundling of such costs and failure to itemize these costs could be used to obfuscate Russian oil and oil products being purchased above the price cap These costs should be at commercially reasonable rates, in line with industry standards, including any geopolitical risk premiums.
3. Third country supply chain intermediaries and complex and irregular corporate structures
   Entities attempting to evade the OPC are increasingly looking to third country supply chain intermediaries and the use of complex and irregular corporate structures to trade Russian oil...