OFAC Publishes Updated Maritime Oil Industry Advisory

On October 21, 2024, the Department of the Treasury's Office of Foreign Assets Control ("OFAC") issued an Updated Price Cap Coalition Advisory for the Maritime Oil Industry and Related Sectors ("Updated Advisory"). OFAC published the Updated Advisory together with the so-called Price Cap Coalition ("Coalition"), comprised of the G7 nations, Australia, and the European Union.

The Updated Advisory is addressed to both government and private sector actors participating in the trade of seaborne crude oil and refined petroleum products ("Stakeholders"). It builds upon, among other things, (1) the Maritime Oil Industry Advisory OFAC published in October 2023 ("Original Advisory") and (2) OFAC's policy concerning the implementation of a price cap on oil and petroleum products of Russian origin ("Price Cap Policy"), which are covered in our previous alerts. It does so by including additional recommendations to Stakeholders and making some changes to the Original Advisory, as summarized below.

Summary of Key Aspects of Updated Advisory
The Updated Advisory begins by explaining that the "shadow" trade identified in the Original Advisory "has become more pronounced" and often involves persons and cargo connected to sanctioned persons or countries, or to those engaged in illegal activities. It goes on to identify several increased risks based on recent developments in the seaborne oil trade, all of which are virtually identical to the four categories of increased risk outlined in the Original Advisory.

There are some differences worth highlighting. First, the Updated Advisory makes clear that "[s]hadow fleet tankers have been observed disabling or manipulating Automatic Identification Systems" to hide information about their voyages, including illegal activity. In the Original Advisory, OFAC had only identified such actions as a possible risk. Second, the Updated Advisory highlights how the Coalition has recently imposed sanctions on certain vessels and counterparties engaged in the trade of Russian oil that violates the Price Cap policy. It notes that these actions underscore the risk of attempting to deceive the Coalition by trying to ship seaborne oil above the price cap provided in the Price Cap Policy.

New Recommendations on Compliance Best Practices
The Updated Advisory provides 11 best practice recommendations that Stakeholders should adopt, based on their risk profile, contingent on (1) their role; (2) the information they have available; and (3) the kinds of transactions they participate in. The first seven are essentially the same as the recommendations included in the Original Advisory, and summarized in a previous alert, with some minor changes or additions. The last four recommendations in the document, which are new, are summarized below.

• Recommendation 8: Ensure vessels meet international maritime safety and environmental obligations. Stakeholders should make sure ships comport with global environmental obligations and maritime safety. OFAC stresses that "Flag States play a critical role in promoting safety" and ensuring compliance with agreed-upon standards across the seaborne oil trade industry. Flag States should ensure vessels entering ports outside their territory meet such standards and are otherwise not engaged in illicit activities—and take action as needed (e.g., by detaining ships that fail to comply with the Price Cap Policy or preventing their entry into national ports). Similarly, OFAC suggests that coastal States should promote compliance by monitoring vessel-to-vessel transfers in their territorial waters and exclusive economic zones. OFAC urges Stakeholders to raise concerns about ships they believe pose risks with Flag States, coastal States, or other related authorities.
• Recommendation 9: Monitor tanker sales. Stakeholders engaged in selling or brokering tankers need to continue to be aware of possible illegal purchase structures or end-uses. OFAC notes this is particularly true for older tankers, especially ones formerly designated for recycling. The Coalition "strongly encourages" Stakeholders to conduct increased due diligence when engaging in these transactions, including obtaining information on ultimate beneficial owners, and if buyers or ship management companies have previously been associated with vessels engaging in "potentially illicit or unsafe behavior." According to OFAC, the enhanced due diligence "should include obtaining information such as contact details, source of funds, and copies of identification of the buyer's beneficial owner or owners." This information should be cross-checked against market intelligence, media, and third-party databases for accuracy. The Updated Advisory also notes that the EU is more closely monitoring sales of tankers to third countries and is committed to preventing their use in the transport of oil in violation of the Price Cap Policy.
• Recommendation 10: Avoid interactions with sanctioned parties. Given the Coalition's imposition of various sanctions on those who violate the Price Cap Policy, Stakeholders should "constantly monitor" their potential exposure to sanctioned parties to confirm they are not transacting with such parties without the requisite authorization. They should do so by checking national sanctions lists, but, more significantly, OFAC is now recommending Stakeholders engage in proactive investigations of possible sanctions violations (e.g., whether unsanctioned counterparties have transacted with sanctioned persons). If possible, Stakeholders should "deny attempts by sanctioned vessels or parties to enter port, conduct ship-to-ship transfers, and sell or buy tankers" and report such attempts to the authorities. OFAC warns that owners of sanctioned ships may try to deceive counterparties (e.g., by renaming or reflagging vessels, falsifying documents, or obscuring IMO numbers).
• Recommendation 11: Raise the level of awareness and enhance market transparency. Stakeholders should create targeted training programs for their personnel and business partners, as needed, that address "the risks of shadow fleet behavior and deceptive practices." OFAC identifies topics the training should cover, such as "identifying red flags, understanding the effects of deceptive practices on maritime safety, the environment, and the economy, proper reporting practices, sanctions risks, and the importance of transparency and compliance." In addition, OFAC suggests that, when possible, Stakeholders should "prioritize open communication and collaboration to combat deceptive practices, including information and data sharing with industry partners."

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