What the shipping industry should be aware of
The European Union’s 12th package of sanctions against Rus-sia has come into force on 19 February 2024, following adop-tion by the European Council on 18 December 2023. A few days earlier, on 14 December 2023, the UK government also introduced legislation through Amendments Nos 4 and 5 to further sanctions against Russia.
With the implementation of this package only having just begun, the European Union is already expected to impose a new set of sanctions against Russia following the sudden death of Russian activist Alexei Navalny on 26 February, President Putin’s most formidable domestic opponent.
This article summarises some of the key updates from the EU and UK, including to the price cap regulations.
EU’s 12th package
Regulation (EU) 269/2014
Measures have been included which designate over 140 addi-tional individuals and entities – precisely, some 61 individuals and 86 entities – under Regulation (EU) 269/2014; with a particular focus on those from the Russian technology, de-fence, military and insurance sectors (including Alfa Strakhovanie Group).
Regulation (EU) 833/2014
• Price cap
The aim of the European Council is to tighten compliance with the price cap on Russian oil cargo, in order to address any potential circumvention.
It requires, inter alia, EU service providers to verify, via a certification procedure within the supply chain, that Russian oil products were purchased from non-EU entities at a price within the permitted limits of the price cap.
The price cap is currently set at US$60 per barrel of crude oil (products falling under 2709), US$45 (for products trading at a discount, e.g. naphtha), and US$100 (for products trading at a premium, e.g. jet fuel) per barrel for petroleum products (products falling under 2710).
The regulation also requires that EU member states should periodically share information with each other to further identify vessels and entities of concern carrying out deceptive practices while transporting Russian crude oil and petroleum products, with the apparent goal of targeting the ‘shadow fleet’.
• Diamonds
From 1 January 2024, the direct or indirect purchase, import, or transfer, of diamonds and products containing diamonds, as listed in parts A, B and C of annex XXXVIIIA, is prohibited, if such cargo originates in Russia, or has been exported from Russia into the EU, or to any third country.
In addition to the direct restriction on the export of diamonds from Russia, the ban will also include certain Russian diamonds polished in a third country (by 1 March 2024), and lab-grown products containing Russian diamonds (by 1 September 2024).
• Sale of tankers
The EU has ushered in a new era for the tankers market, introducing measures aimed at tightening controls on the sale of tankers, which could potentially end up in shadow fleets, and thus circumvent the price cap restrictions imposed by the EU.
It is now prohibited to sell tankers to transport crude oil or petroleum products that fall under HS Code 8901 20 (which is identified as tankers under the regulation) to Russia or for use in Russia, although competent authorities are allowed to derogate from the above where conditions permit.
The regulation also introduces notification obligations for the sale of such tankers. These require that any sale, or other arrangement entailing a transfer of ownership of tankers, to any third country by a national of a EU member state, a natural person residing in a EU member state, or a legal person, entity or body which is established in the European Union, must now be immediately notified to the competent authorities.
While the notification requirements are immediate, any sale or transfer of ownership of tankers that occurred after 5 December 2022, and prior to 19 December 2023, must be made known to the competent authority before 20 February 2024.
• No Russia clause
EU exporters must contractually prohibit the re-exportation to Russia, or the re-exportation for use in Russia, of particularly sensitive goods and technology, when selling, supplying, transferring, or exporting to a third country, with the exception of partner countries (US, UK, Japan, South Korea, Aus-tralia, Canada, New Zealand, Norway and Switzerland). The clause covers prohibited items used in Russian military systems, as well as aviation goods and weapons.
• Import-export controls and restrictions
Several new entities, including those belonging to third countries, have been added to the list of those directly supporting Russia’s military and industrial complex. The list of restricted items has also been expanded to include chemicals, lithium batteries, thermostats, and unmanned aerial vehicles (UAV).
Further restrictions have also been introduced on the import of goods which generate significant revenue for Russia, including pig iron, copper wires, aluminium wires, foil tubes and pipes, as well as a new import ban on liquified propane (LPG) (although a 12-month transitional period has been allowed for).
• Transfers of money
Reporting requirements will now apply to EU entities which are more than 40% owned by Russian nationals, residents, or entities for any transfer of funds exceeding the amount of €100,000 outside the EU. At the same time, financial institutions have an obligation to report information on such transfers that they have initiated for these EU entities.
UK sanctions – updates
OTSI
On 11 December 2023, the UK government announced the creation of a new Office of Trade Sanction Implementation (OTSI). OTSI is expected to be responsible for the civil enforcement of trade sanctions, including those implemented with Russia. The UK government has clarified that OTSI will prioritise such companies that seek to circumvent UK trade sanctions.
Iron and steel products
The Russia (Sanctions) (EU Exit) (Amendment) (No 4) Regulations 2023 include prohibitions on the import, acquisition, or supply or delivery (to a third country) of certain metals such as aluminium, copper, nickel, lead, and zinc, and also expands the export ban on luxury goods to include technical assistance, financial assistance, and insurance, re-insurance and brokering services.
Finance and reporting
The existing prohibition on processing payments to/from entities designated for the purpose of Regulation 17A has been amended to apply to all payments, not just to sterling payments. The UK has also designated a number of new Russian banks for the purpose of correspondent banking relationships.
The UK has also introduced an additional reporting requirement, whereby ‘relevant firms’ must inform HM Treasury if it knows or suspects that it holds funds or economic resources for a prohibited person, and to do so by 31 October each year as to the nature and amount. There are also new reporting requirements for designated persons to inform HM Treasury of their funds and economic resources.
Diamonds
Russia (Sanctions) (EU Exit) (Amendment) (No 5) Regulations 2023, like in the EU, effects a diamond ban, and includes a prohibition on the import, acquisition, or supply or delivery of diamonds (and ‘diamond jewellery’) originating from Russia,
as well as those that have been consigned from Russia.
The Price Cap Coalition rules – update
On 20 December 2023, OFSI updated its guidance related to the oil price cap. The guidance provides clarity about upcoming changes to the attestation model. These changes are to come into effect from 19 February 2024 (UK and US) and for cargoes loaded on or after 20 February 2024 (EU).
Some key changes are that the tier 3 actors will be split into tier 3A and tier 3B, as set out below:
Tier 3A |
Tier 3B |
| • P&I clubs • Hull and machinery insurers • Cargo insurers • Insurance brokers • Ship owners • Ship management companies |
• Reinsurers • Financial institutions providing general financing facilities (FIs providing transaction- based financing remain in tier 2) |
Key added responsibilities for the main actors will be as follows:
Per voyage attestations
Attestations are to be provided to any other tier 1, tier 2, or tier 3A counterparty, prior to loading or the date of the contract (whichever is earlier); if more than one voyage is occurring under a single contract, they must provide additional attestations for every relevant voyage prior to loading.
If cargo is transferred via STS, then this will be considered as a new voyage and so further attestations will be required.
Itemised ancillary costs
Tier 1 entities must retain and record ancillary costs infor-mation associated with each voyage occurring as part of a relevant transaction or contract, and share with tier 1, 2 and 3A actors upon request. For CIF contracts, the following should be covered:
• costs (eg licences, inspections, fees, packaging costs, customs duties and taxes);
• insurance (the cost of insuring the shipment until desti-nation);
• freight (the cost of shipping the freight via sea up until the destination); and
• other costs.
Additional responsibilities also apply to tier 1, 2 and 3A entities from 19 February 2024 in relation to the information each entity is required to provide on the per voyage attestations, and which specific information must be recorded for the ancillary costs.
Tier 3B: guidance
The additional attestation requirements will not apply to 3B actors, and as was previously the position, the inclusion of a clause within contractual terms and conditions stating that the unit price of the Russian oil to be supplied or delivered, or being supplied or delivered, is, or will be at or below the price cap, may be considered sufficient to meet the requirements of the attestation process.
Insurers, brokers, and ship owners/managers, charterers and others should therefore be aware of these changes and the further requirements that are now placed upon them should they wish to trade Russian oil.
Ceasing doing business
OFSI has confirmed that the requirement to cease doing business with actors who refuse or fail to provide attestation or itemised ancillary cost information has been clarified as being contract-specific and only applying to policies relating to the seaborne transportation of Russian oil and oil products.
Conclusion
The EU’s decision to impose a new round of sanctions against Russia clearly shows its determination to continue to apply economic pressure, in order to limit the effectiveness of the Russian military enterprise.
On this occasion, the European Council’s priority with this 12th package of sanctions has not only been the imposition of fresh restrictions on imports and exports, but also the enforcement of existing sanctions, for example, by imposing requirements for the sales of tankers in response to the ’shadow fleet’ that has been circum-venting the price cap regime.
At the same time, the UK has created a dedicated sanctions enforcement body, the Office of Trade Sanctions Implementation, that will monitor sanctions implementation and enforcement.
All companies within the shipping industry should be aware of these new impediments and carry out due diligence in respect of each prospective fixture, to ensure compliance with the ever-increasing array of curtailments on Russian trades.
By Akshay Misra
Managing Associate
Penningons Manches Cooper
[email protected]
For further information and advice on international trade sanctions, please get in touch with Penningtons’ Global Sanctions Team.
This article was published in is first version on 19 February 2024 on the Penningtons Manches Cooper website.
In November 2023, the UK Foreign & Commonwealth Development Office (FCDO) and OFSI issued a joint guidance on ownership and control in relation to sanctions and individuals, to ensure that sanctions cannot be easily circumvented. You can find the full guidance here.
It clarifies in particular that President Vladimir Putin is not considered to control all companies in Russia for UK asset freeze-test purposes, and control determined by meeting specific conditions. The FCDO also made it clear that does not intend that the sanction measures were to prohibit routine transactions with public bodies, including the following non-exhaustive list: taxes; import duties; licenses; and other ordinary/incidental payments.
For detailed analysis and insight, read Penningtons briefings on the FCDO and OFSI joint guidance and on the court decision underpinning it.
