Price Cap Coalition: updated advisory for maritime industry aims to prevent sanctions evasion

Posted: 25/10/2024

The Price Cap Coalition, which comprises the G7, EU, Australia and New Zealand, has updated its advisory for both government and private sector stakeholders in the maritime industry, setting out best practice recommendations to tackle sanctions evasion in the maritime trade of crude oil and petroleum products, which is often referred to as the ‘shadow trade’.

Noting the ongoing geopolitical changes that have affected the world’s maritime oil trade, the advisory highlights the dangers that the ‘shadow trade’, and its irregular and high-risk shipping practices, could pose, along a number of lines, including maritime safety, marine environment, insurance, economic, reputational, logistical, financial, and legal.

To counter the risks generated by the shipping of cargo associated with sanctioned countries or individuals, or any other illicit activity, the coalition has issued a list of 11 key recommendations – four of which, recommendations 8-11, are new. It encourages stakeholders to adopt these, based on their:

role;
the information available to them; and
the types of transactions in which they engage.

The recommendations are summarised below:

Existing recommendations

Recommendation 1: a requirement appropriately to capitalise P&I insurance.

As the shadow trade often involves vessels that rely on ‘unknown, untested, sporadic or fraudulent’ P&I insurance providers, the coalition recommends that stakeholders require vessels have continuous and appropriate maritime insurance coverage for the entirety of their voyage. Vessels should be insured by legitimate providers with sufficient coverage for liabilities under the Civil Liability Convention (CLC) and the Oil Pollution Act.
When engaging with a vessel that lacks cover from a legitimate insurance provider, industry participants should conduct due diligence. This would include reviewing the insurer’s financial soundness, track record, regulatory history and ownership structure.

Recommendation 2: receive classification from an International Association of Classification Societies (IACS) member society.

Vessels involved in the shadow trade are using classifications societies unaffiliated with or removed from the IACS – stakeholders should ensure that their counterparties are classified by IACS member societies, to verify that vessels are suitable for their intended service.

Recommendation 3: best-practice use of automatic identification systems (AIS).

In line with the International Convention for the Safety of Life at Sea (SOLAS), stakeholders should promote continuous broadcasting of the AIS during a voyage. If disabled due to a legitimate safety concern, the ship should document the circumstances.
Stakeholders are encouraged to monitor irregular AIS patterns or data inconsistent with actual vessel locations.
AIS should be complemented with long-range identification and tracking (LRIT). In cases of AIS outages or suspected manipulation, stakeholders should utilise LRIT.

Recommendation 4: monitor high-risk ship-to-ship (STS) transfers.

Stakeholders should ensure STS activities comply with: (i) MARPOL convention; and (ii) national regulations, in line with the IMO’s December 2023 Resolution on STS and the shadow fleet.
Stakeholders should acknowledge increased risks (such as STS of crude oil/petroleum products being conducted outside of safe waters) and conduct enhanced due diligence, and, where appropriate, notify relevant authorities of oil cargo transfers as mandated by ANNEX I of MARPOL.

Recommendation 5: request associated shipping and ancillary costs.

As the inflation or bundling of shipping and ancillary costs may be used to disguise purchases of Russian oil above the price cap, those involved in Russian oil trade should require a detailed itemisation of all known costs negotiated at the outset of the trade transaction.

Recommendation 6: undertake appropriate due diligence (DD).

Heightened DD may be required for ships that have:

- undergone numerous administrative changes (eg flag, name change, ownership change);

- elevated risk profiles due to their age, incident history, deficiencies or inspection history; or

- ownership through intermediary companies (management, brokers, traders) which conceal beneficial ownership or employ opaque practices.

Recommendation 7: report vessels that trigger concern.

Reporting to the relevant authority may be mandated where there is awareness of illicit/unsafe maritime oil trading (including suspected breaches of the oil price cap).
Stakeholders should refer to the Coalition’s February 2024 Compliance and Enforcement Alert (comprised of an annex with relevant reporting information).

New recommendations

Recommendation 8: ensure vessels meet international maritime safety and environmental obligations.

Flag states are responsible for upholding standards and obligations under SOLAS, MARPOL, STCW, and CLC. Port State Controls (PSC) play a role in ensuring foreign flagged tankers comply with international regulations.
Flag states should ensure that vessels do not conduct illegal operations or evade compliance with safety or environmental regulations.
If a stakeholder becomes aware of potentially illicit/unsafe maritime oil trading, including breaches of the oil price cap, they should report it to the relevant authorities, in line with recommendation 7, above.

Recommendation 9: monitor tanker sales.

Participants involved in the sale and brokering of tankers should remain vigilant for evasive/illicit purchase structures and end-uses. Of particular concern are ageing tankers, including those previously designated for recycling, with enhanced DD against new participants.

Recommendation 10: avoid interactions with sanctioned parties.

Unless granted a licence by a relevant national authority, stakeholders should continuously monitor their exposure to ensure that interactions are not with sanctioned parties.
Stakeholders should deny attempts by sanctioned vessels/parties to enter ports, conduct STS, and buy/sell tankers, reporting these activities to the relevant authorities.

Recommendation 11: raise awareness and enhance market transparency.

Stakeholders should develop targeted training. This training should cover:

- identifying red flags;

- understanding the impact of deceptive practices on maritime safety;

- the environment and the economy, proper reporting practices; and

- transparency/compliance.

Stakeholders should prioritise open communication and collaboration to combat deceptive practices. This includes sharing information and data with industry partners.

While the coalition remains keen to promote the safe flow of oil on the market, the above recommendations – alongside previous guidance documents – aim to minimise exposure to the current dangers associated with the maritime trade of oil.

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