US sanctions regulators believe companies may be unknowingly trading Russian oil above the price cap, warning commodity traders and shipping companies to be aware of false documentation and deceptive vessel behaviour.
In an alert issued this week, the US Office of Foreign Assets Control (OFAC) says crude exported from ports on Russia’s Pacific coast and via the Eastern Siberia-Pacific Ocean oil pipeline is likely being sold for more than US$60 per barrel – the maximum allowed under restrictions that took effect on February 1.
OFAC says it believes parties involved “may be using covered services provided by US persons”.
“These US service providers may be unaware that they are providing covered services involving Russian oil purchased above the price cap, as the non-US persons involved in the exports may have provided incomplete or false documentation or used other deceptive practices,” the authority says.
The alert says commodity brokers and traders should not facilitate transactions unless shipping, freight, customs and insurance costs are invoiced separately from the purchase price of Russian oil.
Those costs are not included in the restrictions, it explains, and so can be used to “obfuscate the fact that Russian oil was purchased above the price cap” if bundled together.
“A refusal by a counterparty to provide documentation showing Russian oil or Russian petroleum products were purchased at or below the price cap (when, for example, the total price inclusive of other costs is above the cap) should be considered a red flag,” it says.
Traders must retain all documentation showing oil was purchased at or below US$60 per barrel, it adds. Good-faith actors can use evidence of record-keeping as protection against enforcement if they inadvertently reach the price cap.
OFAC also warns that tankers may be manipulating automatic identification systems (AIS) to disguise port calls in Russia, singling out Kozmino in the south-east of the country as an area of risk. It says basic vessel tracking services are likely unable to detect such activity.
Spoofing AIS signals can be used to mask ship-to-ship transfers, it adds, pointing out that signs of manipulation should be considered “evidence of possible evasion of the price cap”.
Shipowners, flag registries and protection and indemnity clubs should use maritime intelligence services to analyse AIS data in-depth and encourage counterparties or members to do the same, the authority says.
OFAC has previously urged banks, traders and shipping companies to make greater use of such services, issuing “critical” sector-specific guidance in May 2020 to ensure companies are not unwittingly handling commodities linked to sanctioned entities.
The advisory was followed by similar action from regulators in the UK, as well as guidance from influential industry bodies on how to put its recommendations into practice.
Despite regulatory pressure, there are signs Russia is continuing to exploit deceptive shipping practices to move sanctioned oil.
Research by intelligence service Windward finds that following Russia’s invasion of Ukraine, port calls in the US, UK and European Union by vessels originating in Russia fell from an average of 22.5 to 18 per month, “not the decline you would expect to see when there is an official ban in place”.
Although direct port calls have decreased significantly, Windward finds the volume of arrivals following ship-to-ship transfers “has remained steady, despite the ban and the price cap regulations”.
It attributes these figures to the emergence of a so-called “dark fleet” of Russian vessels “operating in the shadows”.
As well as AIS manipulation, deceptive practices can include ships taking on fake or decoy identities, for instance by obtaining International Maritime Organization registration numbers fraudulently or assuming the identity of a vessel that has in fact been scrapped.
In Russia’s case, Windward says the dark fleet “is characterised by weak ownership structures and the use of multiple flags of convenience over short periods of time”.
“The size of this fleet has fluctuated substantially with each new regulation published and even more so following the Russian oil ban and price caps,” it says.
Reuters reported this week that the price cap on Russian oil is to remain at US$60 after a review by the G7 and Australia, despite increases in crude prices in recent weeks.