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OFAC Places Sanctions on Multiple Entities During the First Year of Price Caps on Russian Oil

By Dan Pickard and Jacob A. Garten, Buchanan Ingersoll & Rooney

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) program on Russian crude oil turned one year old on December 5, 2023. As described below, the past year has seen significant enforcement action in this space.

While imports of Russian oil and Russian petroleum products into the United States are prohibited by Executive Order 14066, U.S. persons are authorized by OFAC’s determinations to provide certain services as they relate to the maritime transport of Russian oil and petroleum products. However, such services are only authorized when the crude oil or petroleum products are purchased at or below a certain price. The services authorized under the determination are trading/commodities brokering, financing, shipping, insurance (including reinsurance and protection and indemnity), flagging and customs brokering.

The United States is part of a coalition, including the G7, the European Union, and Australia (“Price Cap Coalition”) that have agreed to a coordinated policy and implementation regarding services relating to the maritime transport of crude oil and petroleum products of Russian Federation origin. The coalition’s implementation is structured around the price at which Russian crude oil and petroleum products are purchased (“price cap policy”). The aim of the price cap policy is to maintain a reliable supply of crude oil and petroleum products for the global market while limiting the revenues available to the Russian Federation due to its war of aggression against Ukraine.

The sanctions imposed in December 2023 were in response to OFAC’s identification of vessels carrying oil priced above the price caps. All three of the vessels had used U.S.-person services while transporting the Russian-origin crude oil priced above the price cap. The vessels were the NS Champion, Viktor Bakaev and HS Atlantica. OFAC also imposed sanctions on the registered owners of the vessels, United Arab Emirates-based Sterling Shipping Incorporated and Streymoy Shipping Limited, and Liberia-based HS Atlantica Limited.

As a result of the sanctions all property and interests in property of the registered owners mentioned above in the United States or under the control of U.S. persons are blocked and must be reported to OFAC. Further, any entities that are owned, directly or indirectly, 50% or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of the registered owners or such additional entities are prohibited, unless otherwise allowed by OFAC. The prohibitions are broadly interpreted and include the making of any contribution or provision of funds, goods or services by, to or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.

In October and November 2023, OFAC placed sanctions on United Arab Emirates-based Lumber Maine SA, Kazan Shipping Incorporated, Progress Shipping Company Limited and Gallion Navigation Incorporated, and Turkey-based Ice Peral Navigation Group, for similar reasons and to similar effect.

The Price Cap Coalition had previously published an advisory in October 2023 that provides recommendations for best practices in regard to compliance with the price cap. OFAC published an alert on possible evasion of the price cap in April 2023 and guidance on the implementation of the price cap in February 2023. The SDN list is a list of persons and entities that are sanctioned. In addition to placing persons on the SDN list, OFAC has procedures for removing them from the list. In addition, certain transactions are exempt from the sanctions, and OFAC has granted general licenses that authorize a particular type of transaction for a class of persons without the need to apply for a license. Persons may also apply to OFAC for specific licenses that allow otherwise prohibited transactions.

In conclusion, there have already been significant enforcement actions in regard to the Russian oil price cap program administered by OFAC but more are likely to follow. Indeed, the U.S. Government has been clear in stating that, while it intends to support stable energy markets, it will continue to fight to reduce Russian revenues necessary to fund its war against Ukraine.

Energy Workforce Member Buchanan, Ingersoll & Rooney provides insights on international trade issues specific to energy services and technology companies. Daniel Pickard is Chair, International Trade & National Security Practice Group, and Jacob A. Garten is Section Specialist, International Trade & National Security Practice Group.


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