On November 22, 2022, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) published a new determination pursuant to Executive Order 14071 of April 6, 2022 (“EO 14071“) – “Determination Pursuant to Section 1 (a)(ii) of EO 14071” (“Determination“). The Determination implements the price cap policy for Russian crude oil, as anticipated based on OFAC’s September 2022 preliminary guidance related to the implementation of the policy banning the provision of services related to the maritime transportation of Russian crude oil. OFAC also published a related guidance document entitled “OFAC Guidance on Implementation of the Price Cap Policy for Crude Oil of Russian Federation Origin” to provide further clarifications related to the Determination and the relevant requirements (“Guidance“). Additionally, OFAC issued three Russia-related General Licenses.
Determination Pursuant to Section 1 (a)(ii) of EO 14071
The Determination prohibits the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a US Person of the following covered categories of services as they relate to the maritime transport of Russian crude oil (“Covered Services”):
- Trading/commodities brokering;
- Financing;
- Shipping;
- Insurance, including reinsurance and protection and indemnity;
- Flagging; and
- Customs brokering
The Determination authorizes US Persons to provide the Covered Services if the Russian crude oil is purchased at or below the price cap determined by the Secretary of the Treasury in consultation with the Secretary of State. The Determination will take effect at 12:01 a.m. eastern standard time on December 5, 2022. Note that the Determination does not apply to Russian crude oil loaded onto a vessel at the port of loading for maritime transport prior to 12:01 a.m. eastern standard time on December 5, 2022 and unloaded at the destination port prior to 12:01 a.m. eastern standard time on January 19, 2023.
Similar determinations pursuant to Section 1 (a)(ii) of EO 14071 were issued in September 2022 targeting Russia’s quantum computing sector and in May 2022 targeting accounting, trust and corporate formation, or management consulting services. Please see our blog posts here and here for more guidance on such past determinations.
OFAC’s Guidance Document
The Guidance states that the price cap for Russian crude oil will be set after a technical exercise conducted by the Price Cap Coalition, an international coalition that includes the United States, Australia, the European Union, and other G7 countries. The Guidance also provides guidance on:
- the price cap including the costs to be included in calculating the price cap, the applicability of the price cap, how to assess whether crude oil is of Russian origin, and potential compliance red flags;
- each of the Covered Services including what they include and do not include and the scope of “financing” services covered;
- the safe harbor from OFAC enforcement including the due diligence, compliance, and documentation requirements to benefit from the safe harbor; and
- licensing, including relevant general licenses available.
The Guidance supplements OFAC’s September 2022 preliminary guidance; please see our blog post here for more details related to OFAC’s September 2022 preliminary guidance.
New Russia-related General Licenses
In tandem with the above actions, OFAC issued three new Russia-related general licenses that relate to the maritime transport of Russian crude oil. Specifically:
- General License 55 (“GL 55”) authorizes transactions related to the maritime transport of crude oil originating from the Sakhalin-2 project (“Sakhalin-2 byproduct”) provided that the Sakhalin-2 byproduct is solely for importation into Japan. GL 55 expires at 12:01 a.m. eastern daylight time, September 30, 2023.
- General License 56 (“GL 56”) authorizes transactions related to the importation of crude oil into Bulgaria, Croatia, or landlocked European Union Member States as described in Council Regulation (EU) 2022/879 of June 3, 2022. There is no expiration date for GL 56.
- General License 57 (“GL 57”) authorizes transactions that are ordinarily incident and necessary to addressing vessel emergencies related to the health or safety of the crew or environmental protection, including safe docking or anchoring, emergency repairs, or salvage operations. GL 57 does not authorize transactions related to the offloading of Russian crude oil unless the offloading is ordinarily incident and necessary to address vessel emergencies, nor does it authorize transactions related to the sale of Russian crude oil. There is no expiration date for GL 57.
The authors acknowledge the assistance of Ryan Orange with the preparation of this blog post.
