Price Cap Coalition: Best practices against shadow trade

The advisory also provides recommendations concerning specific best practices and reflects the Coalition’s ongoing commitment to promoting responsible practices in the industry, disrupting sanctioned trade, and enhancing compliance with the price cap. The following recommendations, issued by the Coalition, represent best practices that the Coalition encourages stakeholders to adopt, in accordance with applicable laws and regulations, and as appropriate based on:

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

Recommendation 1: Require appropriately capitalized P&I insurance

The shadow trade often involves ships that may rely on unknown, untested, sporadic, or fraudulent insurance. Without legitimate and continuous insurance coverage, these ships may be unable to cover the costs of accidents, including oil spills, which can cause significant environmental damage and safety risks. The Coalition recommends that stakeholders require vessels to have continuous and appropriate maritime insurance coverage for the entirety of their voyages. Furthermore, stakeholders should ensure that vessels are insured by legitimate providers with sufficient coverage for liabilities under the Civil Liability Convention (CLC) and the Oil Pollution Act. When engaging with a ship that lacks insurance from a legitimate provider, industry participants should conduct due diligence to confirm that the insurer can cover all relevant risks. This due diligence may 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

The information collected by classification societies is essential for enabling insurers, port states, and other stakeholders to make informed decisions regarding the seaworthiness of vessels. Some ships involved in the shadow trade have shifted away from standard classification societies and are using those that are not affiliated with or have been removed from the International Association of Classification Societies. Stakeholders are encouraged to 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 alignment with the International Convention for the Safety of Life at Sea (SOLAS), stakeholders should promote the continuous broadcasting of AIS throughout the duration of a voyage. If a ship needs to disable its AIS due to a legitimate safety concern, it should document the circumstances surrounding the disablement. Stakeholders should also monitor irregular AIS patterns or data inconsistent with actual ship locations. By requiring compliance with AIS broadcasting in accordance with SOLAS, stakeholders can improve their understanding of vessel activities and reduce exposure to criminal actors and associated risks.

When feasible, AIS tracking should be complemented with Long-Range Identification and Tracking (LRIT). In cases of AIS outages or suspected manipulation, stakeholders with access to LRIT should utilize it to determine the true location of vessels, including those leased to third parties. Combining AIS and LRIT is considered a best practice for mitigating risk.

Recommendation 4: Monitor high-risk ship-to-ship transfers

Stakeholders should ensure that all ship-to-ship (STS) activities comply with MARPOL convention rules and regulations, as well as any relevant national regulations, in line with the IMO’s December 2023 Resolution on STS activities and the shadow fleet. While STS transfers (the transfer of cargo between ships at sea) are often conducted for legitimate reasons, they can also be used to conceal the origin or destination of cargo in violation of sanctions or other regulations. Furthermore, STS transfers of crude oil or petroleum products outside of safe waters pose heightened environmental and safety risks. Stakeholders should acknowledge these increased risks and conduct enhanced due diligence concerning STS transfers, including notifying relevant authorities of oil cargo transfers as mandated by Annex I of MARPOL, particularly in high-risk areas for illicit trading activity or AIS manipulation. Verification of oil record logs is essential to maintain an accurate record of cargo movements aboard vessels.

Recommendation 5: Request associated shipping and ancillary costs

The inflation or bundling of shipping and ancillary costs (e.g., freight, customs, insurance) may be tactics used to disguise purchases of Russian oil above the price cap. Billing for commercially unreasonable or opaque shipping and ancillary costs should raise suspicions of potential price cap evasion. Shipping, freight, customs, and insurance costs are not included in price caps and must be invoiced separately at commercially reasonable rates. Stakeholders involved in the Russian oil trade should require a detailed itemization of all known costs negotiated at the outset of trade transactions (e.g., port dues, freight, insurance). As of early 2024, coalition service providers are required to request such information in certain circumstances, including requests from relevant authorities. This necessitates updates to contractual terms and conditions with sellers or counterparts and adjustments to invoicing models to separate the price of oil until the port of loading from the prices for transportation and other services.

Recommendation 6: Undertake appropriate due diligence

 Industry stakeholders should carry out appropriate due diligence. Heightened diligence may be required for ships that have undergone numerous administrative changes, such as re-flagging, name changes, or ownership changes, or that have elevated risk profiles due to age, incident history, deficiencies, or inspection history. Increased diligence may also be advisable when engaging with intermediary companies (e.g., management companies, traders, brokerages) that conceal beneficial ownership or employ unusually opaque practices. Such companies may be more prone to engage in deceptive practices and expose counterparties to increased risks. Due diligence should be tailored to the specificities of the stakeholders’ businesses and their related risk exposure. This is especially critical in situations where market assessments indicate that Russian oil prices exceed the price cap and Coalition services are being utilized or sought.

Recommendation 7: Report ships that trigger concerns

 If there is awareness of potentially illicit or unsafe maritime oil trade, including suspected breaches of the oil price cap, reporting to relevant authorities is necessary and may be mandated by national regulations. Stakeholders should refer to the Coalition’s February 2024 Compliance and Enforcement Alert, which includes an annex with relevant reporting information. Reporting such concerning behaviors enables industry stakeholders to collectively safeguard the trade from malign activity while promoting safety and integrity across the market.

Recommendation 8: Ensure vessels meet international maritime safety and environmental obligations

 Flag states play a crucial role in ensuring safety and maintaining agreed-upon standards across the maritime oil trade. Specifically, flag states are responsible for upholding standards and obligations under SOLAS, MARPOL, STCW, and CLC. Port State Controls (PSC) also have a significant role in ensuring that foreign-flagged tankers entering ports (other than those of the flag state) comply with international regulations and uphold high safety and environmental standards. In accordance with the 2023 IMO resolution, flag states should ensure that vessels do not conduct illegal operations or evade compliance with safety or environmental regulations. PSCs and other relevant authorities should consider actions to address such behaviors, such as detaining or preventing non-compliant vessels from entering national ports. Coastal states should monitor ship-to-ship operations within their territorial waters and exclusive economic zones (EEZ) to ensure compliance with maritime safety and pollution prevention standards. Engagement with flag states, port states, coastal states, and relevant authorities regarding vessels of particular concern is advised. If awareness exists of potentially illicit or unsafe maritime oil trade, including suspected breaches of the oil price cap, reporting to relevant authorities is essential, as referenced in Recommendation 7.

Recommendation 9: Monitor tanker sales

Participants involved in the sale and brokering of tankers should remain vigilant for potential evasive or illicit purchase structures and end-uses, especially concerning aging tankers, including those previously designated for recycling. While new participants may enter the industry, enhanced due diligence on these transactions is strongly encouraged, including due diligence on ultimate beneficial ownership. Understanding whether buyers or associated ship management companies have prior associations with vessels involved in potentially illicit or unsafe behaviors is critical. Appropriate due diligence should encompass obtaining information such as contact details, sources of funds, and identification documents of the beneficial owners. The Coalition recommends that this information be verified against third-party databases, media, and market intelligence and reviewed periodically, in compliance with regulations in each jurisdiction, consistent with Recommendation 6. Stakeholders should be aware that the European Union has implemented measures to more closely monitor the sale of tankers to third countries to prevent their use in transporting oil priced above the Coalition’s established cap.

Recommendation 10: Avoid interactions with sanctioned parties

 Coalition members have enacted a series of sanctions against illicit oil traders, opaque intermediaries, companies that own vessels, and the vessels themselves. Stakeholders should continuously monitor their exposure to ensure that interactions do not occur with sanctioned parties unless a relevant national authority has granted a license or exemption. This includes checking counterparties and vessels against national sanctions lists and undertaking proactive investigations to ascertain sanctions exposure. Understanding whether unsanctioned counterparties may have recently engaged with sanctioned entities is essential. Stakeholders should, where feasible, deny attempts by sanctioned vessels or parties to enter ports, conduct ship-to-ship transfers, and buy or sell tankers, and report such attempts to relevant authorities. It is crucial to remain vigilant, as owners and operators of sanctioned vessels may engage in deceptive practices to obscure their status, such as renaming, reflagging, altering their IMO number, or falsifying documents, which increases sanctions risk for non-sanctioned counterparties.

Recommendation 11: Raise awareness and enhance market transparency

Industry stakeholders should develop targeted training programs for employees and associated partners focusing on the risks associated with shadow fleet activities and deceptive practices. These training sessions should cover identifying red flags, understanding the impact of deceptive practices on maritime safety, the environment, and the economy, proper reporting practices, sanctions risks, and the importance of transparency and compliance, among other topics. Furthermore, stakeholders should prioritize open communication and collaboration to combat deceptive practices, including sharing information and data with industry partners.

Call to Action on Risks of the shadow Fleet 

Separately, the United States is endorsing the United Kingdom-led “Call to Action,” which was issued in July 2024. It sets out the risks generated by Russia’s shadow fleet and provides a basis to develop a coordinated response to those risks. The United States is committed to increasing the costs to Russia of using this shadow fleet to evade sanctions. 

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