Understanding OFAC’S Early Guidance and Recommended Technologies  

The U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) has published early guidance on implementation of a maritime services policy and related price exception for seaborne Russian oil. 

Organizations will be prohibited from providing financial services for seaborn shipments of Russian oil, unless that oil is sold under a set price cap. The Treasury said the cap will start on December 5, 2022 for Russian crude and February 5, 2023 for refined products.

“The U.S. and its allies have designed the policy in a bid to accomplish two goals: keep Russian oil flowing to global markets while still cutting the revenue Moscow receives from its sales,” according to Andrew Duehren of the Wall Street Journal

The guidance delineates three tiers within the maritime ecosystem, each accompanied by specific, tier-dependent responsibilities:  

Tier 1: commodity brokers, refiners and other entities with regular, direct access to price information in the ordinary course of business should keep and share documents that show that seaborne Russian oil was purchased at or below the price cap.  

Tier 2: banks that finance the shipment of Russian oil and shipping companies must try to discover the sales price from other firms, or to require their customers to state that they are complying with the price cap. 

Tier 3: insurers must require their customers to promise that the Russian oil they are handling is sold under the price caps.

Deceptive Shipping Practices 

OFAC’s early guidance builds upon its deceptive shipping practices advisory issued in May 2020. As with the previous advisory, this new guidance concerns itself with highlighting illicit maritime activities. With the obvious difficulty involved in obtaining accurate shipping documentation, the following two behaviors were called out as “red flags for price cap evasion”: 

  • Newly formed companies or intermediaries, especially if registered in high-risk jurisdictions: Firms should exercise the appropriate due diligence when providing services to new customers or counterparties, particularly if these entities were recently formed or registered in high-risk jurisdictions and do not have a demonstrated history of legitimate business.  
  • Abnormal shipping routes: The use of shipping routes or transshipment points that are abnormal for shipping seaborne Russian oil to the intended destination, as determined by past practice or historic AIS data; a lack of historic AIS data for a particular tanker or fleet of tankers owned by a particular shipper; transshipment through one or more jurisdictions for no apparent economic reason; and sudden unexplained changes in route may indicate attempts at concealing the true history of an oil shipment in violation of the price ap.  

What does this mean for commodity brokers, refiners, financial institutions, and insurers? 

From a strategic perspective, this early guidance increases the pressure on various markets  and maritime organizations throughout the ecosystem, who must evaluate technologies and implement sanctions processes, etc. 

In terms of counterparty due diligence, organizations require technology that can keep up with frequent ownership changes and that supplies full owner company details, as well as corporate structures. The ability to receive specific insights on Russia, and other sanctions regimes and countries, is also critical. 

Abnormal shipping routes can be detected automatically by an artificial intelligence (AI) system with predictive capabilities. With the right repository of vessel behavioral data and fine tuned AI models, any deviation from normal behavior will be flagged. 

Windward Can Help

Deceptive shipping practices are widespread and often go beyond merely disabling an AIS to “go dark.” Our Maritime AITM platform recently uncovered more than 600 cases of ships manipulating their satellite navigation systems to hide their locations, as featured on the front page of The New York Times. And one of Windward’s recent blog posts identified patterns of suspicious shipping routes for smuggling oil – the exact behavior that must be monitored, according to the new guidance. 

Abnormal shipping routes, such as first time visits and behavior not in a crew’s best economic interests, are immediately and automatically flagged by our system, to ensure you are in full compliance with OFAC’s guidance.

Windward’s counterparty due diligence database is powered by Dun & Bradstreet and LexisNexis Risk Solutions, and can help with the “newly formed companies or intermediaries” mentioned in the guidance. The solution includes all seven levels of vessel ownership and in the vessel risk profile, Windward provides risk indicators for any recent ownership changes, irregular business structures, and multiple ownership changes.

Need help or advice on complying with OFAC’s early guidance? We are happy to schedule a meeting to better understand your needs.