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Updated OFAC Price Cap Guidance Identifies Additional Safe Harbor Requirements

Washington, D.C. (January 9, 2024) - On December 20, 2023, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) updated its earlier Guidance on Implementation of the Price Cap Policy for Crude Oil and Petroleum Products of Russian Federation Origin (“Updated Guidance”) (see our previous alert on the Russian Oil Price Cap).

The updated document tightens compliance and enforcement of the price cap, in line with a December 6 statement from the G7, and outlines additional expectations for U.S. service providers seeking a safe harbor from OFAC price cap enforcement. To continue benefiting from the safe harbor, OFAC expects affected U.S. service providers to be in compliance with the Updated Guidance by February 19, 2024.

Previously, OFAC provided a safe harbor from enforcement of price cap violations for U.S. Service providers that “comply in good faith with a record keeping and attestation process” in an attempt to “shield such service providers from strict liability for breach of sanctions in cases where service providers inadvertently deal in the purchase of Russian oil or Russian petroleum products sold above the relevant price cap owing to falsified or erroneous records provided by those who act in bad faith or make material misrepresentations.” This safe harbor remains in place under the Updated Guidance. However, the December 20 revisions impose various additional attestation requirements for certain actors, depending upon their level of exposure to Russian oil or petroleum product prices.

The Updated Guidance divides additional attestation and other safe harbor requirements among three “tiers” of actors. Tier 1 Actors are those who “regularly have direct access to price information in the ordinary course of business, such as commodities brokers and oil traders.” Tier 2 Actors are those who are “sometimes able to request and receive price information from their customers in the ordinary course of business, such as financial institutions, ship/vessel agents, and customs brokers.” Finally, Tier 3 Actors are those “who do not regularly have direct access to price information in the ordinary course of business, such as insurers, P&I clubs, shipowners, and flagging registries.”

To qualify for the safe harbor, Tier 1 Actors must, among other requirements, keep records (such as invoices, contracts, or receipts) proving that they bought Russian oil or petroleum products at or below the specified price cap. Similarly, Tier 2 Actors should, when feasible, request and retain documents demonstrating compliance with the price cap. If obtaining such information is not feasible, Tier 2 Actors must secure and retain customer attestations confirming that the Russian oil or petroleum products adhere to the relevant price cap. Finally, Tier 3 Actors must obtain and keep customer attestations that purchased (or to-be-purchased) Russian oil and petroleum products were at or below the specified price cap. This compliance may involve incorporating a sanctions exclusion clause into existing policies or contracts, or receiving attestations as part of an annual insurance policy renewal process.

Additional information regarding applicability and safe harbor requirements are contained within the full Updated Guidance document.

Lewis Brisbois’ experienced attorneys are actively advising clients as they navigate the ocean of rapidly developing regulatory risks related to international sanctions. For more information, please contact the authors or editors of this alert and visit our Ukraine Conflict Response Practice page for additional alerts in this area.

Author:

George Leahy, Associate

Editors:

Rafael X. Zahralddin, Partner

Andrew Pidgirsky, Partner and Chair of Ukraine Conflict Response Practice

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