Council Regulation (EU) 2023/2878 of December 18, 2023, amending
Regulation (EU) No. 833/2014 resulted in the adoption of the 12th
package of sanctions against Russia, with the aim of imposing
additional import and export bans combating sanctions circumvention
and closing loopholes.
This package of sanctions affects a wide array of areas and
industries, ranging from Russian-origin diamond imports to the oil
price cap mechanism. In particular to shipping, the regulation
introduced article 3q which, among other things, prohibits the sale
or transfer of oil tankers to Russia, Russian individuals or
entities, or for use in Russia. The article also creates a
notification obligation for the sale or transfer of oil tankers to
third countries generally.
The fine-tuning of the law was instigated by the reality that
the use of loopholes in the previous packages had made it
relatively easy for those willing to evade sanctions to do so.
Accordingly, this regulation aims to enhance the monitoring of
tanker sales to third countries while restricting Russian access to
the ‘shadow fleet’ used to circumvent the price cap.
Examples of sanctions busting and deceptive practices include
ship-to-ship transfers used to conceal the origin or destination of
cargo, as well as the manipulation of the automatic identification
system while transporting Russian crude oil or petroleum
products.
The prohibition of the sale or transfer of oil tankers to
Russian entities or for use in Russia in article 3q(1) is not as
straightforward as it may seem and is not a blanket ban. The sale
of tankers from EU persons or entities to Russian persons or
entities is prohibited and entails an objective assessment.
On the other hand, “for use in Russia” requires a
subjective understanding of the transaction at hand. A derogation
from this prohibition is possible through article 3q(2) and (3),
however authorisation for such a derogation is not to be granted if
the Malta Sanctions Monitoring Board (SMB) has reasonable ground to
believe that the given tanker would be used to transport crude oil
or petroleum products in breach of the oil price cap mechanism and,
in fact, should not even be sought by the applicant in the first
place.
The regulation grants the SMB the power to receive applications
and determine them on a case-by-case basis, and to establish the
conditions it deems appropriate for a derogation from the
obligation. In essence, the law creates a two-tier scrutiny
process, whereby EU persons or entities are to conduct heightened
due diligence, which is escalated to the SMB if there is scope for
a derogation.
The onus of assessing “for use in Russia” and seeking
a derogation (where possible) is placed on the EU persons or
entities owning oil tankers and acting as sellers in the given
transaction. Similarly, the obligation to notify sales or transfers
from EU owners to third country entities rests with the sellers, as
per article 3q(4). This is because placing any form of obligation
on the purchaser would be very ineffectual given they have no
jurisdictional link to the EU.
The FAQs published by the Commission on February
19, 2024, provide insight on several key uncertainties raised by
article 3q, yet fail to directly address the subjective
interpretation of “for use in Russia”. The FAQs stipulate
that the application for derogation from the prohibition of the
sale or transfer of oil tankers should take into account the
purchaser’s past experience, track record, management and
shareholding, their history on sanctions compliance, as well as
their intention to regularly access Russian territorial waters.
Such information would serve as the basis for the determination
by the SMB of the likelihood of sanction breaches by the purchaser
if the derogation were to be granted. In addition to the EU FAQs,
the SMB issued its own guidance note defining the
term “for use in Russia” on February 28, 2024, directly
linking the phrase to the tanker’s likelihood of subsequently
violating the oil price cap mechanism.
On the other hand, when it is determined that the vessel will
not be purchased for use in Russia or for the benefit of Russian
persons, then a simple notification of the transfer to the SMB
suffices. It is evident that a proper due diligence exercise is key
to determining whether or not the sale or transfer is even
possible, as the primary step in the aforementioned two-tier
scrutiny process.
It is critical to note that this assessment of “for use in
Russia” and the information sought from the purchaser are to
form part of an “explicit documented inquiry”. To this
end and on the basis of this inquiry, a declaration by the EU
seller confirming that it is not aware of any reason why the tanker
would be used in Russia and that the purchaser or its ultimate
beneficiary owners are not Russian or subject to EU sanctions
carries certain responsibilities.
In connection to article 3q and since its introduction as part
of the regulation, the Malta Ship Registry has mandated a
declaration of conformity from the owners of a tanker being
transferred to non-EU nationals or deleted from the Malta flag to
the effect that such a transfer or deletion will conform with
article 3q and that the proper assessment would have been made in
order to determine that the tanker’s new owners will adhere to
its provisions. The Registry of Ships will also require evidence
that the seller served notice to the SMB.
In conclusion, the regulation presents a number of salient
obligations specific to the shipping industry. The fine line
between the prohibition on the sale or transfer of oil tankers to
Russian entities or for use in Russia and the notification
obligation for sale or transfer to a third country entity
highlights the EU seller’s duty to conduct an exhaustive due
diligence exercise before proceeding with the transaction.
Article 3q in particular and its expected use and interpretation
demonstrates the complexity of ensuring the application of
effective sanctions and curtailing sanction busting.
Moreover, the obligations and expectations incumbent on EU
persons emphasise the reality that everyone has a part to play if
we are to achieve the sanction’s intended goals.
This article was first published in the Times of Malta on
15/04/2024.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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