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Maritime industry in the spotlight with 11th EU Russia sanctions package

The EU’s latest measures take on ‘deceptive practices’ and ‘shadow entities’ in a clamp down on emerging Russia sanctions circumvention techniques.

What’s been happening in the market?

In the first quarter of 2023 there was a 225%1 increase in ‘dark activity’, where vessels switch off their Automatic Identification Systems (“AIS”) and become untraceable, masking illicit or sanctionable activity, such as loading Russian oil. During these ‘dark’ periods, an estimated 524 ship-to-ship (“STS”) transfers of crude oil occurred compared with 161 in the first quarter of 2022,2 prior to the implementation of Russian sanctions. Our last blog discussed these deceptive practices in more detail.

A proportion of these vessels are likely part of ‘shadow fleets’. Since the Russia sanctions, numerous vessels have been identified as unregistered with a flag state, the International Maritime Organisation (“IMO”), or commercial insurance and appear to frequently switch off AIS to mask Russian oil movements.3 Estimates put this fleet at 300 to 600 tankers,4 approximately 10% and 7% of the world’s crude and product tankers, respectively.5

In this blog we discuss the EU’s latest measures to tackle these practices and the potential impact on the maritime industry.

What is the EU’s 11th Russia sanctions package proposing?

In addition to tackling the rise of deceptive shipping practices, the measures also aim to prevent Russian oil entering the EU via third countries,6 such as China, India, and Turkey, where Russian crude can be refined, and the products legally sold on to EU buyers with the non-Russian refinery listed as the origin.

In May 2023, the EU’s High Representative for Foreign Policy stated “We in the EU don’t buy Russian oil, but we buy the diesel obtained by refining this Russian oil somewhere else. This has the effect of circumventing our sanctions and our member states should take measures to deal with this.”7

The EU’s 11th package focusses on three measures:
  • adding more products to existing export and transit bans, such as advanced technology products going to third countries via Russia
  • an ‘anti-circumvention tool’ to restrict the sale of certain goods to third countries which appear to be at continued and particularly high-risk of circumvention
  • a ban on ‘shadow entities’ both from Russia and third countries who intentionally circumvent sanctions.

According to the latest announcement, the ban on ‘shadow entities’ would comprise a ban on port access for tankers that:

  • turn off AIS when transporting Russian oil
  • engage in STS transfers suspected to be in breach of the Russian oil import ban, or which do not notify authorities in advance about STS transfers occurring in certain areas.8

Despite concerns about whether such actions were “legally or technically possible” 9 on 23rd June 2023 the proposal was adopted.10

What is the potential impact to the maritime industry?

Vessels have various legitimate reasons for switching off AIS and engaging in STS transfers. There will likely be challenges enforcing a mechanism that only targets vessels undertaking these activities to engage in illicit or sanctionable activity.

The official text reportedly proposes a notification system between EU member states to flag vessels,11 although scepticism remains about the effectiveness of such measures. However this builds on measures supported by the IMO in March 202312 requiring vessels to update STS operational manuals and notify their flag states when engaging in mid-ocean operations.

Whilst the official text of the EU’s 11th sanctions package is still to be released, given the challenges to its practical implementation and enforcement, the focus on these practices will likely put pressure on organisations to enhance their identification of illicit and sanctionable activity. For example:

  • vessel tracking – increased scrutiny of AIS tracking tools’ outputs by relevant experts to assess risk, considering emerging Russia sanctions circumvention typologies
  • vessel ownership – additional due diligence on complex, historic ownership of vessels. In February 2023, Spain denied the Maersk Magellan port entry owing to an STS earlier in the cargo movement from a vessel previously flagged as Russian13
  • documentation requests – seeking assurances or signed attestations from ship owners and charterers of no illicit or sanctionable trade during identified dark AIS or STS activity.

What should you focus on?

To avoid cases like the Maersk Magellan which can result in additional operational costs and potential brand impact, organisations should have in place a robust maritime sanctions compliance framework that is:

  • in line with evolving and increasingly complex regulatory expectations
  • informed by a regularly refreshed risk assessment and risk appetite, ensuring it is commensurate with the inherent risk of business operations
  • effectively implemented and embedded into the organisation with appropriate and well documented processes and controls
  • regularly tested and assured to be delivering the required risk mitigation as intended
  • supported by appropriate technology solutions and resource capacity and skillsets.

Our team has extensive experience supporting clients such as energy supermajors in uplifting and enhancing their maritime sanctions risk management frameworks, utilising deep regulatory and industry expertise to enable the successful delivery of value-add outcomes across each of the areas listed above. If you would like to speak to our experts, please get in touch with a member of our team.

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References:

1 Russia behind 225% spike in shadowy oil transfers at sea | S&P Global Commodity Insights (spglobal.com)

2Ibid.

3Greek Companies and Ghost Ships Help Russia Evade Sanctions and Export Oil (foreignpolicy.com)

4IMO: Up to 600 tankers operate as 'dark fleets' - SAFETY4SEA

5Welcome to the dark side: The rise of tanker shipping’s ‘shadow fleet’ (freightwaves.com)

611th package of sanctions (europa.eu)

7Some clarifications on the circumvention of EU sanctions against Russia | EEAS (europa.eu)

811th package of sanctions (europa.eu)

9EU persists with dark fleet sanctions despite enforcement difficulties :: Lloyd's List (informa.com)

1011th package of sanctions (europa.eu)

11Greece seen stalling on new EU sanctions package on Russia that targets dark fleet ships :: Lloyd's List (informa.com)

12IMO: Up to 600 tankers operate as 'dark fleets' - SAFETY4SEA

13Maersk Tanker Denied Entry to Spanish Port Over Russian-Linked Oil Transfer (gcaptain.com)