Treasury issues new advisory warning of ‘shadow fleet’ risks in maritime oil trade
The US Treasury Department’s Office of Foreign Assets Control (‘OFAC’) has issued an updated advisory for the maritime oil industry and related sectors, warning of increasing risks from a growing ‘shadow fleet’ of vessels, used especially by Russia to circumvent sanctions and leading to potentially unsafe oil trading practices.
The 21 October advisory, issued jointly with other Price Cap Coalition members – the G7, European Union, Australia and New Zealand — highlights mounting safety and environmental concerns from ageing vessels operating outside normal regulatory frameworks.
‘A “shadow” trade has become more pronounced, often involving actors and cargo affiliated with countries and/or persons subject to sanctions, or associated with other illicit activity,’ the advisory states, describing vessels that typically operate beyond their normal lifespans and may lack proper safety certifications.
Of particular concern are vessels that may be operating with inadequate insurance coverage for potential disasters. The advisory warns that ships in the shadow trade ‘may rely on unknown, untested, sporadic, or fraudulent insurance’ and could be ‘unable to pay the costs of accidents in which they are involved, including oil spills, which entail tremendous environmental damage and safety risks and associated costs.’
The advisory outlines 11 specific recommendations for industry stakeholders:
- Proper insurance requirements: Vessels must maintain ‘continuous and appropriate maritime insurance coverage.’ The advisory emphasises that ships should be ‘insured by legitimate insurance providers with sufficient coverage for Civil Liability Convention and Oil Pollution Act liabilities.’
- Classification standards: Ships should be classified by members of the International Association of Classification Societies (‘IACS’). The advisory notes this information is ‘useful in enabling insurers, port states, and other stakeholders to make informed decisions about the seaworthiness of vessels.’
- Ship tracking systems: Vessels should maintain continuous operation of Automatic Identification Systems (‘AIS’). The advisory recommends, ‘If a ship needs to disable its AIS in response to a legitimate safety concern, the ship should document the circumstances that necessitated disablement.’
- Monitor ship-to-ship transfers: While legitimate in many cases, these transfers ‘can also be used to conceal the origin or destination of cargo in circumvention of sanctions or other regulations,’ the advisory warns. It notes that such transfers outside safe waters ‘entail heightened environmental and safety risks.’
- Cost transparency: The guidance warns that ‘inflation of shipping and ancillary costs, or the bundling of such costs, are tactics that may be used to conceal that Russian oil was purchased above the price cap.’ It requires ‘an itemised breakdown of all known costs negotiated at the start of the trade transaction.’
- Enhanced due diligence: Stakeholders should increase scrutiny of ships with ‘numerous administrative changes such as re-flagging, vessel name changes, and ownership changes’ or those with ‘elevated risk profiles based on age, incident history, deficiencies, and/or inspection history.’
- Reporting requirements: Industry participants aware of ‘potentially illicit or unsafe maritime oil trade, including suspected breaches of the oil price cap’ should report to relevant authorities.
- International safety standards: Flag States must uphold standards under SOLAS, MARPOL, STCW, and CLC conventions. The advisory notes that ‘Port State Controls can also play an important role in ensuring that foreign flagged tankers entering ports meet the requirements of international regulations.’
- Tanker sales monitoring: Stakeholders should ‘remain vigilant of potential evasive or illicit purchase structures and end-uses, especially for aging tankers, including tankers previously designated for recycling.’ This includes conducting ‘enhanced due diligence on these transactions, including ultimate beneficial ownership.’
- Sanctions compliance: The advisory warns stakeholders to ‘constantly monitor their exposure to ensure they are not interacting with sanctioned parties’ and notes that sanctioned vessels may attempt deception through ‘renaming, reflagging, obscuring their IMO number, or falsifying documents.’
- Training and transparency: Industry stakeholders should ‘develop targeted training programs for their employees and associated partners focused on the risks of shadow fleet activities and deceptive practices.’
The advisory updates previous guidance and reflects growing concern about sanctions evasion in the maritime oil trade, particularly in relation to Russian oil price cap enforcement. It builds upon multiple previous advisories issued by Coalition members throughout 2023 and early 2024.
