In a previous update posted on our Trade Compliance Resource Hub on 13 February 2024 (The 12th package of EU sanctions against Russia: impact on the tanker S&P market), we explored the introduction of Article 3q restrictions on tanker sales as part of the EU’s 12th package of sanctions against Russia. In that update, we flagged a number of ambiguities over how Article 3q may be interpreted.

After various delays, on 19 February 2024 the EU Commission issued its FAQ guidance on Article 3q of Council Regulation (EU) No. 833/2014 (as amended). The FAQ document provides some key clarifications sought by the market. However, some uncertainties remain.

Recap – Article 3q

Article 3q imposes two obligations on EU tanker sellers:

  1. To notify authorities of all tanker sales to non-EU persons; and
  2. To apply for authorisation for tanker sales to persons in Russia or “for use in Russia”, which are otherwise prohibited.

The notification requirement had retrospective effect on sales from 5 December 2022 onwards which would otherwise have required notification or authorisation further to points 1 and 2 above. This notification requirement for retrospective sales was due before 20 February 2024.

Notification – sales to non-EU persons

The key clarifications are as follows:

·  Who is obliged to notify (FAQ 3)

  • It is common for tankers to be owned by SPVs in non-EU jurisdictions. A key question was whether there was a notification requirement in respect of sales of these tankers. Where the ultimate beneficial owner is an EU person, the EU has now clarified that the notification requirement applies to that person.
  • Additionally, FAQ 3 clarifies that the use of non-EU intermediaries (such as brokers or managers) to carry out the sale of the tanker does not relieve EU persons of the obligation to notify the sale. This is a part of the anti-circumvention provisions.
  • However, the flag state is not relevant to the question of whether notification is required (FAQ 4).

·  What types of transactions?

  • A broad approach should be taken to the meaning of “transfer of ownership” (FAQ 2).
  • However, long term charterparties are explicitly from the scope of the Regulation, including bareboat charters (FAQ 12).

Authorisation – sales to persons in Russia or “for use in Russia”

The key clarifications are as follows:

·  “For use in Russia

  • Probably the greatest uncertainty over Article 3q was the meaning of the words “for use in Russia”. The EU has provided some clarification on this point.
  • It is clear that “for use in Russia” includes international voyages which call at Russia (i.e. it is not limited to Russian cabotage). This is implicit in FAQ 8, which refers to authorisation applications in the context of vessels performing Russian price cap business (which by definition are international in nature). This is also consistent with the stated purpose of the regulation as a means of preventing evasion of the price cap. To further to support this conclusion, FAQ 8 includes an “intention to regularly access Russian territorial waters” in a list of factors which a competent authority may consider in its decision concerning authorisation. The inclusion of this wording in the list of factors is suggestive of when an application may be required.
  • The FAQ is silent on whether the possibility of occasional, irregular voyages to Russia would require an application for authorisation.

·  Due diligence still vital

  • FAQ 9 is clear that a seller may dispense with an application where it is “not aware of any reason why the tanker would be used in Russia”. This appears to set quite a low threshold for applications. 
  • FAQ 9 goes on to say that an application should only be made where due diligence has revealed that the sale is to the benefit of a Russian person or for use in Russia.
  • The burden is on the seller to perform due diligence to determine whether the buyer will use the tanker in Russia, including by seeking documents from the buyer. A seller may choose to make a declaration, along with its notification, that it has performed such due diligence and on the basis of the information received, has determined that no authorisation is required.
  • That said, it is clear from the above, and the various price cap guidance released by the EU, UK and U.S. authorities that reasonable and proportionate due diligence remains a central tenet to the price cap regime and the restrictions related to it, including Article 3q.
  • A Russian trading history or the need for authorisation does not doom a tanker sale. Generally, FAQ 9 recommends that authorisation can be granted where the vessel will be used to trade Russian oil and petroleum products in compliance with the price cap. Conversely, authorisation is likely to be refused where there is evidence of price cap evasion.

·  What types of transactions?

  • A broad approach should be taken to the meaning of “transfer of ownership” (FAQ 2).
  • The requirement for authorisation does not apply to long term charterparties, including bareboat charters (FAQ 12).

Whilst some ambiguity remains, the market is moving forward with implementing this regime. We have already assisted in several authorisation applications to EU competent authorities and are well positioned to assist sellers or buyers to navigate this process in connection with the overall S&P transaction.