UK to hit Russia sanctions busters with fines as oil cap probe ramps up

Britain is set to impose its first fines for sanctions-busting in 2024, opening investigations into suspected breaches of the Russian oil price cap.

The Treasury said “a number” of inquiries had started and claimed it was using powers under new post-Brexit sanctions laws to demand or seize information and documents about potential price cap breaches.

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The UK has a limited record of sanctions enforcement — imposing fines of only £20.7m ($25.9m) since January 2021 — and its expertise in dealing with possible price cap breaches has come under fire from insurers.

The International Group of P&I Clubs has said that some 800 ships have left because of the increasing burden of complying with the oil price cap mechanism championed by the G7 group of nations.

But the Treasury and its sanctions arm, the Office of Financial Sanctions Implementation (Ofsi), claimed that it is taking a leading role on the international stage in cracking down on sanctions breaches.

Ofsi has the power to levy fines of £1m or 50% of the value of any identified breach in price cap rules, whichever is higher.

The regulator “takes a proactive enforcement approach and is currently undertaking a number of investigations into suspected breaches of the oil price cap”, according to a submission to a parliamentary inquiry investigating the record of the UK’s sanctions programme.

“Although Ofsi cannot discuss or comment on individual cases, Ofsi is able to launch investigations based on suspected breach reports shared with us, intelligence capabilities and other reporting,” it said.

The price cap, introduced in December 2022, allows insurers, shipping companies and financiers with links to the G7 group of nations to haul Russian crude if it is priced below $60 per barrel.

The scheme was extended to refined products in February 2023, with caps of $100 for premium products, such as diesel, and $45 for discounted products.

Blacklisted managers

The scheme, driven by the US, is aimed at limiting Russian revenues while keeping global oil flowing.

Since December, the UK has blacklisted a number of ship managers and operators linked to Russia’s invasion of Ukraine but has provided only limited reasons for the moves, and not specified whether they were for price cap breaches.

They include Dubai-based players such as the Sovcomflot-linked, Oil Tankers (SCF) Management, Radiating World Shipping Services and Fractal Marine DMCC. Turkey’s Beks Ship Management has also been targeted. Fractal and Beks have said they will appeal against the designations.

But unlike the US, the UK has not blacklisted any individual ships hauling Russian oil. The near 100 ships previously operated by the four sanctioned companies have dwindled to just 10 as they have moved to new management companies.

All but one of them are linked to the SCF unit, while many of the ships continue to trade Russian oil with different companies

Unlike other forms of suspected sanctions breaches, the UK does not provide information on the number of reports that the oil price cap has been flouted or the number of investigations.

It said its enforcement teams had 172 cases under investigation as of April 2023, but these excluded oil price cap breaches and counter-terrorism cases.

In 2022-2023, Ofsi recorded 473 suspected breaches of financial sanctions, again excluding oil price cap cases.

But it increased its resources for enforcement by 175% in 2022-2023 and is under pressure to show results with the extra budget.

First fines

“This includes progressing the first monetary penalties resulting from the 2022 Russia designations,” the Treasury said in its submission to the parliamentary committee.

“We expect to see the first enforcement action from these in 2024. Enforcement outcomes are never immediate, as complex investigations take time.”