Over the last few years, tanker owners have reaped large profits from selling their older tonnage to (in many cases) newly established buyers who have set up in various jurisdictions ranging from Dubai to Hong Kong. But who are these buyers and what are their intentions for these tankers? It is a fact that many of these tankers have ended up in the dark fleet carrying Russian oil to buyers in India and China.
The UK issued guidance on sales of tankers to buyers in third countries as long ago as 2024. The UK sanctions in fact date back to 2019. The EU has also had a notification system in place for many years, although that system only applies where the vessel is sold to a Russian buyer or beneficiary. Where the sale is to a non-Russian buyer there is no requirement to notify and no circumvention where the seller has no reasonable cause to suspect that the vessel may be resold in a way that may constitute a breach of sanctions i.e. to a buyer who may trade it in Russia. The main issue for sellers has always been to exercise due diligence such that they can prove that they had no reasonable cause to suspect any sanctions circumvention if there is a later investigation.
Of course, the obvious way to crack down on circumvention is for the regulators to investigate historic tanker sales where the vessel is now part of the dark fleet and/or engaged in Russian trade. But the authorities seem reluctant to do that. Investigating past sellers could cause major issues for those who did not do the necessary due diligence and/or did not ask the right questions in the face of the offer of a lucrative price!
The focus for now seems to be on future sales and, with that in mind, the EU has issued revised guidance on what sort of due diligence a seller of a tanker should be undertaking. Whilst this is only “guidance” and does not limit the obligations on sellers (including past sellers who may not have carried out proper due diligence), the EU has made it clear that simply having a “no Russia” clause in the MOA is not enough. There needs to be a proper risk assessment done on the proposed buyer with questions asked about their business record and existing fleet. This will obviously have an impact on newly established buyers incorporated in jurisdictions where corporate information might be sparse. Questions also need to be asked about who is behind the buyer, source of funds, finance etc to enable a proper risk assessment to be done. That information then needs to be retained for 5 years.
The recent EU guidance also goes as far as suggesting a form of wording for a “no Russia” clause to be inserted into any sale contract. BIMCO are also now working on developing a standard clause which will likely follow this outline wording. The restriction however is based on the seller having “no reasonable cause to suspect” that a subsequent buyer may use the vessel for Russian business in a way that undermines sanctions. It is important that a subsequent buyer retains the right to sell the vessel to legitimate buyers albeit subject to the same due diligence process.
We will have to see what sort of clause BIMCO propose when they release it later this year. Pending that however, the EU suggested clause is a good starting point but a “no Russia” clause on its own is not sufficient. We recommend that any shipowner who is considering selling their tanker to an interested buyer undertake the necessary due diligence and carry out a proper risk assessment. That is the best way to protect not only the seller but also the financiers and brokers involved in the deal.
Recently, some clients have approached us to ask about rights of recourse if it transpires that their formerly owned tanker ends up trading in the dark fleet. Contractual clauses in the MOA between them and the original buyer pave the way for a claim for indemnity and/or damages against the original buyer in the case of a breach but, in circumstances where the original buyer has sold the ship on without necessarily doing proper due diligence, they may have no assets against which any claim could be enforced. One potentially ends up with a claim which needs to pass through multiple contracts to get to someone who has an asset. And even then, the party with the asset will be trading in Russia and so unlikely to pay. Arresting the ship may also be challenging and presents all sorts of jurisdictional issues. The best practice therefore is for the sellers to spend a bit of time and money making sure that the sale process is done properly and that they have the necessary due diligence and risk assessment in place if and when the authorities come knocking on their door!
At BDM we advise clients on dozens of sale and purchase transactions each year and we also have a detailed knowledge of sanctions law. Please click here to see our previous blog on how to buy a ship but this dates back to 2017 and now needs to be updated to include the sanctions and compliance issues.
