On November 21, 2022, the UK Department for Business, Energy and Industrial Strategy published guidance on the UK ban on Russian oil and oil products intended for entry into the UK (the “BEIS Guidance”) that was legislated for by the Russia (Sanctions) (EU Exit) (Amendment) (No. 14) Regulations 2022 and will come into effect on December 5, 2022. Among other things, the BEIS Guidance explains how to determine the origin of oil or oil product imports to the UK and sets out UK sanctions authorities’ expectations with respect to compliance controls in relation to the ban.
UK Ban on Russian Oil and Oil Products Intended for Entry into the UK and Related Services
When it comes into effect on December 5, the ban will prohibit:
- the import into the UK of oil and oil products that originate in, or are consigned from Russia;
- the direct or indirect acquisition of oil and oil products that originate, or are located in, Russia with the intention of bringing the goods to the UK;
- the direct or indirect supply or delivery of oil and oil products from a place in Russia to the UK; and
- the direct or indirect provision of technical assistance, financial services, funds, or brokering services relating to the import, acquisition, supply and delivery of Russian-origin oil and oil products into the UK.
According to the BEIS Guidance, the ban will apply “to the entirety of the prohibited activity, including acts that occur outside of the UK.”
The ban will apply to a wide range of oil and oil products that are produced, manufactured, extracted or processed in Russia. In particular, the ban will apply to goods falling within the Harmonized System (“HS”) codes 2709, 2710, 2711, 2712, 2713, 2714, 2715, 2207, and 283826 and include crude oil, refined products, and bioethanol, bitumen and petroleum gases.
How to Determine the Origin of Oil Imports to the UK
For the purposes of the ban on the import, acquisition, supply and delivery of oil, the “origin” of the goods is determined in accordance with the Taxation (Cross-border Trade) Act 2018 and the UK’s existing non-preferential rules of origin.
If oil or oil products neither originate in Russia nor are located in Russia, they are not subject to the import, acquisition, supply and delivery bans. The BEIS Guidance specifically states that “[o]il and oil products that originate from another country, and that are located in or consigned from a country other than Russia are therefore not subject to the prohibitions.”
In applying those rules, the BEIS Guidance clarifies that the following oil and oil products would not be categorised as originating in Russia:
- if they are wholly obtained in a country other than Russia (e.g., if crude oil was extracted and then refined into diesel in the US it would be deemed wholly obtained from the US);
- if they have been blended with non-Russian oil or oil products in a country that is not the UK, Isle of Man or Russia (“Third Country”) that results in a new product (e.g., the HS code for the new product differs from that of the original oil or oil product or the processing represents an important stage of manufacture) and must be done for normal commercial purposes and not to avoid the UK’s sanctions regime (e.g., if crude oil from the UAE is refined in Sweden to produce diesel, it would be deemed to originate in Sweden or if Russian intermediate feedstocks or products imported into Sweden are then processed to make a new UK-specification finished product, it would be deemed to originate in Sweden); and
- if non-Russian oil is added to a container not located in Russia holding Russian tank heel, the non-Russian products mixed with the Russian tank heel can still be imported into the UK. “Tank heel” is an unpumpable quantity of substance that may remain at the base of a container that previously has been used to transport or store Russian oil or oil products that cannot be removed without causing damage to the container.
The Russia (Sanctions) (EU Exit) Regulations 2019, as amended (“Russia Regulations”) also prohibit persons subject to UK sanctions jurisdiction from intentionally circumventing, or seeking to circumvent, UK sanctions. Consequently, the BEIS Guidance states that anything deliberately done for the purpose of avoiding the sanctions is not permitted (e.g., blending or processing products solely to prevent them from being of Russian origin).
Oil that Originates in a Third Country and Flows Through Pipelines in Russia
The BEIS Guidance notes that oil and oil products of non-Russian origin may sometimes unavoidably transit through, or depart from, Russia. To address this scenario, the Russia Regulations contain a specific exception at Regulation 60H that applies when:
- the oil or oil products do not originate in Russia;
- the oil or oil products are not owned by a person connected with Russia (i.e., an entity incorporated, constituted or domiciled in Russia or an individual ordinarily resident or located in Russia); and
- the oil or oil products are only being loaded in, departing from, or transiting through, Russia.
Therefore, the ban will not apply if Russia is identified as the country of export in the customs declarations, but the oil or oil products’ country of origin is identified in those declarations as a Third Country and the goods are not Russian-owned. The BEIS Guidance illustrates this point with the example of the CPC pipeline, which transports Kazakh oil through Russia. The Kazakh oil is mixed with Russian oil as a consequence of transportation. While the oil cannot be physically segregated once mixed, the portion corresponding to the amount of Kazakh origin oil will be certified as Kazakh origin. The BEIS Guidance expressly states that “[o]ur intention is that this Kazakh-certified oil can be imported as it is of Kazakh origin.”
Enforcement of the Ban
According to the BEIS Guidance, all importers of oil and oil products into the UK must be able to provide proof of origin for those products that demonstrates the goods are not of Russian origin. This may be done through the acquisition and retention of documentation (e.g., a certificate of origin proving the exact amount of oil originating in a non-Russian Third Country). In some cases, customs may require the production of further information relating to the goods, which may include, but is not limited to, invoices, bills of lading or other books or documents relating to the goods.
The BEIS Guidance advises:
- actors operating in all parts of the supply chain for oil and oil product imports into the UK to undertake the due diligence necessary to ensure that UK sanctions are not being directly or indirectly circumvented; and
- importers to additionally include contractual provisions in their agreements that imports are not of Russian origin.
If an importer is unable to prove that the oil or oil products they are bringing into the UK are non-Russian in origin, the shipment (or relevant portion of the cargo) may not be allowed to unload or may be subject to forfeiture. For more information on how these developments could impact your organization, contact the author of this post, Alexandra Melia, in Steptoe’s Economic Sanctions team in London.