Client Alert

Congress Pulls the Trigger on Russia’s Nord Stream 2 and TurkStream Pipeline Projects

12 Dec 2019

As it nears the end of the calendar and legislative year, Congress is preparing to take long-awaited action to kill Russia’s Nord Stream 2 and TurkStream natural gas pipeline projects – months before Nord Stream 2’s completion – and impose a variety of other sanctions involving North Korea, Syria, and China.

Russia

MoFo’s National Security team has previously reported about various bills floating around Congress to impose sanctions on Russia, including the bipartisan Protecting Europe’s Energy Security Act of 2019 (PEESA) – which was filed on May 14, 2019 by Senators Cruz, Shaheen, Barrasso, and Cotton. Despite some early measures of support for the bill, and passage by relevant committees in the House and Senate, it soon ran into a legislative logjam in the Senate. Supporters continued to push for it and managed this week to convince budget negotiators to attach the bill to the National Defense Authorization Act for Fiscal Year 2020 (“NDAA 2020”), which funds the military and is, accordingly, viewed as must-pass and veto-proof legislation. The House passed the bill on December 11, 2019, and the Senate is expected to follow suit before lawmakers depart for their holiday break on December 20, 2019.

The Nord Stream 2 legislative provisions would target, in particular, companies laying the deep-sea pipeline necessary to carry the natural gas from Russia to Germany, bypassing the existing pipeline that brings revenue (and some energy security) to Ukraine. Because the pipeline laying companies are based in Western Europe, and not Russia, the Russian government would face significant difficulty in completing the $11 billion Nord Stream 2 project if the U.S. sanctions threat scares off European companies that are now racing to complete their work.

PEESA – now contained in Title LXXV of the NDAA – would require the Secretary of State to issue a report within 60 days, and every 90 days thereafter, on (1) vessels that engaged in pipe-laying at depths of 100 feet or more below sea level for the construction of the Nord Stream 2 pipeline, the TurkStream pipeline, or any successor project; and (2) foreign persons determined to have knowingly: (i) sold, leased, or provided those vessels for the construction of any such pipeline; or (ii) facilitated deceptive or structured transactions to provide those vessels for such a project. The reports are only to cover activity on or after the date of enactment of the NDAA. As a result of being identified in any of the reports, the following sanctions would be mandatory (unless the President certifies that any identified foreign persons (individuals or entities) engaged in good faith efforts within 30 days of enactment to wind down sanctionable operations):

  • The assets subject to U.S. jurisdiction of any foreign persons identified in (2) above would be required to be blocked (or frozen); and
  • The corporate officers and principal shareholders of any company owning a vessel identified in (1) above, as well as any foreign persons identified in (2) above, would be denied visas and prohibited from entering the United States.

The bill would provide the Administration with the authority to waive the application of sanctions based on national security and other considerations, but in the current political climate, such a waiver would be extremely difficult for the Administration to issue.

Syria

Congress also tucked the “Caesar Syria Civilian Protection Act of 2019” within Title LXXIV of the NDAA. That legislation would require the Treasury Department to impose broad secondary sanctions, and the State Department to impose visa restrictions, on foreign persons determined to knowingly:

  • Provide significant financial, material, or technological support to, or knowingly engage in a significant transaction with: (i) the government of Syria, including entities it owns or controls and senior government officials; (ii) a foreign person that is a military contractor, mercenary, or paramilitary force operating in a military capacity inside Syria or for the Syrian, Russian, or Iranian governments; or (iii) foreign persons sanctioned by the United States in relation to Syria;
  • Sell or provide significant goods, services, technology, information, or other support for the government of Syria’s domestic energy production;
  • Sell or provide aircraft or aircraft parts or services that are used for military purposes in Syria; or
  • Directly or indirectly provide significant construction or engineering services to the government of Syria.

North Korea

In Title LXXI of the NDAA, Congress added the Otto Warmbier North Korea Nuclear Sanctions and Enforcement Act of 2019, named for the American college student who died in 2017 after being tortured in North Korean custody and returned to the United States in a coma. The Act would expand the U.S. secondary sanctions already in place against North Korea by mandating blocking or correspondent account sanctions on any foreign entity providing significant financial services to any person sanctioned by the United States involving North Korea. The legislation’s sponsors noted that the Act targets, in particular, Chinese banks that continue to do business with North Korea. 

The Otto Warmbier Act also extends U.S. sanctions prohibitions relating to North Korea to entities owned or controlled by U.S. parents, as in the Cuba and Iran sanctions programs, and requires sanctions on foreign entities determined to have knowingly engaged in, for example, sales or transfers of vessels to North Korea, employment of foreign workers, or the import to or export from North Korea of significant quantities of coal, textiles, seafood, iron, iron ore, or certain energy products.

Opioids

Another set of legislative provisions included within the NDAA is the Fentanyl Sanctions Act, included as Title LXXII of the bill. The Act emphasizes the critical role China plays in the supply of illicit opioids into the United States and mandates sanctions on persons determined to be foreign opioid traffickers. The Act also creates a commission to combat synthetic opioid trafficking whose responsibilities include drafting a report that examines whether there are regulatory gaps and weaknesses in China and elsewhere that are enabling the trafficking of opioids into the United States.

MoFo’s national security and sanctions experts will continue to monitor new developments as this legislation is implemented.

Reema Shocair Ali, a national security analyst in the firm’s D.C. office, assisted in the preparation of this client alert.

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