US House approves Nord Stream 2 and TurkStream sanctions; adoption appears likely

Posted in Energy Sanctions and export controls Risk advisory

The US sanctions space is very active and changes are made frequently. This publication is current as of December 16, 2019.

On December 11, 2019, the US House of Representatives passed the National Defense Authorization Act (NDAA) for Fiscal Year 2020, which, in Section 7503, includes sanctions targeting companies that are providing vessels which are engaged in pipe-laying services for the construction of the Nord Stream 2 and TurkStream gas pipelines. The sanctions were originally proposed by Senators Ted Cruz (R-Texas) and Jeanne Shaheen (D-N.H.) as a stand-alone bill entitled the Protecting Europe's Energy Security Act of 2019, but have now been included in the NDAA in order to increase their likelihood of adoption.

The sanctions require the Department of State to, not later than 60 days after the enactment of the NDAA and every 90 days thereafter, identify: (i) vessels that are engaged in pipe-laying at depths of 100 feet or more below sea level for the construction of the Nord Stream 2 or TurkStream pipelines, or any successor projects to either pipeline; and (ii) foreign persons that have knowingly sold, leased, or provided the vessels for construction of either project or facilitated deceptive or structured transactions to provide such vessels.

The President is then required to block the property of, and prohibit all transactions involving, such identified foreign persons, unless he certifies that the person has engaged in good faith efforts to wind-down the prohibited activities or declares a waiver would be in the national security interests of the United States. Officers and principal shareholders of sanctioned entities are also subject to visa restrictions on entering the United States. The sanctions do not, however, target either project's financial investors or companies providing other support to the pipelines.

The ultimate impact of the sanctions with respect to TurkStream would likely be minimal, as the underwater part of that pipeline is already largely completed, and it is likely to become operational before any sanctions are implemented. Nord Stream 2, however, despite the approval of the Danish government to lay pipe in its waters, has faced weather-related delays, and the latest reports suggest it likely will not be completed until mid-2020. Companies providing vessels for the construction of the Nord Stream 2 pipeline, therefore, should consider the impact of these new sanctions on their current or future operations related to the project.

We will continue to monitor these, and related, sanctions closely and publish additional updates, as appropriate.

Special thanks to law clerk Eddie Skolnick for his assistance in preparing this content.

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