Reed Smith Client Alerts

As anticipated, on January 1, 2021, the United States Congress enacted the National Defense Authorization Act (NDAA) for Fiscal Year 2021, which among many other things, expands the U.S. sanctions targeting two Russian gas pipelines, Nord Stream 2 and TurkStream 2. Congress enacted the bill into law despite President Trump’s veto, which he exercised in protest against a number of unrelated provisions. The expanded sanctions aim to prevent the completion of these two gas pipelines by threatening to impose sanctions on companies providing pipe-laying, insurance, inspection, and other services necessary for the final stages of construction. These new sanctions expand on the  2019 Protecting Europe Energy Security Act (PEESA).

Authors: Leigh T. Hansson Eli Rymland-Kelly Alexander Brandt William Young Claire E. Don Katherine Stavis

By way of background, in December 2019, Congress enacted PEESA as part of the NDAA for Fiscal Year 2020. PEESA requires the U.S. government to impose sanctions on foreign vessels engaged in deepwater “pipe-laying” for Nord Stream 2 and TurkStream 2. PEESA also requires that sanctions be imposed on non-U.S. persons who knowingly sell, lease or provide those construction vessels. That legislation reflects Congress’ concern that Russia may end up with substantial power and influence in Europe, an alleged national security threat to both Europe and the United States. The subsea pipelines bypass traditional Eastern European routes and transit fees, leaving Ukraine and its neighbors in a weakened position. Although PEESA requires the imposition of sanctions on non-U.S. persons and vessels that have engaged in sanctionable activity, the Trump administration has not yet used it to impose any sanctions.    

Apparently dissatisfied with the lack of sanctions imposed, Ted Cruz, Tom Cotton, and several other senators introduced the Protecting Europe’s Energy Security Clarification Act of 2020 (the PEESA Clarification Act). The amendments extend PEESA’s sanctions on “pipe-laying” to include a broader set of “pipe-laying activities,” which are defined as “activities that facilitate pipe-laying, including site preparation, trenching, surveying, placing rocks, backfilling, stringing, bending, welding, coating, and lowering of pipe.” The PEESA Clarification Act also targets other services necessary or essential for completing the projects, including underwriting, insurance, or reinsurance, and services relating to upgrading, retrofitting, or tethering pipe-laying vessels. The amendments specifically target testing, inspection, and certification for the Nord Stream 2 pipeline. Those engaged in sanctionable activity have a 30-day wind-down period, which began on January 1, 2021, and should consider engaging with U.S. authorities if they are unable to meet that timeframe. 

With the PEESA Clarification Act now law, sanctions may be imposed on the persons engaged in the following activities: 

  • Pipe-laying and related activities, including site preparation, trenching, surveying, placing rocks, backfilling, stringing, bending, welding, coating, or lowering of pipe for either project
  • Selling, leasing, or otherwise “providing” pipe-laying vessels, including through deceptive or structured transactions for either project
  • Selling, leasing, or otherwise “providing” goods, services, information, technology, or support for either project
  • Underwriting, insuring, or reinsuring either project
  • Testing, inspection, and certification for the Nord Stream 2 pipeline