Reed Smith Client Alerts

On January 19, 2021, the U.S. Department of State designated KVT-RUS and its vessel, Fortuna, for engaging in pipe-laying activities for the Nord Stream 2 gas pipeline. These sanctions are the first taken by the U.S. government with respect to Nord Stream 2. As a result of these sanctions, U.S. persons are prohibited from engaging in virtually any transaction with Fortuna and KVT-RUS as well as its subsidiaries. Additionally, non-U.S. persons will risk exposure to secondary sanctions if they engage in significant transactions with Fortuna or KVT-RUS.

In its final week, the Trump administration took one last pass at derailing pipe-laying activities on Nord Stream 2 by designating Russian-based owner KVT-RUS and its vessel, Fortuna. These sanctions were imposed pursuant to section 232 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), which authorizes sanctions on persons who knowingly invest in, or sell, lease, or provide to the Russian Federation “for the construction of Russian energy export pipelines, goods, services, technology, information, or support.” Sanctions will only be imposed where the investment or provision of goods or services has a fair market value of at least $1 million or, during a 12-month period, has an aggregate fair market value of $5 million or more.

Section 232 of CAATSA calls for the imposition of five or more sanctions listed in section 235 of CAATSA. In this instance, the U.S. government imposed the following sanctions on KVT-RUS:

  • Export sanctions: U.S. government agencies are prohibited from issuing any specific license or any other specific permission or authority to export goods or technology to the sanctioned person.
  • Foreign exchange: This sanction prohibits any transactions in foreign exchange that are subject to the jurisdiction of the United States in which the sanctioned person has any interest.
  • Banking transactions: This sanction prohibits any transfers of credit or payments between financial institutions or by, through, or to any financial institution, to the extent that such transfers or payments are subject to the jurisdiction of the United States and involve any interest of the sanctioned person.
  • Property transactions: Dealings in property or interest in property of the sanctioned person that are subject to U.S. jurisdiction are prohibited.
  • Ban on investment in equity or debt of sanctioned person: This sanction prohibits U.S. persons from investing in or purchasing significant amounts of equity or debt instruments of a sanctioned person.