New Authority to Impose Sanctions in Connection with Russian Energy Pipelines

On August 20, 2021, President Biden signed a new Executive Order to further implement sanctions provided under the Protecting Europe’s Energy Security Act (“PEESA”) of 2019. PEESA, which was enacted earlier this year, requires the State Department to issue a periodic report naming parties involved in the construction certain Russian energy export pipelines. Last week’s E.O. authorizes sanctions on any person named in that report, subject to certain exceptions, and directs the Treasury and the State Departments to issue rules to implement those sanctions.

As background, PEESA directs the State Department, in consultation with the Treasury Department, to identify (1) vessels engaged in certain pipe-laying activities for the Nord Stream 2 and Turkstream pipeline projects, as well as any successor projects; and, (2) foreign persons that knowingly facilitated those projects who:

  • sold, leased, or provided, or facilitated selling, leasing, or providing, those vessels for the construction of such a project;
  • facilitated deceptive or structured transactions to provide those vessels for the construction of such a project;
  • provided for those vessels underwriting services or insurance or reinsurance necessary or essential for the completion of such a project;
  • provided services or facilities for technology upgrades or installation of welding equipment for, or retrofitting or tethering of, those vessels if the services or facilities are necessary or essential for the completion of such a project; or
  • provided services for the testing, inspection, or certification necessary or essential for the completion or operation of the Nord Stream 2 pipeline.
The State Department issued its first PEESA report in May and another report in tandem with the new E.O. As a result, the Biden Administration sanctioned seven persons and identified 16 of their vessels as blocked property in connection with the Nord Stream 2 project. However, the State Department identified but waived penalties on Nord Stream 2 AG and its chief executive for national security reasons.

Companies that service vessels and operate in the Russian energy sector should carefully review PEESA, the new E.O., and an OFAC general license that narrowly authorizes certain dealings with Russia’s Federal State Budgetary Institution Marine Rescue Service. It is possible that the Biden Administration may take further action to oppose the construction of energy pipelines, like Nord Stream 2, and target entities and individuals that are involved in their construction.

Tags: energy, Russia