U.S. Increases Pressure On Russian Gas Pipelines with Imposition Of New CAATSA Secondary Sanctions; Issues New General Licenses For Companies Doing Business With GAZ Group

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The U.S. Department of State recently published updated guidance pertaining to Section 232 of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”). The revised guidelines subject energy export pipelines originating from Russia, particularly the Nord Stream 2 and TurkStream pipelines, to secondary Section 232 sanctions (not to be confused with Section 232 of the Trade Expansion Act of 1962). The sanctions’ focus is on any persons who, according to the Secretary of State, on or after August 2, 2017 knowingly made an investment or “sells, leases, or provides to the Russian Federation goods or services” which meet the Section 232(a) fair market value thresholds and which “directly and significantly facilitate the expansion, construction, or modernization” of energy export pipelines by Russia.

The U.S. has repeatedly expressed its opposition to the construction of the Nord Stream 2 and TurkStream pipelines, which the U.S. view as means of creating “national and regional dependencies” on Russian energy which Russia exploits to “expand its political, economic, and military influence and undermine U.S. national security and foreign policy interests.”

On July 16, 2020, the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) issued two new General Licenses (“GL”) 13O and GL 15I related to GAZ Group, a Russian conglomerate. These General Licenses extend pre-existing authorizations for transactions with GAZ Group that would otherwise be prohibited under OFAC’s Ukraine- and Russia-related sanctions. Specifically, GL 13O replaces and supersedes GL 13N, while GL 15I replaces and supersedes GL 15H (previously reported on here). GL 13O authorizes through January 21, 2020 certain transactions necessary to divest or transfer debt, equity, or other holdings in GAZ Group and its 50% or greater owned subsidiaries, while GL 15I authorizes certain other activities involving GAZ Group. GL 15I authorizes the following activities:

  • Research, design, development, production, modification, upgrade, certification, distribution, and marketing;
  • Provision or receipt of services, including warranty, maintenance, logistics, storage, shipping, insurance, security, brokerage, legal, banking and financial (including financing and renegotiation of debt), technical and engineering, advertising, and customer services;
  • Entry into joint ventures, contract manufacturing agreements, supplier contracts, and other new contracts associated with activities authorized by paragraph (a);
  • Payment and receipt of dividends and other funds owed by or to GAZ Group relating to activities authorized by paragraph (a);
  • The conduct of financial transactions associated with activities authorized by paragraph (a); and
  • Activities necessary for compliance with paragraph (f)(1)(i), including financial auditing services.

Neither GL 13O nor GL 15I authorize any transactions otherwise prohibited by 31 C.F.R. Chapter V. Parties relying on either GL 13O or GL 15I should be aware that each General License imposes certain terms and conditions which must be met in order to qualify for the applicable authorization. Additionally, both General Licenses include and impose comprehensive and detailed reporting requirements, so persons engaging in transactions or activities under GL 13O or GL 15I should ensure that they document those transactions and activities carefully.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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