The U.S. Department of State issued updated public guidance on Section 232 of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”), which authorizes the president to impose sanctions on persons engaged in certain investments or other activities with respect to Russian energy export pipelines.  Effective on July 15, 2020, the actions that are sanctionable under Section 232 of CAATSA will be expanded to include activities related to Nord Stream 2 and the second line of TurkStream.  Thus far, no sanctions have been imposed pursuant to this section.

Section 232 of CAATSA authorizes the President to impose sanctions on any person that on or after August 2, 2017, knowingly,:

  • Makes an investment that meets the fair market value thresholds in Section 232(a) and directly and significantly contributes to the enhancement of the ability of the Russian Federation to construct energy export pipeline(s) (“Section 232 Investments”); or
  • Sells, leases or provides Russia with any goods, services, technology, information or support that could directly and significantly facilitate the maintenance or expansion of the construction, modernization or repair of energy export pipelines by the Russian Federation (“Section 232 Activities”).

As of July 15, 2020, the State Department will focus its sanctions implementation efforts to Section 232 Investments and Sections 232 Activities involving the Nord Stream 2 and the second line of TurkStream.  According to the updated guidance, this will apply to “persons facilitating the construction or deployment of the pipelines such as financing partners, pipe-laying vessel operators, and related engineering service providers.”  The public guidance makes clear that Section 232’s implementation will be limited to “energy export pipelines that (1) originate in the Russian Federation, and (2) transport hydrocarbons across an international land or maritime border for delivery to another country.”   Thus, pipelines originating outside of Russia even if transiting through its territory do not seem to be the focus of the guidance.  Section 232 will not target activities related to the wind-down of Section 232 Investments and Section 232 Activities, or the standard repair and maintenance of pipelines in existence on, and capable of transporting commercial quantities of hydrocarbons, as of August 2, 2017.