September 24, 2021 | Policy Brief

Senate Republicans Offer Biden a Deal on the Nord Stream 2 Pipeline

September 24, 2021 | Policy Brief

Senate Republicans Offer Biden a Deal on the Nord Stream 2 Pipeline

Key Senate Republicans offered the Biden administration a deal last week: If President Biden sanctions Nord Stream 2 AG (NS2 AG), the Russian-owned company responsible for the Nord Stream 2 (NS2) gas pipeline, the senators will remove obstacles to the confirmation of senior nominees. As the senators noted, whether to sanction NS2 AG “is not simply a matter of policy preference; it is the law,” per Section 228 of the Countering America’s Adversaries Through Sanctions Act (CAATSA).

Earlier this month, NS2 AG announced the completion of the pipeline’s physical construction. NS2 must now clear various technical and regulatory hurdles before it can come online.

If completed, NS2 would “divide Europe and weaken European energy security,” as Secretary of State Antony Blinken has warned. Built to bypass Ukraine, NS2 will also deprive Kyiv of up to $2 billion in vital transit revenue as well as a key deterrent against further Russian military aggression.

Nevertheless, the administration has effectively facilitated NS2’s completion. In May, the administration waived congressionally mandated sanctions against NS2 AG and its CEO, longtime Putin crony Matthias Warnig, under the Protecting European Energy Security Act (PEESA). Biden has continued that waiver as part of a deal with Germany, which backs NS2.

Biden’s policy has drawn protests from Eastern European allies and partners as well as both parties in Congress. The House Appropriations Committee has voted to bar Biden from waiving PEESA sanctions. A bipartisan amendment to the National Defense Authorization Act for Fiscal Year 2022 would do the same.

Senate Foreign Relations Committee (SFRC) Chairman Bob Menendez joined his counterparts from eight European countries in opposing the U.S.-Germany deal. Senator Ted Cruz has placed holds on all State Department nominees under review by SFRC. Republicans on the Senate Banking Committee, led by Ranking Member Senator Pat Toomey, have vowed to vote against senior Treasury Department nominees. In a joint letter last week, Cruz and Toomey offered to drop their objections if the administration designates NS2 AG under CAATSA Section 228 or lets Congress vote on the matter.

Although it has waived sanctions under PEESA, the administration still has a legal obligation to sanction NS2 AG under Section 228. That law requires sanctions against anyone who “materially violates, attempts to violate, conspires to violate, or causes a violation of” CAATSA or a range of other Russia-related sanctions.

Section 228 also mandates sanctions against anyone who “facilitates a significant transaction … for or on behalf of” anyone subject to Russia-related U.S. sanctions. A May 2021 State Department report said that NS2 AG and Warnig facilitated transactions to provide vessels that engaged in sanctionable activity related to NS2. Two entities that allegedly provided or facilitated providing those vessels — Russia-based LLC Koksokhimtrans and LLC Mortransservice — were under separate Russia-related U.S. sanctions at the time, thus likely qualifying NS2 AG and Warnig for mandatory Section 228 sanctions. (Treasury designated Koksokhimtrans and its parent, Sovfracht-Sovmortrans Group, which also owns Mortransservice, in 2016.)

NS2 AG’s potential exposure to Section 228 sanctions does not end there. For example, the Trump administration in January imposed separate CAATSA sanctions against a deep-water pipelaying vessel and its Russia-based owner for helping complete NS2. Any subsequent significant transaction facilitated by NS2 AG for or on behalf of that entity would likely trigger Section 228 sanctions.

While Biden could waive the Section 228 sanctions, he would first need to submit a report to Congress, triggering a 30-day congressional review during which he may not implement the waiver. Congress could then block the waiver through a joint resolution of disapproval, enacted either by presidential signature or by veto override. At present, however, Biden is stalling by neither sanctioning nor waiving.

It will be at least several months before NS2 comes online, meaning Washington still has time to act. Biden must follow the law by imposing or waiving Section 228 sanctions against NS2 AG and Warnig. Congress should not relent until it does so.

Matthew Zweig is a senior fellow at the Foundation for Defense of Democracies (FDD), where John Hardie is research manager and a Russia research associate. Both contribute to FDD’s Center on Economic and Financial Power. For more analysis from Matthew, John, and CEFP, please subscribe HERE. Follow Matthew on Twitter @MatthewZweig1. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.


Russia Sanctions and Illicit Finance