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Global Trade Advisory Alert
US Department of State publishes new sanctions guidance
30 July, 2020
On 15 July 2020, the US Department of State (State Department) published updated guidance regarding the interpretation of its sanctions authority under the Countering America’s Adversaries Through Sanctions Act (CAATSA). The updated guidance specifically identifies Russian energy export pipelines, including Nord Stream II (running from Russia to Europe across the Baltic Sea) and the second line of Turk Stream (running from Russia to Turkey), and confirmed that investors and/or companies investing or providing goods that support the construction or repair of either pipeline may be exposed to CAATSA sanctions.
Who will this potentially impact?
By directly naming these pipelines, the State Department confirmed that these sanctions have the potential to affect foreign entities that are financially or materially supporting the construction of either energy pipeline. Specifically, the guidance states that sanctions will apply to persons who, “on or after August 2, 2017, (1) made an investment that meets the fair market value thresholds in Section 232(a) (a single investment of USD 1,000,000, or an aggregate investment during a 12-month period of USD 5,000,000 or more) and directly and significantly enhances the ability of the Russian Federation to construct energy export pipelines, or (2) sells, leases, or provides to the Russian Federation goods or services that meet the same thresholds and that directly and significantly facilitate the expansion, construction, or modernization of energy export pipelines by the Russian Federation.”
In addition, the guidance states that “standard repair and maintenance of the Nord Stream II or second Turk Stream pipeline could be the target of sanctions,” as neither were completed prior to 2 August 2017.
Wind down period
In addition to specifying that sanctions will not be imposed on activity taken prior to 15 July 2020, the guidance provides for a wind down period. To take advantage of the wind down period, a person’s prior activities must have been consistent with prior guidance and undertaken pursuant to a transaction entered into before 15 July 2020, and the person must be taking reasonable steps to wind down the investments in, or support to, identified energy export pipelines.
Section 235 of the CAATSA legislation identified potential penalties for sanctioned persons or entities include:
- Removal of Export-Import Bank assistance;
- Refusal of US export license approvals for exports to the sanctioned person or entity;
- Prohibition on receiving loans from US financial institutions;
- Loss of Primary Dealer status for banking entities;
- Prohibition of service as a repository for US government funds;
- Prohibition of US government procurement from the sanctioned entity;
- Prohibition on transactions within any foreign exchange that is subject to US jurisdiction;
- Prohibition on transfers of credits or payments through a US financial institution;
- Prohibition on property transactions;
- Prohibition on investments in a sanctioned entity;
- Denial of visas to corporate officers of a sanctioned entity; and
- Sanctions on principal executive officers of a sanctioned entity.
How we can help
Deloitte’s Global Trade Advisory specialists are part of a global network of professionals who can provide specialized assistance to companies in global trade matters. Our professionals can help companies seeking to manage the impacts and potential impacts of the developments described above by:
- Conducting a CAATSA sanctions risk assessment of existing or potential investments;
- Reviewing an existing sanctions risk compliance program to identify potential gaps and recommend proposed mitigation;
- Developing a new sanctions risk compliance program and integrating it into existing business processes to manage business disruption;
- Configuring trade automation solutions to prevent unauthorized exports to entities subject to CAATSA sanctions.
For more information, contact:
Meng Yew Wong