Germany considers further U.S. sanctions against Nord Stream 2 an encroachment on its sovereignty

Published: 14 October 2021 Author: Stefan Talmon

Nord Stream 2 is a 1,230 km underwater pipeline project through the Baltic Sea which upon completion is to deliver natural gas from Russia to Germany, adding to the supply provided by the existing Nord Stream pipeline, which runs largely parallel to it. The pipeline would allow the rerouting of gas around Ukraine, depriving the country of billions of dollars in transit fees. Construction of the pipeline began in 2018 and was managed by the Swiss-registered project company Nord Stream 2 AG, whose sole shareholder was the Russian State-owned company Gazprom – the world’s largest gas producer. The project met with strong opposition from the United States which believed, inter alia, that it would undermine Europe’s overall energy security and stability and increase Ukraine’s vulnerability to Russian aggression.

For several years, the United States had been threatening companies involved in the project with sanctions in order to prevent the construction of the pipeline. On 2 August 2017, U.S. President Donald Trump signed into law the Countering America’s Adversaries through Sanctions Act (CAATSA) which, in section 232, provided for sanctions against individuals and companies that were facilitating the construction of Russian energy export pipelines through investment or the provision of goods, services, technology, information, or support. However, the CAATSA had no immediate effect on the construction of Nord Stream 2 because in October 2017, the Trump Administration limited the application of section 232 to contracts made on or after 2 August 2017.

On 20 December 2019, further legislative authority for sanctions against the Nord Stream 2 pipeline was created with the enactment of the Protecting Europe’s Energy Security Act of 2019 (PEESA) as part of the National Defense Authorization Act for the Fiscal Year 2020. Section 7503 mandated sanctions against foreign persons or companies involved in provided vessels that “engaged in pipe-laying at depths of 100 feet or more below sea level for the construction of the Nord Stream 2 pipeline project.” The enactment of PEESA prompted Switzerland-based company Allseas, which operated ships laying the pipes for Nord Stream 2, to suspended its pipelay activities. This brought work on the pipeline to a halt.

On 28 January 2020, Gazprom announced that the Nord Stream 2 project, which had already been 94 per cent completed, would be finished by the Russian side. In early February 2020, the Russian-flagged pipelaying vessel “Akademik Cherskiy” travelled more than 10,000km from Russia’s Far East port of Nakhodka, near Vladivostok, to the Baltic Sea. On 12 May 2020, it joined the “Fortuna”, a Russian-flagged pipelay crane vessel that had already been involved in the construction of Nord Stream 2 and was now docked in the German port of Sassnitz-Mukran on the island of Rügen. In the port of Sassnitz-Mukran, the “Akademik Cherskiy” was to be upgraded and retrofitted for completing Nord Stream 2.

The prospect of Gazprom completing the construction of the Nord Stream 2 pipeline with the help of Russian companies undeterred by U.S. sanctions prompted a number of senators, led by Senator Ted Cruz, to introduce on 4 June 2020 a bill in the U.S. Senate for a “Protecting Europe’s Energy Security Clarification Act” (PEESCA). The Act was to expand the sanctions against Nord Stream 2, inter alia, to all foreign persons that provided services or facilities for technology upgrades or installation of welding equipment for, or retrofitting or tethering of, vessels engaged in pipe-laying or pipe-laying activities for the construction of the Nord Stream 2 pipeline project if the services or facilities are necessary or essential for the completion of the project. The expansion of sanctions was thus mainly aimed at the port of Sassnitz-Mukran and the companies involved in the upgrade and retrofitting of the “Akademik Cherskiy”.

On 5 June 2020, a spokesperson for the Federal Ministry for Economic Affairs and Energy commented on the bill, saying:

“We are closely following developments in the United States. Our stance on extraterritorial sanctions is well known and clear. We reject them because they are contrary to international law.”

This view was reiterated a few days later by the Federal Minister for Economic Affairs and Energy, Peter Altmaier, who said with regard to the U.S. Senate bill:

“The Federal Government has long held the view that sanctions with extraterritorial effects are in conflict with international law and that they also do not make any contribution to advancing international cooperation. This position has not changed.”

The bill caused concern and consternation in Germany. The Federal Parliament’s Committee on Economic Relations and Energy called upon the Federal Government to submit proposals for an appropriate and clear reaction on the part of Germany and the European Union (EU). On 1 July 2020, the Committee held a public hearing on the proposed sanctions. At the hearing, the managing director of the German Eastern Business Association estimated that the new sanctions could affect 120 companies from 12 EU Member States, and that many companies felt compelled to withdraw from Nord Stream 2 project. The Minister of State at the Federal Foreign Office, Niels Annen, stated:

“Sanctions that have an extraterritorial effect are a blatant interference with EU sovereignty. It is obvious that the U.S. side is trying to stop the project unilaterally. European companies are directly threatened with sanctions even though they carry out their business in full compliance with applicable EU law. In addition to German companies, French, Austrian and Dutch companies are affected. […] As is well known, opinions on Nord Stream 2 are divided, but there is widespread consensus that the threat and use of extraterritorial U.S. sanctions – secondary sanctions among allies – against European companies is unacceptable. […] It is […] absurd that the U.S. Congress should act as a regulator of European issues. Just imagine, if we were to pass a law to protect American energy security here in the Federal Parliament. We are talking about a direct and serious interference in German and European sovereignty concerning energy policy and security of supply.”

Only a few hours later, the Federal Chancellor Angela Merkel also commented on the new bill. Asked in parliament about the financial implications of the U.S. sanctions for companies involved in the Nord Stream 2 pipeline project, she stated:

“[W]e believe that the kind of extraterritorial sanctions imposed by the United States is not in line with our understanding of the law, and this also applies to the on-going deliberations [in the U.S. Senate]. Nevertheless, one has to concede that these sanctions will make the construction process more difficult. Even so, we believe that it is right to complete this project, and we are acting accordingly.”

The United States was unimpressed by Germany’s objection to its sanctions against Nord Stream 2. On 15 July 2020, the Trump Administration tightened the sanctions under section 232 of CAATSA by removing the limitation on its application to contracts signed on or after 2 August 2017. This change brought the financing agreements for Nord Stream 2, which five European energy companies had concluded with Gazprom in April 2017, within the ambit of CAATSA. Announcing the change during a press conference, U.S. Secretary of State Michael Pompeo stated:

“This action puts investments or other activities that are related to these Russian energy export pipelines at risk of U.S. sanctions. It’s a clear warning to companies aiding and abetting Russia’s malign influence projects will not be tolerated.  Get out now, or risk the consequences.

Let me be clear: These aren’t commercial projects.

They are Kremlin’s key tools to exploit and expand European dependence on Russian energy supplies, tools that undermine Ukraine by cutting off gas transiting that critical democracy, a tool that ultimately undermines transatlantic security.

The United States is always ready to help our European friends meet their energy needs.”

Following the announcement of tightened sanctions under CAATSA, Foreign Minister Heiko Maas issued the following statement:

“With its announcements on measures that also threaten European companies with sanctions, the US Administration is disrespecting Europe’s right and sovereignty to decide itself where and how we source our energy. European energy policy is decided in Europe and not in Washington. We firmly reject extraterritorial sanctions.

In recent weeks, the German Government has held numerous talks with the US side in view of a possible tightening of PEESA. We made our position very clear at these meetings. We think it is wrong to impose sanctions on partners. What we need is a joint transatlantic stance on sanctions against Russia. Today’s decision by the US will make it even more difficult to achieve this.”

On 27 July 2020, the deputy cabinet spokesperson stated:

“The Federal Government has also repeatedly made it clear that it rejects such unilateral, extraterritorial sanctions against German and European companies, such as those imposed by the United States and recently tightened by the amendment of the Public Guidance on the implementing of the Countering America’s Adversaries through Sanctions Act.”

The Federal Foreign Office also commented on the changes, saying that one of the factual effects of the adjustments to CAATSA was the potential prevention of a project that was being carried out in Europe according to European law. It explained: “This means that these sanctions have a strong extraterritorial effect.”

On 5 August 2020, in a most extraordinary development, U.S. Senator Ted Cruz and two colleagues sent the following letter to the managing director and legal counsel of the Fährhafen Sassnitz GmbH, which operates the port of Mukran:

“Dear Messrs. Sievers and Ostenberg:

Fährhafen Sassnitz GmbH operates Mukran Port, which is knowingly providing significant goods, services, and support for the Nord Stream 2 project, including by provisioning vessels for the project. Mukran Port stores Nord Stream 2 pipes and provisions the Russian-flagged vessels Fortuna (IMO: 8674156, MMSI: 273395690) and Akademik Cherskiy (IMO: 8770261, MMSI: 273399760), after officials from the Russian Federation publicly and repeatedly indicated they intend to use one or both of these vessels to complete the Nord Stream 2 project.

This letter serves as formal legal notice that these goods, services, support, and provisioning risk exposing Fährhafen Sassnitz GmbH and Mukran Port, as well as your board members, corporate officers, shareholders, and employees, to crushing legal and economic sanctions, which our government will be mandated to impose. These sanctions include potentially fatal measures that will cut off Fährhafen Sassnitz GmbH from the United States commercially and financially. The only responsible course of action is for Fährhafen Sassnitz GmbH to exercise contractual options that it has available to cease these activities.

There is a broad array of U.S. sanctions and guidance targeting the Nord Stream 2 project, reflecting years of bipartisan, bicameral, and interbranch efforts and constituting a whole-of-government consensus that the pipeline must be stopped. […]

Your provisioning of the Fortuna or Akademik Cherskiy will certainly have become sanctionable the instant that either vessel dips a pipe into the water to construct the Nord Stream 2 pipeline, or engages in any pipe-laying activity relevant to the project, but your exposure extends to any activities related to goods, services, or support of the pipeline. The law requires that “the President shall” issue the designations.

The board members, corporate officers, and shareholders of Fährhafen Sassnitz GmbH will be prohibited from entering the United States, and any property or interests in property they have within our jurisdiction will be frozen. Any property or interests in property that Fährhafen Sassnitz GmbH has within United States jurisdiction will also be frozen, as will any future property that comes into our jurisdiction, including any transactions that pass through our financial system. In fact, all American persons and companies will be forbidden from engaging in any transactions with any of those persons or with Fährhafen Sassnitz GmbH, including exporting goods through Mukran Port or importing goods from Mukran Port, or insuring ships that conduct such activities. Fährhafen Sassnitz GmbH and its board members, corporate officers, shareholders, and employees will be cut off from the United States.

These sanctions are not just mandatory but immediate. Under some scenarios, the law contemplates good faith wind-down periods when ongoing sanctionable activities were ceased immediately after the passage of sanctions. However, in your case, against the backdrop of multiple Congressional statutes and guidance from our government, and of Russian declarations that they intend to use the Fortuna or Akademik Cherskiy to finish construction of Nord Stream 2, it is difficult to envision any good faith exemptions.

The U.S. government knows that the Nord Stream 2 pipeline is near completion and considers it a grave threat to European energy security and American national security. Investments in and support of the pipeline moreover introduce risks to the hygiene of the U.S. financial system and reputational risks to all companies involved in related transactions, including any American companies. The administration and Congress, and both parties, are united in their commitment to ensure that the pipeline remains uncompleted and those threats are never realized.

The Russian Federation has expressed its willingness to tolerate sanctions on its ships and companies to complete the Nord Stream 2 pipeline. Russian officials assess that the economic and geopolitical windfalls from the pipeline are worth the cost. They also believe that sovereign immunity and raw economic power insulate them from potential legal liability.

The calculations that Fährhafen Sassnitz GmbH must make are different. If you continue providing goods, services, and support for the Nord Stream 2 project, including by provisioning the Fortuna and Akademik Cherskiy, you would destroy the future financial viability of your company. In the meantime, you would devastate your shareholders’ value and surely face billions of dollars in shareholder derivative suits for your breach of fiduciary duty.

We urge you to take immediate action to prevent these scenarios.”

In an interview with daily Handelsblatt, the State Minister at the Federal Foreign Office Niels Annen said with regard to a letter by the U.S. senators:

“The US policy of extraterritorial sanctions against close partners and allies is a serious encroachment on our national sovereignty. The tone and content of the threatening letters recently sent by senators to German companies are completely inappropriate. We have made it clear to our American partners that we object to exerting pressure on our companies. German and European energy policy is decided exclusively in Berlin and Brussels, and not in Washington D.C.”

The threat of sanctions in the end proved counterproductive as it made it politically difficult, if not impossible, for the Federal Government to withdraw its support for the Nord Stream 2 project. Speaking at a press conference with his Russian counterpart in Moscow on 11 August 2020, Foreign Minister Maas stated:

“Sanctions between partners are definitely the wrong way to go. Ultimately, it remains our sovereign decision where we get our energy from. No country has the right to dictate Europe’s energy policy with threats. That won’t be successful.”

Diplomatically, Germany expressed its “displeasure” to the United States; legally, it took the view that U.S. extraterritorial sanctions against German and European companies were “illegal” in terms of international law. However, this is not such a clear-cut case. As demonstrated before, the exercise of prescriptive jurisdiction in CAATSA, PEESA and PEESCA is in conformity with international law, as would be the exercise of enforcement jurisdiction based on these acts within the United States. Although the sanctions measures prescribed in these acts are linked to and intended to influence the conduct of foreign persons outside of U.S. territory, the laws do not pretend to prescribe the conduct of foreigners abroad. Instead, the acts regulate events and activities of foreign persons in the United States and are addressed to U.S. persons and the U.S. administration. As the Permanent Court of International Justice (PCIJ) stated in the Lotus case with regard to prescriptive jurisdiction:

“It does not[…]follow that international law prohibits a State from exercising jurisdiction in its own territory, in respect of any case which relates to acts which have taken place abroad, and in which it cannot rely on some permissive rule of international law. Such a view would only be tenable if international law contained a general prohibition to States to extend the application of their laws and the jurisdiction of their courts to persons, property and acts outside their territory, and if, as an exception to this general prohibition, it allowed States to do so in certain specific cases. But this is certainly not the case under international law as it stands at present. Far from laying down a general prohibition to the effect that States may not extend the application of their laws and the jurisdiction of their courts to persons, property and acts outside their territory, it leaves them in this respect a wide measure of discretion which is only limited in certain cases by prohibitive rules […].”

The imposition of sanctions against the Nord Stream 2 project was rooted in the jurisdictional principles of territoriality and active personality. Strictly speaking, these sanctions were not “extraterritorial sanctions”, as the Federal Government often labelled them. Legislation having extraterritorial effects or legislation being merely linked to conduct of persons abroad is not the same as extraterritorial legislation. Otherwise, every tax law taxing a State’s nationals or residents on their worldwide income and gains would amount to (illegal) extraterritorial legislation.

There is also no question of the U.S. sanctions against the Nord Stream 2 pipeline project violating the principle of non-intervention in the internal affairs of Germany. First, the principle involves the right of the State to conduct its affairs without outside interference. The sanctions, however, were not directed against the German State but against private companies and were thus not aimed at influencing Germany’s conduct. The Federal Government itself repeatedly stated that Nord Stream 2 was a private energy project, and not a State project. Second, the sanctions would have to meet the requirement of coercion. Germany would have to show that the threat of U.S. sanctions against private companies deprived it of the possibility to decide freely on its energy policy.

Any claim that the sanctions violated the United States’ treaty obligations towards Germany, for example, under the U.S.-German Treaty of Friendship, Commerce and Navigation, or the General Agreement on Tariffs and Trade, would have to overcome the national security exceptions in these treaties. Considering the wide margin of discretion of the parties to determine their national security interests it seems unlikely that the sanctions could be considered a violation of these treaties.

This leaves the question of whether the sanctions could have violated the human rights of the foreign persons targeted. Under PEESA and PEESCA, the U.S. President is to block and prohibit all transactions in all property in the United States and interests in such property of any sanctioned person. The right to property, however, is not protected by any global human rights treaty. The regional American Convention on Human Rights (ACHR) provides for the protection of private property, but the United States is not a party to the Convention. The American Declaration of the Rights and Duties of Man (ADHR) in fact provides for the limited protection of private property of natural but not of legal persons, such as companies. In any case, the Declaration is not a legally binding treaty, and the United States considers decisions of the Inter-American Commission on Human Rights on U.S. compliance with the ADHR mere recommendations.

Category: Jurisdiction of the State

 

 

Prof. Dr. Stefan Talmon LL.M. M.A

Stefan Talmon is Professor of Public Law, Public International Law and European Union Law, and Director at the Institute of Public International Law at the University of Bonn. He is also a Supernumerary Fellow of St. Anne’s College, Oxford, and practices as a Barrister from Twenty Essex, London. He is the editor of GPIL.

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