US sanctions and Nord Stream 2
US sanctions against Germany: How dangerous is Nord Stream 2? | To the point
Adam Smith: &# 171; the US is always able to find ways to impose sanctions&# 187;
Despite the expanded sanctions against Nord Stream 2 approved by Congress, work on the pipeline has resumed. Commented by Adam Smith, Partner at Gibson Law Firm, Dunn & Crutcher and former coordinator of sanctions policy in the Barack Obama administration.
Margot Gontard: What needs to be done to impose sanctions on the company?
Adam Smith: It depends on what the sanctions decree will look like. For example, sanctions can restrict access to the American financial system – this is a fairly traditional model. Typically, companies that engage in activities that the United States does not approve of risk losing access to American financial resources and reputational damage, which will complicate their work. In the case of Nord Stream 2, the trigger for the imposition of sanctions is activities related to development, construction and completion of the pipeline. There are various subtleties and restrictions, but from a practical point of view, it works like this: if you cross the “red line” established by the US Congress, restrictions immediately take effect.
If the US president wants to impose sanctions, he can do it incredibly quickly. President Trump, in many ways, if not entirely, supports restrictions on Nord Stream 2 – one of the few foreign policy areas of the Obama era that Trump has taken over completely. If we are talking about the reaction of the US Congress, then this is a much longer process, requiring, among other things, the adoption of a law.
M.G .: Is it difficult to impose sanctions on a company and should evidence be provided for this?
A.S .: Yes, evidence is necessary, but not much is required – after all, this is not a court, the decision on guilt is not made by a judge: it is a foreign policy decision. A sufficient basis is required to conclude that a violation has occurred. Especially considering the current situation, when the parties involved are known to everyone. It’s not a secret for anyone who is doing what, who is doing the work on the part of Russia, Germany, Denmark or other states. The imposition of sanctions is a technical and bureaucratic process. The United States has been using sanctions for a long time, sanctions mechanisms work like clockwork.
But it is much more difficult to do all this correctly and diplomatically in order to get the required result, so as not to harm other players, and so that interstate relations do not suffer. This is not easy to achieve, given that the United States and
Germany has different views on Nord Stream 2. However, there are many reasons why the US-German relationship needs to remain strong..
MG: The Bild newspaper recently reported that in the federal state of Germany, through which this gas pipeline runs, in order to circumvent US sanctions, they are going to create a special fund. What do you think of it?
A.S .: I see no reason why this cannot happen. It is about placing corporate assets under the auspices of the federal state government, which will create some difficulties for the United States. The strategy may be based on the notion that even if the US government may be willing to sanction companies, it may be much less prepared, and in some cases less capable, to impose sanctions on foreign governments..
But the United States can always impose sanctions on the governments of other states, if it deems it necessary. The United States has done this on several occasions – for example, against the Venezuelan government.
It may be an interesting strategy, but not a long-term one, since the US can change the rules if necessary. As I already said, the difficulty lies not in the technical aspect of imposing sanctions – it is in applying them pointwise to obtain the desired result. But if the US really wants to impose sanctions, it will be difficult to hide from them..
MG: Two years ago, a similar structure was created by European countries to circumvent the sanctions that the United States imposed on Iran. What were the results?
A.S .: INSTEX is a European company owned by several countries that trade with Iran. True, I would not call it a “tactic of evasion” – since this expression implies some illegality – the Europeans tried to trade in humanitarian goods. Has this strategy been successful? – Not particularly. Very few deals were made thanks to INSTEX. The fact is that even with some protection under INSTEX, private companies were worried: how would they look in the eyes of partners? could they become a target of sanctions after leaving the INSTEX umbrella? will they have any reputational losses?
M.G .: Have European companies previously used to circumvent US sanctions?
A.S .: There were European companies that were punished in the United States for violating the sanctions regime. In the mid-1990s, Europe adopted a Blocking Statute restricting the ability of European parties to comply with certain parts of US sanctions against Iran and Cuba, but it does not apply to Nord Stream 2. It has been publicly stated that the goal is to protect the right of states and companies to trade as they see fit and to pursue an independent foreign policy. I would also not say that Germany is preparing to bypass American sanctions – if only because everything is done openly and publicly..