[Federal Register Volume 85, Number 142 (Thursday, July 23, 2020)]
[Notices]
[Pages 44561-44563]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15901]


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DEPARTMENT OF STATE

[Public Notice: 11163]


Notice of Department of State Update to the Public Guidance for 
Section 232 of the Countering America's Adversaries Through Sanctions 
Act of 2017 (CAATSA)

ACTION: Notice.

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SUMMARY: The Department of State is updating the public guidance for 
CAATSA Section 232 on July 15, 2020 to expand the focus of 
implementation of Section 232 to address certain growing threats to 
U.S. national security and foreign policy related to Russian energy 
export pipelines, particularly with respect to Nord Stream 2 and the 
second line of TurkStream. The Department of State deleted the portions 
of the public guidance in effect prior to July 15, 2020, that limited 
the focus of implementation of Section 232 to Russian energy export 
pipeline projects for which a contract was signed on or after August 2, 
2017. In doing so, the Department of State clarified that the focus of 
implementation will include Russian energy export pipelines such as 
Nord Stream 2 and the second line of TurkStream.

DATES: The update to the public guidance for Section 232 is effective 
on July 15, 2020.

ADDRESSES: The Department of State has published the updated public 
guidance for Section 232 on its website. https://www.state.gov/caatsa-crieea-section-232-public-guidance/

FOR FURTHER INFORMATION CONTACT: Stu Hoffman at 
[email protected] or (202)-647-7201.

SUPPLEMENTARY INFORMATION:

Background

    The Department of State is updating the public guidance for Section 
232 on July 15, 2020 to expand the focus of implementation of Section 
232 to address certain growing threats to U.S. national security and 
foreign policy related to Russian energy export pipelines, particularly 
with respect to Nord Stream 2 and the second line of TurkStream. Russia 
uses its energy export pipelines to create national and regional 
dependencies on Russian energy supplies, leveraging these dependencies 
to expand its political, economic, and military influence and 
undermining U.S. national security and foreign policy interests. In 
this context, Nord Stream 2 and the second line of TurkStream--both of 
which are under construction--could undermine Europe's energy security 
by maintaining Russia's dominant share in Europe's gas markets for 
decades, discouraging investment in critical diversification projects, 
and limiting the ability of European countries to gain leverage over 
Russia on issues of price, commercial transparency, and the 
environment. These projects could severely limit gas transit revenues 
through Ukraine, thereby depriving the Ukrainian government of 
significant transit revenues and reducing a large deterrent against 
further Russian aggression against Ukraine. The development of these 
projects also provides Russia with vehicles to further spread its 
malign influence in Europe.
    The Department of State deleted the portions of the public guidance 
in effect prior to July 15, 2020, that limited the focus of 
implementation of Section 232 to Russian energy export pipeline 
projects for which a contract was signed on or after August 2, 2017. In 
doing so, the Department of State clarified that the focus of 
implementation will include Russian energy export pipelines such as 
Nord Stream 2 and the second line of TurkStream.
    In addition, the Department of State deleted the portions of the 
public guidance in effect prior to July 15, 2020 that stated that 
investments and loan agreements made prior to August 2, 2017 would not 
be subject to Section 232. The Department of State has clarified how it 
intends to apply Section 232 to such investments and loan agreements in 
FAQs #3-5 below.
    The updated public guidance continues to make clear that 
implementation of Section 232 will not target investments or other 
activities related to the standard repair and maintenance of pipelines 
in existence on, and capable of transporting commercial quantities of 
hydrocarbons, as of August 2, 2017.
    Accordingly, the Department of State's public guidance for Section 
232 is updated as follows:

CAATSA Section 232 Public Guidance

    The Department of State is committed to fully implementing 
sanctions authorities in the Countering America's Adversaries Through 
Sanctions Act (CAATSA or the Act). We continue to call on Russia to 
honor its commitments to the Minsk agreement and to cease its malicious 
cyber intrusions.
    Section 232 sanctions are discretionary. In accordance with 
Sections 212 and 232 of the Act, the Secretary of State, in 
consultation with the Secretary of the Treasury, will coordinate with 
allies of the United States in imposing these sanctions. The intent of 
such sanctions would be to impose costs on Russia for its malign 
behavior, such as in response to aggressive actions against the United 
States and our allies and partners.
    Any implementation of Section 232 sanctions would seek to avoid 
harming the energy security of our partners or endangering public 
health and safety. Consistent with the Act (Section 257), it remains 
the policy of the United States to ``work with European Union Member 
States and European institutions to promote energy security through 
developing diversified and liberalized energy markets that provide 
diversified sources, suppliers, and routes.''
    For the purposes of Section 232, the focus of implementation would 
be on 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. Pipelines that 
originate outside the Russian Federation and transit through the 
territory of the Russian Federation would not be the focus of 
implementation.
    The focus of implementation of Section 232 sanctions would be on 
persons who the Secretary of State, in consultation with the Secretary 
of the Treasury, determines knowingly, on or after August 2, 2017, (1) 
made an investment that meets the fair market value thresholds in 
Section 232(a) and directly and significantly enhances the

[[Page 44562]]

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 fair market value thresholds in Section 232(a) 
and that directly and significantly facilitate the expansion, 
construction, or modernization of energy export pipelines by the 
Russian Federation.
    Implementation of Section 232 sanctions would not target 
investments or other activities related to the standard repair and 
maintenance of pipelines in existence on, and capable of transporting 
commercial quantities of hydrocarbons, as of August 2, 2017.

Frequently Asked Questions

1. Why is the Department of State issuing updated public guidance for 
Section 232 on July 15, 2020?

    The Department of State is updating the public guidance for Section 
232 on July 15, 2020, to expand the focus of implementation of Section 
232 to address certain growing threats to U.S. national security and 
foreign policy interests related to Russian energy export pipelines, 
particularly with respect to Nord Stream 2 and the second line of 
TurkStream. Russia uses its energy export pipelines to create national 
and regional dependencies on Russian energy supplies and leverages 
these dependencies to expand its political, economic, and military 
influence and undermine U.S. national security and foreign policy 
interests.
    In this context, Nord Stream 2 and the second line of TurkStream--
both of which are under construction--could undermine Europe's energy 
security by maintaining Russia's dominant share in Europe's gas markets 
for decades, discouraging investment in critical diversification 
projects, and limiting the ability of European countries to gain 
leverage over Russia on issues of price, commercial transparency, and 
the environment. These projects could destabilize the Ukrainian economy 
and government severely limiting gas transit through Ukraine, thereby 
depriving the Ukrainian government of significant transit revenues and 
reducing a large deterrent against further Russian aggression against 
Ukraine. The development of these projects also provides Russia with 
vehicles to further spread its malign influence in Europe.

2. What specific changes to the public guidance for Section 232 did the 
Department of State make on July 15, 2020?

    The Department of State deleted the portions of the public guidance 
in effect prior to July 15, 2020, that limited the focus of 
implementation of Section 232 to Russian energy export pipeline 
projects for which a contract was signed on or after August 2, 2017. In 
doing so, the Department of State clarified that the focus of 
implementation will include Russian energy export pipelines such as 
Nord Stream 2 and the second line of TurkStream.
    In addition, the Department of State deleted the portions of the 
public guidance in effect prior to July 15, 2020, that stated that 
investments and loan agreements made prior to August 2, 2017, would not 
be subject to Section 232. The Department of State has clarified how it 
intends to apply Section 232 to such investments and loan agreements in 
FAQs #3-5 below.
    The updated public guidance continues to make clear that 
implementation of Section 232 will not target investments or other 
activities related to the standard repair and maintenance of pipelines 
in existence on, and capable of transporting commercial quantities of 
hydrocarbons, as of August 2, 2017.

3. Will the Department of State impose sanctions under Section 232 on a 
person who made investments or engaged in other activities prior to 
July 15, 2020, that were not the focus of implementation of Section 232 
sanctions pursuant to the public guidance in effect prior to July 15, 
2020, but are now the focus of implementation of Section 232 sanctions 
pursuant to the public guidance in effect on July 15, 2020?

    No. The Department of State will not impose Section 232 sanctions 
for activity undertaken prior to July 15, 2020, that was consistent 
with the public guidance in effect prior to July 15, 2020; see also 
FAQs 4 and 5.

4. Will the Department of State impose sanctions under Section 232 on a 
person who made investments or engaged in other activities on or after 
July 15, 2020, that are ordinarily incident and necessary to the wind 
down of operations, contracts, or other agreements in effect prior to 
July 15, 2020?

    No, provided that: (1) Such investments or other activities are 
consistent with the guidance in effect prior to July 15, 2020; (2) such 
investments or other activities are undertaken pursuant to a written 
contract or written agreement entered into prior to July 15, 2020; and 
(3) the person making such investments or engaging in such activities 
is taking reasonable steps to wind down the operations, contracts, or 
other agreements as soon as possible after July 15, 2020.

5. Will the Department of State impose sanctions under Section 232 on a 
person who made investments or engaged in other activities on or after 
July 15, 2020, that are ordinarily incident and necessary to the 
maintenance of operations, contracts, or other agreements in effect 
prior to July 15, 2020?

    The Department of State may impose sanctions under Section 232 on a 
person who made such investments or engaged in such activities on or 
after July 15, 2020. This applies, but is not limited, to persons 
facilitating the construction or deployment of the pipelines such as 
financing partners, pipe-laying vessel operators, and related 
engineering service providers. Except as provided in FAQ #4 above, the 
updated guidance does not grandfather contracts or other agreements 
signed prior to July 15, 2020.

6. Does the Department of State consider either the Nord Stream 2 
pipeline or the second line of TurkStream to be a pipeline in existence 
on, and capable of transporting commercial quantities of hydrocarbons, 
as of August 2, 2017, for purposes of Section 232?

    No. As a result, investments or other activities related to the 
standard repair and maintenance of these pipelines could be the target 
of sanctions.

7. How will the Department of State interpret the term ``investment'' 
as used in Section 232 of CAATSA?

    For purposes of implementing Section 232 of CAATSA, the Department 
of State will interpret the term ``investment'' broadly as a 
transaction that constitutes a commitment or contribution of funds or 
other assets or a loan or other extension of credit to an enterprise. 
For purposes of this interpretation, a loan or extension of credit is 
any transfer or extension of funds or credit on the basis of an 
obligation to repay, or any assumption or guarantee of the obligation 
of another to repay an extension of funds or credit, including: 
Overdrafts, currency swaps, purchases of debt securities issued by the 
Government of Russia, purchases of a loan made by another person, sales 
of financial assets subject to an agreement to repurchase, renewals or 
refinancing whereby funds or credits are transferred or extended to a 
borrower or recipient described in the provision, the issuance of 
standby letters of credit, and drawdowns on existing lines of credit.

[[Page 44563]]

8. Does the updated public guidance apply to the first line of 
TurkStream?

    The first line of TurkStream, which is designed exclusively to 
supply Turkey's domestic natural gas market, is not the focus of our 
Section 232 implementation efforts.

Melissa Simpson,
Deputy Assistant Secretary, Bureau of Energy Resources, Department of 
State.
[FR Doc. 2020-15901 Filed 7-22-20; 8:45 am]
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