Blinken Shields Russia Front Group from Mandatory Sanctions

W ith Russia amassing troops and new military capabilities on Ukraine’s border, the Biden administration last month quietly exempted from mandatory sanctions a Russia-backed vessel involved in the process to win regulatory approval of the Nord Stream 2 pipeline project. Critics of the decision say it violates the law and undermines U.S. efforts to create deterrence ahead of an expected Russian attack.

On Friday, the Washington Post reported that U.S. intelligence believes that a Russian offensive in early 2022 could involve as many as 175,000 troops, and Ukrainian and Western officials have warned for weeks that such an invasion is imminent. As they seek to deter such an attack, U.S. officials have reportedly been putting together a tough sanctions package ahead of a video call between Joe Biden and Vladimir Putin scheduled for tomorrow. But the move to shield a ship involved in the pipeline project discredits the administration’s claims that it is serious about deterring Russia. The Russian pipeline will bypass Ukraine, sidelining the country from gas routes and removing a potential obstacle to a Russian invasion — but the Biden administration has repeatedly declined to stand in its way.

The latest exemption came last month as the State Department fulfilled a congressional requirement to designate entities involved in work on the pipeline. In a November 22 press statement, Secretary of State Antony Blinken announced that the U.S. had identified two vessels and one Russia-linked entity involved in sanctionable activity; the U.S., he said, had imposed sanctions on one of the two vessels and the company that owns it.

In official Washington it’s an open secret that the ship in question, the Blue Ship, is operated by a Germany-based front group for Gazprom, the Russian state-owned energy company, and involved in the process to test and certify the pipeline, which is awaiting regulatory approval. Multiple sources also said that the administration is skirting its legal obligations under the Protecting Europe’s Energy Security Act (PEESA), a 2019 provision (tucked into the must-pass National Defense Authorization Act) intended at the time to prevent President Trump from making unseemly concessions to the Kremlin.

The current administration has sought to rebuild frayed U.S. ties with Germany, which has aggressively defended the pipeline, and was susceptible to Chancellor Angela Merkel’s entreaties against killing the project with sanctions. So, while U.S. officials have slammed Nord Stream 2 in public, in April the administration waived sanctions on the Nord Stream 2 corporate entity and its CEO, provoking a seething response from Kyiv and congressional Russia hawks. Tellingly, as Blinken and other officials moved last month to warn allies about a Russian invasion of Ukraine, he and his energy-security envoy, Amos Hochstein, actively lobbied against congressional amendments to the annual defense-authorization bill reversing the April waivers, per multiple sources.

The administration’s Blue Ship exemption can best be understood in the context of that approach — with officials talking tough in public but pulling their punches behind closed doors.

In a statement to National Review last week, a State Department spokesperson reiterated the official U.S. stance against the pipeline, calling it a “harmful Russian geopolitical project that is a bad deal for Ukraine and Europe” and saying that the U.S. is working with partners to “take steps to ensure that the pipeline is not allowed to circumvent the certification process.”

The spokesperson also confirmed the Blue Ship exemption and said it is on solid legal ground to make it: “The entity that we assess is the owner for the Blue Ship is a German entity and meets one of the exceptions under PEESA and therefore we have not listed the entity on the report. As such, the Blue Ship has not been identified as blocked property as its ownership is not subject to sanctions under PEESA, as amended.”

State’s claim apparently rests on the fact that the Blue Ship’s owner is a nongovernmental organization, the Climate and Environmental Protection Foundation, which was set up by the German state of Mecklenburg-Vorpommern. PEESA does exempt allied national governments from sanctions.

But State left out a pertinent fact: That NGO is a known front group for Gazprom, which provided nearly all of the foundation’s funding. Since the Trump administration, U.S. officials have been aware that this group received Gazprom funding.

This poses a massive problem for State because the sanctions law was designed for exactly this sort of situation, according to a congressional aide. “PEESA applies to anyone engaging in ‘deceptive transactions,’ and includes an exemption for foreign governments, but the exemption does not apply to front groups engaging in business activities, such as those building a gas pipeline,” the aide tells National Review.

As the State Department’s statement above suggests, Congress actually amended the law in 2020 to apply to a wider range of activities — especially these deceptive transactions — and requires U.S. officials to target the facilitators of these projects. The State Department’s own guidance on PEESA notes that the sanctions apply to “deceptive or structured transactions to provide those vessels for the construction” of Nord Stream 2.

Besides undermining U.S. efforts to deter Russia, giving special treatment to the Blue Ship invites malign activity by other actors — Iran and Venezuela — according to the congressional aide. If the U.S. won’t enforce its sanctions laws against Russia-backed front groups, malign actors linked to other countries might be emboldened to try their luck.

Meanwhile, congressional maneuvering around the National Defense Authorization Act is in full swing. Senate Democrats have spoken out against the pipeline, but they’ve taken a kid-glove approach to Biden’s sanctions waivers. So much so that Senate Foreign Relations chairman Bob Menendez (D., N.J.) has been working to insert an administration-approved provision that would trigger new pipeline sanctions only if Russia were to invade Ukraine.

Through a spokesperson, Senator Ted Cruz, who has held up several of the president’s nominees to diplomatic posts as a means to pressure him to adopt a tougher stance on Russia, accused the administration of “using every trick possible to avoid sanctions and ensure the Nord Stream 2 pipeline come online.”

That State would go out of its way to shield the Blue Ship suggests that the vessel is playing a critical role in the certification process. The Biden administration is quite evidently still taking its cues from Berlin — which last month presented U.S. officials with a document pledging to retaliate if Russia attempts to “use energy as a weapon.” But in tandem with its preparations for an eventual invasion, Russia is already doing exactly that, as Ukrainian officials well know, though U.S. and German officials refuse to acknowledge it.