“This is either a conscious Russian disinformation scheme to collect supplies from naive firms, or it’s a really irresponsible move by the foundation,” said Thomas O’Donnell, energy and geopolitics analyst at Hertie School of Governance. (“German green foundation joins efforts to complete Nord Stream 2,” Financial Times, 21 Jan 2020, see here, or PDF here.)
The FT’s Erika Solomon interviewed me about the fake “climate-protection” foundation established by the legislature of the German state of Mecklenburg-West Pomerania (German initials MV). State officials stated intent is to help Gazprom, the Russian state gas monopoly, overcome US sanctions to finish building the Nord Stream 2 pipeline. Their new foundation is financed with €20 million from Gazprom (sole owner of Nord Stream 2 AG), and €200,000 from the state government.
The strategy is for the foundation to purchase “rare and hard to find” equipment Nord Stream 2 AG will need to finish the pipeline, but which firms cannot sell directly to it because of US sanctions against the project. MV politicians have called their foundation a “clever mechanism” to protect firms from sanctions. According to the state’s energy minister, Mr. Christian Pegel (SPD), the foundation will be a “type of hardware-store shelf” (“Baumarktregal-Variante“) that then supplies the Gazprom operation. The strategy here is that with the “climate-protection” foundation acting as the middleman, German firms will both not deal directly with Gazprom’s sanctioned Nord Stream 2 project, and the foundation’s purchases will be completed “before the deadline” when sanctions are applied.
However, there are no such loopholes to be exploited.
- First, here is no exemption for any company that sells only indirectly to the project, such as through this “climate-protection” foundation’s “hardware store.” The law explicitly targets efforts at “circumvention” of sanctions. Indeed, the MV politicians and officials involved in this scheme with Gazprom have publicly crowed about their intention to provide a “clever mechanism” or “loophole” to circumvent sanctions. This means no firm dealing with the foundation could claim ignorance of its intention.
- Second, there is no “deadline” to beat. The “deadline” for “application of sanctions” being mistakenly relied upon is a provision which says that entities which begin to immediately withdraw from the project will be allowed 90 days to complete their withdraw. US authorities have repeatedly made clear that this does not mean a company can keep working on the project for 90 days after being warned to leave; rather it means that if a company immediately ceases all work, it will be given 90 days to finish removing its equipment, supplies and such and closing out all its connections with the project.
As things now stand, many firms (apparently dozens) have already been contacted by US officials since early November 2020, with warnings to quit the project. This means they know they are on the list of firms the State Department is required to submit to Congress by 16 February, listing those working on Nord Stream 2 construction (this report is likely to be delayed a bit, as completing this list, with supporting facts, is an involved process). As I understand the situation, it is fairly certain that a number of German firms will then be sanctioned.
It is difficult to understand how any firm, which is not dangerously “naïve” (e.g., see my interview in Tagesspiegel Background, Berlin, on this), would sell to this foundation thinking it will thereby be protected from sanctions. Any firms concerned to avoid being sanctioned would obviously not rely on the advice of the buying entity (i.e., the MV “climate-protection” foundation) about the risks involved. Any serious supply firm would contact a law firm specializing in sanctions to see if whatever “clever” “loopholes” the buyer is touting really do exist.
In addition, this foundation itself is subject to sanctions. The PEESCA act of 2021 does say that governments and government officials of allied countries are not to be sanctioned. However, it also says that government entities acting as a business participating in assisting the construction of the pipeline will be sanctioned. And, this foundation, although established by the legislature of MV, is not even itself a government entity. It seems certain this foundation will be sanctioned.
In this regard, it is interesting that federal ministries have declined to endorse this new state-level foundation, making clear in statements that it is a project for which the State of MS is responsible.
Note, I am not trying to prove these points in this brief blog post; to do so would require a much longer post, one citing legal experts, plus present and former Department of State and of Treasury (esp. OFAC) officials familiar with the legal meaning of the language in these three sanctions acts (viz., the CAATSA act of 2017, PEESA of 2020 and PEESCA of 2021).
What is Gazprom up to with this scheme, if it will be so ineffective at protecting firms selling materials and equipment to it from suffering ruinous sanctions?
So, as I told The Financial Times, this whole scheme, aside from perhaps ensnaring some naive firms, is more likely a disinformation campaign with origins in Moscow, one designed to give the public the impression that the sanctions will be easily overcome, and the pipeline will eventually be completed. (I told the Frankfurter Allegemine Zeitung (FAZ) something similar in January.)
And for the local MV politicians behind this, their demonstrative act of indignant, and “clever” bravado against US sanctions will likely play well with their base in MV, where there is considerable business and popular support for remaining steadfastly committed to this pipeline project, no matter how this now enables Putin’s autocratic regime against Ukraine or otherwise.
A similar sort of performance politics has been taking place in US political life, with many of the projects boisterously undertaken by Trump while he was president. His primary purpose too was not to actually “Build the Wall” or “Make America Great Again” or whatever, but to excite his base and project success..
However, stepping back, what is politically most remarkable here is that even with Navalny being poisoned by Russian agents in Siberia, even after his being arrested as he returned to Moscow, even after the repression against massive anti-regime protest demonstrations on the last two Sundays, and even after the EU Parliament voted overwhelmingly on 21 January demanding a stop to this German-Russian Nord Stream 2 project and demanded new sanctions on Russia; even with all this, there are not only politicians in the German State of MV but also comprising Angela Merkel’s entire federal coalition government, who doggedly fight on to complete this project.
For a Moratorium to Stop Nord Stream 2
There is no excuse for Merkel and her ruling coalition not to take a decisive step against Putin’s autocratic rule and accept the recent US call for a moratorium on construction of the pipeline. Her government’s insistence on supporting this project with Putin at all costs is already beginning to poison relations with a third successive US administration since it began in earnest in 2015, less than a year after Putin’s regime invaded Ukraine and annexed Crimea.
Many German voices aside from Merkel and her ruling coalition government support this moratorium alternative, including experts at the SWP think-tank, (“a semi-official organization with close links to the federal government”), two senior leaders of Merkel’s CDU party, Friedrich Mertz and Norbert Röttgen, the leadership of the Green Party and of the Free Democratic Party.
Note: several typos were corrected shortly after publication.