How Germany Has Worked Around Nord Stream Sanctions

Earlier this month, U.S. President Joe Biden went after Russian President Vladimir Putin, calling him a “killer.” Without question, the Biden administration’s rhetoric on Russia will be much harder than Trump’s was. But actions speak louder than words, and contrary to popular belief, the Trump administration’s policies on Russia were far from soft. Biden should take note.

A prominent example of this is Nord Stream 2, a Russian gas pipeline currently under construction that is supposed to run through the Baltic Sea. It will connect Russia directly to Germany, allowing it to supply gas directly to Western Europe. The pipeline is a danger to Eastern European nations who could be cut off from Russia’s gas supply while its Western European customers remain unaffected. Western Europe’s dependence on Russian gas will also increase. Under threat of U.S. sanctions from the Trump administration, construction on the project, which is already 90% complete, halted last year.

But the project now is poised to continue if the United States isn’t able to implement sufficient sanctions under the new administration. Biden’s Secretary of State, Antony Blinken, has issued a threat to the companies involved to stop construction as the United States weighs sanctions. Time, however, is running out. Gazprom and local German authorities may have already found a way to circumvent the sanctions passed into law.

Just months ago, Congress passed new U.S. sanctions on Nord Stream 2 into law, including them in the National Defense Authorization Act for Fiscal Year 2021. Those targeted are people directly involved in doing business with the project.

So how are Nord Stream 2 supporters plotting to go ahead anyway? They’ve got help from the government of Mecklenburg-Western Pomerania, the German state located on the Baltic Coast and on the receiving end of the planned pipeline.

As is often the case in East German states, Mecklenburg-Western Pomerania has a Russia-friendly electorate. Its state parliament approved a plan by the Social Democrat-led governing coalition to establish a foundation tasked with taking over activities that could fall under U.S. sanctions. Formally, the “Foundation for Environmental and Climate Protection MV” (in German: “Stiftung Klima- und Umweltschutz MV”) is supposed to focus on environmental issues and on securing energy supply.

The second goal, of course, hints at its true purpose: The foundation acts as an intermediary to buy goods and services to ensure the completion of Nord Stream 2. The Energy Ministry of Mecklenburg-Western Pomerania openly admitted as much in a statement to Deutsche Welle, explicitly mentioning evading sanctions to buy materials for the pipeline:

“The goal is to secure these highly specialized items, which only a few companies in the world produce, before they would be potentially no longer available to acquire because of sanctions.” Unlike currently involved businesses, the foundation “does not have to fear sanctions,” the spokesperson explained. 

Who pulls the strings also becomes apparent when looking at funding for the foundation. Nord Stream 2 AG, the company behind the pipeline, has pledged to provide 20 million euros, while the state treasury itself will provide only a nominal sum of 200,000 euros. In effect, the foundation is funded almost exclusively by the Nord Stream 2 AG and its parent company, Russian state-owned energy giant Gazprom.

To put it bluntly, the foundation is a not-so-secret front group for the Russians, set up by the German state of Mecklenburg-Western Pomerania to evade U.S. sanctions and finish laying pipe for Nord Stream 2.

As outlined before, the main advantage for Nord Stream 2 supporters is time. Without significant U.S. action, the pipeline will probably be completed in just a few months. Even if Biden’s reluctance to implement sanctions has ended, the project’s proponents might manage to circumvent the currently codified roadblocks and continue construction via the newly established foundation. The United States shouldn’t take chances on this. Biden should sanction this phony “climate foundation” and enforce the sanctions already on the books. Opposition to Nord Stream 2 has been widely bipartisan, so Congress should be on board.

In this case, however, targeting individual officials of the foundation won’t do much. Press reports indicate the people involved already knew about that possibility but signed up nonetheless. Instead, the key would be to sanction businesses and people involved in selling pipeline and pipe-laying-related goods and services to the foundation.

Time might be on the side of Nord Stream 2’s proponents. But as President Trump showed last year, as long as its opponents in the United States have the determination to sanction everyone involved harshly, they can bring it to a stop, even if it is at the last miles. Setting up a bogus foundation to circumvent possible sanctions is just the latest trick in its supporters’ playbook, but if the foundation is under the same threat of sanctions as the project itself was last year, it will prove useless as an intermediary. Congress and the White House need to catch up with sanctions before it’s too late.

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