Yesterday, updated guidance from the U.S. Department of State relating to Section 232 of the Countering America’s Adversaries Through Sanctions Act of 2017 (“CAATSA”) was published in the Federal Register. The updated guidance, which became effective on July 15, 2020, expands the potential applicability of secondary sanctions pursuant to Section 232 with respect to Nord Stream 2 and the second line of TurkStream. Any work on or financial involvement in NordStream 2 or the second line of TurkStream will now be sanctionable, even if undertaken pursuant to an existing contract. This could affect, among other things, lending and other financing to companies (including European companies) with any connection to either project.
Section 232 of CAATSA allows for the imposition of secondary sanctions (i.e., persons engaging in the targeted conduct may be added to U.S. sanctions lists on a discretionary basis, even if the transactions are entirely outside U.S. jurisdiction) on parties that, on or after August 2, 2017: (i) make investments that directly and significantly contribute to the enhancement of the ability of Russia to construct energy export pipelines; or (ii) sell, lease, or provide to Russia, for the construction of Russian energy export pipelines, goods, services, technology, information, or support above certain monetary thresholds that could directly and significantly facilitate the maintenance or expansion of the construction, modernization, or repair of energy export pipelines by Russia.
Prior guidance from the State Department relating to Section 232: (i) clarified that implementation of Section 232 would be limited to Russian energy export pipeline projects for which a contract was signed on or after August 2, 2017; and (ii) indicated that investments and loan agreements made prior to August 2, 2017 would not be subject to sanctions. Thus, only new agreements relating to Nord Stream 2 and TurkStream (which were already under development prior to August 2, 2017) were targeted.
The updated State Department guidance takes a more aggressive stance against the projects, citing Russia’s influence as a result of its dominant share of the European gas market and the impact on transit revenue derived by Ukraine. Under the updated guidance, sanctions may be imposed on any person that makes a covered investment or engages in covered activities relating to Nord Stream 2 or the second line of TurkStream on or after July 15, 2020, even if the activities are undertaken pursuant to a pre-existing contract. This includes persons facilitating the construction or deployment of the pipelines, such as financing partners, pipe-laying vessel operators, and related engineering service providers. In addition, although the updated 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, the FAQs confirm that Nord Stream 2 and the second line of TurkStream are not considered to have been pipelines in existence and capable of transporting commercial quantities of hydrocarbons on August 2, 2017. Accordingly activities related to the standard repair and maintenance of these pipelines could be sanctionable.
On the other hand, the FAQs confirm that sanctions will not be imposed on persons that: (i) 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 guidance in effect prior to July 15, 2020; or (ii) make investments or engage in other activities 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 so long as the investments or activities are consistent with the pre-July 15, 2020 guidance and undertaken pursuant to a written agreement entered into prior to July 15, 2020, and the person is taking reasonable steps to wind down operations, contracts, or other agreements as soon as possible. 
The exercise of sanctions authorities, such as those provided in Section 232 of CAATSA, is discretionary and highly political, and this is certain to be true in a relationship as complex as that between the United States and Russia. To date, no sanctions have been imposed under Section 232 of CAATSA, although reportedly individual companies have abandoned work on the projects as a result of threatened secondary sanctions. The impact of the revised guidance on participating suppliers and financing providers – both whether they will continue to participate and whether they will face any consequences for doing so – remains to be seen. The updated guidance could also affect, among other things, lending and other financing to companies engaged in potentially targetable activities.
 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), 85 Fed. Reg. 44561 (July 23, 2020).
 According to FAQ #7 of the updated guidance, “[f]or 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.”
 See FAQ #5.
 See FAQ #6.
 See FAQs #3 and 4.
 Further, the FAQs confirm that the first line of TurkStream, which is designed exclusively to supply Turkey’s domestic natural gas market, is not the focus of Section 232 implementation efforts. See FAQ #8.
 See Reuters, “Russia gas export pipeline in jeopardy as Trump signs sanctions bill,” (Dec. 20, 2019), https://www.reuters.com/article/us-usa-russia-nord-stream-allseas/russia-gas-export-pipeline-in-jeopardy-as-trump-signs-sanctions-bill-idUSKBN1YP00Z.