Fact check: White House national security adviser misleadingly describes pipeline company as ‘not Russian’

By Daniel Dale, CNN

Last Sunday, CNN “State of the Union” co-anchor Dana Bash pressed White House National Security Adviser Jake Sullivan on the Biden administration’s approach to Nord Stream 2, a controversial and nearly completed pipeline that will carry natural gas from Russia to Germany via the Baltic Sea.

Bash said to Sullivan that President Joe Biden had “decided not to impose sanctions” over the pipeline. After Bash quoted a Republican’s criticism of Biden’s handling of the issue, she asked: “Why are you giving in to Russia on this pipeline?”

Sullivan responded, correctly, that Biden has “sanctioned several Russian entities” in relation to the pipeline; he said Bash’s question involved a “misunderstanding.” But then Sullivan made a claim that has drawn criticism from Republican lawmakers.

Sullivan said that the only two entities or people on which the administration did waive sanctions — the company in charge of the pipeline, Nord Stream 2 AG, and its chief executive officer, Matthias Warnig — are not Russian.

“We waived sanctions only on two, and they were not Russian. It was a German individual and a Swiss company,” Sullivan said.

Facts First: Sullivan’s assertion that Nord Stream 2 AG is “not Russian” is misleading. Though the company is indeed registered as a Swiss entity, it is wholly owned by Gazprom — an energy company that is majority-owned by the Russian government.

In the context of the Biden administration’s approach to Russia, it’s also important to take note of Warnig’s background. Warnig is German, but he is a longtime associate of Russian President Vladimir Putin — some media reports have said “friend” of Putin — and has extensive business experience in Russia as well as other countries. Both Putin and Warnig are former intelligence officers: Warnig worked for the Stasi in the defunct communist state of East Germany while Putin worked for the Soviet KGB.

A company controlled by Putin’s Kremlin

We can’t say it’s flat false to claim that Nord Stream 2 AG is “Swiss.” One expert on the pipeline, Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies, told us that Sullivan is “absolutely correct” that Nord Stream 2 AG is a Swiss company “as a point of law.”

Yafimava noted that Nord Stream 2 AG is considered Swiss in an arbitration proceeding the company has launched against the European Union. And she said she doubts that Sullivan had “ill intent” in not mentioning the company’s ownership.

Yafimava makes valid points about the law. But we still think Sullivan went too far, regardless of his intent, when he said with no additional explanation that the company is “not Russian” even though it is, in fact, controlled by Putin’s Kremlin.

We’re not alone.

“I think it was misleading to call Nord Stream 2 AG a ‘Swiss company,'” said Margarita Balmaceda, an expert on the comparative energy politics of post-Soviet states who is a professor at Seton Hall University’s School of Diplomacy and International Relations. Balmaceda said that the company can be called Swiss “in a very narrow, technical” sense, “but not in any real” sense.

Balmaceda added that the Swiss town of Zug, where Nord Stream 2 AG is located, has long served as the “official address” of many Russian and former Soviet companies because of its internationally renowned tax advantages.

Benjamin Schmitt, a former European Energy Security Advisor at the State Department, also called it “misleading” to describe Nord Stream 2 AG as a “Swiss company,” since “the key fact” is that “Kremlin-controlled Gazprom” is its sole owner.

Schmitt, who is now a senior fellow at the Center for European Policy Analysis think tank and a postdoctoral researcher at Harvard University, said that this situation is similar to cases in which US companies are incorporated offshore in a tax haven like the Cayman Islands.

“One wouldn’t describe those firms as ‘Cayman,'” he said.

In fairness, top Biden officials have, on multiple other occasions, described Nord Stream 2 as a harmful “Russian” project.

Individuals who received waivers

Sullivan said the Biden administration waived Nord Stream 2 sanctions on “only two” entities, one Swiss company and one German individual. But the State Department explicitly said, in both a public statement and in a May report to Congress, that it had also waived sanctions on additional corporate officers of Nord Stream 2 AG.

Those four corporate officers are chief financial officer Paul Corcoran, chief project officer Marco Casirati, chief commercial officer Reinhard Ontyd, and chief technical officer Pavel Persidskii.

Warnig was found to have personally engaged in sanctionable conduct, so he was facing possible financial sanctions; the other four, as officers of the firm, were facing possible bans on travel to the US but not financial sanctions.

We won’t be too hard on Sullivan on the claim to have waived sanctions on “only two” — because the US government sometimes does differentiate between “sanctions” and “visa restrictions.” Language aside, the important thing to know here is that Warnig was not the only individual connected to Nord Stream 2 to be granted some sort of waiver.

Pipeline politics

The Nord Stream 2 pipeline is expected to double the capacity of an existing Nord Stream pipeline route from Russia to Germany. The project’s critics say, among other things, that the new pipeline will increase European dependence on Russia and weaken Ukraine. Supporters say it will increase the stability of the European energy supply and keep Russia connected to the West.

The State Department said in its May report explaining the waivers that sanctioning Nord Stream 2 AG and its officers would damage critical US relationships with Germany, other European allies, and the European Union generally. The German government and some other European countries oppose sanctions against people and companies involved in the project. (Major European companies are providing financing for a substantial percentage of the project’s cost, while additional European companies have been involved in various other ways.)

Biden also invoked the US relationship with Europe in explaining the waivers. He told reporters in late May that, despite the fact that he has opposed the Nord Stream 2 project from the beginning, those sanctions “would be counterproductive now in terms of our European relations.”

Sullivan emphasized in the CNN interview last Sunday — during which he also said that the Biden administration is preparing another “package of sanctions” on Russia over the poisoning of opposition leader Alexey Navalny — that the pipeline was 90% complete when Biden took office.

“So, the question to us was, will we go after directly, using our sanctions power, our European allies and friends? And, there, President Biden said: ‘I’m not prepared to do that. What I will do is continue to apply, every 90 days, sanctions against Russian entities involved in the construction of Nord Stream 2.’ He has done that, and he will continue to do that,” Sullivan said.

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