The US has not "sanctioned" LetsEncrypt or ISRG. The US sanctions foreign entities as punishment for various reasons precisely because they are not subject to US law. That's the entire point of leveraging a sanction -- to pressure those outside of your legal jurisdiction. If they were in your jurisdiction, you'd simply arrest them.
People and organizations basically anywhere not permitted to do business with anyone your country has sanctioned. Anyone who does business internationally should be aware of their country's sanctioned list. That applies no matter where you live on the planet.
This is literally about a company that has a branch in the USA and another branch in another country, where it's bound by that country's laws. If the foreign entity which just so happens to be commercially linked to the one in the USA has any dealings with countries sanctioned by the US, the US branch is punished.
There was a case a few years ago where a public University in Brazil bought lab computers from Dell Brasil. Dell Brasil is a subsidiary of Dell, but it's 100% incorporated in Brazil, the computers were manufactured in Brazil, everything following Brazilian law. The computers were delivered with terms of service that prohibited them from being used for any dealings with US-sanctioned countries such as Iran and Cuba. The University was caught by surprise and questioned it, since they had many academic links with Cuban Universities, and Dell Brasil explained that.
I don't know how the whole ordeal ended. The Brazilian Federal Government got involved, I believe the Ministry of Exterior and the Ministry of Commerce and Industry both got involved and were at one point going to sue Dell Brasil. I suspect it ended with the University returning the computers and purchasing from another supplier.
The suggestion that Let's Encrypt could work around US sanctions by opening a branch in the EU falls under similar conditions, and the US branch would be liable if the EU subsidiary had dealings with US-sanctioned countries.