The Treasury Department’s Office of Foreign Assets Control has slapped ExxonMobil with a $2 million civil penalty for violating Ukraine-related sanctions regulations, an action that Exxon is legally challenging.
First, a bit of background: In March 2014, the President issued Executive Order 13661, “Blocking Property of Additional Persons Contributing to the Situation in Ukraine” and granted the Secretary of the Treasury authority to designate officials of the Russian government. E.O. 13661 expressly prohibits U.S. persons from receiving any contribution or provision of funds, goods, or services from the designated person. In April 2014, OFAC designated Igor Sechin, chief executive officer of state-run Rosneft OAO, to E.O. 13661 and added him to its List of Specially Designated Nationals and Blocked Persons (SDN List).
In a penalty notice issued July 20, OFAC said ExxonMobil violated Section 589.201 of the Ukraine-related sanctions regulations when the presidents of its U.S. subsidiaries—ExxonMobil Development Company and ExxonMobil Oil—signed eight legal documents related to oil and gas projects in Russia with Sechin.
Exxon challenge. In response, ExxonMobil said it has launched a legal challenge to OFAC’s finding. “OFAC seeks to retroactively enforce a new interpretation of an executive order that is inconsistent with the explicit and unambiguous guidance from the White House and Treasury issued before the relevant conduct and still publicly available today,” said ExxonMobil’s filing in the U.S. District Court.
ExxonMobil’s filing stated that OFAC’s action is “fundamentally unfair and constitutes a denial of due process under the Constitution and violates the Administrative Procedure Act because market participants, including ExxonMobil, did not have notice of the interpretation OFAC now seeks to retroactively enforce.”
OFAC has acknowledged that White House and Treasury Department officials repeatedly said sanctions involving Sechin applied only to his personal affairs and not to companies that he managed or represented. A March 2014, White House Fact Sheet stated, “Our current focus is to identify these individuals and target their personal assets, but not companies that they may manage on behalf of the Russian state.”
But two months later, in July 2014, “despite the White House and Treasury guidance that had already been given, OFAC contacted ExxonMobil to say it was still formulating its own policy,” Exxon said. “Nearly a year later, in June 2015, OFAC notified ExxonMobil through a pre-penalty notice that it had violated guidance that had not been developed when the alleged offenses took place.”
ExxonMobil said it “ollowed the clear guidance from the White House and Treasury Department when its representatives signed documents involving ongoing oil and gas activities in Russia with Rosneft—a non-blocked entity—that were countersigned on behalf of Rosneft by Sechin in his official capacity. At the time of the signing, those activities themselves were not under any direct sanction by the U.S. government.”