Not a settlement: OFAC fines ExxonMobil $2million for Ukraine-related sanctions violations

OFAC’s Notice tells you all you need to know:

 The U.S. Department of the Treasury’s Office of Foreign Assets Control Assesses a Civil Monetary Penalty Against ExxonMobil Corporation

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has assessed a $2,000,000 civil monetary penalty against ExxonMobil Corp. of Irving, Texas, including its U.S. subsidiaries ExxonMobil Development Co.and ExxonMobil Oil Corp. (collectively, “ExxonMobil”), for violations of § 589.201 of the Ukraine-Related Sanctions Regulations, 31 C.F.R. part 589 (Ukraine-Related Sanctions Regulations).  
Between on or about May 14, 2014 and on or about May 23, 2014, ExxonMobil violated § 589.201 of the Ukraine-Related Sanctions Regulations when the presidents of its U.S. subsidiaries dealt in services of an individual whose property and interests in property were blocked, namely, by signing eight legal documents related to oil and gas projects in Russia with Igor Sechin, the President of Rosneft OAO, and an individual identified on OFAC’s List of Specially Designated Nationals and Blocked Persons. 
OFAC determined that ExxonMobil did not voluntarily self-disclose the violations to OFAC, and that the violations constitute an egregious case.  

The fine is the statutory maximum for the 8 violations. Notably, since this is not a settlement, ExxonMobil’s response to OFAC’s charges, and OFAC’s response, are in the enforcement action:

 

Warning Signs That the Conduct at Issue Constituted a Violation ofOFAC Regulations

ExxonMobil claims that it interpreted press statements as establishing a distinction between Sechin’s “professional” and “personal” capacity, in part citing to a news article published in April 2014 that quoted a Department ofthe Treasury representative as saying that a U.S. person would not be prohibited from participating in a meeting of Rosneft’ s board of directors. However, that brief statement did not address the conduct in this case.

Furthermore, the plain language ofthe Ukraine-Related Sanctions Regulations (which were issued after the Executive branch statements) and E.O. 13661 do not contain a “personal” versus “professional” distinction, and OFAC has neither interpreted its Regulations in that manner nor endorsed such a distinction. The press release statements provided context for the policy rationale surrounding the targeted approach during the early days ofthe Ukraine crisis, which was to isolate designated individuals who were targeted as a result of the crisis in Ukraine, rather than imposing blocking sanctions on the large companies that they managed. No materials issued by the White House or the Department ofthe Treasury asserted an exception or carve-out for the professional conduct ofdesignated or blocked persons, nor did any materials suggest that U.S. persons could continue to conduct or engage in business with such individuals.

Separately, there was a Frequently Asked Question (FAQ) publicly available on the OFAC website at the time ofthe violations that specifically spoke to the conduct at issue in this case, though framed in the context ofthe Burma sanctions program. FAQ #285, which OFAC issued in 2013 and was publicly available on OFAC’s website at the time ofExxonMobil’s violations, stated that U.S. parties should “be cautious in dealings with [a non-designated] entity to ensure that they are not providing funds, goods, or services to the SDN, for example, by entering into any contracts that are signed by the SDN.” In rebuttal to this guidance, ExxonMobil has pointed out that OFAC’s regulations state that different interpretations may exist among and between the sanctions programs that it administers, but FAQ #285 clearly signaled that OFAC had, in a sanctions program also involving SDNs, viewed the signing of a contract with an SDN as prohibited, even ifthe entity on whose behalf the SDN signed was not sanctioned. OFAC acted consistently with that approach in this case.

The issuance ofE.O. 13661 and the publication of the Ukraine-Related Sanctions Regulations prior to the violations at issue here; press statements by the White House and the Department of the Treasury regarding prohibited transactions with persons designated under E.O. 13661; and previous OFAC precedent published in 2013 and available on OFAC’s website at the time ofthe violations all clearly put ExxonMobil on notice that OFAC would consider executing documents with an SDN to violate the prohibitions in the Ukraine-Related Sanctions Regulations. 

And here are the factors which went into levying the maximum penalty:

 

OFAC considered the following to be aggravating factors: 

  1. ExxonMobil demonstrated reckless disregard for U.S. sanctions requirements when it failed to consider warning signs associated with dealing in the blocked services of an SDN;
  2. ExxonMobil’s senior-most executives knew of Sechin’s status as an SDN when they dealt in the blocked services of Sechin;
  3. ExxonMobil caused significant harm to the Ukraine-related sanctions program objectives by engaging the services of an SDN designated on the basis that he is an official of the Government ofthe Russian Federation contributing to the crisis in Ukraine; and 
  4. ExxonMobil is a sophisticated and experienced oil and gas company that has global operations and routinely deals in goods, services, and technology subject to U.S economic sanctions and U.S. export controls.

OFAC considered the following to be a mitigating factor: ExxonMobil has not received a penalty notice or Finding ofViolation from OFAC in the five years preceding the date ofthe first transaction giving rise to the violations. 

Links:

OFAC Notice

OFAC Enforcement Information

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