Exxon Mobil Corp must pay a US$2 million fine for showing “reckless disregard” for US sanctions on Russia while US Secretary of State Rex Tillerson was the oil giant’s chief executive officer, the US Department of the Treasury said on Thursday.
The Treasury said that Exxon violated sanctions when it signed contracts in May 2014 with Russian oil magnate Igor Sechin, chairman of the government-owned energy giant Rosneft.
The US had blacklisted Sechin, Tillerson’s longtime business associate, as part of its response to Moscow’s actions in Ukraine and annexation of Crimea.
The Texas-based company hours after the fine was announced sued US Secretary of the Treasury Steven Mnuchin and the government, saying the US had told companies that doing business with Rosneft was allowed — just not with Sechin himself.
However, the Treasury said that Exxon’s “senior-most executives” knew Sechin was blacklisted when two of its subsidiaries signed deals with him.
The Office of Foreign Assets Control (OFAC) said Exxon caused “significant harm” to the sanctions program.
The dispute between Exxon and the government centers on whether the sanctions differentiated between “professional” and “personal” interactions with Sechin, who had been blacklisted only weeks earlier.
Exxon in its lawsuit said that the administration of former US president Barack Obama had said the sanctions strategy was to identify individuals like Sechin who were contributing to the Ukraine crisis and to “target their personal assets, but not companies that they may manage on behalf of the Russian state,” a White House fact sheet from the time said.
The company said that the Treasury had even said it would be permissible for a US chief executive to attend a Rosneft board meeting with Sechin as long as it was not related to Sechin’s “personal business.”
Rosneft itself was not subject to sanctions at the time.
The Treasury disagreed, saying that it never said there was an “exception or carve-out for the professional conduct of designated or blocked persons.”
The government said that its Web site at the time explicitly warned companies not to enter any contracts signed by people on the blacklist.
The US said that the presidents of two Exxon subsidiaries and Sechin had signed eight legal documents in May 2014.
At the time, Tillerson was unambiguous about Exxon’s opposition to the sanctions during his company’s annual meeting.
“We do not support sanctions, generally, because we don’t find them to be effective unless they are very well implemented comprehensibly, and that’s a very hard thing to do,” Tillerson said.
The Treasury called the violation an “egregious case” and said that Exxon “is a sophisticated and experienced oil and gas company that has global operations” and should know better.
Concerns about Tillerson’s potential conflict of interest dominated his confirmation hearings in January, and he has recused himself from matters dealing with his former company.
The state department said it was not involved in the decision to fine Exxon for violating the sanctions.
As a diplomat, Tillerson has insisted the sanctions would stay in place until Russia reverses course in Ukraine and gives back Crimea.
Still, the sanctions breach on his watch has raised questions about his ability to credibly enforce the sanctions and to persuade European countries to keep doing so.
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