On December 31, 2019, the U.S. District Court for the Northern District of Texas overturned a $2 million fine imposed by the Department of the Treasury's Office of Foreign Assets Control (OFAC) against ExxonMobil Corp., and its U.S. subsidiaries ExxonMobil Development Company and ExxonMobil Oil Corp. (collectively, "Exxon"). This marked a rare court decision overturning an OFAC sanctions penalty. The Court's decision focused not on the subject of the sanctions but addressed whether OFAC had provided proper notice of its sanctions requirements.
Background and Decision
On July 20, 2017, OFAC assessed a penalty in the amount of $2 million against Exxon for entering into contracts with Rosneft OAO (Rosneft) that were signed by Igor Sechin, its chief executive officer. Rosneft is not a Specially Designated National (SDN), but Mr. Sechin was designated an SDN pursuant to Executive Order (E.O.) 13661 at the time Exxon signed the eight contracts with Rosneft, between May 14, 2014 and May 23, 2014. OFAC determined that Exxon dealt in services from a blocked individual by entering into contracts signed by Mr. Sechin.
Exxon subsequently challenged the penalty, arguing that Mr. Sechin was subject to sanctions only in his individual capacity and not as an officer of Rosneft, and that OFAC failed to provide fair notice of its interpretations of E.O. 13661 and the Ukraine-Related Sanctions Regulations. U.S. District Judge Jane Boyle overturned the penalty finding that (i) Mr. Sechin's signing of the contacts with Exxon could constitute a service and (ii) it would violate the regulations if Mr. Sechin, as an SDN, provided services to a U.S. person. However, the Court determined that the regulations and related guidance failed to provide "fair notice" to Exxon of OFAC's interpretation that executing a contract with a company counter-signed by an SDN was prohibited.
Takeaways from the Decision
OFAC regulations prohibit U.S. persons from signing any agreement with or countersigned by an SDN, and OFAC will continue to enforce this rule. On August 13, 2014 (after Exxon signed the Rosneft contracts), OFAC published FAQ 400, which states, "OFAC sanctions generally prohibit transactions involving, directly or indirectly, a blocked person, absent authorization from OFAC, even if the blocked person is acting on behalf of a non-blocked entity. Therefore, U.S. persons should be careful when conducting business with non-blocked entities in which blocked individuals are...