US Says ExxonMobil Violated Russia Sanctions While Tillerson Was CEO

By Yeganeh Torbati and Ernest Scheyder, Reuters

20 July 17

 

he U.S. Treasury Department on Thursday said it was fining global oil company Exxon Mobil Corp XOM.N $2 million for violating sanctions on Russia in May 2014.

The heads of the company's U.S. subsidiaries signed eight documents between May 14 and May 23, 2014 with Igor Sechin, the head of Russia's largest oil producer, Rosneft, Treasury's Office of Foreign Assets Control said in a statement on its website.

Sechin had been blacklisted by the United States just weeks earlier.

The Treasury unit, which enforces sanctions, found ExxonMobil had not voluntarily self-disclosed the violations, "and that the violations constitute an egregious case."

Rex Tillerson, ExxonMobil's chief executive at the time of the dealings, is now U.S. secretary of state. The State Department referred questions about the fine and Tillerson's knowledge of the dealings to Exxon Mobil.

Exxon said it fully complied with sanctions guidelines in 2014 from former President Barack Obama's administration that ongoing oil and gas business activities with Rosneft were allowed, but not personal dealings with Sechin.

The oil company cited a May 2014 Treasury Department spokesman's comments that BP Plc Chief Executive Bob Dudley – an American citizen - would be allowed to remain on Rosneft's board so long as he did not discuss personal business with Sechin.

The Treasury Department "is trying 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," Exxon Mobil spokesman Alan Jeffers said in a statement.

On April 28, 2014, the Treasury announced it was sanctioning Sechin as part of a package of measures aimed at pressuring Russia over its intervention in Ukraine, and said he had shown "utter loyalty to Vladimir Putin," Russia's president.

The sanctions prohibit U.S. citizens or those located in the United States from dealing with those on the blacklist, such as Sechin. Rosneft itself is subject to narrower U.S. sanctions that still allow Americans to deal with the company on some transactions.

Tillerson left ExxonMobil to become secretary of state after 10 years at the helm of the global energy power. He is now responsible for U.S. foreign policy, which includes helping to make sanctions decisions.

The State Department referred questions about the fine to ExxonMobil and the Treasury. State Department spokeswoman Heather Nauert told reporters on Thursday that the agency was alerted to the fine on Wednesday.

Though the State Department plays a part in formulating broad sanctions policy, former U.S. officials and sanctions experts said it was unlikely the agency had a role in deciding the fine announced on Thursday.

ExxonMobil had fully complied with guidance from Democratic former President Barack Obama's administration that ongoing oil and gas business activities with Rosneft were permitted, Exxon spokesman Alan Jeffers said in a statement.

The Treasury Department "is trying to retroactively enforce a new interpretation of an executive order" inconsistent with its prior guidance, Jeffers said.

"OFAC's action is fundamentally unfair," he said.

Sechin signed the documents on behalf of Rosneft, Jeffers said.

ExxonMobil also cited a Treasury Department representative's comments in May 2014 that BP Plc Chief Executive Bob Dudley - an American citizen - could continue to participate in Rosneft board meetings so long as they related only to Rosneft's business.

In its statement explaining the fine, OFAC said that the Treasury representative's comments did not address ExxonMobil's conduct.

No White House or Treasury statements asserted "an exception or carve-out for the professional conduct of designated or blocked persons, nor did any materials suggest that U.S. persons could continue to conduct or engage in business with such individuals," OFAC said.

Publicly available guidance on Treasury's website at the time of Exxon's dealings with Sechin said Americans should ensure they do not enter into contracts signed by sanctioned individuals, OFAC said.

By dealing with Sechin, the company "caused significant harm" to U.S. sanctions on Russia, the Treasury said.

Because Rosneft itself is not off-limits to Americans, another company executive could have signed the contract with no sanctions risk to ExxonMobil, said David Mortlock, who was a State Department and White House sanctions official during the Obama administration.

"You could have Sechin standing over the guy's shoulder," said Mortlock, now an attorney at Willkie Farr & Gallagher LLP in Washington. "But the problem here is that it was signed by Sechin himself."

The fine is minor to ExxonMobil, which made $7.84 billion in profit in 2016.

The company has long opposed sanctions on Russia. Tillerson said in 2014 that the company did not support sanctions because they are not effective "unless they are very well implemented."

Nevertheless, in May 2014 Tillerson chose not to attend an oil industry forum in Moscow, instead sending top lieutenant Neil Duffin, who signed an agreement with Sechin to explore for oil in the Arctic Ocean.

The deal came at a time when other oil companies, including BP and Total SA, were clamoring to enter Russia, aiming to tap its vast oil and natural gas reserves.

As the United States and others tightened Russian sanctions, ExxonMobil's ability to operate there dwindled. The company was allowed to finish drilling a well in the Russian Arctic in the fall of 2014 but could not produce oil.

ExxonMobil has since sought permission to operate in Russia. Earlier this year, the Trump administration said it would not let any U.S. company, including ExxonMobil, drill in areas prohibited by U.S. sanctions on Russia.