Exxon sues US govt after $2-mn fine over Russian dealings

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21 July 2017

Exxon Mobil Corp sued the US government on Thursday, blasting as "unlawful" and "capricious" a $2-million fine levied against it for a three-year-old oil joint venture with Russia's Rosneft.

This came after the US Treasury Department on Thursday morning slapped the world's largest publicly traded oil producer with the fine for "reckless disregard" of US sanctions in dealings with Russia in 2014 when Secretary of State Rex Tillerson was Exxon's chief executive.

ExxonMobil filed the legal challenge immediately after the Treasury Department slapped it with the fine over its partnership with Russia's Rosneft, which the government believes is in violation of US sanctions.

The American oil giant maintains that at no point has its dealings with Rosneft violated the sanctions imposed by Washington on Russia in the wake of the Ukrainian crisis three years ago.

In the legal challenge filed against the Treasury Department's Office of Foreign Assets Control (OFAC), ExxonMobil insists that it followed guidance from the Obama administration which OFAC proceeded to retroactively change.

"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,'' ExxonMobil's filing in the US District Court, said.

Just prior to filing its complaint, the company based in Irving, Texas, was fined $2 million by the US Treasury for signing eight deals with Russian oil giant Rosneft, which allegedly violated Ukraine-related sanctions.

The deals, all signed in May 2014, were sealed while current Secretary of State Rex Tillerson was Exxon's company's chief executive.

According to an OFAC statement, the restrictions were violated by ExxonMobil's US subsidiaries ''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.''

The American oil giant, however, maintains that Rosneft was not subject to any sanctions at the time the documents were signed.

The lawsuit and the Treasury's unusually detailed statement on Exxon's conduct represented an extraordinary confrontation between a major American company and the US government, made all the more striking because Tillerson is now in President Donald Trump's cabinet.

Exxon took the government to court despite the fact that the fine, the maximum allowed, would have a minor impact on the company, which made $7.84 billion in profit last year.

The fine came after a US review of deals Exxon signed with Rosneft, Russia's largest oil producer, weeks after Washington imposed sanctions on Moscow for annexing Ukraine's Crimea region.

The Treasury imposed sanctions on Sechin in April 2014 as part of measures to pressure Russia over its intervention in Ukraine, saying Sechin had shown "utter loyalty" to Russian President Vladimir Putin.

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

Exxon said in a statement that OFAC's action was "fundamentally unfair," and sued the US government in Texas in an effort to overturn the decision.

In its 21-page complaint, Exxon argued that Sechin "was subject to sanctions only in his individual capacity" and that guidance from the Obama administration at the time made clear that the sanctions "applied only to the 'personal assets' of the sanctioned individuals and emphasized that the sanctions did not restrict business with the companies those individuals managed".

Tillerson left Exxon late last year to become secretary of state after 10 years running the company. He is now responsible for US foreign policy, which includes helping make sanctions decisions.

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

Tillerson said in January that he would recuse himself from matters involving Exxon for one year after his December 2016 resignation, unless he is authorized to participate.

Though the State Department plays a major part in formulating sanctions policy, former US officials and sanctions experts said it was unlikely the agency had a role in deciding the fine announced on Thursday, because it falls under OFAC's regulatory role.

The back-and-forth between the Treasury and Exxon over the 2014 dealings spanned both the Obama and Trump administrations, and started with a subpoena from OFAC to Exxon in July 2014, Exxon said in its complaint.

The Treasury "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."

Exxon has long opposed US sanctions on Russia, saying they harm American business interests and actually help European rivals. Tillerson said in 2014 that the company did not support sanctions because they are not effective "unless they are very well implemented."

Sanctions were a contentious topic at Tillerson's confirmation hearing last January. At the time, Republican and Democratic lawmakers were concerned that Trump, whose associates are now under investigation for their ties to Russia, would try to quickly lift US sanctions on the country.





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