The US Treasury Department hit the oil giant with a $2-million fine for violating Ukraine-related sanctions at a time when Secretary of State Rex Tillerson was still in charge of the company.

 Rosneft Chief Executive Igor Sechin, Russia's President Vladimir Putin and the US Secretary of State Rex Tillerson take part in a signing ceremony at a Rosneft refinery in the Black Sea town of Tuapse, Russia on June 15, 2012.
Rosneft Chief Executive Igor Sechin, Russia's President Vladimir Putin and the US Secretary of State Rex Tillerson take part in a signing ceremony at a Rosneft refinery in the Black Sea town of Tuapse, Russia on June 15, 2012.

Exxon Mobil Corporation sued the US government on Thursday to stop a $2-million fine on the oil giant for violating US sanctions on Russia.

Exxon was fined by the US Treasury Department on Wednesday for signing contracts with Igor Sechin, president of the Russian state energy company Rosneft and a former adviser to Russian President Vladimir Putin. The contracts were signed after Sechin was blacklisted under sanctions imposed in the wake of the Russian annexation of Crimea in 2014.

Exxon at the time was run by Rex Tillerson, who resigned as the company's chief executive this year when he become US Secretary of State.

The company pointed to comments from Treasury Department representatives who had said that the sanctions barred Americans from dealing with the oil mogul himself and not the Russian government-owned oil company he ran.

Exxon said that approach would have flown in the face of standard business practice.

"You don't ask your business partner to have someone else sign instead of the CEO," said Exxon spokesman Jeffers.

The Texas-based company says it was following "authoritative and specific guidance" from the Obama administration and that now the Treasury Department is trying to change the rules "retroactively" a year later.

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.

Tillerson not consulted

Tillerson left Exxon late last year to become secretary of state after 10 years of 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.

A Treasury spokesman said the Office of Foreign Assets Control (OFAC) engaged with Exxon's lawyers only, and "did not discuss this case with Secretary Tillerson."

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

Exxon 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 "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 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 Department representative's comments did not address Exxon's conduct. BP did not immediately respond to a request for comment.

Publicly available guidance on the 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.

And by dealing with Sechin, the company "caused significant harm" to U.S. sanctions on Russia, the agency said.

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

"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."

Exxon said that approach would have flown in the face of standard business practice.

"You don't ask your business partner to have someone else sign instead of the CEO," said Exxon spokesman Jeffers.

Opposition to sanctions

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 U.S. sanctions on the country.

"When sanctions are imposed, they by their design are going to harm American business," Tillerson said during the hearing, in response to a question about his views on them.

He also said that Exxon "never directly lobbied against sanctions," a claim that was immediately challenged by senators who cited Exxon's own lobbying disclosure forms.

Source: TRTWorld and agencies