COMMENTARY: OFAC lays down a marker

Fine against ExxonMobil shows that individuals can cause U.S. export control violations

By: Chris Gillis
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Photo: Drop of Light / Shutterstock.com
   The Treasury Department’s Office of Foreign Assets Control (OFAC) recently took ExxonMobil Corp. to task for entering into an illicit deal with a Russian businessman who is named on its Specially Designated Nationals (SDN) list, a violation of the Ukraine-Related Sanctions Regulations.
   On March 16, 2014, President Barack Obama issued an executive order that authorized OFAC to block U.S. business dealings with select Russian government officials as punishment for Russia’s military incursion into eastern Ukraine. One of those names added to the SDN list on April 28, 2014, was Igor Sechin. Once an individual is placed on this list, U.S. persons or companies are generally prohibited from conducting any business whatsoever with him or her.
   On May 8, 2014, ExxonMobil entered a business arrangement involving eight oil and gas projects with Rosneft OAO. The documents were signed by none other than Igor Sechin, Rosneft’s president.
   ExxonMobil claimed that it interpreted statements in the media at the time as establishing a distinction between Sechin’s “professional” and “personal” capacity, which OFAC said had nothing to do with the conduct in this case.
   OFAC asserted in fact that “no materials issued by the White House or the Department of the Treasury 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.”
   Digging deeper, OFAC highlighted a set of frequently asked questions related to the Burma sanctions program in 2013. Specifically, FAQ no. 285 said that U.S. parties should be “cautious in dealings with [a non-designated] entity to ensure that they are not providing funds, goods, or services to the SDN, for example, by entering into any contracts that are signed by the SDN.”
   And, according to OFAC, this applied to the case of ExxonMobil allowing Sechin to sign its oil and gas project documents.
   OFAC determined that ExxonMobil did not self-disclose the violations to the agency and said the violations by the oil and gas giant “constitute an egregious case,” resulting in a civil penalty of $2 million. Furthermore, OFAC said ExxonMobil in this case demonstrated “reckless disregard” for U.S. sanctions, the company’s senior-most management—presumably including former Chief Exdcutive Officer and now U.S. Secretary of State Rex Tillerson—knew of Sechin’s status as an SDN when conducting the deal, and the company should have known better in this case since it routinely conducts international deals in goods, services and technology which are subject to U.S. sanctions and export controls.
   While a $2 million penalty is a drop in the bucket for a multibillion-dollar behemoth like ExxonMobil, it can be a serious financial setback to smaller U.S. exporters who become ensnared in similar OFAC violations when conducting business in Russia.
   OFAC has demonstrated in this recent case against ExxonMobil that it will not tolerate violations of the SDN—whether they be personal or professional.
   Paul DiVecchio, principal of Boston-based export regulatory consultancy DiVecchio & Associates, warned that the enforcement action taken by OFAC sets a significant precedent for how extensive “restricted party” screening must be considered by U.S. parties.

The enforcement action taken by OFAC sets a significant precedent for how extensive 'restricted party' screening must be considered by U.S. parties.

   “This action taken by OFAC against ExxonMobil demonstrates that any U.S. party (or its affiliates), conducting business with any international customer, vendor, or partner has to consider performing ‘restricted party screening’ of those parties that are signatory to the deal,” he said. “Failure to do so increases the risk of violating OFAC’s regulations.”
   OFAC this week also added 13 persons associated with Venezuela’s President Nicolas Maduro to the SDN list. “This OFAC restriction is not singular to the Russian/Ukrainian sanctions,” DiVecchio said. “It applies to any listed party in any country.”