Court Vacates $2 Million Sanctions Penalty Notice Against ExxonMobil

A Texas federal court vacated a $2 million penalty imposed on ExxonMobil by the Treasury's Office of Foreign Assets Control for sanctions violations, in a decision issued Dec. 31. The Northern Texas U.S. District Court ruled that OFAC did not provide ExxonMobil “fair notice that their conduct was prohibited.” The decision stems from a lawsuit filed in August (see 1908280031) against OFAC, in which ExxonMobil alleged its business dealings with Rosneft, the Russian oil company owned by sanctioned oligarch Igor Sechin, did not warrant a sanctions penalty.

Although ExxonMobil challenged OFAC’s penalty because it said OFAC's regulations did not “prohibit Exxon’s conduct” and that OFAC “drew arbitrary and capricious distinctions by imposing the penalty,” the court did not issue formal rulings on those allegations. Instead, it chose only to rule on whether ExxonMobil received “fair notice in accordance with the Due Process Clause of the Fifth Amendment.” The court found that the text of the sanctions regulations “does not provide fair notice of its interpretation” and fails to “address what constitutes a ‘receipt’ of services,” an action that OFAC said led to the sanctions violation.

“Do the Regulations prohibit any incidental receipt of a benefit resulting from the services … [o]r do the Regulations limit 'receipt' to circumstances in which a [Specially Designated National’s] services are aimed at benefiting a U.S. person?” the court said. “The distinction is subtle, but it is nonetheless meaningful.”

The court referenced several statements and releases issued by the U.S. government that seemed to indicate that ExxonMobil had reason to believe its dealings with Rosneft were legal. In one instance, the court said, the White House issued a fact sheet about Ukraine-related sanctions that said, “Our current focus is to identify these individuals and target their personal assets, but not companies that they may manage on behalf of the Russian state.” In another instance, the Treasury Department noted that Rosneft had “not been sanctioned,” and the White House later said, “We are imposing sanctions on Sechin ... individually,” which gave ExxonMobil reason to believe that Rosneft was not sanctioned.

The court did suggest that ExxonMobil could have done more to seek guidance from OFAC. But the burden of providing fair notice remained with the agency, not the regulated party, the court said, even though it suggested ExxonMobil was not faultless. “The Court considers Exxon’s failure to seek guidance from OFAC as a relevant -- though not dispositive -- factor in assessing whether Exxon received fair notice of OFAC’s interpretation of the Regulations,” the ruling said. It also said “Exxon’s decision to proceed with the contracts absent guidance from OFAC was risky -- and perhaps imprudent. But this factor does not overcome others suggesting a lack of fair notice.”

The court concluded that OFAC issued regulations with “broad language that fails to delineate their boundaries.” A company “acting in good faith would not ‘be able to identify, with ‘ascertainable certainty,’ the standards with which [OFAC] expects parties to conform,” the court said. Treasury did not respond to a request for comment.

Treasury will likely appeal the ruling, trade lawyer Doug Jacobson said, and may argue that ExxonMobil should have sought clearer guidance. “It's possible that the appeals court could take the position that Exxon acted imprudently.” Jacobson said. “I don't think this is the end of the story by any means.”