The U.S. District Court for the Northern District of Texas vacated a civil penalty imposed by OFAC against Exxon Mobil Corporation, ExxonMobil Development Company and ExxonMobil Oil Corporation (collectively, "ExxonMobil") for allegedly violating Ukraine-related sanctions.
In July 2017, OFAC issued a Penalty Notice to ExxonMobil, including a $2 million fine, for executing eight contracts with the Russian oil company Rosneft in May 2014. Although Rosneft was not a blocked entity, Rosneft's chief executive Igor Sechin - who signed the contracts - was a Specially Designated National ("SDN"). ExxonMobil challenged the penalty in Court on the same day that OFAC issued its Notice.
The Court ruled that OFAC did not provide "fair notice" of its interpretation of the Ukraine-related sanctions regulations. In particular, the Court found that OFAC had issued the Ukraine-related regulations with "broad" language that failed to establish sufficiently clear boundaries. Moreover, public statements from executive branch officials leading up to the issuance of the regulations in May 2014 were "equivocal" with respect to the permissibility of ExxonMobil's conduct. The Court also noted that OFAC issued a FAQ explicitly prohibiting ExxonMobil's conduct after the company's alleged violations had taken place, and cited this guidance as "at least some support" for its conclusion that the regulations' text itself failed to provide "ascertainable certainty."
Commentary
No one should draw the lesson from ExxonMobil's courtroom victory that it is permissible to enter into contracts with an SDN acting on behalf of a non-sanctioned entity - it is not, as OFAC has made abundantly clear in the years since ExxonMobil's alleged violations took place. What is less clear is how the decision might affect the issuance of OFAC guidance going forward. Indeed, the Court cited an OFAC FAQ as "at least some support" for the conclusion that the text of the agency's regulations, standing alone, did not provide ascertainable certainty that conduct such as ExxonMobil's would be prohibited. It is hoped that this will in no way dissuade OFAC from issuing much-needed guidance on its many and varied sanctions programs in the future.
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