Rex Tillerson, President-elect Trump’s nominee to lead the U.S. Department of State, will sit for his nomination hearing this morning. It has long been expected that Tillerson – former CEO at Exxon Mobil – will face tough questioning regarding Exxon’s ties with Russia, as well as his publicly-expressed opposition to certain U.S. sanctions. But recent news indicates Tillerson is likely to face equally hostile questioning from the Senate Foreign Relations Committee regarding Exxon Mobil’s alleged ties to Iran.

Yesterday, USA Today reported that a foreign subsidiary of Exxon Mobil – Infineum – sold more than $50 million in goods to Iran between 2003-2005 during which time Tillerson was an executive at Exxon Mobil. While USA Today cites Exxon Mobil’s claim that the trade was lawful at the time of engagement, the article nonetheless hints at something untoward about the dealings, particularly insofar as Iran was a U.S.-designated state sponsor of terrorism. Moreover, the news is being received as if Exxon Mobil (and, by implication, Tillerson himself) “circumvented” U.S. sanctions so as to give Exxon backdoor access to Iran through its foreign subsidiaries. Senator Bob Menendez (D-NJ), a consistent hawk when it comes to Iran, issued a statement expressing his “deep[] skeptici[sm] about Mr. Tillerson’s actions as CEO of Exxon that were in direct contravention to express United States policies put in place to secure Americans and our country.”

Such accusations, though, do not appear to be true, and it is important to understand why.

For more than two decades, the United States has imposed a comprehensive trade and investment embargo with Iran – the prohibitions of which are codified in the Iranian Transactions and Sanctions Regulations (ITSR), 31 C.F.R. Part 560. Pursuant to the ITSR, U.S. persons are generally prohibited from engaging in any transactions or dealings with or involving Iran or the Government of Iran, including transactions in or related to the import, export, re-export, sale, or supply of goods, technology, or services with Iran. Moreover, the U.S. trade embargo prohibits U.S. persons from facilitating transactions by foreign persons that would be prohibited by the ITSR if engaged in by a U.S. person. For purposes of the ITSR, a “U.S. person” is defined as (1) a U.S. citizen or permanent resident alien, (2) an entity organized under the laws of the United States or any jurisdiction therein (including foreign branches), or (3) any person located in the United States. This definition of a U.S. person tends to be consistent throughout all U.S. sanctions programs administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and has not been amended since the advent of the U.S. trade embargo with Iran.

This definition of a U.S. person is also critical to understanding why Exxon Mobil’s foreign subsidiary likely engaged in lawful trade with Iran between 2003-2005. That is because Exxon Mobil’s foreign subsidiary, headquartered in the United Kingdom, would not qualify as a “U.S. person” and would not be subject to the ITSR’s prohibitions (other than those that directly relate to non-U.S. person activities). In other words, provided that Infineum’s trade with Iran was otherwise consistent with U.S. sanctions regulations administered by OFAC, it would have been entirely lawful for Exxon Mobil’s foreign subsidiary to sell (non-U.S.) goods to Iran.

To be otherwise consistent with ITSR regulations, Infineum would have had to take care to ensure that there was no U.S. nexus to its Iran-related transactions. That means, for example, that Infineum could not re-export U.S. goods, services, or technology to Iran, for risk of running afoul of 31 C.F.R. § 560.205. Moreover, any U.S. person employees would have had to been walled-off from the Iran-related dealings, as well as the decision to transact with Iran in the first instance. Finally, Infineum would have needed to make the decision to trade with Iran on a basis independent of its parent Exxon, as Exxon and its executives were prohibited from (1) facilitating any transaction by Infineum that would be prohibited if engaged in directly by Exxon itself; and (2) evading or avoiding the ITSR’s prohibitions. That can prove a tough standard to bear, but none of the news reports indicate that Infineum (or Exxon) failed to meet them. Absent such indications, it would be wrong to presume wrongful behavior on the part of Tillerson.

Some have suggested that Infineum took advantage of a “loophole” in the law at the time. That is how it is commonly described, but I think unfairly. It is true that, beginning in 2012, foreign subsidiaries of U.S. parent companies were prohibited from engaging in transactions with or involving Iran or the Government of Iran. § 218 of the Iran Threat Reduction Act (TRA) mandated the President to prohibit U.S.-owned or –controlled foreign entities (e.g., foreign subsidiaries) from engaging in any transaction with Iran or the Government of Iran to the extent such transaction would be prohibited for a U.S. person. Soon thereafter, OFAC amended its regulations to add 31 C.F.R. § 560.215, which extended the ITSR’s prohibitions to U.S.-owned and –controlled foreign entities. For purposes of § 560.215, an entity is defined as such if a U.S. person (1) holds a 50 percent or greater equity interest by value or vote; (2) holds a majority of seats on the board of directors; or (3) otherwise controls the actions, policies, or personnel decisions of the entity. Provided that Exxon maintained a 50% equity interest in Infineum following the TRA’s enactment, Infineum would have been regarded as a U.S.-owned or –controlled foreign entity subject to the ITSR’s prohibitions and would have been broadly prohibited from trade with Iran, including that which it undertook in 2003-2005.

But 31 C.F.R. § 560.215 did not close a “loophole” so much as it extended U.S. sanctions prohibitions to foreign subsidiaries of U.S. parent companies. Calling it a “loophole” suggests that U.S. parent companies were making decisions on behalf of their foreign subsidiaries to permit backdoor access to the Iranian market. That is untrue, as the ITR prohibitions on evasion and facilitation would have limited U.S. parent company involvement in the decisions of foreign subsidiaries to trade with Iran.

Perhaps the most interesting part of this, though, is the fact that – as part of its JCPOA commitments – the United States has effectively eviscerated the prohibition at 31 C.F.R. § 560.215 and has returned to the pre-2012 status quo, only this time with the express authorization for foreign subsidiaries of U.S. parent companies to trade with Iran with limited exceptions. Under General License H, issued on JCPOA Implementation Day, U.S.-owned or –controlled foreign entities are authorized to engage in transactions with Iran or the Government of Iran that would be otherwise prohibited by 31 C.F.R. § 560.215. While we are likely to hear certain Senators decry Infineum’s trade with Iran back in 2003-2005 as contrary to “express U.S. policies” – whatever those were, as they were not reflected in the law at the time – few, if any, will recognize that current U.S. policies dictate in favor of such trade. Due to the traditional non-combativeness of nominees, it is unlikely that Tillerson will mention this elemental point, either.

In sum, then, while news that a foreign subsidiary of Exxon Mobil engaged in trade with Iran during Tillerson’s reign sounds explosive, a deeper dig into the background law indicates that – absent evidence that Exxon and its executives participated in Infineum’s decision to trade with Iran – this whole episode is a non-story. Infineum was able to lawfully trade with Iran at the time, as U.S. sanctions regulations did not cover its activities but only those of its parent; and Rex Tillerson is not culpable for such trade unless evidence can be presented showing his involvement therein.