On July 20, 2017, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) assessed a $2,000,000 civil monetary penalty against ExxonMobil Corp., including its U.S. subsidiaries ExxonMobil Development Co. and ExxonMobil Oil Corp., for violating § 589.201 of the Ukraine-Related Sanctions Regulations, 31 C.F.R. Part 589. Upon receiving the civil monetary penalty, ExxonMobil and its subsidiaries filed a lawsuit in the U.S. District Court for the Northern District of Texas challenging OFAC’s finding of a violation and assessment of the penalty as unlawful under the Administrative Procedure Act (“APA”).
OFAC’s finding is based on a fairly straightforward argument: ExxonMobil’s U.S. subsidiaries signed eight (8) legal documents related to oil and gas projects in Russia with Igor Sechin, the President of Rosneft, at a time in which Sechin was designated under Executive Order (E.O.) 13661. As a result, ExxonMobil is alleged to have dealt in the services of an individual whose property and interests in property were blocked in violation of § 589.201, which prohibits dealing in any property and interests in property of such blocked persons. As OFAC notes in its Notice, the Ukraine-Related Sanctions Regulations defined “property and interests in property” to include “services of any nature whatsoever, contracts of any nature whatsoever, and any other property, real, personal, or mixed, tangible or intangible, or interest or interests therein, present, future, or contingent.” Engaging the services of a blocked person – i.e., signing a contract with such individual – is thus an effective “dealing” in the property and interests in property of such person. That much appears clear to me, as it does to others engaged in the practice of U.S. economic sanctions administered by OFAC. (Whether that was clear as a matter of fact, or whether OFAC itself had a clear idea as to the scope of the prohibition at § 589.201 at all relevant times, is the very subject of controversy in ExxonMobil’s lawsuit. This will be discussed in a later post following full briefing.)
What is less apparent to me, though, is the basis for OFAC’s appeal to a Frequently Asked Question (FAQ) formerly located in the Burma Sanctions section of OFAC’s website. According to OFAC’s Notice, “at the time of [ExxonMobil’s] violations,” there was an FAQ “publicly available on the OFAC website…that specifically spoke to the conduct at issue in this case, though framed in the context of the Burma sanctions program.” Specifically, FAQ #285 “stated 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.” Here is the actual FAQ, which has since been removed following the end of the Burma Sanctions Regulations;
285. If a Burmese Government minister is an SDN, how does that impact the ministry he leads?
A government ministry is not blocked solely because the minister heading it is an SDN. U.S. persons should, however, be cautious in dealings with the ministry to ensure that they are not, for example, entering into any contracts that are signed by the SDN. [03-18-13]
OFAC has not found it appropriate for parties to utilize the definitions and interpretations of a given sanctions program and apply those definitions and interpretations to an entirely separate sanctions program, unless directed to do so by OFAC. Indeed, the § 101 of almost all sanctions programs contained in Chapter V of 31 C.F.R. expressly states that “[d]iffering foreign policy and national security contexts may result in differing interpretations of similar language among the parts of this chapter.” Yet, in this case, OFAC argues that ExxonMobil had prior notice as to the scope of application of the prohibition at § 589.201 due to the existence of an FAQ specific to the Burma Sanctions Regulations.
That appears entirely inappropriate. If OFAC wanted to provide cross-programmatic guidance regarding the prohibition against “entering into any contracts that are signed by [an] SDN,” then it knew how to do so. (For instance, OFAC has recently issued Cross-Programmatic Compliance Services Guidance.) Indeed, to the extent that the Burma FAQ’s existence matters at all, the absence of such express guidance in the context of Part 589 may work against — not for — OFAC.