Why Exxon Was Fined $2 Million

The U.S. Treasury Department says the energy giant violated sanctions on Russia when Rex Tillerson was CEO.

Russian President Vladimir Putin, Rosneft CEO Igor Sechin, and Rex Tillerson, who was then ExxonMobil’s CEO, at a signing ceremony in Tuapse, Russia, on June 15, 2012. (Mikhail Klimentyev / RIA Novosti / Pool / Reuters )

Updated at 3:22 p.m. ET

The U.S. Treasury Department slapped a $2 million fine on ExxonMobil for violating Russia-related sanctions in 2014 when Rex Tillerson, who is now the U.S. secretary of state, was the company’s CEO. The energy giant said it was legally challenging the action.

At issue are the sanctions the U.S. imposed on Russia following its invasion in 2014 of Ukraine’s Crimea and an energy deal Exxon signed soon after that with Rosneft, the state-owned Russian oil company. Thursday’s fine is not directly related to the agreement with Rosneft, but to Exxon’s dealings with Igor Sechin, Rosneft’s CEO, who was blacklisted by the U.S. in its Ukraine-related sanctions.

Treasury’s Office of Foreign Assets Control (OFAC) said the violations occurred when “the presidents of its U.S. subsidiaries dealt in services of an individual [Sechin] whose property and interests in property were blocked … and an individual identified on OFAC’s List of Specially Designated Nationals and Blocked Persons.”

“ExxonMobil did not voluntarily self-disclose the violations,” OFAC said, adding “the violations constitute an egregious case.”

Exxon, in a filing before the U.S. District Court for the Northern District of Texas in Dallas, said OFAC was trying to “retroactively enforce a new interpretation of an executive order that is inconsistent with the explicit and unambiguous guidance from the White House and Treasury issued before the relevant conduct and still publicly available today.”

In a statement, the company called the fine “fundamentally unfair” and noted it had followed the “clear guidance” from the White House and Treasury Department at the time, adding Rosneft was not covered by the sanctions, and Sechin was part of the deal in his official capacity as the company’s CEO.

The company also said that in 2014 a Treasury Department representative had said, in the words of Exxon, “BP’s American CEO was permitted to participate in Rosneft board meetings with Sechin so long as the activity related to Rosneft’s business and not Sechin’s personal business.”

In 2015, Exxon had applied to the Obama administration for a sanctions waiver, arguing it would lose the contract with Rosneft to drill in the Black Sea if it didn’t begin work by the end of 2017. The Obama administration did not act on the application—and the Trump administration rejected it in April.

The Black Sea project wasn’t the only one affected by the U.S. sanctions. Exxon’s  Sakhlin-1 project in the Russian Arctic was also stalled following Russia’s invasion of Crimea; Rosneft is involved in that deal, as well. Tillerson, as Exxon’s CEO, has called that project one he “take[s] a lot of personal pride” in. Tillerson was also an outspoken advocate against sanctions as a tool of international disapprobation.

“We don’t find them to be effective unless they are very well implemented comprehensively, and that’s a very hard thing to do,” he said in 2014. “So we always encourage the people who are making those decisions to consider the very broad collateral damage of who are they really harming with sanctions and what are their objectives and whether sanctions are really effective or not.”

The $2 million fine is unlikely to have any real impact on Exxon’s bottom line. It beat Wall Street’s expectations in the first quarter with profits of $4 billion, or 95 cents per share; analysts had expected the company to earn 85 cents per share for the quarter.