January, 2020 …..Texas court rules OFAC guidance unclear and reverses $2m penalty.

Exxon Mobil wins OFAC suitExxon Mobil has won a rare court victory in an equally rare appeal against the US Office of Foreign Assets Control (‘OFAC’). The firm’s success hung on whether existing OFAC guidance constituted clear ‘fair notice’ of illegal action. However, many commentators expect OFAC to appeal the decision, and to clarify its guidelines going forward.

On 31 December, a $2m OFAC penalty notice against Exxon Mobil was vacated by a federal court in Texas. Issued for violating Ukraine-related sanctions, the penalty was reversed on the grounds that OFAC had failed to provide fair notice that Exxon Mobil’s actions were prohibited.

These actions involved eight contracts signed in May 2014 by Igor Sechin, president and chair of Russian oil and gas giant Rosneft. OFAC had labelled Sechin a Specially Designated National (‘SDN’) in March 2014.

The contracts Sechin signed referenced ongoing work previously agreed between Exxon Mobil subsidiaries and Rosneft. At issue was whether Rosneft (merely represented by Sechin in his professional capacity) had signed the contracts, or if Sechin had instead signed in his capacity as an SDN.

According to the Texas court’s ruling, OFAC’s guidance on this issue was unclear. In a 2013 FAQ, OFAC had answered a question about the US’s Burma sanctions programme (discontinued in 2016) by advising US persons to ‘be cautious … to ensure that they are not, for example entering into any contracts that are signed by the SDN’.

Although OFAC claimed this FAQ constituted fair notice of a potential violation because the sanctions programme it referred to was largely identical to the later Ukraine scheme, the court agreed with Exxon Mobil’s claim that because the FAQ was specific to the Burma sanctions programme, it did not apply to the Ukraine sanctions. In addition, Exxon Mobil pointed out that OFAC’s own regulations say that different sanctions programmes may be interpreted differently.

‘While OFAC may reserve the opportunity to interpret sanctions programs differently, it may not then claim that a regulated party should know that OFAC interprets the programs identically without OFAC’s explicit clarification,’ the judgment said.