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Exxon Mobil fined $2 million for violating sanctions against Russia when Rex Tillerson was CEO

Russian Prime Minister Vladimir Putin, right, and then-Exxon Mobil Chief Executive Rex Tillerson meet in Sochi, Russia, on Aug. 30, 2011. (Alexei Druzhinin / Associated Press)
Russian Prime Minister Vladimir Putin, right, and then-Exxon Mobil Chief Executive Rex Tillerson meet in Sochi, Russia, on Aug. 30, 2011. (Alexei Druzhinin / Associated Press)

Exxon Mobil Corp. showed "reckless disregard" for U.S. sanctions on Russia three years ago while Secretary of State Rex Tillerson was the oil giant's chief executive officer, the Treasury Department said Thursday. 

It fined the company $2 million, the maximum civil penalty under the law, calling the violation an "egregious case."

Exxon "is a sophisticated and experienced oil and gas company that has global operations" and should know better when it comes to U.S. sanctions, Treasury said.

The Texas-based company has denied wrong doing and indicated late Thursday that it would sue the U.S. government to block the fine.

In a statement, Treasury said Exxon had violated U.S. sanctions when it signed contracts in May 2014 with Russian oil magnate Igor Sechin, chairman of government-owned energy giant Rosneft.

The Obama administration had blacklisted Sechin, Tillerson's longtime business associate, as part of its response to Moscow's annexation of Crimea and its support for armed separatists in eastern Ukraine.

The same month Exxon signed the contracts, Tillerson said the energy company generally opposes sanctions and finds them "ineffective."

Since taking over the State Department, however, Tillerson has declared that U.S. sanctions will stay in place until the Kremlin reverses course in Ukraine and gives back Crimea to the government in Kiev.

"The U.S. and [European Union] sanctions on Russia will remain in place until Moscow reverses the actions that triggered these particular sanctions," Tillerson said this month during a visit to Ukraine.

Critics say the breach of U.S. sanctions when he led Exxon could undermine his ability to credibly enforce the sanctions on Russia and persuade European countries to keep doing so.

In a statement, Exxon complained that the $2 million fine was "fundamentally unfair" because the government was "trying to retroactively enforce a new interpretation of an executive order." 

Concerns about Tillerson's potential conflict of interest as a former oil executive dominated his confirmation hearings in January. After taking office, he recused himself from matters dealing with his former company.

The State Department said Thursday it wasn't involved in the decision to punish Exxon for violating the sanctions. It declined comment on Tillerson's role. 

"The secretary continues to abide by his ethical commitments, including that recusal from Exxon-related commitments," said State Department spokeswoman Heather Nauert.

In its announcement Thursday, the Treasury Department said Exxon's "senior-most executives" knew Sechin was on a U.S. blacklist when the presidents of two Exxon subsidiaries signed eight legal documents with Sechen in May 2014.

The Office of Foreign Assets Control, or OFAC, said Exxon caused "significant harm" to the sanctions program by engaging in transactions with a Russian government official contributing to the Ukraine crisis.

Exxon's dispute with the government involves, in part, a disagreement over whether U.S. sanctions differentiated between "professional" and "personal" interactions with Sechin, who had been blacklisted weeks before the contracts were signed.

Exxon said "clear guidance" from the White House and the Treasury Department at the time had indicated that only engaging with Sechin in a personal capacity was prohibited.

It noted that Rosneft, the Russian oil company that he headed, was not under U.S. sanctions.

But the Treasury Department rejected that argument, saying the U.S. government never gave Exxon or anyone else a reason to believe there was an exception for professional dealings.

The department noted that its sanctions website explicitly warned companies not to enter into any contracts with people on the blacklist.

In May 2014, Neil Duffin, president of subsidiary Exxon Mobil Development, signed several deals to continue work on the massive Sakhalin oil and natural gas project on Russia's eastern coast.

A photo posted on Rosneft's website shows Sechin and Duffin smiling broadly and shaking hands at a conference table with documents and a pen in front of them.

A few days later, Tillerson was publicly stated Exxon's opposition to the sanctions during his company's annual meeting.

"We do not support sanctions, generally, because we don't find them to be effective unless they are very well implemented comprehensibly and that's a very hard thing to do," he said.

As head of Exxon, Tillerson played a central role in developing the multi-billion dollar Sakhalin deal. He knew both Sechin and Russian President Vladimir Putin for more than a decade before President Trump chose him as secretary of State.

After the Obama administration imposed sanctions on Russia, Tillerson saw a direct threat to Exxon's stake in the then-promising offshore drilling project.  

Tillerson visited the White House numerous times after the sanctions were announced, but they were not lifted.

This article was originally published at 7:36 a.m.

Updated at 12:27 p.m. to include reaction from State Department. 

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