• Court Throws Out Exxon OFAC Penalty Citing Unclear Regulations December 31, 2019
    Lindsey Roskopf - Martin Lutz Share on Facebook Share on Twitter Share on LinkedIn More Options

    On December 31, 2019, the U.S. District Court for the Northern District of Texas vacated a $2 million penalty issued to Exxon by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) for alleged violations of OFAC’s Ukraine-Related Sanctions Regulations (URSR). This ruling has been highly anticipated since Exxon challenged a Penalty Notice issued by OFAC in 2017 for prohibited dealings in the services of a blocked person. In the Penalty Notice, OFAC alleged that Exxon had dealt in prohibited services by executing documents signed by a blocked person on behalf of a non-sanctioned company. When issuing the 2017 penalty, OFAC relied heavily on a 2013 FAQ issued under the now-terminated Burmese Sanctions Regulations, which 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."

    In reaching its decision, the Court concluded that the text of the URSR did not fairly address whether a U.S. entity receives a prohibited service from a blocked person when the blocked person provides a service enabling the U.S. entity to contract with a non-blocked entity. Additionally, the Court noted that public statements by U.S. government officials about the application of the sanctions—some of which could be read to conflict—did not “create ascertainable certainty” of OFAC’s intention with respect to the URSR’s application. Finally, the Court concluded that the abovementioned FAQ did not provide fair notice of OFAC’s interpretation of the URSR because, by including a disclaimer in the URSR that “[d]iffering foreign policy and national security circumstances may result in differing interpretations of similar language among the parts of this chapter,” OFAC cannot claim that a regulated party should know that OFAC interprets the programs identically without OFAC’s explicit clarification.

    Given that OFAC has broadly interpreted the reach of its sanctions, we hope that going forward OFAC will provide greater clarity on prohibited conduct, either through its regulations or through published guidance before it pursues enforcement actions for conduct at the outer edges of a prohibition.

    Finally, although many were expecting the Court to vacate OFAC’s penalty, the decision is limited, as the Court only determined that OFAC failed to provide fair notice of prohibited conduct prior to issuing the penalty, and the Court did not ultimately reach a decision on OFAC’s interpretation that dealing in contracts signed by a blocked party on behalf of a non-sanctioned entity would constitute a prohibited service. For that reason, even where OFAC has not issued guidance indicating such conduct is prohibited, it would still be prudent for companies to avoid any dealings with blocked personnel of non-sanctioned entities.

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