This past July, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) announced two major fines for sanctions violations
On July 20, 2017, OFAC announced a $2 million fine levied against ExxonMobil Corp. and its subsidiaries for violations of the Ukraine-Related Sanctions Regulations. ExxonMobil had allegedly violated the sanctions by signing documents related to oil and gas projects in Russia with Igor Sechin, President of Russian oil company Rosneft OAO. Sechin was listed on OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”).
The same day, ExxonMobil launched a legal challenge to the fine, arguing that the company had followed authoritative and specific guidance from the Obama administration that OFAC had retroactively changed a year later. In particular, it claimed White House and Treasury Department officials had repeatedly said sanctions involving Sechin applied only to his personal affairs, and not to companies that he managed or represented, citing both a White House Fact Sheet issued in March of 2014 and May 2014 statements by a Treasury Department spokesperson. ExxonMobil claimed it was notified two months later (after signing of the agreements in question) that OFAC was developing its own policy, and was then issued a pre-penalty notice in 2015.
OFAC noted in its enforcement release that ExxonMobil had raised similar claims prior to the legal challenge, but said among other things that the statements relied on did not address the conduct in this case and that the plain language of the Regulations did not contain a “personal” vs. “professional” distinction.
CSE TransTel Pte. Ltd.
On July 27, 2017, CSE TransTel Pte. Ltd., a subsidiary of Singapore-based technology group CSE Global, agreed to pay $12,027,066.00 to settle potential civil liability for 104 alleged violations of the International Emergency Economic Powers Act and the Iranian Transactions and Sanctions Regulations. The charges related to allegations Transtel caused at least six financial institutions to engage in unauthorized exportation or re-exportation of financial services from the U.S. to Iran. Transtel allegedly originated 104 USD wire transfers totaling more than $11,111,000.00 involving Iran, with all transfers being processed through the U.S. None of the transactions contained references to Iran, Iranian projects or any Iranian parties.
OFAC cited a number of aggravating factors to the violation, including that: (i) TransTel did not voluntarily self-disclose, (ii) it “willfully and recklessly” caused the apparent violations, (iii) its then-senior management had knowledge of and played an active role in the violations, (iv) its actioned conveyed significant economic benefit to IRAN or SDN-listed persons, and (v) it was a commercially sophisticated company engaged in multiple countries. As mitigating factors, OFAC cited that TransTel had not received a penalty notice, that it had undertaken remediation and that it had substantially cooperated during OFAC’s investigation.
OFAC sanctions and regulatory enforcement
The ExxonMobil and CSE TransTel actions serve as a reminder of the potential pitfalls of dealing with parties subject to sanctions lists. Transactions by U.S. persons or within the United States involving individuals or entities on the SDN list are prohibited. Global Affairs Canada maintains a similar system, including prohibiting trade and other economic activity with certain foreign markets, restricting financial transactions such as foreign investments or acquisitions, and allowing for seizure of property situated in Canada. Both the U.S. and Canadian regimes may apply to countries generally or to designated individuals.
The ExxonMobil case is also interesting both for the ability of corporations to rely on government guidance and for the prospect of defending regulatory action through an independent lawsuit. If ExxonMobil did indeed rely on guidance from the White House and Treasury Department in making a determination that it was onside sanctions law but the fine is nonetheless upheld, this should be seen as a warning for companies in the future looking to similarly rely on government guidance. Similarly, depending how the evidence bears out, the case may well be interesting in how it vindicates or dismisses ExxonMobil’s strategy of defending regulatory enforcement through an independently filed lawsuit.
Canadian companies should be careful to avoid transacting with countries or individuals to whom sanctions apply, both because they are subject to Canadian restrictions and because the U.S. laws will be applicable in certain circumstances. As discussed above, U.S. sanctions apply to U.S. persons or transactions within the United States. This would include transactions flowing through U.S. banks, and jurisdiction may be established even through transactions using U.S. currency. Companies may also be subject to positive obligations under Canadian legislation; for instance, Canadian law involves certain reporting requirements for holdings and activities in relation to targeted individuals and entities. Companies doing business in countries which may be subject to sanctions restrictions should be live to the issue, and seek advice from counsel where necessary to determine whether a particular dealing may constitute a violation.