By Samuel Rubenfeld, Lynn Cook and Ian Talley 

WASHINGTON -- The U.S. Treasury Department on Thursday imposed a $2 million fine on Exxon Mobil Corp. for what it called a "reckless disregard" of U.S. sanctions on Russia while Secretary of State Rex Tillerson was the oil giant's chief executive, a finding the company immediately said it would challenge.

Exxon, under Mr. Tillerson, in early 2014 deepened the company's longstanding partnership with the Kremlin despite Washington levying fresh sanctions against Russia for seizing territory in eastern Ukraine. In May of that year, the Treasury Department said the company signed eight documents relating to oil and gas projects in Russia that were also signed by Igor Sechin, chief executive of the state oil giant PAO Rosneft. Treasury said Thursday those deals violated U.S. sanctions against Mr. Sechin, a former Russian intelligence officer and top ally to President Vladimir Putin.

Mr. Tillerson, who had close business ties to Russia and received an "Order of Friendship" award from Moscow, left Exxon last year to become U.S. Secretary of State. The $2 million fine, Treasury said, was the maximum amount it could levy against the company.

A spokesman for Exxon called the fine "outrageous" and said it would fight the Treasury's findings, saying they are a 180-degree turn from previous guidance handed down by the Obama administration when the sanctions were enacted. Treasury's sanctions unit started its probe of the alleged sanctions violation several years ago. Exxon said it was first notified in 2015 by Treasury's sanctions unit, the Office of Foreign Assets Control, that it had violated sanctions regarding its interactions with Mr. Sechin. In a filing in a Texas court Thursday, the company said it had challenged the notification about a month later.

Exxon doesn't have any direct deals with Mr. Sechin, but does have business dealings with Rosneft, where Mr. Sechin signed company documents in his capacity as CEO, Exxon said. According to the company, under President Barack Obama, the White House and Treasury in 2014 said U.S. companies were allowed to participate in business dealings with Mr. Sechin if they were professional, not personal.

On Thursday afternoon, the Irving, Texas-based company filed a complaint in U.S. District Court in the Northern District of Texas, seeking to toss the fine. In a court filing, Exxon said the sanctions unit "seeks 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."

The Justice Department declined to comment about Exxon's legal challenge.

The U.S. Treasury said in an enforcement notice against Exxon that the company showed "reckless disregard for U.S. sanctions requirements" when failing to consider the warning signs associated with dealing in the blocked services of someone under U.S. sanctions. The Treasury unit said one of the "aggravating factors" it considered was that Exxon is a globally sophisticated company that routinely deals with sanctions compliance concerns.

The Thursday notice said: "No materials issued by the White House or the Department of the Treasury asserted an exception or carve-out for the professional conduct of designated or blocked persons, nor did any materials suggest that U.S. persons could continue to conduct or engage in business with such individuals."

When Mr. Tillerson took his position in President Donald Trump's cabinet this year, he promised to recuse himself from matters involving Exxon for one year. He has stood by the current sanctions regime. In Ukraine earlier this month, Mr. Tillerson said the U.S. sanctions on Russia -- imposed along with sanctions from the European Union -- would remain "until Moscow reverses the actions that triggered these particular sanctions."

Mr. Tillerson, as Mr. Trump's top diplomat, has been leading administration efforts to improve relations with Russia.

"This is a big black eye for Tillerson," said Anders Åslund, a senior fellow and Russia expert at the Atlantic Council, a Washington think tank and Russia critic.

Though the State Department referred most questions about this specific matter to Exxon, spokeswoman Heather Nauert said Thursday that Mr. Tillerson is committed to the objectives of the Ukraine-related sanctions. She said the State Department wasn't involved with the decision to fine Exxon. She said Mr. Tillerson is "living up to his ethical commitments," including his recusal from Exxon-related matters.

Rosneft spokesman Michael Leontiev said signing an agreement with Mr. Sechin not as an individual, but as a representative of Rosneft management, can't be the foundation for a sanctions violation. "I am sure that while Exxon was preparing the decision about documents signing it consulted with both OFAC and lawyers specialized on sanctions very carefully," he said.

The penalty comes as committees in the Senate and House of Representatives, as well as a Justice Department special counsel, investigate what U.S. intelligence agencies say was a Kremlin-backed campaign to interfere in the presidential election, and whether there was any collusion between the Trump campaign and Russia. Russia has denied meddling and Mr. Trump has denied any collusion.

"ExxonMobil caused significant harm to the Ukraine-related sanctions program objectives by engaging the services" of a sanctioned entity, Treasury said.

Exxon applied to the Treasury Department for a partial waiver from Russia sanctions in 2015. The application was never acted upon at that time but was again circulating among government departments earlier this year. The Trump administration said it wouldn't grant the waiver in April, two days after the application was reported by the Journal.

Exxon and other big energy companies also recently joined Mr. Trump in voicing concerns about congressional efforts to toughen sanctions on Russia, arguing that it could shut down oil and gas projects around the world that involve Russian partners. Mr. Tillerson opposed ramped-up sanctions being considered in Congress, saying the White House needs flexibility on the matter.

Lobbyists for Exxon told lawmakers in recent weeks that several provisions in the sanctions legislation under consideration on Capitol Hill are worrisome, including measures to prohibit partnerships with Russian individuals.

--Felicia Schwartz contributed to this article.

Write to Samuel Rubenfeld at samuel.rubenfeld@wsj.com, Lynn Cook at lynn.cook@wsj.com, Ian Talley at ian.talley@wsj.com

 

(END) Dow Jones Newswires

July 20, 2017 20:33 ET (00:33 GMT)

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