What Does ‘Services’ Mean? U.S., Exxon Spar on Meaning of Russian Sanctions

(Bloomberg) -- U.S. Treasury Secretary Steven Mnuchin said Exxon Mobil Corp. is warping the definition of “services” to dodge a claim that it violated Ukraine-related sanctions in 2014 by striking a series of oil and gas deals with a powerful ally of Russian President Vladimir Putin.

Exxon is using an “overly narrow understanding” of the word to justify doing business with Moscow-based Rosneft PJSC while its chief executive officer, Igor Sechin, was on the Treasury's list of sanctioned Russian nationals, the department said in a filing Monday in federal court in Dallas.

The dispute stems from a $2 million fine Treasury levied in 2017 against Exxon over a series of contracts the oil company reached with Rosneft in 2014, after the U.S. under President Barack Obama levied sanctions in response to Russia's invasion of Ukraine. Obama's executive order barred “the receipt of any contribution or provision of ... services” from a company or person under sanction.

Exxon sued, arguing it was being wrongfully penalized for doing business with Rosneft, which wasn't under sanction, simply because Sechin signed the deals. Citing Webster's, Exxon argued in an Oct. 21 filing that “service” is defined as “the performance of work commanded or paid for by another,” a “servant's duty” or “an act done for the benefit or at the command of another,” and said none of these definitions applied to Sechin's role.

The bottom line, Treasury's Office of Foreign Assets Control argues, is that Exxon entered into a service agreement with a sanctioned person.

“Mr. Sechin signed a contract with Exxon Mobil on behalf of his employer, which constituted an act of useful labor that did not produce a tangible commodity, but provided a benefit to Exxon Mobil,” Treasury said in Monday's filing. “This act falls within the common sense understanding of ‘service.'”

An Exxon spokesperson didn't immediately return a message seeking comment.

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Peter Jeffrey

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