Russian President Vladimir Putin and then-ExxonMobil chief executive Rex Tillerson, right, attend a signing ceremony of an agreement between state-controlled Russian oil company Rosneft and Exxon Mobil corporation in 2012. At left is the CEO of Rosneft OAO, Igor Sechin. (AP Photo/RIA-Novosti)

Two of President Trump’s most senior cabinet members became embroiled Thursday in an unusual legal battle over whether ExxonMobil under Secretary of State Rex Tillerson’s leadership violated U.S. sanctions against Russia.

Treasury officials fined ExxonMobil $2 million Thursday morning for signing eight business agreements in 2014 with Igor Sechin, the chief executive of Rosneft, an energy giant partially owned by the Russian government. The business agreements came less than a month after the United States banned companies from doing business with him.

Hours after the fine was announced, Exxon filed a legal complaint against the Treasury Department -- naming Treasury Secretary Steven Mnuchin as the lead defendant -- while calling the actions “unlawful” and “fundamentally unfair.”

Trump sought to stack his cabinet with titans of industry, hoping that their corporate expertise would help them confront global problems.

But this new entanglement shows the flipside of such an arrangement. Cabinet secretaries may bring into office unresolved questions about corporate practices that are now subject to scrutiny by the government they help run. In this case, an agency led by one of Trump’s top advisers is alleging improper behavior from a company that was run by another.

Former ExxonMobil CEO Rex Tillerson, President-elect Trump's nominee for secretary of state, outlined the process by which he is divesting himself from his business interests in preparation for serving as a Cabinet appointee, during his confirmation hearing on Jan. 11 at the Capitol. (Reuters)

“I can’t think of another case where that’s happened, where you’ve had a senior government official on both sides of the ‘v,’ essentially,” said Adam Smith, a former top official in the Treasury Department’s Office of Foreign Assets Control.

The Treasury Department informed Deputy Secretary of State John Sullivan of the impending Exxon fine, and he told Tillerson, State Department spokeswoman Heather Nauert said. That chain was in keeping with Tillerson’s promise to recuse himself from anything involving Exxon, she said.

“The secretary recused himself,” she said. “He is living up to the ethical commitments he agreed to when he became secretary of state.” The State Department declined to answer questions over whether Tillerson was involved in the 2014 business deals with Rosneft.

“There’s not a whole lot that we can say about this right now,” said Nauert, when asked whether Tillerson would address the matter in person. She referred further questions to the Treasury.

A Treasury spokesman said Tillerson did not personally sign the documents sealing the agreements with Rosneft.

But in its announcement, the Treasury said top Exxon officials showed a “reckless disregard for” the sanctions against Sechin, adding that the company’s “senior-most executives knew of Sechin’s status” and that they “caused significant harm to the Ukraine-related sanctions” by engaging in business agreements with him.
Tillerson and Sechin have had a long-standing relationship, which was critical for ExxonMobil’s ability to maintain its access to Russia’s lucractive oil industry.

The eight business deals were signed when Tillerson was chief executive of ExxonMobil, a role he recently described as “the ultimate decision-maker.”

The $2 million fine represents a tiny fraction of Exxon’s earnings, but it could complicate ExxonMobil’s future dealings with Rosneft, one of the largest energy companies in the world, which Sechin still leads.

The sanctions against Sechin were part of a broader set of actions meant to economically isolate Putin and the Russian government following its support for separatists in Ukraine and the annexation of Crimea. When the measures were announced, Treasury said Sechin in particular “has shown utter loyalty to Vladimir Putin — a key component to his current standing.”

The sanctions applied only to Sechin, not his company. Rosneft and the Russian Embassy did not respond to a request for comment.

ExxonMobil didn’t deny that it entered into the business agreement with Sechin, but it says that guidance from the Obama administration at the time allowed such an arrangement. It also argued that it reached agreements with Sechin in his role as the head of Rosneft and not in a personal capacity.

"Tillerson as a major CEO almost certainly know Sechin was on the blacklist," said Cliff Kupchan, chairman of the Eurasia Group, which analyzes business risk. "The question is whether OFAC issued clear guidance on whether deals with Rosneft were off limits."

In the company’s legal complaint against Mnuchin and the Treasury, ExxonMobil also called the Treasury’s allegations “arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law.”

Treasury had instituted the sanctions against Sechin on April 28, 2014, when it said “transactions by U.S. persons or within the United States involving the individuals and entities designated today are generally prohibited.”

At the time, Tillerson told reporters that the new U.S.-imposed sanctions would not impact Exxon’s relationship with the Russian oil giant.

“There has been no impact on any of our business activities in Russia to this point, nor has there been any discernible impact on the relationship” with Rosneft, Tillerson said at the time, according to the Associated Press. “The organizations continue to work business as usual.”

President Trump selected Tillerson to serve as his first secretary of state, even though the two had no history together.

Tillerson faced scrutiny from lawmakers in both parties because of his close ties to Putin and past business dealings in Russia, but he was confirmed for the cabinet position by a 56-to-43 vote. In 2013, Tillerson won an award from the Russian government called the “Order of Friendship” after signing deals with Rosneft that began a drilling program in the Arctic’s Kara Sea.

Trump selected Tillerson to be his only adviser during a two-hour and fifteen minute meeting with Putin earlier this month in Hamburg, Germany, and Tillerson said both men had immediate chemistry during the conversation at a briefing later with reporters. At that briefing, Tillerson stood beside Mnuchin and they both addressed the media together.

Trump has faced scrutiny for his efforts to improve relations with Putin, and he has raised questions about U.S. intelligence assessments that found Russia launched a cyberattack campaign to help Trump win the election.

David Mortlock, a partner at Willkie Farr & Gallagher who works on international transcations issues, said the fine from Treasury and the legal complaint filed immediately by Exxon marked a highly unusual chain of events, but he said the company was likely trying to protect its reputation in part because of its extensive international business dealings.

“Compliance with sanctions and whether you have an enforcement action against you really does affect a company’s credibility,” he said. “And it’s certainly something companies prefer to avoid.”