OFAC Issues Max $4.6M Penalty Against Real Estate Investor for Russia Violations

The person, who OFAC doesn’t name, worked for Atlanta real estate investment firm King Holdings LLC and “concealed” the sale from OFAC, selling the home to a buyer for $1.4 million despite an OFAC cease-and-desist letter, the agency said. OFAC said the violations represented an "egregious” case and weren’t voluntarily disclosed.

The Treasury Department said the case highlights the “obligation of all U.S. persons, including individual investors and others in the real estate sector, to comply with OFAC’s sanctions regulations and orders” and “results from OFAC’s proactive efforts to identify and prevent dealings in the blocked property of sanctioned individuals.”

The violations began after OFAC asked Georgia authorities to record a public document “detailing the restrictions on dealings with the property.” Despite those restrictions, the property went into foreclosure around October 2022, OFAC said.

The agency said King Holdings bought the property at a public auction in January 2023. Even though the firm bought the property, it still remained blocked under OFAC’s regulations, the agency said, “which generally render null and void any unlicensed transfer of blocked property.”

After learning of the foreclosure and the sale of the home, OFAC said it contacted the King Holdings investor and explained that the property remained blocked and “could not be dealt in” without an OFAC license. But neither the investor nor King Holdings applied for a license or sought "further information” from OFAC, and they continued their plan to renovate and sell the property despite knowing it was still blocked.

Ten days after they spoke with OFAC, the King Holdings employee signed a $872,338 mortgage against the property to finance its renovation, attesting that “all payments related to the loan were compliant with OFAC’s regulations.” King Holdings listed the property for sale after the renovations, eventually selling it to an “unwitting” buyer for $1.4 million.

“Despite the agreement’s warranty that the seller was conveying ‘good and marketable title’ to the property,” the King Holdings employee “did not inform the buyer, the closing law firm, or any other party involved with the sale of OFAC’s communications” that explained its blocked status, the agency said.

Before closing on the sale, OFAC sent King Holdings a cease-and-desist order and a subpoena, which requested information on all dealings involving King Holdings and the blocked property since January 2023. The King Holdings employee responded to the subpoena and “certified under penalty of perjury the accuracy and completeness of the subpoena response,” but they didn’t mention in their response that they had listed the home for sale.

King Holdings, through its lawyer, also certified to OFAC that the person was in compliance with the terms of the cease-and-desist order, the agency said. But eight days later, the King Holdings employee violated the order by selling the property to the buyer, earning them “at most $478,000.”

OFAC said it settled on a $4,677,552 fine -- the statutory maximum for this case -- because the King Holdings employee “acted willfully by dealing in the blocked property for nearly a year after receiving clear and actual notice from OFAC” that those activities needed a license. OFAC also noted that the person submitted a subpoena response “that was inaccurate and incomplete,” their “dealings in the property for nearly a year constituted a pattern of violative conduct,” they exposed other people to “potential economic harm and legal liability,” they “significantly damaged the integrity of OFAC’s sanctions,” and they failed to cooperate with OFAC’s investigation.

OFAC pointed to no mitigating factors.

The case shows that sanctioned parties can sometimes have “indirect” interests in property, and their name may not always appear on deeds or in transactional documents. “At the time of the foreclosure that occurred in this case, the blocked person’s name appeared directly on the property title, and after the foreclosure, researching the previous property owners’ names would have identified” OFAC’s Specially Designated Nationals List, OFAC said,

“Regardless of the nature of such blocked property interests, all parties involved in real estate transactions -- including financial institutions, brokers, agents, title insurers, law firms, registrars, and county authorities -- should exercise appropriate caution and conduct risk-based due diligence to avoid dealing in blocked property,” OFAC said. That should include screening parties against the SDN List, the agency said.

“Proactive compliance efforts are likely to be particularly beneficial to real estate market participants in light of the nullification of unauthorized transfers of blocked property that may occur under many OFAC sanctions programs, which can affect third-party claims to the property.”

King Holdings couldn’t be reached for comment.