OFAC Imposes Near-Max Penalty for Payments Tied to Sanctioned Russian Oligarch
The Office of Foreign Assets Control this week announced a $7.1 million penalty against a New York-based property management firm for receiving payments from another company owned by sanctioned Russian oligarch and metals industry magnate Oleg Deripaska. OFAC said the New York company, Gracetown, Inc., failed to report the blocked assets to OFAC for 45 months after the agency notified the firm that the payments risked violating U.S. sanctions.
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Although Gracetown eventually disclosed the alleged violations, OFAC said it didn’t give the company credit because the agency “had already become aware of the violative conduct.” OFAC fined the company $7,139,305, just under the statutory maximum amount.
John Hurley, Treasury’s undersecretary for terrorism and financial intelligence, said the agency “will act firmly against those who ignore our sanctions and aid our adversaries.”
OFAC said Gracetown was created in 2006 to manage three luxury real estate properties in New York and Washington, D.C., which Deripaska bought around the same time through “various legal vehicles.” The agency also said Deripaska owned Gracetown from 2006 to 2018, the year he was sanctioned for operating in Russia’s energy sector, at which time one of his relatives became the owner.
The alleged violations involved payments Gracetown received from Baufinanz, a British Virgin Islands-based company also owned by Deripaska. In 2013, OFAC said Baufinanz entered into a settlement agreement with an unrelated U.S. person over a loan dispute, and under the settlement, Gracetown received regular monthly payments from the U.S. person that were due to Baufinanz.
That same year, Deripaska’s relative set up an “arrangement” for Gracetown to “account for the payments as a loan” from Baufinanz and to use that money to manage the luxury properties in New York and Washington. Gracetown received and deposited those payments to its bank account as a loan from Baufinanz beginning on December 19, 2013.
This continued through 2018, including when Deripaska was sanctioned, OFAC said. The same day he was added to the agency’s Specially Designated Nationals List, OFAC said it mailed Gracetown a letter to “formally” notify it that Deripaska and his property and interests were blocked, explaining that “this meant all unauthorized dealings with Deripaska, his property or interest in property, or any other blocked person, would be unlawful and may result in a monetary penalty.” OFAC also notified Gracetown “of its legal obligation to block all property in its possession in which Deripaska had an interest and report such property to OFAC within 10 business days.”
But OFAC said Gracetown continued its arrangement with Baufinanz despite the agency’s warning, receiving regular monthly payments until May 2020, when the terms of the settlement were fulfilled. OFAC said Gracetown accumulated a more than $100,000 debt to Baufinanz over that time, which it used for property management expenses.
Gracetown didn’t report that blocked property to OFAC until January 2022, “over 45 months after Gracetown received actual notice from OFAC regarding its sanctions compliance obligations,” the agency said. Gracetown also submitted a voluntary disclosure to OFAC that same day, but the agency said the government already knew about the violations.
OFAC said the breaches constituted an egregious case and settled on a penalty near the $8,906,358 statutory maximum because Gracetown “willfully, or, at a minimum, recklessly,” violated U.S. sanctions, including after receiving a warning from OFAC. The company was also aware of the payments and took steps to carry out the arrangement, which was “contrary to U.S. sanctions objectives.”
OFAC also noted that Gracetown’s “remedial response was deficient,” noting that the company failed to report blocked property “despite receiving actual prior notice from OFAC upon Deripaska’s designation in 2018 which reminded Gracetown of its compliance obligations.”
The agency pointed to a few mitigating factors: the fact that Gracetown signed a tolling agreement to suspend the statute of limitations, that it provided “additional information to the agency,” and that it hadn’t received a penalty notice in the previous five years.
OFAC stressed that entities formerly owned by a sanctioned person or that continue to work closely with that person “are taking substantial risk in doing so.” It also warned against ignoring an OFAC warning. “Any U.S. persons who so willfully or recklessly disregard their sanctions obligations may similarly face a significant monetary penalty.”
Gracetown couldn’t be reached for comment.