OFAC Levies $11.5M Penalty Against Investment Firm for Dealings Tied to Russian Oligarch

OFAC said IPI “solicited and received” investments from Suleiman Kerimov, and the company maintained those investments for four years after Kerimov was sanctioned in 2018.

The alleged violations began after a senior member of IPI, which specializes in buying, developing and operating data centers, was introduced in 2017 to an unnamed banker who OFAC said was a representative of Kerimov. That banker also introduced the IPI official to Nariman Gadzhiev, Kerimov’s nephew and his representative for certain investments.

The IPI official met with Gadzhiev in San Francisco to propose several “investment opportunities," OFAC said, including an investment in IPI’s new private equity fund, IPI Data Center Partners Fund, which it planned to use to buy, build, operate and rent out data centers.

After the meeting, British Virgin Islands-based Definition Services committed to invest $25 million in the IPI Fund. OFAC said Definition Services was owned by Heritage Trust, a Delaware-based Kerimov family trust.

About one month later, in November 2017, Gadzhiev and the banker arranged for the IPI official to meet with Kerimov at his French estate. Four months after that meeting, Definition Services signed a second agreement committing to invest another $25 million in the IPI Fund, OFAC said.

After OFAC sanctioned Kerimov in April 2018, IPI Partners hired an outside lawyer to ask if the company “had an obligation to block Definition’s account.” The lawyer reviewed documents that showed Kerimov was the “initial source of Heritage’s funds,” OFAC said, but they didn’t “indicate a role for him within Definition or Heritage more broadly.” The lawyer reasoned that IPI was “under no obligation to block the account because Kerimov did not formally own 50% or more of Definition,” the agency said. “Outside counsel further explained that it was not necessary for IPI to inquire further about the source of Definition’s funding and did not flag risks associated with indirectly dealing with Kerimov.”

OFAC added that IPI didn’t tell their lawyer that the banker had been described as Kerimov’s “gatekeeper,” and that the IPI official knew both the banker and Gadzhiev were Kerimov’s representatives for investments. IPI also didn’t tell the lawyer that the IPI official secured Definition Service’s investments by meeting in person either with Gadzhiev or with Kerimov.

IPI took other sanctions compliance steps, including screening the other people and entities named in the investment documents against OFAC’s sanctions list using a “prominent third-party screening platform, with no positive matches,” the agency said. Definition Services also gave IPI “written confirmation from a Definition representative that Kerimov was ‘not affiliated with Definition or any of the entities that directly or indirectly own it.’”

The outside lawyer also suggested that IPI ask for a statement from Definition Services “reaffirming its compliance” with the investment agreement, “which included an attestation that neither Definition ‘nor any of its Affiliates or any holder of any beneficial interest in the Interest … [nor] any Related Person, is or will be, nor will any amounts contributed by [Definition] to the Partnership be directly or indirectly derived from, invested for the benefit of, or related in any way to the activities of’ a person subject to any sanctions program” run by OFAC.

But OFAC said IPI had “reason to know” this attestation was inaccurate because of the IPI official’s “understanding that Kerimov was the original source of Heritage’s funds,” among other reasons. “IPI nevertheless relied upon outside counsel’s legal advice, which did not caution against indirect dealings with Kerimov, and continued to deal directly with Gadzhiev and his employees in managing Definition’s investment in the IPI Fund after Kerimov’s designation,” the agency said.

From April 2018, IPI issued 18 capital calls, including to Definition Services, and issued 20 profit distributions from the fund’s investments to Definition Services. IPI also collected regular management fees, including from Definition Services, on 13 occasions. “IPI consolidated those transactions into periodic payments, requesting from the limited partner or wiring to the limited partner the amount after netting the limited partner’s current debits and credits,” OFAC said.

The agency said IPI didn’t voluntarily disclose the alleged violations, which it described as a non-egregious case. OFAC said it could have imposed a more than $14 million penalty but settled on a slightly lesser $11,485,352 fine after taking into account that IPI hadn’t received a penalty notice in the previous five years. It also noted that even though IPI’s initial cooperation with OFAC was “unsatisfactory,” the company hired a new lawyer after receiving a pre-penalty notice from the agency, “which resulted in significantly improved cooperation with OFAC’s investigation.”

IPI waived privilege,”allowing OFAC to consider the legal advice it received following Kerimov’s designation and the underlying factual representations and information upon which this advice was based, and produced additional responsive records,” OFAC said. “Thus, while IPI was ultimately cooperative with the investigation, IPI’s substantial delay in cooperating resulted in limited mitigation credit for cooperation.”

OFAC also pointed to several aggravating factors, including the fact that IPI employees, including senior executives, knew Kerimov was the source of the funds and had reason to know that the firm was dealing with Kerimov indirectly. The company also acted "contrary" to U.S. foreign policy interests by helping a sanctioned Russian oligarch access the U.S. financial system in “precisely the way that U.S. sanctions seek to prevent,” OFAC said, allowing Kerimov “to participate in a lucrative investment and to grow his wealth after he was designated.” OFAC also noted that IPI was a “sophisticated private equity firm managing billions of dollars in committed capital from international investors.”

The case highlights the importance of investment firms and investment professionals having a “clear understanding of their sanctions risks and compliance obligations,” OFAC said. They should also recognize that OFAC “authorities incorporate broad definitions of ‘interest’ and ‘property interest’ that look beyond legal formalities to underlying practical and economic realities,” the agency said. “In some cases, an analysis of equity ownership in an entity in accordance with OFAC’s 50 Percent Rule may be sufficient to address OFAC sanctions risk,” but in other cases “a more exhaustive analysis may be appropriate.”

OFAC also stressed the importance of companies ensuring any legal and compliance advice they receive is “based upon a full and complete understanding of all relevant facts and circumstances.”

“While receiving advice from outside experts can help entities fulfill their sanctions compliance obligations, it does not absolve them from liability if they violate U.S. sanctions,” OFAC said. “Critically, for any advice to be effective, it must be based upon a complete picture of all material information available from across an organization.”

Blue Owl Capital, which bought IPI earlier this year, didn’t immediately respond to a request for comment.

OFAC in June fined a California-based venture capital firm for allegedly violating U.S. sanctions against Russia after the agency said they knowingly also managed an investment for Kerimov (see 2506120076).