OFAC Fines Former US Official for Alleged Sanctions Violation Involving Russian Trust
The Office of Foreign Assets Control this week announced a $1.092 million settlement with an unnamed former U.S. government official for alleged violations of U.S. sanctions against Russia. The former official, who is also a lawyer, committed the violations while serving as the fiduciary of the family trust of a sanctioned Russian oligarch, OFAC said.
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The agency said the former U.S. official met the oligarch through the former official's private practice before the oligarch became subject to U.S. sanctions. The former official “maintained a professional and occasionally social relationship” with the oligarch “for a number of years,” and their law firm represented the oligarch in various legal matters.
Before the oligarch was sanctioned, the former official agreed to “serve in a fiduciary capacity for a U.S.-based trust funded almost entirely” by the oligarch. In that role, the former official had the authority to appoint or remove other fiduciaries, make decisions about how and where to invest the trust’s assets and make or withhold distributions involving the trust’s beneficiaries.
OFAC also said the Russian oligarch’s family members held roles in the trust, including one family member, who OFAC referred to as the “proxy,” who didn’t maintain any “formal authority” over the trust but frequently liaised with investors and fiduciaries on the oligarch's behalf.
After the U.S. sanctioned the oligarch in 2018, the former official consulted with law firms about whether the trust should be blocked and hired a lawyer experienced in U.S. sanctions to investigate the issue and provide an opinion. That lawyer concluded that the trust “did not appear to be blocked property,” OFAC said, and the former official relied on that opinion to maintain their fiduciary role.
But OFAC said it has “reason to believe that this opinion was predicated, at least in part, on the understanding, following legal counsel’s review, that the Proxy had no substantive role in the Trust’s management or operations.” OFAC said the proxy’s “substantive role with respect to the Trust persisted well after this point,” and the former U.S. official “should have known, based on their personal knowledge of working with [the oligarch] and their network, that the Proxy’s continued involvement following [the oligarch’s] designation allowed” the oligarch to retain control over trust decisions.
The agency added that the former official continued to play a “key role” in the trust after the oligarch’s designation, including authorizing the transfer of assets, authorizing payments, executing agreements on the trust’s behalf, and more. The former official eventually resigned from their position in mid-2022.
OFAC said the former official didn’t voluntarily disclose these violations, which it called non-egregious. The agency could have imposed a more than $6 million penalty but settled on a lesser amount after taking into account their lack of a penalty notice over the last five years and the fact that they cooperated with OFAC’s investigation, including by giving “timely and fulsome” responses to all OFAC requests for information. The agency also said they agreed to toll the statute of limitations multiple times.
OFAC also pointed to several aggravating factors, including that they should have “reasonably” known that the proxy’s involvement in the trust allowed the Russian oligarch to retain control over decisions related to the trust and indicated that the oligarch “maintained a property interest in the Trust.” The agency also said the former official enabled a sanctioned Russian oligarch to use the U.S. financial system, “allowing the assets owned by the Trust to substantially grow in value after” the oligarch was sanctioned. “The circumstances of the Apparent Violations directly harmed the integrity of OFAC’s Russia sanctions and undermined broader U.S. policy objectives.”
OFAC said the case highlights the sanctions risks faced by “gatekeepers” -- including investment advisers, accountants, lawyers and trust service providers -- who “fail to properly understand and mitigate the risks associated with the provision of their services.” OFAC said gatekeepers “provide an air of legitimacy and provide comfort” to other U.S. people, adding that the former official’s role in the trust “allowed others to feel more comfortable in their own roles.”