See the original Enforcement Release for comparison or if you want to know more.

Based on the enforcement release regarding IPI Partners, LLC (“IPI”), here is the simplified and reformatted version.

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What Happened

The Core Issue

IPI Partners, LLC (“IPI”), a U.S. private equity firm, agreed to pay $11,485,352 to settle potential civil liability for violating U.S. sanctions against Russia. The issue arose because IPI continued to do business involving Suleiman Kerimov, a Russian oligarch, even after he was placed on the sanctions list (the “SDN List”).

Description of the Conduct

In 2017 and 2018, IPI sought and accepted investment funds from Kerimov through a series of legal entities (specifically a fund called “Definition” and a trust called “Heritage Trust”).

• The Red Flag: On April 6, 2018, OFAC designated Kerimov as a sanctioned person. This meant U.S. companies were generally prohibited from dealing with his property or interests.
• The Legal Advice: IPI checked with outside lawyers. The lawyers reviewed the corporate structure and concluded that because Kerimov did not formally own 50% or more of the direct investment entity (“Definition”), IPI did not need to block the account.
• The Mistake: This advice was too narrow. While Kerimov might not have met the “50% ownership” threshold for automatic blocking of the entity itself, he still held a “property interest” in the funds (as the source of funds and beneficiary). U.S. law prohibits dealing with any property interest of a blocked person, not just entities they majority-own.
• The Violation: Relying on that advice, IPI continued to manage the investment. Between July 2018 and June 2022, IPI processed 51 transactions (such as calling for capital or distributing profits) involving these funds.

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The Penalty

Settlement Amount

IPI agreed to pay $11,485,352. The maximum possible base penalty for these violations was $14,356,690.

Why this Amount? (The Rationale)

The settlement reflects OFAC’s determination that the violations were non-egregious (meaning they were not the most serious type of willful violation) but were not voluntarily self-disclosed (IPI did not report the issue to OFAC before being investigated).

Factors Influencing the Penalty

OFAC considered several “General Factors” from its Enforcement Guidelines to determine the final penalty amount:

• Aggravating Factors (Reasons the penalty could be higher):
  • IPI knew or had reason to know of the sanctioned person’s involvement. IPI was aware that Kerimov was the ultimate source of the funds but failed to exercise due caution, relying on legal advice that focused only on ownership percentages rather than the broader “interest in property.”
    • Applicable General Factor: General Factor B: Awareness of Conduct
  • The conduct harmed the sanctions program. By continuing to process transactions for a sanctioned oligarch, IPI allowed economic resources to flow to a blocked person, undermining the purpose of the Russia sanctions program.
    • Applicable General Factor: General Factor C: Harm to Sanctions Program Objectives
  • IPI is a sophisticated financial institution. IPI is a large, commercially sophisticated firm with a global presence and access to significant legal and compliance resources. OFAC holds such institutions to a higher standard of compliance.
    • Applicable General Factor: General Factor D: Individual Characteristics
• Mitigating Factors (Reasons the penalty was reduced):
  • No recent violations. IPI had not received a penalty notice or finding of violation from OFAC in the five years preceding these transactions.
    • Applicable General Factor: General Factor E: Compliance Program (often cited regarding clean history) / General Factor I: Other Enforcement Actions
  • Substantial cooperation. After initially providing unsatisfactory responses, IPI hired new counsel, significantly improved its cooperation, and even waived attorney-client privilege to allow OFAC to review the legal advice it had received.
    • Applicable General Factor: General Factor G: Cooperation with OFAC
  • Remedial measures. IPI took steps to fix the issue and improve its compliance program to prevent future violations.
    • Applicable General Factor: General Factor F: Remedial Response

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What are the Takeaways?

Key Lessons for the Industry

• Look Beyond the “50% Rule”: Dealing with a sanctioned person involves more than just checking if they own 50% of a company. You must ensure you are not dealing with any “interest” of a blocked person, including indirect interests through trusts or as a beneficiary.
• Private Equity Risks: Investment firms must thoroughly understand the ownership structure of their investors (“Limited Partners”). If a sanctioned person is behind the money, you cannot process transactions for them, even through intermediaries.
• Legal Advice Limitations: Relying on legal advice is not a “get out of jail free” card, especially if that advice is based on an incomplete understanding of the facts or a misinterpretation of the broad scope of sanctions laws (like “interest in property”).
• Know Your Customer (KYC): It is critical to obtain and review full diligence materials to identify the ultimate beneficial owners of investment vehicles.

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Other resources

Reporting Suspicious Activity

If you have information about sanctions violations, you may be eligible for a monetary award. The Financial Crimes Enforcement Network (FinCEN) maintains a Whistleblower Program that rewards individuals who provide original information leading to successful enforcement actions. You can submit tips directly to FinCEN or through OFAC.

Contacting OFAC

For more information on sanctions programs, specific guidance, or to join the mailing list for updates, you can contact the Office of Foreign Assets Control directly via their compliance hotline or compliance email, or by visiting the official Treasury website.

How do you like this revamped format? I will tell you, this took more tweaking than some of the other posts I’ve done so far – Gemini originally left off the 3rd Aggravating Factor from its analysis (weird, huh?), and I had some formatting issues that I fixed by being explicit in the prompt. And then I had to wrestle it to remove external links it added…

If there are things from the actual Enforcement Release you think should have been in this reimagined format – or if you see something it got wrong – please let me know. Thanks!