The Treasury’s Office of Foreign Assets Control (OFAC) has reached an $11,485,352 settlement with IPI Partners, LLC, a Chicago-based private equity manager focused on data centers, over 51 apparent sanctions violations related to continuing to do business with a sanctioned Russian oligarch.
In its settlement agreement and enforcement release, OFAC identified the underlying investor as Suleiman Kerimov, whose assets and interests were blocked when he was added to the Specially Designated Nationals (SDN) List on April 6, 2018.
According to OFAC, IPI raised capital in 2017–2018 for IPI Data Center Partners Fund I, L.P. and, through a series of corporate and trust structures, received $50m in commitments ultimately attributable to Kerimov.
The nominal limited partner was British Virgin Islands company Definition Services, Inc, itself owned by Heritage Trust, a Delaware trust in which Kerimov has a property interest and that the Treasury separately described in 2022 as holding over $1 billion in assets.
OFAC said IPI senior personnel knew they were dealing with Kerimov and his representatives, including meetings with an intermediary described as his “gatekeeper” and with Kerimov himself, yet continued the relationship after his SDN designation. From July 2018 through June 2022, IPI continued to issue dozens of capital calls, profit distributions, and management fee collections tied to Kerimov, comprising 51 individual sanctions violations.
Due-diligence gaps and penalty
OFAC noted that IPI had obtained outside legal advice concluding that the structures did not need to be blocked under OFAC’s 50 Percent Rule, which states that if one or more blocked persons own an aggregated 50% or more of an entity then that entity is itself treated as blocked. However, OFAC noted that IPI’s counsel was not given full information about IPI’s direct interactions with Kerimov and his proxies.
OFAC stressed that relying solely on 50 Percent Rule ownership screens is sometimes insufficient: in opaque structures or proxy arrangements, firms need to look at the “practical and economic realities” of who benefits, not just formal ownership lines.
The total penalty issued to IPI was derived from treating the case as non-egregious, but also not voluntarily disclosed, bringing the fine down to $11,485,352 from $14,356,690. OFAC noted that IPI ultimately cooperated, albeit after a “significant delay.”
And while the fine against IPI is steep, it pales in comparison to the $215m penalty issued to VC fund GVA in June for managing Kerimov’s investments. In that case, OFAC determined that GVA “willfully” evaded US sanctions and ignored OFAC’s legal advice – an eyewatering example of how “egregious” conduct is penalized.
“This enforcement action highlights the sanctions risks that US capital markets participants, including those in the private equity industry, can face. It is critical for such actors to understand and manage all potential sources of sanctions related risk, including the risks associated with arrangements that may obscure a blocked person’s interest in property,” OFAC stated.
