The U.S. Department of the Treasury’s Office of Foreign Assets Control recently announced that it reached a settlement with an unnamed attorney and former government official (“U.S. Person-1”) who allegedly served as the fiduciary of a family trust for an unidentified Russian oligarch. According to OFAC, U.S. Person-1 agreed to pay more than $1 million to resolve apparent violations of Ukraine-/Russia-Related Sanctions Regulations (“URSR”) that allegedly occurred between 2018 and 2022. OFAC reported that the amount of the settlement was based on its determination that the apparent violations were non-egregious in nature and not voluntarily self-disclosed. In determining the settlement amount, OFAC also considered aggravating factors, including that U.S. Person-1’s actions enabled a sanctioned Russian oligarch to benefit from the U.S. financial system, and mitigating factors such as U.S. Person-1’s substantial cooperation with OFAC investigators.
According to the Enforcement Release, U.S. Person-1 met with and established a professional relationship with a Russian oligarch (“SDN-1”) years before he was added to OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”), and, while in private practice, worked for a law firm that represented SDN-1 prior to his designation. Before SDN-1 was designated, U.S. Person-1 allegedly began serving in a fiduciary role, along with two of SDN-1’s family members, for a U.S.-based trust that was funded almost entirely by SDN-1 – a role that reportedly enabled the attorney to appoint or remove other fiduciaries from the trust; make investment decisions regarding trust assets; and make or withhold distributions from trust beneficiaries. According to OFAC, one of SDN-1’s family members served as the grantor of the trust and had no occupation and received their income solely from SDN-1, while the other (“the Proxy”) had no formal authority over the trust but “frequently liaised with investors and fiduciaries on SDN-1’s behalf” and “served as SDN-1’s interlocutor in dealings with U.S. persons investment-related matters.”
Following SDN-1’s designation on April 6, 2018, U.S. Person-1 sought legal opinions from various law firms to determine whether the trust should be considered blocked property. U.S. Person-1 also retained outside counsel with experience in U.S. sanctions that ultimately concluded that the trust did not appear to be blocked based on the information provided. Relying on this opinion and the advice of other legal counsel, U.S. Person-1 continued to serve as a fiduciary for the trust. However, OFAC determined that, based on personal knowledge gained from working with SDN-1 and his network, U.S. Person-1 should have known that SDN-1 maintained significant control over the trust and that the Proxy continued to have a substantive role in trust operations after the designation. While U.S. Person-1 eventually resigned from the fiduciary position in mid-2022, OFAC found that the attorney engaged in a total of 122 apparent violations of the URSR while handling day-to-day trust activities after the designation – tasks that included the authorization of trust asset transfers and payments to various services providers made on behalf of the trust.
According to OFAC, this enforcement action highlights the risks that gatekeepers – professionals such as attorneys, accountants, and investment advisors – face when providing services to their clients and how violations can occur when they do not fully understand and mitigate these risks. OFAC also reported that this case demonstrates how important it is for U.S. persons who work in the trust and corporate services sectors, to develop a thorough understanding of sanction-related risks and to proceed with caution when engaging in activities that involve a sanctioned person.
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