Sanctions: When Outside Counsel Gets It Wrong

You know how to manage sanctions risk. You have compliance language in your contract. You checked ownership, received a compliance certification, and got the green light from outside counsel. And...you STILL got in trouble! What in Sam Hill happened?

When dealing with sanctions, OFAC demands compliance with the letter of the law...and with its spirit. This Enforcement Release, dropping on December 2, 2025, demonstrates how MERELY (a) reviewing ownership, and (b) obtaining a compliance certification and an outside counsel opinion, are insufficient if additional context should also have been considered.

The Story

IPI Partners, LLC ("IPI") is a US-based private equity firm specializing in buying, developing, and operating data centers. Starting in 2017, IPL received investments from Russian oligarch Suleiman Kerimov ("Kerimov") through Definition Services, Inc. ("Definition"). On April 6, 2018, Kerimov was designated a Specially Designated National. As a result, "Kerimov's property and interest in property in the United States or in the possession or control of any U.S. person became blocked, and all transactions by U.S. persons involving Kerimov's property or interests in property generally became prohibited."

Shortly thereafter, IPI consulted with outside counsel. Outside counsel determined that Definition was owned by Heritage Trust, a Delaware-based Kerimov family trust. After reviewing the trust's governance and other diligence materials, it determined that (1) Kerimov played no role in either Heritage or Definition and (2) Kerimov did not formally own 50% or more of Definition (which would have triggered the "50% Rule".) (A subsequent OFAC investigation claimed that Kerimov retained a property interest in Heritage but notably did not claim that it triggered the "50% Rule.")

In many ways, IPI's sanctions program aligned with OFAC's published guidance: in addition to obtaining outside counsel advice, IPI:

1. Screened individuals and entities named in due diligence documents;
2. Obtained Definition's written attestation that Kerimov was "not affiliated with Definition or any of the entities that directly or indirectly own it;" and
3. Received Definition's written commitment to compliance attesting 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 administered by OFAC or named on the SDN List."

OFAC was not satisfied. It alleged that IPI knew or should have known that Kerimov's property interest would trigger sanctions, because (among other things):

• IPI had secured Definition's investment commitments by speaking with Kerimov or his representative.
• IPI "had reason to know that the attestation was inaccurate."

OFAC further claimed that IPI knew that Kerimov ultimately made investment decisions for Definition and was too clever by half in dealing with Kerimov's identified representative in investment-related matters.

According to OFAC:

... OFAC authorities incorporate broad definitions of "interest" and "property interest" that look beyond legal formalities to underlying practical and economic realities. 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. In other cases, however—especially situations involving opaque legal structures or the use of proxies that may obscure a party's interest in an entity or property—a more exhaustive analysis may be appropriate. Longstanding OFAC guidance urges caution when considering dealing with an entity in which a blocked person may be involved. Such dealings—particularly those involving the use of proxies or legal structures that may conceal a blocked person's interest—could result in indirect dealings with a blocked person or in blocked property. Individuals and companies with reason to know of such circumstances cannot later claim ignorance even if a blocked person has no nominal ownership or overt role.

None of the facts were litigated; IPI settled with OFAC for $11,485,352.

Summary

Maya Angelou said it best: "Do the best you can until you know better. Then when you know better, do better."

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