OFAC Announces $215 Million Max Penalty for Investment Firm's Sanctions Violations

The penalty is the maximum civil fine the agency could have imposed, and it’s the largest civil fine by OFAC since it fined virtual currency exchange Binance over $968 million in 2023 (see 2311210076). “This enforcement action underscores the importance of gatekeepers in preventing sanctions evasion and highlights the risks of facilitating such efforts,” OFAC said.

The agency said it found out about the ties between GVA Capital and Kerimov after it learned in 2021 of a transfer of shares in a U.S. company that allegedly involved a sanctioned person. The shares were owned by Heritage Trust, a trust formed in Delaware in 2017 to maintain the U.S. assets of Kerimov, who OFAC sanctioned in 2018.

GVA Capital “learned of the opportunity” to invest in the U.S. company in 2016 and approached Kerimov to gauge his interest in investing, OFAC said. GVA Capital’s senior management traveled to meet Kerimov in person at his French estate to discuss the investment, and they later talked in more detail with Nariman Gadzhiev, Kerimov’s nephew and “primary financial facilitator.”

As part of their relationship, Gadzhiev “relayed guidance and requested information on behalf of ‘the Investor,’ which GVA Capital understood to be a reference to Kerimov,” OFAC said. GVA Capital “maintained this understanding of Gadzhiev’s role in this process” until at least 2023, “well after” OFAC sanctioned Kerimov.

In September 2016, GVA Capital and Gadzhiev agreed that Kerimov would invest $20 million in the U.S. company. After that agreement, OFAC said Prosperity Investments, L.P., a Guernsey-based entity in which Kerimov had an interest, “entered into a subscription agreement with GVA Auto LLC, a Delaware-based special purpose vehicle established by GVA Capital to make, hold, and dispose of direct or indirect investments in the U.S. company.” Prosperity transferred the $20 million to GVA Auto’s account at a U.S. bank in 2016, OFAC said.

After OFAC added Kerimov to the Specially Designated Nationals List two years later, GVA Capital “solicited a legal opinion regarding the applicability of U.S. sanctions to GVA Capital’s investments.” That legal opinion “concluded incorrectly that Prosperity was not itself blocked property because it was not nominally owned 50 percent or more by a person on the SDN List.” But the lawyer also “explicitly cautioned” GVA Capital that it couldn’t directly or indirectly involve Kerimov in any sale or transfer of shares.

But GVA Capital did this anyway, OFAC said, including on four occasions between 2018 and 2021. The agency said this “constituted a prohibited dealing in blocked property” under the agency’s Ukraine/Russia-Related Sanctions Regulations.

OFAC also said it subpoenaed GVA Capital in June 2021, and the firm provided an initial response in July of that year and certified in October that it had “completed its subpoena response.” But after the agency informed the firm in 2023 that it would be issuing it a penalty, GVA Capital “informed OFAC that it possessed information ‘relevant to OFAC’s inquiry’ that had not yet been provided to OFAC.” That included about 1,300 records beyond the 173 documents GVA Capital originally gave to OFAC in response to the 2021 subpoena.

“GVA Capital’s prolonged failure to produce responsive records led to 28 months of non-compliance with OFAC’s subpoena,” the agency said.

OFAC said GVA Capital didn’t voluntarily disclose the alleged violations, which constituted an “egregious” case. It decided to impose the maximum civil penalty amount after factoring in that GVA Capital “willfully” violated U.S. sanctions despite receiving legal advice that certain transactions with Kerimov would violate U.S. sanctions.

The firm also “acted contrary to U.S. foreign policy interests” by allowing a sanctioned Russian oligarch access to the U.S. financial system “in precisely the way that his designation sought to prevent.” GVA Capital’s maintenance of Kerimov’s shares “allowed for a significant increase in the value of Kerimov’s investment in a U.S. company, to an appreciation as high as $436,280,510 in April 2021,” OFAC said.

The agency pointed to just one mitigating factor -- that GVA Capital had not received a penalty notice in the previous five years.

“Nonetheless, given the totality of the circumstances in this case, OFAC has determined that no reduction in penalty was warranted," OFAC said.

OFAC said the case highlights the sanctions risks facing "gatekeepers," which it says are investment professionals, accountants, attorneys and providers of trust and corporate formation services. “Gatekeepers should remain vigilant of the risk that unscrupulous actors, including sanctioned parties or their proxies, may seek to use professional services to conceal a property interest or otherwise evade OFAC sanctions,” the agency said.

It also said the penalty shows that venture capital firms and investment advisers should have sanctions compliance controls in place and a “clear understanding of their U.S. sanctions compliance obligations." U.S. people also take on risks when “relying on formalistic ownership arrangements that obscure the true parties in interest behind an entity or investment, without sufficiently considering factors such as control or influence over that investment.”

GVA Capital couldn't be reached for comment.