The second in this series. Every statement below comes from the release itself, which is linked from the sources.
What the release says happened
In 2017 and 2018, Definition Services, Inc., a British Virgin Islands entity, committed $50 million to a private equity fund run by IPI Partners, a Chicago data-centre investor. Before either commitment, IPI’s investment committee met, in sequence, a banker identified as Suleiman Kerimov’s representative, Kerimov’s nephew Nariman Gadzhiev, and finally Kerimov himself, in person, at his estate in Nice.
OFAC designated Kerimov on 6 April 2018. IPI “consulted with outside counsel knowledgeable in U.S. sanctions to inquire if IPI had an obligation to block Definition’s account.”
The question IPI asked, and the question it didn’t
Counsel reviewed Heritage Trust’s governance documents — Definition’s parent — and concluded IPI had no obligation to block the account, because Kerimov “did not formally own 50% or more of Definition.” That is a direct application of OFAC’s 50 percent rule, and on its face it is the right question to ask.
The release then lists what IPI did not tell counsel: that the introducing banker had been described to IPI’s investment committee as Kerimov’s “gatekeeper”; that the committee member who secured both of Definition’s commitments had done so through direct meetings with Gadzhiev and with Kerimov himself; and that IPI understood Kerimov to be the original source of Heritage Trust’s funds. Counsel’s opinion was accurate given what it was told. What it was told was incomplete.
IPI also obtained a written attestation from a Definition representative stating Kerimov was “not affiliated with Definition or any of the entities that directly or indirectly own it” — an attestation the release says IPI “had reason to know… was inaccurate.”
From 19 April 2018, relying on the opinion, IPI issued 18 capital calls, 20 profit distributions and 13 management-fee payments to or from Definition.
How the penalty was reached
- Egregious or not. Non-egregious.
- Self-disclosed or not. Not voluntarily self-disclosed.
- Base amount. Non-egregious and not self-disclosed means the base is the applicable schedule amount: $14,356,690.
- Adjustment. The settlement is $11,485,352 — a reduction, but a modest one relative to the base, because cooperation was “initially unsatisfactory.” IPI later retained new counsel, waived privilege over the original legal advice, and produced further records, which the release credits, but only after receiving OFAC’s Pre-Penalty Notice.
Waiving privilege is the detail worth pausing on: it is what let OFAC see not just IPI’s conclusion but the incomplete factual basis underneath it.
What OFAC criticised and what it credited
Criticised: IPI employees, “including senior executives,” knew Kerimov was Definition’s actual source of funds and should have known he made its investment decisions; IPI “facilitated a sanctioned Russian oligarch’s access to, and use of, the U.S. financial system in precisely the way that U.S. sanctions seek to prevent”; and IPI was “a sophisticated private equity firm managing billions of dollars.”
Credited: no penalty or finding of violation in the preceding five years, and the eventual — if delayed — cooperation once new counsel was engaged.
The point the release makes
OFAC’s compliance note generalises past this one firm: OFAC authorities “look beyond legal formalities to underlying practical and economic realities,” and the 50 percent rule “may be sufficient” in ordinary cases but “a more exhaustive analysis may be appropriate” wherever a proxy or an opaque structure could be concealing a blocked person’s interest. Longstanding guidance “urges caution” in exactly that situation, and a party with reason to know cannot later claim ignorance “even if a blocked person has no nominal ownership or overt role.”
The release’s final point is the one this note is built around: legal advice is only as good as the facts a company gives it. “For any advice to be effective, it must be based upon a complete picture of all material information available from across an organization.”
What this note does not do
It does not say IPI’s outside counsel gave bad advice — on the facts counsel was given, the 50-percent-rule analysis was correct. Nor does it say IPI set out to conceal anything from its own lawyers; the release describes a failure to connect what different people inside IPI each knew, not a deliberate withholding. The IPI Partners case page covers the full enforcement record, including its connection to the GVA Capital case, the same trust structure reaching a different manager.