The U.S. Department of the Treasury’s Office of Foreign Assets Control, known as OFAC, announced a significant $1,092,000 settlement with an individual identified only as U.S. Person-1, an attorney and former government official, to resolve civil liability for 122 apparent violations of sanctions related to Russia. This settlement stems from the attorney’s tenure as a fiduciary for a U.S.-based family trust of a Specially Designated National, or SDN, a Russian oligarch placed on the sanctions list in 2018. The case illustrates the critical role of professional gatekeepers and the inherent anti-money laundering, or AML, risks associated with trusts and complex ownership structures used by sanctioned entities to shield assets. These apparent violations underscore the essential need for rigorous compliance programs, even when legal advice suggests a trust may be technically unblocked, especially when dealing with known high-risk individuals and their proxies. The enforcement action serves as a stark reminder to all financial and legal professionals of the strict liability nature of U.S. sanctions laws and the high financial cost of non-compliance.

The Treacherous Role of a Sanctions-Evasion Gatekeeper

The core of this case highlights how a legal and financial fiduciary duty was exploited to maintain the function of blocked assets, effectively providing prohibited services to a sanctioned oligarch. The individual, U.S. Person-1, served as the fiduciary for a trust funded almost entirely by the oligarch, who was officially designated an SDN in April 2018 due to Russia-related sanctions. Despite knowing the oligarch and having a professional relationship with them for years, U.S. Person-1 continued to play a key role in the trust’s operational activities following the designation, a period spanning from 2018 to 2022. This included authorizing the transfer of trust assets, approving payments to various service providers, and executing substantive actions on the trust’s behalf, all of which OFAC deemed dealings in the blocked property of, or the provision of prohibited services to, the SDN. The continued operation of the trust under the attorney’s authority not only facilitated the oligarch’s access to the U.S. financial system but also provided an aura of legitimacy, potentially misleading other U.S. persons into believing that providing services to the trust was permissible. The use of legal structures like trusts is a classic money laundering technique, allowing the original owner to hide their beneficial ownership through layers of legal entities, a method of placement and layering that is particularly effective for sanctions evasion.

Complex Legal Structures as a Veil for Blocked Property

The case specifically shines a light on the inherent vulnerabilities of trusts when it comes to identifying and blocking the property of sanctioned individuals. A U.S.-based trust, though seemingly a distinct legal entity, was determined by OFAC to remain the blocked property of the SDN because the oligarch retained a property interest. This property interest was maintained through the active involvement of a family member, referred to as the “Proxy,” who frequently communicated with investors and fiduciaries on the oligarch’s behalf. This Proxy had no independent source of income outside of the oligarch. U.S. Person-1, despite seeking and receiving outside counsel that initially suggested the trust was not blocked, should have realized that the Proxy’s substantive and continuous involvement allowed the oligarch to retain ultimate control over the trust’s major decisions. This demonstrated that the legal formality of the trust document itself was insufficient to overcome the reality of control and beneficial ownership exercised by the sanctioned individual. The ongoing transactions, totaling 122 apparent violations, allowed the trust’s assets to substantially grow in value after the oligarch’s designation, directly undermining the purpose of the sanctions program. This scenario underscores the critical need for a substance-over-form approach in AML and sanctions compliance, where professionals must look past legal documentation to determine the ultimate source of funds and the true controlling party.

Aggravating and Mitigating Factors in OFAC Enforcement

When determining the penalty amount, OFAC evaluated several aggravating and mitigating factors that ultimately resulted in a settlement of approximately 17% of the maximum statutory penalty of $6,245,136. A key aggravating factor was the failure of U.S. Person-1 to voluntarily self-disclose the apparent violations to the regulator, which is typically a strong mitigating factor in sanctions cases. Furthermore, OFAC determined that U.S. Person-1 acted contrary to the goals of the Russia sanctions by enabling a designated oligarch to continue utilizing the U.S. financial system. The continuation of the fiduciary role provided an air of legitimacy to the trust’s ongoing operations, which directly harmed the integrity of the sanctions regime. On the mitigating side, the individual had no prior OFAC penalties or findings of violation in the five years preceding the apparent violations. Crucially, U.S. Person-1 provided substantial cooperation with OFAC’s investigation and agreed to toll the statute of limitations on multiple occasions, demonstrating a willingness to facilitate the regulatory inquiry. This balance of factors ultimately reduced the final settlement amount, though the resulting seven-figure fine remains a severe consequence for failing to meet sanctions compliance obligations. The case highlights that for gatekeepers like attorneys and fiduciaries, a lack of voluntary disclosure combined with active facilitation of a blocked person’s property is a major regulatory red flag.

Professional Responsibility and AML Compliance Lessons

The enforcement action against U.S. Person-1 serves as a foundational compliance lesson, particularly for professional gatekeepers such as attorneys, trust service providers, accountants, and investment advisors. These professionals occupy a key position in the financial ecosystem, making them particularly susceptible to being exploited by sanctioned individuals and money launderers seeking to obfuscate ownership and control of assets. The case demonstrates that reliance on outside counsel’s initial assessment is not a shield against liability when later facts or an ongoing pattern of behavior—such as persistent contact with a Proxy—suggest that a blocked person retains effective control. Sanctions compliance requires ongoing, dynamic due diligence that moves beyond simple name screening at the outset of a relationship. Professionals must implement enhanced due diligence and sanctions screening protocols, particularly when dealing with complex structures like trusts associated with Politically Exposed Persons, or PEPs, or individuals from high-risk jurisdictions like Russia. The standard of conduct requires a continuous reassessment of beneficial ownership and control, utilizing a risk-based approach to ensure that a sanctioned person is not benefiting from or exercising authority over assets. This case emphasizes that U.S. persons acting as fiduciaries are strictly prohibited from facilitating the transfer or use of blocked property, regardless of the complexity of the legal structure designed to conceal the interest.

The Enforcement Message Against Sanctions Evasion

This settlement with U.S. Person-1 is part of a broader, sustained effort by OFAC to aggressively enforce Russia-related sanctions and target the professional enablers who facilitate sanctions evasion. The action specifically calls out the unique risk trusts and corporate service providers pose in allowing blocked persons to avail themselves of the U.S. financial system, a mechanism of great concern for financial integrity regulators. By publicly penalizing an attorney and former government official for apparent sanctions violations, OFAC sends an unmistakable message that no professional is exempt from the strict liability provisions of U.S. economic sanctions. The regulator is actively scrutinizing the financial gatekeepers who help Russian oligarchs and elites maintain their wealth and influence, often through opaque structures that deliberately hide beneficial ownership. The overall regulatory focus remains firmly on combating money laundering and sanctions evasion through complex legal and financial vehicles. Compliance programs for professionals must now explicitly address the sophisticated means by which blocked persons utilize proxies and seemingly unblocked family members to maintain control, ensuring that economic restrictions are fully and effectively implemented.

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Key Points

• OFAC imposed a $1,092,000 penalty on a U.S. attorney for 122 apparent sanctions violations involving a blocked Russian oligarch’s family trust.
• The attorney acted as a fiduciary for the trust and authorized 122 transactions, which constituted dealing in blocked property and providing prohibited services to an SDN.
• The case highlights the sanctions evasion risk posed by trusts and the importance of a “substance over form” approach to beneficial ownership and control.
• OFAC cited the failure to voluntarily self-disclose the violations as a significant aggravating factor, despite the attorney’s substantial cooperation with the investigation.
• Professional gatekeepers, including attorneys and trust administrators, must maintain robust AML and sanctions compliance programs to prevent exploitation by sanctioned individuals.

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Related Links

• Office of Foreign Assets Control Enforcement Guidelines
• Specially Designated Nationals and Blocked Persons List
• Financial Crimes Enforcement Network Advisory on Russian Sanctions Evasion
• OFAC Sanctions Compliance Programs for the Private Sector
• Thematic Review of Sanctions Evasion Typologies

Other FinCrime Central Articles About Law Firms AML Failures

• Singapore Law Firms Hit with Nearly $200 K in AML Enforcement
• UK Lawyer Fined and Banned After Compliance Failures in Azerbaijani Property Deal
• Simpson Thacher & Barlett, a Prestigious US Law firm, hit with £300K AML Fine for Serious Compliance Shortcomings

Source: LAW360, by Covey Son

Some of FinCrime Central’s articles may have been enriched or edited with the help of AI tools. It may contain unintentional errors.

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