US OFAC $7.14M civil monetary penalty against Gracetown Inc. — near-statutory-maximum Russia-sanctions enforcement

Mechanism

Gracetown Inc. was incorporated in 2006 as the property-management vehicle for three luxury residential properties in Manhattan and Washington DC acquired by Russian oligarch Oleg Deripaska via a chain of offshore legal entities. From 2006 to April 2018, Deripaska was the ultimate beneficial owner of Gracetown.

On 6 April 2018, OFAC designated Deripaska to the SDN List under EO 13660 (Ukraine-related) and EO 13661 (Russia-related). OFAC simultaneously notified Gracetown directly that dealings with Deripaska — including indirect dealings through entities he owned or controlled — were prohibited without an OFAC licence.

Despite this explicit notice, between April 2018 and May 2020 Gracetown accepted 24 wire payments totalling USD 31,250 from Baufinanz Ltd., a British Virgin Islands company ultimately owned by Deripaska, ostensibly for the maintenance and management of his US properties. Gracetown did not seek an OFAC licence for any of these payments and did not self-disclose to OFAC until approximately four years after the first violation.

A second freestanding violation: Gracetown held blocked assets (property interests associated with Deripaska) and was required under 31 CFR §501.603 to report those assets within 10 days of blocking. It failed to do so for over 45 months — an independent reportable violation that OFAC penalised separately.

Penalty methodology: OFAC applied the 31 CFR Part 501 Appendix A Enforcement Guidelines. The base amount is set at the statutory maximum (USD 8,906,358) because the violations were egregious and non-self-disclosed. OFAC then credited Gracetown's eventual cooperation and remedial steps, yielding a 20% discount to the final USD 7,139,305 penalty. The ratio of penalty to underlying transaction value (~228×) is one of the highest in OFAC's enforcement history, reflecting the strict-liability posture OFAC takes once a respondent has received actual notice of the SDN designation.

Part of the Deripaska enforcement trilogy (Nov–Dec 2025):

Together these three penalties establish that OFAC is systematically unwinding Deripaska's post-2018 US asset-management network, targeting each functional layer: the individual investor, the operating-company manager, and the legal/fiduciary trustee.

Legal challenge (Feb 2026)

In February 2026, Gracetown filed a complaint in the Southern District of New York challenging the penalty on two grounds: (a) arbitrary and capricious agency action under the APA, arguing OFAC failed to adequately weigh the small absolute value of the underlying transactions (USD 31,250) against a near-USD 7M penalty; and (b) violation of the Eighth Amendment's Excessive Fines Clause. The court outcome will be a bellwether for the constitutional limits of OFAC's strict-liability penalty arithmetic when underlying transaction values are low but conduct is wilful. The legal challenge does not stay OFAC's enforcement posture; the register records the original penalty as assessed.

Downstream implications

• Reinforces OFAC's doctrine that actual notice of an SDN designation = wilful violations

from the date of designation forward — even for legacy management relationships pre-dating the designation.

• The separate reporting-failure count under 31 CFR §501.603 signals OFAC is treating

failure to report blocked assets as an independently actionable offence alongside any substantive sanctions breach, doubling the enforcement exposure of companies managing SDN-linked assets.

• The Gracetown/King Holdings/individual-fiduciary trilogy puts **property-management companies,

real-estate investors, and professional fiduciaries** on notice that Deripaska-adjacent relationships created before April 2018 — even those since restructured — remain within OFAC's enforcement horizon.

• The pending SDNY constitutional challenge is the first major test of the Excessive Fines

Clause in the OFAC civil-penalty context; a ruling for Gracetown could constrain OFAC's ability to impose disproportionate penalties on low-value-transaction cases.

Open questions

• SDNY ruling timeline on the Eighth Amendment / APA challenge.
• Whether OFAC will pursue the BVI-layer entities (Baufinanz Ltd. and its upstream chain)

for property-blocking violations.

• Whether the three Dec 2025 OFAC actions will be cited as precedent in the ongoing broader

Deripaska SDN litigation.