“Gracetown vs. OFAC: Landmark Legal Battle Over $7M Russian Sanctions Penalty”

Gracetown Property Inc, a prominent US-based real estate company, has initiated legal proceedings against the Office of Foreign Assets Control (OFAC) following the imposition of a $7 million enforcement penalty.

1. The fine was levied after OFAC determined that Gracetown had violated US sanctions targeting Russia.
2. The dispute centres on allegations that Gracetown engaged in transactions involving Russian entities or individuals subject to US sanctions.
3. While OFAC maintains that the company’s actions constituted a clear breach of federal sanctions law, Gracetown argues that the enforcement action was disproportionate and is seeking to overturn or reduce the penalty through judicial review.
4. This case underscores the growing compliance challenges faced by US businesses operating in global markets, particularly amid heightened geopolitical tensions and expanding sanctions regimes.
5. Legal experts note that the outcome could set an essential precedent for how OFAC penalties are contested in court.
6. OFAC has not yet commented publicly on the litigation, and further details about the specific transactions under scrutiny remain undisclosed. Industry observers are watching closely, as the case may influence future enforcement strategies and corporate risk management practices.

LONG READ

US Real Estate Firm Gracetown Challenges $7M OFAC Penalty

1. Overview of the Gracetown–OFAC Dispute

• Gracetown Property Inc, a New York–based real estate management company, has engaged in legal proceedings against the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) following a $7.14 million enforcement penalty issued on December 4, 2025.
• OFAC determined that Gracetown willfully violated U.S. sanctions against Russia by facilitating transactions involving Russian oligarch Oleg Deripaska and failing to report blocked assets.
• Regulators allege that Gracetown processed 24 payments totalling $31,250 on behalf of a Deripaska-linked company, despite having received explicit notification warning them that all dealings with Deripaska, who was added to OFAC’s SDN List in April 2018, were strictly prohibited.

2. OFAC’s Enforcement Rationale

• OFAC’s December 4 press release highlights several aggravating factors:
• Gracetown continued facilitating transactions after explicit notification of Deripaska’s SDN designation in April 2018.
• The firm failed to report blocked assets for more than 45 months—delayed disclosure only came in January 2022, post-enforcement notice.
• The breaches were labelled “egregious” and not self-disclosed, triggering near-maximal penalties according to OFAC’s guidelines.
• The $7.14 million penalty, while far exceeding the nominal transaction value of $103,750 in blocked assets, reflects OFAC’s stance on sanction enforcement where intent and compliance attitude are decisive.

3. Background: OFAC, Russia Sanctions & SDN Designation

• Under the International Emergency Economic Powers Act (IEEPA), OFAC administers sanctions targeting state actors, terrorists, and other potential threats, including Russian entities listed under Executive Order 14024.
• Oleg Deripaska was designated on April 6, 2018, for being “a senior official of the Russian Federation” active in the energy sector. This designation mandates blocking all assets under U.S. jurisdiction and forbids transactions with SDNs.

4. Legal Action: Gracetown Pushes Back

• In response, Gracetown has filed a formal challenge, questioning OFAC’s penalty as unjustified and disproportionate. The firm seeks judicial review to reduce or overturn the sanction, raising broader questions about:
• Procedural due process in imposing penalties
• The interpretation of “wilfulness” and whether the company truly ignored explicit instructions
• The fairness of using high penalties despite low monetary values in disputed transactions
• The case is pending, with no public commentary from either party yet.

5. Compliance Lessons & Emerging Trends

Key takeaways from this case:

1. Monitor SDN designations and apply them rigorously to client structures and counterparties.
2. Act swiftly upon receiving OFAC notices—delay in blocking or reporting can aggravate the severity of enforcement.
3. Maintain clear internal documentation, demonstrating efforts to comply and avoid dealings with sanctioned parties.
4. Self-disclosure matters; voluntary, timely notification to OFAC can significantly mitigate penalties—late disclosures offer no leverage.
5. Expect heightened attention on “gatekeeper” professions—lawyers, real estate agents, corporate service providers—who facilitate transactions for sanctioned clients.

6. What’s Next?

1. The Gracetown lawsuit will be closely watched as a bellwether case regarding OFAC’s penalty approach—especially how it treats firms with minor-dollar violations but non-compliant behaviour.
2. A successful challenge could lead to:
1. More rigorous internal EO training and policy updates across sectors
2. Reduced penalties or more structured negotiation approaches
3. Greater transparency on the enforcement process and agency discretion

7. Final Thoughts

1. The Gracetown case highlights how strict compliance obligations, proactive risk mitigation, and legal preparedness are essential for navigating sanctions landscapes.
2. As sanctions against Russia and other jurisdictions continue to evolve, expect increasing scrutiny on all professionals involved in client transactions.

SOURCE

*   “OFAC Imposes $7 Million Penalty on Company Tied to Sanctioned Russian Oligarch” (U.S. Treasury) - https://home.treasury.gov/news/press-releases/sb0328

*   Lewis Brisbois Legal Advisory on OFAC $7M Penalty - https://lewisbrisbois.com/newsroom/legal-alerts/ofac-assesses-7m-civil-monetary-penalty-against-property-management-company

*   Arnold & Porter Analysis: OFAC Imposes $7.1M Penalty on Gracetown - https://www.arnoldporter.com/en/perspectives/blogs/enforcement-edge/2025/12/ofac-imposes-penalty-on-gracetown-for-sanctions-violation

*   SFGATE (AP): U.S. Treasury slaps $7.1M fine on New York firm for managing properties for Putin ally - https://www.sfgate.com/business/article/us-treasury-slaps-7-1m-fine-on-new-york-firm-for-21223960.php

*   LBKM Law: OFAC Penalties on NY Property Firm - https://www.lbkmlaw.com/news-events-OFAC-penalizes-NY-property-management-firm.html

*   National Law Review: “Increased OFAC Scrutiny of Sanctioned Party Representation” - https://natlawreview.com/article/serving-fiduciary-sanctioned-clients-ofacs-recent-enforcement-action-warning-shot