Wall Street Firms Worked With Sanctioned Oligarch’s Family Trust

About six months after founding the New York hedge fund Mantle Ridge in 2016, Chief Executive Officer Paul Hilal flew to Moscow and pitched a potential investment to one of Russia’s richest men.

Suleyman Kerimov Photographer: Mikhail Svetlov/Getty Images Photo by Mikhail Svetlov /Photographer: Mikhail Svetlov/Ge

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(Bloomberg) — About six months after founding the New York hedge fund Mantle Ridge in 2016, Chief Executive Officer Paul Hilal flew to Moscow and pitched a potential investment to one of Russia’s richest men.

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Suleiman Kerimov, a member of the upper chamber of parliament, had made his fortune buying stakes in Russian companies including in banking, energy and mining. After they met, Hilal wrote in an email to the oligarch’s English-speaking nephew that he had been “impressed” with Kerimov. The Russian senator understood the opportunity “immediately and completely,” Hilal wrote.

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By then, Kerimov was known to the bankers who courted him as the “Russian Gatsby” for the glitzy parties he hosted in the south of France. The oligarch had built up a stake in US banks ahead of the 2008 financial crisis, and after his fortune weathered the storm, he remained a key target for a clutch of western financial institutions focused on banking rich clients.

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The result of the December 2016 meeting was an investment of $25 million that originated, via a circuitous route, with money from Kerimov, according to documents and emails reviewed by Bloomberg. It was destined for a new Mantle Ridge fund, which would then buy up shares in a US railroad company.  

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In January 2017, an arm of Morgan Stanley, which provided compliance and administrative services to Mantle Ridge, gave the green light to the investment, which came from a European foundation set up for two of Kerimov’s children. Later that year, the foundation’s holdings were transferred to a Delaware-based trust, Heritage Trust, that the US Treasury Department would later say was set up to hold and manage Kerimov’s US-based assets.

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That rather complicated scenario might have been unremarkable were it not for a slew of sanctions issued by the first Trump administration in April 2018 against Kerimov and other Russian oligarchs for what the US described as Russia’s “worldwide malign activity” around the globe. It was an action intended to freeze them — and US assets and property in which they have a stake — out of the American financial system. But Treasury later indicated, in the case of Kerimov, it didn’t work.

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In 2022, the agency said that after an extensive investigation in Kerimov’s holdings it discovered he maintained a concealed interest in Heritage Trust in the years after he was sanctioned. As a result, Treasury announced that Heritage Trust, which it described as “Suleiman Kerimov Trust,” was blocked from the US financial system, a specific type of sanction that freezes assets or other property.

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Some US companies, including Mantle Ridge and Morgan Stanley, continued to work with Heritage Trust in the years after Kerimov was sanctioned — but before Treasury announced that Heritage Trust was blocked. The two companies continued the investment on behalf of Heritage Trust for at least nine months after the oligarch was sanctioned, until at least January 2019, according to the emails and a person familiar with the matter, who asked not to be named in order to discuss nonpublic information.

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In the past year, Treasury has taken action against a handful of US businesses and professionals that worked with Heritage Trust during that four-year period. Kerimov’s name doesn’t appear in Heritage Trust documents. However, in recent enforcement releases, Treasury has emphasized that at least two other financial firms — GVA Capital and IPI Partners — that dealt with Heritage Trust either knew – or should have known – that Kerimov maintained a stake. 

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Bloomberg News couldn’t determine if Treasury is looking into Mantle Ridge’s and Morgan Stanley’s dealings with Heritage Trust, which haven’t been previously reported.

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Mantle Ridge told Bloomberg in a statement that years before Treasury announced that Heritage Trust was blocked in 2022, the company “preemptively liquidated its holdings, and removed it from the partnership, having proactively consulted with OFAC,” referring to the Office of Foreign Assets Control, the Treasury arm that deals with sanctions. “Mantle Ridge will redeem investors who could create reputational risk,” the company said. Mantle Ridge declined to comment on other questions from Bloomberg, including what it did, if anything, after Kerimov was sanctioned in 2018. 

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Morgan Stanley declined to comment. Treasury didn’t respond to requests for comment.

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Sanctions are a powerful foreign policy tool to lock foreign individuals and companies considered harmful to national security out of US financial markets. The Treasury Department relies on financial institutions to conduct rigorous due diligence on customers, but the process of enforcing sanctions has often been complicated by tangled financial arrangements that mask who’s involved.

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US companies aren’t allowed to do business with sanctioned individuals, whether they are aware the person is blacklisted or not, though penalties can be worse if they had reason to know or willfully violated sanctions. They are required to report any interest in a sanctioned individual or company promptly and can’t dispose of an interest in a so-called blocked property without Treasury’s written approval.

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In June, Treasury levied the maximum possible fine — $216 million — against San Francisco venture capital firm GVA Capital, determining that the company “willfully violated US sanctions.” The agency alleged GVA Capital knowingly managed an investment for Kerimov – ultimately owned by Heritage Trust – while he was sanctioned. GVA couldn’t be located for comment, and Bloomberg couldn’t determine if the company disputed Treasury’s allegations. 

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In December, IPI Partners, a Chicago-based private equity firm, agreed to an $11.5 million settlement after Treasury concluded that the company had reason to know it was dealing with Kerimov indirectly. Blue Owl Capital Inc., which acquired IPI last year, said the settlement involves matters prior to its purchase, and IPI’s founding partners didn’t respond to requests for comment.

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In addition, in December, Treasury announced a $1.1 million settlement with an unnamed attorney who worked for a trust funded by a sanctioned Russian oligarch over 122 “apparent” sanctions violations. That attorney is James Langdon, a former Treasury official and Akin Gump partner who advised Heritage Trust, according to trust documents, emails and people familiar with the matter, who asked not to be named to discuss nonpublic information. Langdon, who retired as a partner at Akin Gump in 2019 and is now listed as partner emeritus, didn’t respond to requests for comment for this story.

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When asked about his work for Heritage Trust, a spokesperson for Langdon previously told Bloomberg, “Langdon believed at all times that the activities and operation of the trust were entirely compliant with applicable laws and regulations.” 

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Alex Zerden, a former Treasury official, said the US government historically takes so few enforcement actions that lawyers and compliance experts carefully study each one to understand the implications, particularly given the agency appears to be keeping up its focus on Kerimov.

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Kerimov, 59, didn’t respond to a request for comment. He is the 13th richest Russian, according to the Bloomberg Billionaires Index, with a net worth of about $10.7 billion. The European Union sanctioned Kerimov in 2022 and described him as part of the inner circle of oligarchs close to Russian President Vladimir Putin.

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In announcing sanctions against Kerimov and six other oligarchs on April 6, 2018, then Treasury Secretary Steven Mnuchin said the Russian government “operates for the disproportionate benefit of oligarchs and government elites,” and cited Russian “malign activity” in Crimea, Ukraine and Syria, in addition to attempts to “subvert Western democracies.”

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After he was sanctioned, Kerimov used a “complex series of legal structures and front persons to obscure” his continued interest in the trust, Treasury said in 2022, when it announced that Heritage Trust was blocked from the US financial system. That meant Kerimov continued to benefit from the trust’s investments — which included stakes in large US public and private companies and which grew to more than $1 billion — despite sanctions precisely intended to prevent him from benefiting from any assets he held in the US, a senior Treasury official said in 2024.

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Later in 2022, Treasury sanctioned Kerimov’s nephew, Nariman Gadzhiev, describing him as a primary financial facilitator for the oligarch. (Gadzhiev was the nephew who corresponded with Hilal in December 2016 after meeting Kerimov in Moscow).

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The particulars of the January 2017 deal — more than a year before Kerimov was sanctioned — were complex but reveal a winding paper trail that ultimately traces back to the oligarch. Mantle Ridge secured a $25 million investment that came through Liechtenstein-based Diversity Foundation, which was created with $400 million that Kerimov gifted to two adult children before the money was moved out of Russia, emails and foundation documents show. Russian law bans government officials from holding foreign financial assets.

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Mantle Ridge raised an additional $25 million using the initial investment as collateral, putting the full amount into a fund that bought shares in US railroad company CSX Corp., according to emails reviewed by Bloomberg.

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In an early January 2017 email to Hilal, Gadzhiev predicted that Morgan Stanley would ask “a one-million-dollar question” about the source of the Liechtenstein funds, saying that after they saw who was involved — referring to the children of a Russian senator — they “will get petrified!” Morgan Stanley will notice the foundation is created by “associate PEPs,” Gadzhiev said in his email. It’s not known if Hilal reviewed the email or if he responded.

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PEP stands for “politically exposed persons.” The presence of some PEPs, such as senior foreign political figures and their close family members, in financial dealings can trigger greater due diligence and continued monitoring as part of US requirements to identify the ultimate owners of accounts, although it doesn’t mean they are subject to sanctions. Gadzhiev couldn’t be reached for comment. CSX declined to comment.

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Later in 2017, the assets from the Liechtenstein foundation – including the investment in the Mantle Ridge fund – were transferred into Heritage Trust, a newly formed family trust registered in Delaware. 

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Kerimov’s mother, Kuncha Kerimova, was listed as the grantor, or creator of Heritage Trust, and Langdon, the attorney, was an adviser with four different roles, according to trust documents. Citigroup managed the trust as administrative trustee. Last year, Treasury described Heritage Trust as a “Delaware-based Kerimov family trust.”

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Family trusts rarely identify beneficiaries by name, potentially making it harder to identify — or easier to obscure — those who hold ownership in or control over the trust, according to sanctions experts. The trust documents reviewed by Bloomberg indicate that the assets of Heritage Trust could be distributed to any of Kerimova’s descendants unless they are explicitly prohibited.

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Kerimova couldn’t be reached for comment. Citigroup has previously said it has been transparent with regulators and that it “acted in compliance with our obligations under US sanctions laws and regulations.”

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After Treasury’s announcement on April 6, 2018, that Kerimov was sanctioned, the clock started ticking.

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Many companies are required to screen for sanctions, in addition to having processes in place to identify who their customers are. 

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Treasury has specific guidance for how to deal with people who have been sanctioned. For instance, the agency requires companies to freeze assets and transactions of sanctioned individuals. Companies are also required to report any frozen interest they have within 10 working days.

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In addition, according to Treasury, a sanctioned person’s property or interests that may have to be frozen “may not be transferred, withdrawn, or otherwise dealt in.”

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Soon after the 2018 Treasury announcement, Mantle Ridge and others sought out documents saying that Kerimov wasn’t involved with Heritage Trust or the Mantle Ridge fund.

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Five working days later, Mantle Ridge Chief Compliance Officer Christopher Lee wrote to Gadzhiev, who had no official role in the trust, and asked him to provide copies of a letter – signed by Langdon – that indicated Kerimov was excluded from the trust.

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Lee assumed this so-called prohibited person document had been “issued previously” and that its existence would exclude Kerimov from being a beneficiary of the trust or holding any interest in it, he wrote. It’s not known what if anything Lee got back from Gadzhiev in response or why he asked Gadzhiev to provide a letter.

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A few weeks later, after the Treasury 10-day reporting deadline for reporting any Kerimov assets held in the US financial system, Langdon signed a prohibited person letter on April 27, 2018, made at Citigroup’s request. The agency’s assessment of the document isn’t known.

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A letter from Morgan Stanley months later, in late November 2018, took a different view of Kerimov’s role. Morgan Stanley described Kerimov as a “controlling person” in the Mantle Ridge fund that held an investment from Heritage Trust at the time. An attorney for the trust disputed that claim.

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However, in January 2019, Morgan Stanley resigned as administrator to the fund, according to the person familiar with the matter. Morgan Stanley didn’t process or try to process any redemptions to Heritage Trust before it resigned, the person added.

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As a result of Morgan Stanley resigning as fund administrator, and subsequent resignation of the fund auditors, Mantle Ridge decided to return the money from its fund – plus its profit – back to Heritage Trust early, according to a March 25, 2019 letter from Paul Butler, an attorney at Akin Gump, which represented the trust. Butler and Akin Gump didn’t respond to requests for comment.

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The hedge fund approached the Treasury Department for approval to transfer the funds. Transactions or even attempted transactions of blocked property can count as sanctions violations.

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The agency told Mantle Ridge orally that Heritage Trust wasn’t blocked property, allowing the monies to be refunded, Butler wrote. However, when Mantle Ridge sought written confirmation, OFAC hadn’t responded by March 2019, he added.

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Bloomberg News couldn’t determine if Mantle Ridge ever got written confirmation from Treasury that it could do so. It also couldn’t determine what if anything Mantle Ridge did with any fees or profit it made from the Heritage Trust investment after Kerimov was sanctioned.

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