Gracetown, Inc., a property management company based in New York, has filed a lawsuit in the U.S. District Court for the Southern District of New York seeking to overturn a $7.1 million civil penalty imposed by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). The penalty was issued on December 4, 2025, following OFAC’s determination that Gracetown violated sanctions regulations by accepting 24 loan payments between 2018 and 2020 connected to sanctioned Russian oligarch Oleg Deripaska.
According to OFAC, Gracetown continued processing these payments despite receiving prior notice that such transactions were prohibited. The total value of the payments was $31,250.
In its complaint for declaratory and injunctive relief, Gracetown challenged both the amount and process behind OFAC’s enforcement actions. The company argued that OFAC’s $7.1 million penalty is “grossly disproportionate” under the Excessive Fines Clause of the Eighth Amendment to the Constitution, given that the underlying transactions involved “inadvertent acceptance of small-value loan payments” totaling only $31,250 during the relevant time period.
Gracetown further asserted that its conduct was inadvertent and non-egregious: “The violations stemmed from a ‘negligent administrative oversight,’ rather than from an intent to evade U.S. sanctions,” it stated in court filings. The company emphasized its status as a first-time offender and said there was no evidence of any attempt to back-channel payments for Deripaska’s benefit. It described OFAC’s claims otherwise as “baseless.”
Another key point in Gracetown’s legal argument concerns mitigation credit for voluntary disclosure and cooperation with authorities. The company claimed it voluntarily disclosed “complete information” regarding these transactions to OFAC in January 2022—almost two years after the last alleged violation—and entered into a tolling agreement during OFAC’s investigation. According to Gracetown: “OFAC’s understanding of the alleged violations was materially shaped and advanced by [its] disclosure,” providing substantial mitigating value that OFAC denied.
The lawsuit also raises several constitutional challenges:
– Due Process: Gracetown argued that OFAC’s enforcement process under Ukraine-/Russia-Related Sanctions Regulations lacks impartial adjudication compared with other programs where hearings are held before an Administrative Law Judge.
– Equal Protection: As a U.S.-based company with Russian ownership ties, Gracetown alleged discriminatory treatment based on national origin or affiliation, noting similarly situated non-Russian-affiliated entities received mitigation credit.
– Excessive Fines: Reiterating its earlier claim about proportionality, Gracetown said the penalty—more than 200 times greater than the transaction value—violates constitutional protections against excessive fines.
– Right to Jury Trial: Citing SEC v. Jarkesy (603 U.S. 109 [2024]), Gracetown contended punitive civil penalties like this require jury trial rights under Article III courts per the Seventh Amendment.
The court will now consider whether OFAC’s penalty was arbitrary or capricious under federal law and if constitutional safeguards apply when civil sanctions are imposed in similar contexts.
A decision favoring Gracetown could affect future enforcement practices at OFAC and may lead to new procedural requirements.