Sanctioned Russian oligarch held stake in Musk’s SpaceX via trust

Citigroup administered Heritage Trust and decided it didn’t need to block the trust’s assets after Suleyman Kerimov was sanctioned in 2018, according to people with knowledge of the matter.

A Russian senator who is one of the country’s richest men held a stake in Elon Musk-led SpaceX via a trust even after he was sanctioned by the first Trump administration, exposing gaps in the enforcement of rules intended to target elites who enable Kremlin policies, according to people with knowledge of the matter.

Billionaire Suleyman Kerimov held the SpaceX stake through Delaware-based Heritage Trust starting in 2017, according to four people, including two former senior US national security officials. They asked not to be identified to discuss sensitive matters. The trust initially held approximately 1% of SpaceX, according to three of the people.

The SpaceX holding started the year before Kerimov and others were sanctioned by the US Treasury Department, in response to what it called Russia’s “malign activity around the globe.” Treasury’s actions sought to block his assets and prevent him from doing business with US companies. Citigroup Inc., which handled day-to-day administration of Heritage Trust, sought guidance from the Treasury Department and decided there was no requirement to block the trust and associated entities after Kerimov was sanctioned, and the trust kept going, according to another person familiar with the matter.

Four years later, in June 2022, Treasury blocked the $1 billion trust — which it said was created in 2017 for Kerimov’s US-based assets — after its investigators uncovered what it said was a complex system of legal structures and front people set up to obscure his interest in it. The SpaceX holding had already been disposed of prior to that Treasury action, according to two of the people. The trust’s former stake in the Musk-led company hasn’t been previously reported.

Suleyman Kerimov, left, with Vladimir Putin in Russia’s Dagestan region, June 2023.Photographer: Gavril Grigorov/Sputnik/AFP/Getty Images

The events show the hurdles that tangled financial networks present to US attempts to uphold sanctions and the challenges closely held companies such as SpaceX, now valued at around $350 billion and an increasingly influential player in global defense and communications, must confront in order to determine the identity of investors. They also raise questions about due diligence at Citigroup, an international banking giant that is now under investigation by the Justice Department over its handling of Heritage Trust.

A Citigroup spokesperson declined to answer questions for this article, instead referring to a statement from November, when Bloomberg News and other media outlets reported the investigation by the Justice Department, FBI and IRS. Citigroup “is committed to conducting all business with the highest consideration for compliance with all laws and regulations,” a spokesperson said then.

Citigroup continues to hold the Heritage Trust account but is prevented from distributing or accepting funds because of the Treasury freeze, Barron’s reported in November.

Bloomberg News couldn’t determine whether SpaceX knew that Heritage Trust — or another entity that was part of it — held a stake in the company. It’s also not known what role other advisers or facilitators may have played in making decisions related to Heritage Trust funds.

Closely held companies such as SpaceX conduct due diligence on investors. However, it can sometimes be hard to identify shareholders in certain circumstances. In some cases, they can acquire a stake through a legal entity created for a particular reason, such as a special purpose vehicle, or through sales on a secondary market, a common way for employees or other insiders to sell shares.

SpaceX didn’t comment, and Musk and his representatives didn’t respond to requests for comment. Neither Kerimov nor the US Treasury Department responded to requests for comment.

Musk, the world’s richest person, has emerged as one of President Donald Trump’s most influential advisors. He now has a White House email and office space, and his social media platform X and SpaceX’s Starlink satellite business have made him an increasingly powerful geopolitical player. Musk has faced scrutiny over his repeated outreaches to Moscow and alleged contacts with Russian President Vladimir Putin, as well as the way he has handled Starlink terminals provided for Ukraine after Russia invaded.

Treasury can fine companies that break sanctions whether they realize it or not, and in some instances, the Justice Department can file criminal charges. Investment professionals who are closest to sanctioned individuals are more likely to be pursued than unwitting investment recipients, experts said. Disposing of blocked funds by a sale or not declaring them to Treasury could violate the rules, according to another person familiar with the matter.

Since the Treasury blocked Heritage Trust in 2022, authorities have continued to find more US companies the trust invested in, according to the person. The person declined to identify them. Officials are still investigating the extent to which any such companies may have violated sanctions and deciding whether to hold them accountable, according to the person, who didn’t want to be identified discussing sensitive details.

Separately, the Defense Department requires some contractors to report on foreign ownership or suspicious contacts.

Read More: Seizing a Russian Superyacht is Much More Complicated Than You Think

Kerimov, 58, is the 17th richest Russian, according to the Bloomberg Billionaires Index, where he ranks 282nd overall with a net worth of about $9.9 billion.

A member of the upper chamber of Russia’s parliament, Kerimov made his fortune buying stakes in Russian companies including in banking, energy and mining, sometimes using loans from state-owned banks. The European Union sanctioned Kerimov in 2022 and described him as part of the inner circle of oligarchs close to Putin.

The US sanctioned Kerimov earlier, in April 2018, freezing his assets and banning US transactions with him, as part of a sweeping action under the Trump administration to hold Russian officials and oligarchs accountable for allegedly profiting from corruption and foreign aggression.

After the full-scale invasion of Ukraine in February 2022, the US escalated its efforts to target assets held by sanctioned Russians. That April, the US seized a 348-foot superyacht in Fiji, “Amadea,” that it says Kerimov controls via a series of shell companies. The $300 million vessel’s ownership is the subject of a federal court case in Manhattan.

In September 2022, Treasury sanctioned the entire Russian senate, including Kerimov, for approving Putin’s request to send troops into Ukraine and providing “an unjustified pretext” for a full-scale invasion.

Treasury also imposed sanctions in 2022 on several of Kerimov’s family members and associates, including Kerimov’s wife, two daughters, one son and two nephews, one of whom it described as a “primary financial facilitator” for him. The other nephew is a beneficiary of Heritage Trust, Treasury said. Kerimov’s family members couldn’t be located for comment.

That year, when it announced that it had blocked Heritage Trust, Treasury said it was formed in 2017 to hold and manage Kerimov’s US assets. SpaceX’s valuation was more than $21 billion in 2017. Its December 2024 valuation of $350 billion cemented it as the most valuable startup in the world.

The funds that ended up in Heritage Trust first entered the US financial system through two foreign Kerimov-controlled entities before he was sanctioned, Treasury said in its June 2022 announcement. The funds were then invested in “large public and private US companies” and managed by a series of US investment firms and facilitators, according to Treasury.

“Kerimov and his proxies used various layers of US and non-US shell companies to hold formal title to assets and to conduct transactions in a manner that concealed his interest,” Treasury said at the time, without identifying any parties involved.

For about four years after Kerimov was first sanctioned, he was able “to continue to retain an interest in, and benefit from, his over $1 billion in assets in the United States,” said Andrea Gacki, a US Treasury official, in a speech in September 2023 while advocating for a tougher corporate transparency law. “Identifying this network required an extensive, multi-year enforcement investigation into Kerimov’s US holdings,” she said.

The grantor — or creator — of Heritage Trust is Kuncha Kerimova, according to trust documents reviewed by Bloomberg News. Kerimova, who is Kerimov’s mother, couldn’t be reached for comment. Under the trust, Kerimova could select beneficiaries and distribute the trust’s funds to any of her descendants unless they were designated as a so-called “prohibited person” and explicitly barred from receiving them.

Treasury requires companies to freeze assets and transactions of sanctioned individuals, and to report any frozen interest they have within ten days. Under Treasury guidance, even a future or contingent interest would need to be frozen if the person was sanctioned.

A person familiar with Citigroup’s view said that at the time of the sanctions, it wasn’t clear to the bank that Kerimov was sufficiently involved in the trust to require them to block it.

Citigroup emailed information about Heritage Trust to Treasury’s sanctions office on April 26, 2018, about three weeks after Kerimov was sanctioned, according to a person familiar with the correspondence, who asked not to be named discussing non-public materials. A Treasury official responded that, based on what was shared, it didn’t appear that the bank needed to block the trust but that it should review additional information before making a decision. Citigroup needed to rule out any scenario in which Kerimov could have a future or contingent interest in the trust, which the bank’s message indicated could be the case, the Treasury official wrote in the email.

Following that review, Citigroup remained of the view that the trust wasn’t subject to blocking, the person said.

In addition, the next day, James Langdon, an attorney who acted as an advisor to the trust, listed the oligarch as a “Prohibited Person” in a letter addressed to Citigroup and reviewed by Bloomberg News. It was written at Citigroup’s request, the person said.

Langdon didn’t respond to requests for comment.

Citigroup acted as the administrative trustee at Heritage Trust, a role that involved handling day-to-day tasks, such as maintaining trust bank accounts, distributing assets, filing taxes and acting in accordance with the law. The bank also maintained records of assets held by the trust, and responded to inquiries from Kerimova and the trust’s beneficiaries, according to trust documents.

The person familiar with the bank’s view said Kerimov created the trust in a way that made the assets it held appear distant from his involvement and control. Treasury’s sanctions office concluded in 2022 that Heritage Trust was subject to blocking because Kerimov retained an interest in it. Treasury didn’t share the methods used to reach that determination with Citigroup, the person added.

Treasury’s determination that Kerimov retained an interest after the sanctions indicates the bank may not have monitored the trust closely enough, a person who worked in a senior position at Citigroup during the episode said.

Under Chief Executive Officer Jane Fraser, who took over in 2021, the bank has invested more heavily in risk and control functions. However, the bank, whose wealth arm counts a quarter of the world’s billionaires as clients, still faces orders from US regulators to improve back-office checks and controls and was fined as recently as last year.

Treasury’s case against Kerimov represented “a wake-up call” showing the extensive networks that sanctioned individuals use to maintain access to US financial networks, then Assistant Treasury Secretary Elizabeth Rosenberg said in a December 2022 speech.

Erica Hanichak, government affairs director at the Financial Accountability and Corporate Transparency Coalition, an alliance dedicated to stopping illicit finance, said the US private investment industry, in particular, is “notoriously opaque.”

“Whether sanctioned individuals or drug cartels, it is clear that bad actors know of and exploit this opacity to hide and grow illicit cash,” she said.

For SpaceX, being a defense contractor with a security clearance comes with additional rules regarding investors.

Such contractors must report foreign ownership, control or influence of at least 5%, which was higher than Heritage Trust’s stake in SpaceX.

A company might still need to submit a “suspicious contact” report if a sanctioned person held an investment in the company, according to Royal Reff, a spokesperson for the Defense Counterintelligence and Security Agency, which vets and manages national security clearances. Companies that hold clearances for classified work are responsible for reporting information in good faith, Reff added.

Musk’s links to Trump and the use of SpaceX’s Starlink terminals by governments and militaries around the world have made him increasingly influential.

In the aftermath of Russia’s invasion of Ukraine in 2022, for instance, Musk provided Kyiv with crucial Starlink satellite communications. He was criticized by a senior Ukrainian official after he declined requests from Ukraine to activate Starlink in parts of Russia-occupied Crimea, arguing it would lead to conflict escalation.

Starlink doesn’t sell to Russia, the company has said. It has worked with the Pentagon to curb its illicit use by Russian forces in Ukraine, Bloomberg News has reported.

Separate from any issues related to Heritage Trust and Kerimov, Musk’s alleged ties to Russian officials has raised concerns from some members of Congress and the Defense Department.

Two Democratic senators, Jack Reed and Jeanne Shaheen, in November called for a Pentagon investigation into Musk’s alleged relationship with Putin and his deputy chief-of-staff Sergei Kiriyenko, citing reporting by the Wall Street Journal in October that Musk has been in regular contact with Putin since late 2022. Russia has denied the conversations took place while Musk ridiculed the Journal story without denying it.

The relationships “pose serious questions regarding Mr. Musk’s reliability as a government contractor and a clearance holder,” the senators wrote.

Sophia Martinez