April 3, 2026

OFAC Issues Guidance on Sham Transactions and Sanctions Evasion

Grant Leach, Emily Mikes Husch Blackwell LLP + Follow Contact LinkedIn Facebook X Send Embed On March 31, 2026, the Office of Foreign Assets Control (“OFAC”) issued an advisory (the “Advisory”) regarding sham transactions and their use in evading US sanctions. OFAC described sham transactions as occurring when “blocked persons, often operating through proxies or other intermediaries, effectuate transfers or establish arrangements that conceal–rather than genuinely extinguish–a continuing interest in property.” OFAC’s definitions of “interest” [1] and “property interest” [2] extend further than legal formalities, so sham transactions do not terminate a blocked interest in property.

The Advisory further states that OFAC has encountered numerous instances of attempted sanctions evasion wherein blocked persons attempt to use sham transactions or complicated legal structures (e.g. trusts, proxies, straw owners, and front businesses) to hide their interest in what would otherwise be considered blocked property under the regulations. OFAC highlighted the below examples:

• A blocked oligarch transferred ownership of his jet to a trust, whose sole beneficiary was his unsanctioned wife, thereby allowing the oligarch to continue using the jet for travel.

• A blocked person transferred millions of dollars into trusts for his minor children and then attempted to move the funds through US banks.

• A blocked person funded a bank account in his wife’s name and continued to benefit through his wife’s management of the account.

• An investment advisory continued to manage property on behalf of a blocked person through multiple intermediate companies under the oligarch’s trust.

• A blocked company was reincorporated under a different name with new nominal owners while continuing the blocked company’s operations.
  The Advisory then provided a list of red flags that US persons should be aware of and watching for when engaging in transactions. The red flags include:

• Commercially unreasonable transactions: Transfers of property in which a blocked person once held an interest on terms that are not commercially reasonable, lacking adequate consideration, or otherwise not suggestive of an arm’s length transaction may indicate that the blocked person still retains an interest in the property.  Conversely, evidence that a transaction was between unrelated parties, at fair market value, in a competitive market, would tend to demonstrate that a bona fide transfer occurred.

• Transfer to family members or close associates: Transfers by a blocked person to a family member or close associate can be evidence of a sham transaction.  Such family members or close associates may be acting as a proxy, facilitator, money manager, or agent for the blocked person. Similarly, the nature and scope of the relationship between the blocked person and a nominal owner of the transferred property may also be relevant.  Formal or informal agreements, agent-principal or other close relationships, and other similar factors may indicate that the nominal owner is not independent from the blocked person and is instead holding property for, or acting on behalf of, the blocked person.

• Unclear purpose of transfer: Transfers lacking apparent business purpose may indicate an attempt to obfuscate a blocked person’s continued interest in property.  Likewise, transfers to an individual with little or no relevant experience or expertise with respect to the transferred property may be evidence of a sham transaction.

• Unduly complex corporate structures involving high-risk jurisdictions: The presence of unnecessarily complex legal structures without a discernible legitimate purpose—such as certain multi-layered limited liability companies, partnerships, or trusts—may indicate an effort to conceal an ownership interest.  This risk is heightened when holding entities are domiciled in jurisdictions that have little connection to the property they hold, lack robust regulatory and supervisory controls, or offer laws and structures that enable obfuscation in property ownership

• Continued involvement of a blocked person: Facts or circumstances suggesting a blocked person remains involved in the use, management, or disposition of property—including through proxies or intermediaries—may indicate that the blocked person continues to retain an interest in property.  In these situations, where a blocked person previously held an ownership interest in the property, the blocked person may still be behind legal structures designed to conceal their interest.

• Transfer near the time of designation: Transfers completed close in time to a person’s designation may trigger suspicion warranting further analysis, such as when a purported transfer occurs immediately before or after a designation. For example, shortly before or after being designated by OFAC, blocked drug kingpins have transferred shares in non-US companies to offshore shell companies; such transfers should raise US sanctions compliance concerns.

• Evasive responses regarding a blocked person’s involvement: Evasive or vague responses, or failures to respond to questions from counterparties, key intermediaries, or gatekeepers regarding a blocked person’s involvement in property may be evidence of intent to conceal a continuing interest.
  The Advisory emphasizes the importance of due diligence, particularly when dealing with higher-risk jurisdictions. However, the red flags listed in the Advisory are “not intended to convey a ‘one-size-fits-all’ approach” to evaluating the risks of a blocked person’s involvement in a transaction. It is therefore important to understand how these regulations apply to you and your transactions.

[1] See 31 C.F.R. § 594.306 (“except as otherwise provided in this part, the term interest when used with respect to property (e.g., “an interest in property”) means an interest of any nature whatsoever, direct or indirect.”).

[2] See id. at § 594.309 (“the terms property and property interest include, but are not limited to, money, checks, drafts, bullion, bank deposits, savings accounts, debts, indebtedness, obligations, notes, guarantees, debentures, stocks, bonds, coupons, any other financial instruments, bankers acceptances, mortgages, pledges, liens or other rights in the nature of security, warehouse receipts, bills of lading, trust receipts, bills of sale, any other evidences of title, ownership or indebtedness, letters of credit and any documents relating to any rights or obligations thereunder, powers of attorney, goods, wares, merchandise, chattels, stocks on hand, ships, goods on ships, real estate mortgages, deeds of trust, vendors’ sales agreements, land contracts, leaseholds, ground rents, real estate and any other interest therein, options, negotiable instruments, trade acceptances, royalties, book accounts, accounts payable, judgments, patents, trademarks or copyrights, insurance policies, safe deposit boxes and their contents, annuities, pooling agreements, services of any nature whatsoever, contracts of any nature whatsoever, and any other property, real, personal, or mixed, tangible or intangible, or interest or interests therein, present, future or contingent.”).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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