OFAC Advisory Warns: Sham Transactions Do Not Evade Sanctions

April 10, 2026

OFAC Issues Guidance on Sham Transactions and Sanctions Evasion

Melissa Duffy, Carrie Schroll, Robert Slack Fenwick & West LLP + Follow Contact LinkedIn Facebook X Send Embed

What You Need To Know

• On March 31, 2026, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued an advisory highlighting risks arising from sham transactions used to evade U.S. sanctions applicable to blocked property.
• The advisory identifies red flags that may indicate a transaction is a sham, including commercially unreasonable transfers, transfers to family members or close associates, unduly complex corporate structures, and continued involvement of a blocked person in property management. Presence of these red flags warrants further diligence to ensure sanctions compliance.
• The advisory comes on the heels of several OFAC enforcement cases involving trusts, venture capital funds, and complex corporate structures where OFAC found a sanctioned person still had an interest in property that had not been genuinely extinguished.

Overview of the OFAC Advisory

OFAC issued the advisory to explain that a sham transaction designed to evade sanctions does not extinguish a sanctioned person’s interest in property. As a result, OFAC continues to impose blocking sanctions and prohibit dealings in property that was transferred through a sham transaction. The advisory cautions against transactions involving proxies or other intermediaries to effectuate transfers or arrangements that conceal a sanctioned person’s continuing property interest. This advisory supplements OFAC’s longstanding “50 Percent Rule” guidance on the application of sanctions to non-listed entities owned by sanctioned persons, offering practical guidance on how to analyze whether sanctioned ownership has truly been eliminated.

Red Flags of Sham Transactions

The core of the advisory is a list of seven categories of red flags that may indicate a blocked person retains an interest in property that has purportedly been transferred to a non-blocked person. OFAC notes that these are non-exhaustive, encouraging a functional, totality of circumstances approach when conducting due diligence on sanctions red flags. The following red flags may indicate sham transactions:

• Commercially unreasonable transactions. Transfers of property on terms that are not commercially reasonable, including those that suggest a transaction is not arm’s length.
• Transfer to family members or close associates. Transfers by a blocked person to a family member or close associate who may be acting as a proxy or front person.
• Unclear purpose of transfer. Transfers lacking an apparent business purpose or that are made to persons who do not have relevant expertise or experience to handle such property.
• Unduly complex corporate structures involving higher-risk jurisdictions. Complex legal structures, such as multilayered limited liability companies, partnerships, or trusts, without a clear business rationale for the structures, particularly when located in higher-risk jurisdictions.
• Continued involvement of a blocked person. Indications that the blocked person is still involved in the use, management, or disposition of property.
• Transfer near the time of designation. Transfers completed right before or after a person is designated.
• Evasive responses regarding a blocked person’s involvement. Refusal to provide clear responses to questions regarding the blocked person’s involvement in property.

Related Compliance and Enforcement Actions

The advisory includes several examples of OFAC compliance and enforcement actions that illustrate the consequences of dealing in property subject to sham transactions and the way that the above red flags can appear in real life.

For example, in June 2022, OFAC issued a notification of blocked property to Heritage Trust, in which OFAC found a sanctioned person still held an interest despite sham transactions designed to establish front persons and obscure his interest. Similarly, in June 2024, OFAC designated foundations established for the benefit of the four children of a sanctioned Russian oligarch, where OFAC had previously found that the oligarch still had a property interest in the funds at issue. The advisory explains that trusts are a high-risk structure that may suggest a sham transaction.

In June 2025, OFAC imposed a $215,988,868 penalty on GVA Capital Ltd., a San Francisco-based venture capital firm, for dealings with a blocked Russian oligarch. OFAC found GVA Capital knowingly dealt in the sanctioned Russian oligarch’s property when working through the oligarch’s nephew whom GVA Capital knew acted as a proxy for the blocked oligarch. The oligarch’s use of his nephew to manage investments was a red flag of a sham transaction.

In December 2025, IPI Partners, a Chicago-based private equity firm, also settled with OFAC for prohibited dealings with a sanctioned Russian oligarch. OFAC found IPI had reason to know the sanctioned person was the source of funds and continued decisionmaker for investments maintained by IPI, even though the trust and complex legal structure for the investments appeared to show his ownership was below the 50% threshold.

These cases demonstrate the importance of looking for red flags of sham transactions and the consequences of ignoring signs of evasion.

Practical Considerations for Companies

OFAC recommends a robust review of available information to identify and evaluate red flags when information suggests a blocked person previously held an interest in property. This may include public source information, reports from screening and diligence tools, and privately held information known to transaction parties.

Companies should not proceed with a transaction if red flags are present and cannot be cleared through diligence. If there is insufficient documentation clearly showing that the property was not transferred in a sham transaction to avoid sanctions, U.S. persons should not deal in that property absent OFAC authorization.

Financial institutions, investment managers, lawyers, and other transaction gatekeepers are expected to engage in heightened scrutiny of transactions involving trusts; private foundations; venture capital investment funds and special purpose vehicles; and multi-layered corporate structures where a sanctioned person is known to have had an interest; as well as property transfers involving family members or close associates of blocked persons.

The advisory aligns with prior OFAC guidance focused on circumvention and evasion risks, such as guidance flagging the use of intermediaries for circumvention. OFAC remains focused on evasion of sanctions and expects companies to have meaningful processes to address red flags. The agency is also deploying significant resources to detect, deter, and enforce evasion-related violations of its regulations.

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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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