On March 31, 2026, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued a Sanctions Advisory to raise awareness of potential sanctions risks arising from sham transactions used to evade sanctions. The advisory presents examples and lists red flags that may indicate the presence of a sham transaction. While it is explanatory only and does not have the force of law, the advisory follows several recent enforcement actions involving blocked persons who sought to retain and conceal interests in property through opaque structures and intermediaries.
What OFAC Means by “Sham Transactions”
Most US sanctions programs authorize the imposition of “blocking” sanctions on, e.g., governments, companies, and individuals. These sanctions prohibit US persons from dealing in property or property interests of the “blocked person” unless authorized by OFAC, and they require US persons to block (i.e., freeze) and report the property or property interest to OFAC. Under OFAC’s 50 Percent Rule, any entity that is owned 50 percent or more, directly or indirectly, by one or more blocked persons is itself considered a blocked person. OFAC FAQ 402, which is referenced in the advisory, confirms that, “if one or more blocked persons divest their ownership stake such that the resulting combined ownership by blocked persons is less than 50 percent, the entity is no longer considered automatically to be a blocked entity,” provided such divestment occurs outside US jurisdiction and does not involve US persons. Consistent with a warning in OFAC FAQ 402 to conduct sufficient due diligence to ensure that a purported divestment is not a sham transaction, the advisory further cautions that where divestments are not genuine, they will be disregarded by OFAC for blocking purposes.
OFAC describes sham transactions as arrangements where blocked persons, often acting through proxies or intermediaries, make transfers or set up structures that conceal, rather than genuinely extinguish, a continuing interest in property. The advisory indicates that, in circumstances where there are signs of a sham transaction, analysis of legal ownership alone may be insufficient to determine whether property should be treated as blocked. In OFAC’s view, because it applies “functional definitions of ‘interest’ and ‘property interest’ that look beyond legal formalities to underlying practical and economic realities,” a blocked interest in property is not eliminated simply because the blocked person gave up their interest “on paper.”
Examples Highlighted by OFAC
The advisory notes that blocked persons have used opaque legal structures—including trusts, straw owners, front businesses, and layered shell entities—to conceal continuing interests in a wide range of assets, including companies, bank accounts, real estate, investment vehicles, and high-value movable assets, including:
- Transfers of high-value assets into trust structures or to family or close associates while the blocked person continues to use, or benefit from, the assets.
- Attempts to channel funds through US financial institutions using accounts or vehicles nominally held by non-blocked persons (including family members).
- Corporate “reincorporation” or renaming after designation, with nominal new owners, while continuing the same operations.
OFAC also references prior actions involving trust and foundation structures used to obscure beneficial ownership and control, emphasizing its willingness to impose blocking sanctions on such structures when control or benefit remains with a blocked person. While these cases may not have involved sham transactions in the form of purported divestments by blocked persons, they nonetheless provide useful illustrations of how OFAC evaluates the incongruity of a blocked person’s level of control and involvement in an entity, as compared to that person’s reduced or non-existent ownership interests in the entity.
Red Flags Indicating Potential Sham Transactions
The advisory also lists factors that may indicate a blocked person retains an interest in property that has been “transferred,” including:
- Commercially unreasonable terms (e.g., inadequate consideration, non-arm’s-length economics).
- Transfers to family members or close associates who may be acting as proxies or agents.
- Unclear purpose of transfer, including ownership shifts that lack a credible business rationale.
- Unduly complex corporate structures, particularly involving jurisdictions with limited transparency or weak controls.
- Continued involvement by the blocked person in using, managing, or directing disposition of the asset.
- Transfers close in time to designation, which may warrant heightened scrutiny.
- Evasive or vague responses to ownership/control inquiries from counterparties, intermediaries, or other gatekeepers.
OFAC stresses that no single factor is determinative and that the analysis of a given transaction should consider the totality of circumstances and take a risk-based approach.
Practical Implications for Trade Compliance
At a minimum, the advisory and recent OFAC enforcement actions involving opaque ownership structures and allegations of sham transactions may warn against relying exclusively or predominantly on legal ownership percentages, at least where there is an indication that a blocked person held an ownership interest in the past. In those situations, OFAC recommends reviewing “available information” against the red flags described in the advisory, implying that enhanced due diligence may be appropriate if certain red flags are in fact present and cannot be resolved. Moreover, apart from divestment scenarios that transform an entity from a blocked to an unblocked entity, the advisory suggests other situations that warrant risk-based due diligence include those where complex structures or arrangements lack a reasonable commercial or legal justification or where a blocked person’s non-ownership interests or benefits are disproportionate to their ownership interests.
