On 31 March 2026, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued a Sanctions Advisory titled “Guidance on Sham Transactions and Sanctions Evasion”. The warning is straightforward: a transfer on paper is not enough if the blocked person still retains the real benefit of the asset, continues to influence its use, or remains tied to it through another structure. Formal title may change. The blocked interest may not.
The Advisory is aimed at so-called sham transactions: arrangements designed to conceal, rather than genuinely extinguish, a blocked person’s continuing interest in property. OFAC points in particular to proxies, straw owners, front businesses, family members, close associates, and opaque legal structures such as trusts. The point is substance, not form. If the practical and economic reality remains the same, OFAC will not stop at the paperwork.
There is, however, an important qualification. The Advisory is explanatory only and does not itself create new statutory or regulatory obligations. It is nevertheless significant because it builds on existing OFAC guidance, including FAQ 402 on the 50 Percent Rule and the risk of sham divestment, and identifies concrete factors that parties should examine when deciding whether a purported transfer, divestiture, or restructuring was genuine.
OFAC brings the warning signs together in one place. They include:
- commercially unreasonable terms, including inadequate consideration or terms inconsistent with an arm’s-length transaction;
- transfers to family members, close associates, or other related persons who may be acting as proxies, nominees, facilitators, or agents;
- a lack of credible business purpose, or a transferee with little or no relevant connection to the asset or business;
- unnecessarily complex legal structures, including layered entities or trusts, particularly where tied to higher-risk or opaque jurisdictions;
- continued involvement by the blocked person in the use, management, control, or disposition of the property;
- transfers completed close in time to a designation or other sanctions-related event; and
- evasive, vague, or inconsistent responses when counterparties or intermediaries are asked about a blocked person’s involvement.
No single factor settles the issue. OFAC makes clear that the analysis turns on the totality of the circumstances. That matters because many of these features can, taken alone, appear explainable. The question is what they show when assessed together.
The examples make the point clearly: a blocked oligarch transfers a private aircraft to a trust for the benefit of his unsanctioned spouse while continuing to use it; funds are placed into trusts for minor children and then moved through U.S. banks; and a sanctioned company is reincorporated under nominal new owners while continuing the same blocked operations. OFAC also points to real enforcement history, including matters such as Heritage Trust and the IPI Partners case, to show that a formal change in ownership will not defeat sanctions analysis if the underlying interest remains in place.
This is not merely a drafting point. It is a sanctions risk point. The practical lesson is that title documents, corporate records, and divestment instruments are not enough on their own. Where a blocked person previously held an interest in property, the real task is to assess whether the transaction makes commercial sense, whether the consideration is real, whether the transferee is genuinely independent, and whether the blocked person has in fact stepped away from the asset.
The consequences of getting this wrong are serious. The Advisory warns that persons who knowingly act as proxies, nominees, or facilitators for blocked persons may themselves face designation risk. More broadly, where the available information shows that a blocked person retains an interest in property in the United States, or within the possession or control of a U.S. person, that property must be blocked and reported to OFAC. FAQ 402 further clarifies that, once property is blocked, later unlicensed transfers of the blocked interest are not recognised.
What clients should review now
For banks, trustees, fiduciaries, asset managers, family offices, and other parties dealing with ownership structures, the immediate question is whether existing sanctions diligence is capable of testing more than legal form. A transfer may look complete on paper and still fail under scrutiny. Clients should be asking whether the structure is commercially coherent, whether the ownership chain is unnecessarily opaque, whether the transferee has a credible independent role, and whether the blocked person has truly given up practical use, influence, and economic benefit.
At a minimum, the red flags identified by OFAC should be built into transaction review, onboarding, escalation, and internal controls. In this area, the decisive question is often not what the documents say in isolation, but whether the arrangement survives scrutiny once substance is measured against form.
Sources:
https://ofac.treasury.gov/media/935441/download?inline
