On March 31, 2026, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued guidance addressing sham transactions used to conceal a blocked person's continuing interest in property. Although the guidance (“Guidance on Sham Transactions and Sanctions Evasion”) does not establish new legal requirements, it provides important insight into how OFAC evaluates ownership structures, transfers of property, and sanctions evasion schemes.

The guidance reinforces an important principle that many companies overlook, i.e., transferring legal title alone does not necessarily eliminate a blocked person’s property interest. OFAC states that it will examine the economic reality of a transaction rather than relying solely on formal ownership documentation. Essentially, where a sanctioned person continues to exercise control or retain the benefits of ownership, OFAC may continue to treat the property as blocked.

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Why This Matters

For many organizations, sanctions due diligence has traditionally focused on identifying whether counterparties appear on OFAC's Specially Designated Nationals and Blocked Persons (SDN) List or are owned 50 percent or more by blocked persons.

OFAC’s advisory demonstrates that this analysis may not always be sufficient.

Companies may also need to evaluate whether an apparent transfer of ownership genuinely extinguished the sanctioned person's interest or merely attempted to disguise continued ownership through proxies, trusts, shell companies, family members, or other intermediaries.

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Key Red Flags Identified by OFAC

The advisory identifies several circumstances that should prompt enhanced due diligence, including:

• Transfers that are not commercially reasonable or lack adequate consideration.

• Transfers to family members, close associates, or trusted intermediaries.

• Transactions lacking a legitimate business purpose.

• Unnecessarily complex ownership structures, particularly those involving offshore entities or higher-risk jurisdictions.

• Continued involvement of the blocked person in managing, using, or benefiting from the property after the purported transfer.

• Transfers occurring immediately before or after an OFAC designation.

• Evasive or incomplete responses regarding beneficial ownership or the role of sanctioned persons.

Importantly, OFAC emphasizes that no single factor is determinative. Instead, companies should evaluate the totality of the circumstances using a risk-based approach.

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Increased Focus on Trusts and Complex Ownership Structures

One notable aspect of the advisory is OFAC’s discussion of trusts and similar legal arrangements.

Although trusts frequently serve legitimate estate planning and business purposes, OFAC notes that they have also been used to conceal continuing ownership by sanctioned persons. Companies should therefore avoid assuming that a transfer to a trust, foundation, or similar vehicle automatically removes sanctions risk. Instead, organizations should understand who ultimately benefits from the arrangement and who exercises practical control over the assets.

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Practical Compliance Considerations

Companies should consider whether their sanctions compliance programs adequately address ownership structures beyond traditional screening.

Practical measures may include:

• Expanding beneficial ownership reviews where prior sanctioned ownership is identified.

• Reviewing transfers involving family members, trusts, or close associates with heightened scrutiny.

• Requesting additional documentation supporting ownership changes where appropriate.

• Evaluating whether transaction terms appear commercially reasonable.

• Training legal, compliance, M&A, and commercial teams to recognize indicators of potential sham transactions.

• Documenting the rationale supporting beneficial ownership conclusions during enhanced due diligence.

These measures may be particularly relevant for financial institutions, private equity firms, investment managers, corporate service providers, multinational companies, and organizations acquiring assets from higher-risk jurisdictions.

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Enforcement Trends

The advisory also signals OFAC's willingness to pursue enforcement actions involving parties that continue dealing with blocked property through proxy arrangements or nominal owners. OFAC highlights recent enforcement actions involving investment structures where firms allegedly continued managing assets or accepting investments connected to sanctioned Russian oligarchs despite intermediary ownership arrangements.

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Key Takeaway

OFAC’s sham transaction guidance serves as a reminder that sanctions compliance extends beyond screening names against sanctions lists. Organizations should evaluate the substance of ownership arrangements, not merely their legal form. Where circumstances suggest a sanctioned person may continue to retain an economic interest in property despite a purported transfer, additional due diligence may be warranted before proceeding with a transaction.

Please see OFAC’s Guidance on Sham Transactions and Sanctions Evasion here: https://ofac.treasury.gov/media/935441/download?inline.

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