Key Takeaways
- • OFAC published a Sanctions Advisory on March 31, 2026, titled "Guidance on Sham Transactions and Sanctions Evasion," establishing new compliance expectations around blocked person property concealment schemes.
- • The Advisory identifies red flags for sham transactions—arrangements where blocked persons retain practical and economic interest in property while appearing to transfer it on paper—used to circumvent U.S. sanctions.
- • Compliance risk centers on opaque legal structures, including trusts and intermediary arrangements, that enable sanctioned entities (Russian oligarchs, narco-trafficking cartels) to maintain concealed interests in property.
- • Recent OFAC enforcement actions cited in the Advisory involved multi-million-dollar penalties against firms that facilitated blocked property transactions through proxies and intermediaries on behalf of sanctioned individuals.
- • Companies must update sanctions compliance policies to account for red flags in trust-related dealings and property arrangements where blocked persons may retain indirect ownership interests (50% or more, directly or indirectly).
Summary
The U.S. Department of the Treasury's Office of Foreign Assets Control released a Sanctions Advisory on March 31, 2026, providing updated guidance on identifying and preventing sham transactions designed to evade sanctions. The Advisory, titled "Guidance on Sham Transactions and Sanctions Evasion," represents a material expansion of OFAC's compliance expectations and directly addresses schemes where blocked persons—including Russian oligarchs and members of narco-trafficking organizations—use opaque legal structures to conceal their continuing interest in property.
OFAC defines sham transactions as arrangements in which blocked persons, frequently operating through proxies or intermediaries, effectuate transfers or establish structures that conceal rather than genuinely extinguish their interest in property. The practical outcome is that while title to property changes on paper, the blocked person retains substantive economic control and benefit. The term "blocked persons" encompasses individuals and entities designated on OFAC's Specially Designated Nationals and Blocked Persons List (SDN List), as well as entities that are 50% or more directly or indirectly owned by such designated persons.
The Advisory highlights specific compliance risks arising from complex legal structures, particularly trusts, which have been weaponized to mask blocked persons' continuing property interests. By providing a non-exhaustive list of red flags for identifying sham transactions, OFAC has given financial institutions and corporations actionable standards for enhanced due diligence. Recent enforcement actions cited in the Advisory underscore the regulatory severity: firms that facilitated blocked property transactions through intermediaries and proxies on behalf of sanctioned oligarchs incurred multi-million-dollar penalties, signaling OFAC's commitment to aggressive enforcement.
Institutional investors, financial institutions, and corporations subject to OFAC jurisdiction should revise their sanctions compliance policies and procedures to incorporate the red flags identified in the Advisory, with particular emphasis on dealings involving trusts and arrangements where blocked persons may retain indirect interests. This guidance represents a shift toward stricter scrutiny of transaction structures and ownership chains, requiring enhanced transparency and substantive ownership verification across complex corporate and trust arrangements.
OFAC defines sham transactions as arrangements in which blocked persons, frequently operating through proxies or intermediaries, effectuate transfers or establish structures that conceal rather than genuinely extinguish their interest in property. The practical outcome is that while title to property changes on paper, the blocked person retains substantive economic control and benefit. The term "blocked persons" encompasses individuals and entities designated on OFAC's Specially Designated Nationals and Blocked Persons List (SDN List), as well as entities that are 50% or more directly or indirectly owned by such designated persons.
The Advisory highlights specific compliance risks arising from complex legal structures, particularly trusts, which have been weaponized to mask blocked persons' continuing property interests. By providing a non-exhaustive list of red flags for identifying sham transactions, OFAC has given financial institutions and corporations actionable standards for enhanced due diligence. Recent enforcement actions cited in the Advisory underscore the regulatory severity: firms that facilitated blocked property transactions through intermediaries and proxies on behalf of sanctioned oligarchs incurred multi-million-dollar penalties, signaling OFAC's commitment to aggressive enforcement.
Institutional investors, financial institutions, and corporations subject to OFAC jurisdiction should revise their sanctions compliance policies and procedures to incorporate the red flags identified in the Advisory, with particular emphasis on dealings involving trusts and arrangements where blocked persons may retain indirect interests. This guidance represents a shift toward stricter scrutiny of transaction structures and ownership chains, requiring enhanced transparency and substantive ownership verification across complex corporate and trust arrangements.
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