Key Points

• On March 31, 2026, OFAC published a Sanctions Advisory that highlights compliance risks arising from sham transactions used to evade sanctions.
• The Sanctions Advisory highlights certain kinds of opaque legal structures, including trusts, that may be used to conceal a blocked person’s continuing interest in property.
• The Sanctions Advisory builds on OFAC’s prior guidance by providing a non-exhaustive list of red flags that may be indicative of a sham transaction.
• Companies should ensure that their sanctions compliance policies and procedures take into account the red flags identified by OFAC, including with respect to dealings that involve trusts and other complex legal structures, as well as dealings in property in which a blocked person may retain an indirect interest.

Concealed Property Interests and Sham Transactions

On March 31, 2026, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) published a Sanctions Advisory, titled “Guidance on Sham Transactions and Sanctions Evasion.” The Advisory highlights sanctions risks arising from “sham transactions” used to evade sanctions and describes factors for identifying property that may be the subject of a sham transaction. In particular, the Sanctions Advisory flags compliance risks arising from blocked persons—such as Russian oligarchs and members of narco-trafficking cartels—utilizing opaque legal structures and other mechanisms to conceal their continued interest in property and facilitate sanctions evasion.

Blocked Property Interests

Individuals and entities designated on OFAC’s Specially Designated Nationals and Blocked Persons List (the SDN List), and entities directly or indirectly owned 50% or more by such persons, are subject to OFAC blocking sanctions. All property and interests in property of such persons in the United States or in the possession or control of U.S. persons are “blocked” and must be reported to OFAC. In addition, unless licensed or exempt, U.S. persons are prohibited from engaging in transactions that involve any property or interest in property of a blocked person.

Notably, OFAC regulations broadly define the term “interest” to mean “an interest of any nature whatsoever, direct or indirect.” The terms “property” and “property interest” are also broadly defined to include any “present, future, or contingent” interest or interests in property. As noted in the Sanctions Advisory, these definitions “look beyond legal formalities to underlying practical and economic realities.”

Sham Transactions

“Sham transactions” are transfers or arrangements that are conducted or established to conceal, rather than genuinely extinguish, a blocked person’s “interest” in property, and they may be conducted through non-sanctioned intermediaries or proxies to obfuscate the blocked person’s continuing interest and evade sanctions.

OFAC has long warned that the agency does not consider “sham transactions” to extinguish a blockable interest in property. In particular, OFAC’s Frequently Asked Question (FAQ) 402, issued in August 2014, explains that “[i]f 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” where the divestment occurred entirely outside of U.S. jurisdiction and did not involve U.S. persons. However, FAQ 402 also cautions that parties should conduct sufficient due diligence to determine that “any purported divestment in fact occurred” and that the transfer of ownership interests was not merely a “sham transaction.” The Sanctions Advisory builds on this guidance by identifying factors to consider in conducting due diligence to determine whether a purported divestment was a sham transaction.

The Sanctions Advisory provides several non-exhaustive “red flags” that are indicia of sham transactions, including:

• Commercially unreasonable transactions. When property in which a blocked person once held an interest is transferred on terms that are not commercially reasonable, lack adequate consideration or are otherwise inconsistent with an arm’s‑length transaction, this may indicate a sham transaction.
• Transfers to family members or close associates. These transactions should be examined for indicia “that the nominal owner is not independent from the blocked person and is instead holding property for, or acting on behalf of, the blocked person,” for example, in cases involving formal or informal side agreements, agent-principal or other close relationships, or similar arrangements linking the transferee to the blocked person.
• Unclear purpose of transfer. These transactions include transfers that lack an apparent business purpose, or transfers to individuals with little or no relevant experience or expertise related to the property.
• Unduly complex corporate structures involving higher-risk jurisdictions. These transactions are particularly suspicious where the structure lacks a discernible legitimate purpose, including where the jurisdictions involved have no clear connection to the property, where regulatory oversight is limited, or where local laws enable ownership or control to be obscured.
• Continued involvement of a blocked person. This could include transactions where the use, management or disposition of property suggests that a blocked person continues to retain an interest in the property, including via proxies or intermediaries.
• Transfer near the time of designation. This includes transactions either immediately before or after the designation of the relevant blocked person.
• Evasive responses regarding a blocked person’s involvement. This could include evasive or vague responses to questions from counterparties, key intermediaries or gatekeepers.

Risks Related to Trusts and Similar Legal Arrangements

The Sanctions Advisory underscores risks related to trusts and similar legal arrangements by highlighting several enforcement actions involving blocked persons who used such structures in sham transactions to obscure property interests, including the following:

• June 2022 Notification of Blocked Property to Heritage Trust: OFAC publicly announced its determination that sanctioned Russian oligarch Suleiman Kerimov held a property interest in Heritage Trust, a Delaware-based trust. OFAC’s announcement explained that the agency’s investigation “revealed that Kerimov used a complex series of legal structures and front persons to obscure his interest in Heritage Trust, the funds of which first entered the U.S. financial system through two foreign Kerimov-controlled entities prior to the imposition of sanctions against him.”
• June 12, 2025 Enforcement Action Against GVA Capital Ltd. and December 2, 2025 Enforcement Action Against IPI Partners: These enforcement actions arose from alleged activities of U.S. persons on behalf of Heritage Trust following the designation of Kerimov. OFAC imposed a penalty of $215,988,868 on GVA Capital Ltd. and settled with IPI Partners for $11,485,352.
• December 9, 2025 Settlement: A U.S. person entered into a $1,092,000 settlement agreement with OFAC, arising from the person’s role as the fiduciary of a trust that was funded by a Russian oligarch, which continued after OFAC designated that oligarch. The U.S. person exercised broad powers over the trust, including appointing or removing other fiduciaries, making decisions about the disposition of the trust’s assets, and making decisions about distributions from the trust. Following his designation, the Russian oligarch continued to exercise control over the trust through a family member who did not maintain any formal authority over the trust but frequently liaised with investors and fiduciaries on the oligarch’s behalf, including the U.S. person. According to OFAC, the U.S. person reasonably should have known that the family member’s continued involvement in the trust allowed the sanctioned oligarch to retain control over decisions made related to the trust and indicated that the oligarch maintained a property interest in the trust.

These examples illustrate the risks of sham transactions associated with trusts and similar structures, where interests can be concealed through multiple layers of shell companies and proxies, making it difficult to assess who, in practice, has an interest in the property. In many cases, standard sanctions screening may be insufficient to determine the actual purpose and use of trusts and other complex structures by blocked persons. Accordingly, the red flags described in the Sanctions Advisory are important indicators for detecting sham transactions.

US Policy Considerations and Risks

In addition to the OFAC enforcement risks illustrated by these examples, non-U.S. persons involved in arranging, facilitating or effecting sham transactions may face the risk of OFAC designation based on criteria under various U.S. sanctions authorities. For example, in August 2024 OFAC designated several individuals and entities for operating or having operated in the trust and corporate formation services sector of the Russian Federation economy on the basis that, among other things, they helped to obfuscate Russian beneficial ownership and investments and facilitated sanctions evasion schemes.

The Sanctions Advisory emphasizes a functional approach to compliance that looks beyond legal formalities to underlying practical and economic realities. Companies can mitigate enforcement risk by having strong internal sanctions compliance policies and recordkeeping procedures. In particular, companies should ensure that the red flags identified by OFAC in the Sanctions Advisory are incorporated into their compliance processes, as appropriate for their business, and that identified risks are carefully examined.