OFAC Focuses on “Sham Transactions,” Warns Companies to Examine Ownership Structures

On March 31, 2026, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued new guidance (the Advisory) highlighting sanctions risks arising from “sham transactions” and outlining factors that could indicate that property has been the subject of a sham transaction. The Advisory illustrates the importance of looking beyond formal ownership percentages when conducting due diligence into the ultimate beneficial ownership of counterparties. 

The Advisory expounds on OFAC’s longstanding 50 percent rule, which states that entities are blocked if owned 50 percent or more (directly or indirectly) by blocked persons. Although entities with less than 50 percent blocked ownership are not automatically blocked, OFAC has cautioned that due diligence should be conducted to determine that any purported divestment truly did occur and was not merely a sham transaction. OFAC FAQ 402. The 50 percent rule does not function as a safe harbor for companies engaging in cross-border transactions where there are indications of sanctioned ownership or participation despite a sham transaction. 

What are “Sham Transactions”?

OFAC defines sham transactions in the Advisory as arrangements in which blocked persons, often using proxies, trusts, or other intermediaries, “effectuate transfers or establish arrangements that conceal—rather than genuinely extinguish—a continuing interest in property.” The core principle is that blocked persons give up their property on paper in an effort to evade sanctions while their interests remain unchanged. The Advisory further emphasizes that sham transactions do not terminate a blocked interest in property—any property that has been the subject of a sham transaction remains blocked and cannot be dealt in absent authorization from OFAC.

Red Flags for Sanctioned Ownership

OFAC provides a non-exhaustive list of “red flags” indicating the possibility of a sham transaction attempting to conceal sanctioned ownership. OFAC advises that companies conduct enhanced due diligence when such red flags are present. No single factor is determinative; rather, a “totality of circumstances” approach is encouraged. These red flags include:

• Commercially Unreasonable Transactions: Transfers made on terms that are not commercially reasonable, lack adequate consideration, or are not arm’s-length.
• Transfer to Family Members or Close Associates: Divestments to spouses, children, relatives, or known associates who may act as proxies or agents.
• Unclear Purpose of Transfer: Transfers lacking apparent business rationale, such as to an individual without relevant experience or expertise.
• Unduly Complex Corporate Structures in Higher-Risk Jurisdictions: Multi-layered LLCs, partnerships, or trusts with no discernible legitimate purpose, especially where holding companies are domiciled in jurisdictions with weak regulatory controls or little connection to the underlying property.
• Continued Involvement of a Blocked Person: A blocked person remains involved in the use, management, or disposition of property, directly or indirectly.
• Transfer Near the Time of Designation: Divestiture immediately before or after an OFAC designation.
• Evasive Responses: Vague or evasive responses—or failure to respond—to inquiries about a blocked person’s involvement.

Recent OFAC Enforcements Target Those Ignoring Sanctioned Owners

The new guidance is not merely theoretical. OFAC has actively been pursuing enforcement actions against parties engaged in dealings involving property or entities with sanctioned ownership that has been masked by sham transactions. For example, in December 2025, OFAC entered into an $11,485,352 settlement and, earlier that year in June 2025, imposed a statutory maximum penalty of $215,988,868 for dealing in a sanctioned Russian oligarch’s investments via proxies. Additionally, in December 2025, OFAC settled with an individual fiduciary for $1,092,000, who allegedly should have known that a blocked person was using a proxy to retain control over a trust. These cases collectively demonstrate OFAC’s focus on holding “gatekeepers”—like investment managers and fiduciaries—accountable for failing to identify and block assets subject to sham transactions.

Key Compliance Takeaways for Companies

Companies should consider integrating these red flags into their sanctions compliance policies and due diligence procedures. Best practices include:

• Sanctions Screening: Continue screening counterparties, beneficial owners, and other involved parties.
• Enhanced Due Diligence: Where past or continued blocked ownership is suspected, assess for red flags and conduct thorough diligence, considering the “totality of circumstances.”
• Scrutiny of Trusts and Complex Structures: Examine opaque legal structures, as OFAC highlights trusts and other complex structures as vehicles for sham transactions.
• Understanding “Gatekeeper” Liability: Be aware that reliance on legal formalities alone is insufficient; OFAC expects a review of practical and economic realities.

Even where blocked ownership stakes appear below the 50 percent threshold, OFAC warns companies that ignoring “sham transaction” red flags can result in liability for dealing with a sanctioned person. Accordingly, companies can mitigate this risk by adopting a risk-based approach and maintaining vigilance to avoid engaging in dealings involving blocked property or entities, which could carry significant sanctions penalties.