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On March 31, 2026, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) released an important advisory addressing the growing use of sham transactions to evade U.S. sanctions. The guidance highlights how sanctioned individuals and entities often attempt to disguise their continuing interest in property through opaque legal structures, proxies, and other intermediaries. OFAC’s message is clear: transactions that merely appear to transfer ownership but do not genuinely extinguish a blocked person’s interest remain prohibited.
What OFAC Defines as a “Sham Transaction”
Sham transactions occur when blocked persons “give up their property on paper only,” while continuing to benefit from or control the asset. These arrangements often involve:
- Proxies, straw owners, or front companies acting on behalf of sanctioned individuals.
- Opaque legal structures, including multi‑layered LLCs, partnerships, or trusts.
- Transfers to family members or close associates who may serve as facilitators.
- Commercially unreasonable transfers, such as those lacking adequate consideration.
- Continued use or control of the asset by the blocked person after the purported transfer.
Pro Tip: Look beyond legal formalities and identify the economic realities of the transaction.
Red Flags Identified by OFAC
The advisory outlines several indicators that a transaction may be a sham designed to evade sanctions. These include:
- Transfers with no legitimate business purpose or to individuals lacking relevant expertise.
- Complex corporate structures in high‑risk jurisdictions.
- Inconsistent or incomplete documentation surrounding the transfer.
- Timing of the transfer, particularly if it occurs close to a sanctions designation.
- Evasive or vague responses from intermediaries when questioned about ownership or control.
Pro Tip: No single factor is determinative; look at the totality of the circumstances instead.
If your organization needs assistance strengthening sanctions compliance, conducting due diligence, or reviewing internal controls, contact Diaz Trade Law today!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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