Yesterday, March 31, 2026, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) released a Sanctions Advisory titled “Guidance on Sham Transactions and Sanctions Evasion.” The Advisory is aimed at clarifying the sanctions risks posed by transfers of property that are designed to conceal, rather than genuinely terminate, their continuing interest in that property. These “sham” transactions often occur through proxies, straw owners, front businesses, or opaque legal structures such as trusts . OFAC makes it clear that it applies functional definitions of “interest” and “property interest” that look through legal formalities to underlying economic realities and sham transactions, therefore, do not extinguish a blocked person’s interest in property. The Advisory builds directly on existing OFAC guidance, including FAQ 402 (addressing the 50 Percent Rule), and supplements that prior framework by identifying concrete factors market participants should consider when evaluating whether a purported transfer or divestiture was genuine.

The Advisory identifies several red flags that may indicate a blocked person continues to hold an interest in property that has ostensibly been transferred. These include: (1) commercially unreasonable transactions — transfers lacking adequate consideration or not reflective of arm’s-length dealings; (2) transfers to family members or close associates who may be serving as proxies, facilitators, or agents for the blocked person; (3) transfers with no apparent business purpose, or to individuals with little relevant expertise in the transferred asset; (4) unduly complex corporate structures — such as multi-layered LLCs, partnerships, or trusts — domiciled in higher-risk or opaque jurisdictions with little connection to the underlying property; (5) continued involvement by the blocked person in the use, management, or disposition of property, whether directly or through intermediaries; (6) transfers completed close in time to a designation; and (7) evasive or vague responses from counterparties or intermediaries when queried about a blocked person’s involvement. OFAC emphasizes that no single factor is determinative and that a totality-of-the-circumstances analysis applies.

The guidance crystallizes OFAC’s expectations for heightened due diligence when a blocked person has previously held an interest in property, making it clear that market participants must look beyond legal title and assess the economic and functional realities of any purported transfer. In the wake of this guidance, commercial actors must scrutinize transactions with greater care. The consequences of failing to do so are severe. Participants who engage, even unknowingly, in transactions involving property that remains functionally blocked face significant enforcement exposure. In additional to civil monetary penalties, those who knowingly serve as proxies, nominees, or facilitators for blocked persons face the risk of designation themselves. We recommend that clients review their existing due diligence frameworks in light of this Advisory and assess whether current procedures adequately account for the red flags OFAC has now identified.