123Sanctions
OFAC Issues Advisory on Sanctions Evasion
On 31 March 2026, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) published a Sanctions Advisory addressing the use of sham transactions to circumvent U.S. sanctions. The advisory provides detailed guidance on identifying transfers that conceal — rather than genuinely extinguish — a blocked person's continuing interest in property.
OFAC defines sham transactions as arrangements in which blocked persons, often acting through proxies, straw owners, trusts, or front companies, transfer property on paper while retaining practical and economic control. Because OFAC applies a functional definition of "interest" and "property interest" that looks beyond legal formalities to underlying realities, such transactions do not terminate a blocked interest. Property subject to a sham transaction remains blocked and may not be transferred or dealt in without OFAC authorisation.
The advisory identifies several red flags that may indicate a sham transaction. These include commercially unreasonable transfer terms, transfers to family members or close associates, transactions lacking a clear business purpose, unduly complex corporate structures involving higher-risk jurisdictions, continued involvement of the blocked person in the management or use of the property, transfers completed close to the time of designation, and evasive responses to due diligence inquiries.
OFAC highlights trusts and similar legal arrangements as structures that warrant particular caution. While trusts serve many legitimate purposes, the advisory notes multiple enforcement cases in which trusts were used to obscure links between designated persons and their assets. The advisory references recent enforcement actions, including a December 2025 settlement involving a trust fiduciary who facilitated a blocked person's continued control over trust decisions through a proxy.
Two significant penalty actions are cited. In June 2025, OFAC imposed a USD 215,988,868 penalty on GVA Capital Ltd., a San Francisco-based venture capital firm, for knowingly managing investments for a sanctioned Russian oligarch through the oligarch's nephew. In December 2025, OFAC settled with IPI Partners, a Chicago-based private equity firm, for soliciting and maintaining investments from a sanctioned Russian oligarch whose senior leadership knew the source of the funds.
The advisory underscores that OFAC does not seek to disturb legitimate, good-faith dealings involving property in which no blocked interest exists. However, where information indicates a prior blocked interest, OFAC recommends a risk-based review against the identified red flags to determine whether the property remains blocked.
The guidance carries significant implications for financial institutions, investment managers, legal advisors, and compliance professionals worldwide. Any person required to comply with U.S. sanctions who encounters property potentially subject to a sham transaction must exercise heightened due diligence — and, where applicable, block and report the property to OFAC.
Source: OFAC Sanctions Advisory — Guidance on Sham Transactions and Sanctions Evasion, 31 March 2026
OFAC defines sham transactions as arrangements in which blocked persons, often acting through proxies, straw owners, trusts, or front companies, transfer property on paper while retaining practical and economic control. Because OFAC applies a functional definition of "interest" and "property interest" that looks beyond legal formalities to underlying realities, such transactions do not terminate a blocked interest. Property subject to a sham transaction remains blocked and may not be transferred or dealt in without OFAC authorisation.
The advisory identifies several red flags that may indicate a sham transaction. These include commercially unreasonable transfer terms, transfers to family members or close associates, transactions lacking a clear business purpose, unduly complex corporate structures involving higher-risk jurisdictions, continued involvement of the blocked person in the management or use of the property, transfers completed close to the time of designation, and evasive responses to due diligence inquiries.
OFAC highlights trusts and similar legal arrangements as structures that warrant particular caution. While trusts serve many legitimate purposes, the advisory notes multiple enforcement cases in which trusts were used to obscure links between designated persons and their assets. The advisory references recent enforcement actions, including a December 2025 settlement involving a trust fiduciary who facilitated a blocked person's continued control over trust decisions through a proxy.
Two significant penalty actions are cited. In June 2025, OFAC imposed a USD 215,988,868 penalty on GVA Capital Ltd., a San Francisco-based venture capital firm, for knowingly managing investments for a sanctioned Russian oligarch through the oligarch's nephew. In December 2025, OFAC settled with IPI Partners, a Chicago-based private equity firm, for soliciting and maintaining investments from a sanctioned Russian oligarch whose senior leadership knew the source of the funds.
The advisory underscores that OFAC does not seek to disturb legitimate, good-faith dealings involving property in which no blocked interest exists. However, where information indicates a prior blocked interest, OFAC recommends a risk-based review against the identified red flags to determine whether the property remains blocked.
The guidance carries significant implications for financial institutions, investment managers, legal advisors, and compliance professionals worldwide. Any person required to comply with U.S. sanctions who encounters property potentially subject to a sham transaction must exercise heightened due diligence — and, where applicable, block and report the property to OFAC.
Source: OFAC Sanctions Advisory — Guidance on Sham Transactions and Sanctions Evasion, 31 March 2026