The Treasury Department’s Office of Foreign Assets Control has issued an advisory to (1) highlight sanctions risks arising from sham transactions used to evade sanctions and (2) identify factors to consider when evaluating whether property may be the subject of a sham transaction.
OFAC states that sham transactions occur when blocked persons, often operating through proxies or other intermediaries, effectuate transfers or establish arrangements that conceal (rather than genuinely extinguish) a continuing interest in property.
The advisory sets forth the following non-exhaustive list of red flags that may indicate a sham transaction (see advisory for more details).
- commercially unreasonable transactions
- transfer to family members or close associates
- unclear purpose of transfer
- unduly complex corporate structures involving higher-risk jurisdictions
- continued involvement of a blocked person
- transfer near the time a person is designated by OFAC
- evasive responses regarding a blocked person’s involvement
OFAC states that persons evaluating whether property involved in a transaction raises U.S. sanctions concerns can apply these red flags when information suggests that a blocked person possessed a prior, documented interest in property in the U.S. or within the possession or control of any U.S. person. If the blocked person retains an interest in such property it must be blocked and reported to OFAC. If the property is not in the U.S. and is not within the possession or control of any U.S. person, persons required to comply with U.S. sanctions should refrain from directly or indirectly dealing in the property absent authorization from OFAC.
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