Paul Weiss Discusses OFAC Guidance on “Sham Transactions” And Sanctions Evasion

Summary

On March 31, 2026, OFAC issued a sanctions advisory warning that blocked persons are using "sham" transactions to evade U.S. sanctions by transferring property while retaining control. The advisory outlines seven red‑flag categories—such as commercially unreasonable terms, transfers to family or proxies, and complex structures in high‑risk jurisdictions—and urges a functional, total‑circumstances analysis rather than reliance on formal ownership rules like the 50 Percent Rule. Recent enforcement actions underscore the guidance: OFAC fined San Francisco venture‑capital firm GVA Capital $215.99 million and Chicago private‑equity firm IPI Partners $11.49 million for facilitating investments for sanctioned Russian oligarch Suleiman Kerimov, and settled a $1.09 million case against a U.S. attorney acting as fiduciary for a sanctioned trust. The advisory calls on firms to embed these red flags into due‑diligence and compliance programs, conduct deeper beneficial‑owner reviews, and maintain ongoing screening of investors and counterparties.