Given up on paper only: OFAC’s sham transaction advisory, and the divestment that never actually happened.

A clean share register is evidence. It is not an answer — OFAC looks past legal formalities to who still controls the asset.

Sanctions · 11 Oct 2026

Imagine a seller who is not on any list, a clean share register, and counsel in two jurisdictions signing off. Those formalities do not establish that a blocked person has relinquished an interest. OFAC’s advisory concerns divestments that never actually happened, where a blocked person transferred property on paper while retaining the underlying interest.

What happened

OFAC applies "functional definitions" of interest and property interest that look past legal formalities to economic reality. A sham transaction does not terminate a blocked interest — in OFAC’s view, it never worked, and later dealings may involve blocked property, subject to the applicable U.S. jurisdiction, prohibition, exemptions and authorizations. The advisory describes OFAC’s guidance; it does not itself create a new legal duty. It lists seven non-exhaustive red flags, and no factor alone or combination of factors necessarily establishes a sham:

Commercially unreasonable terms.
Transfers to family members or close associates.
An unclear purpose.
Unduly complex structures in higher-risk jurisdictions.
Continued involvement of the blocked person.
Timing near designation.
Evasive responses about the blocked person’s involvement.

Legal advice did not resolve what the fiduciary should reasonably have known. In a December 2025 settlement, outside counsel concluded, based on the information provided, that a trust did not appear to be blocked. OFAC had reason to believe the opinion rested, at least in part, on the understanding that a proxy had no substantive role in the trust’s management or operations. OFAC’s first aggravating factor was that the fiduciary should reasonably have known, from readily available information, that the proxy’s continued involvement allowed the blocked person to retain control. That is a should-have-known assessment, not a finding that the fiduciary actually knew every relevant fact.

What this means for you

The red flags only engage once you ask who held the asset before. If diligence never reaches back past the current owner, the trigger never fires — a design gap, not a judgment error. Where information shows that a blocked person retains an interest in the property, property in the United States or within the possession or control of a U.S. person must be blocked and reported to OFAC. Where that property is outside the United States and outside the possession or control of any U.S. person, OFAC says persons required to comply with U.S. sanctions should refrain from directly or indirectly dealing in it absent OFAC authorization. A red flag alone does not establish that predicate; the relevant jurisdiction and prohibition still matter.

Prior-ownership diligence is a discrete control. For a company assessing an asset transfer, the ownership history and evidence of retained control deserve a documented U.S. sanctions review. Contact Zimmermann Law to discuss the review’s scope.

This post provides general information, not legal advice. Sanctions analysis is fact-specific and changes over time.

Sources: OFAC, Guidance on Sham Transactions and Sanctions Evasion (March 31, 2026), pp. 1–5, U.S. agency guidance; OFAC, An Individual enforcement release (December 9, 2025), pp. 1–4, historical enforcement account. Neither is a substitute for the applicable program’s operative requirements. Sources checked October 9, 2026. The release describes apparent violations and OFAC’s assessment; no adjudicated actual-knowledge finding is asserted.

This post is for general information and is not legal advice.

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