Sold on paper: sham transactions, and why a blocked interest does not leave when the owner does.
A clean share register is evidence, not an answer. When a blocked owner transfers on paper but keeps the benefit, the blocked interest stays.
Foundations · 11 Oct 2026
Imagine a blocked person who transfers a shareholding to a brother-in-law but secretly keeps its benefits and control. The share register is updated. A notary stamps it. The buyer is not on any list, the price is written into an agreement, and every document you are shown is in order. On those assumed facts, the blocked interest has not changed. This concerns a sham transfer retaining a blocked interest, not every documented transfer; the advisory recognizes legitimate dealings where no blocked interest remains (p. 4).
That is the entire subject of this piece, and OFAC put it in a single sentence in its March 31, 2026 advisory, Guidance on Sham Transactions and Sanctions Evasion: blocked persons "give up their property on paper only, in an attempt to evade sanctions, while their interests in property remain unchanged."
The reason the paperwork does not help is structural, and it is the thing worth carrying away. In the advisory's words, OFAC implements "functional definitions of 'interest' and 'property interest' that look beyond legal formalities to underlying practical and economic realities." The regulations are drafted broadly to match. In the Russia program, for example, an "interest" in property "means an interest of any nature whatsoever, direct or indirect" (31 C.F.R. § 587.307), and a "transfer" includes "any actual or purported act or transaction" (31 C.F.R. § 587.312). Other program parts carry their own definitions. So a transfer that satisfies the formal law of property where it happened can still leave the blocked interest, for U.S. sanctions purposes, exactly where it was. As the advisory puts it, "sham transactions do not terminate a blocked interest in property."
Why intermediaries face exposure
Almost nobody reading this is the blocked person. That is precisely why it matters.
A sham transaction can expose the counterparty: the bank that processes the payment, the fund manager who accepts the investment, the acquirer who buys the asset two owners downstream, the advisor who administers the structure. Intermediaries can face exposure when dealing in property in which a blocked person keeps an interest. The advisory also says OFAC will act against this kind of evasion "through enforcement and designation actions," so being blocked does not make further misconduct consequence-free.
The advisory summarizes two enforcement actions, and OFAC's own enforcement releases bear out that summary. In June 2025 OFAC issued a Penalty Notice imposing a $215,988,868 penalty on GVA Capital Ltd., a San Francisco venture capital firm, for violating OFAC's Ukraine-/Russia-related sanctions and for failing to comply with an OFAC subpoena. Between April 2018 and May 2021, GVA knowingly managed an investment for a sanctioned Russian oligarch while aware of his blocked status, working through the oligarch's nephew, whom GVA knew served as his proxy. In December 2025 OFAC settled with IPI Partners, a Chicago private equity firm, over its solicitation, receipt and continued maintenance of investments from a sanctioned Russian oligarch for four years. According to the advisory, IPI's senior leadership knew the blocked person was the source of funds and had reason to know, at the time the funds were committed, that he ultimately made the relevant investment decisions.
Both examples concern investment professionals dealing with a blocked person's interests.
The seven red flags
The advisory sets out indicia that a blocked person may keep an interest in property that has purportedly been transferred away. OFAC is express that the list is not exhaustive and that no factor, alone or in combination with others, is determinative. What it asks for is a functional approach that considers the totality of the circumstances.
- Commercially unreasonable transactions. Transfers on terms that are not commercially reasonable, lack adequate consideration, or do not suggest an arm's-length deal. OFAC also states the converse, which is the useful half: evidence that a transaction was between unrelated parties, at fair market value, in a competitive market, "would tend to demonstrate that a bona fide transfer occurred."
- Transfer to family members or close associates, who may be acting as proxy, facilitator, money manager or agent. The nature and scope of the relationship between the blocked person and the nominal owner is itself relevant, as are formal or informal agreements and agent-principal relationships suggesting the nominal owner is not independent.
- Unclear purpose of transfer. Transfers lacking apparent business purpose, or to someone with little or no relevant experience or expertise regarding the property.
- Unduly complex corporate structures involving higher-risk jurisdictions. Multi-layered companies, partnerships or trusts without a discernible legitimate purpose. The risk is heightened where holding entities sit in jurisdictions with little connection to the property, weak regulatory and supervisory controls, or laws that enable obfuscation of ownership.
- Continued involvement of a blocked person in the use, management or disposition of the property, including through proxies or intermediaries.
- Transfer near the time of designation, such as a purported transfer immediately before or after a designation.
- Evasive responses regarding a blocked person's involvement: evasive or vague answers, or no answer at all, to questions from counterparties, key intermediaries or gatekeepers.
Read together, these are not really seven tests. They are one question asked seven ways: did economic reality move, or only title?
Trusts deserve their own paragraph
Trusts and similar arrangements vary significantly with their terms and with the law of the jurisdiction where they are domiciled, and they are broadly used for legitimate purposes. They have also, OFAC says, been used in sham transactions to obscure links between blocked persons and their property.
The advisory's illustration is worth knowing because of who was penalized. In December 2025 OFAC settled with an individual who apparently violated sanctions while serving as the fiduciary of a blocked person's family trust. OFAC found the individual should reasonably have known, based in part on past dealings with the blocked person, that the blocked person used a proxy to retain control over decisions related to the trust. Those factors indicated that the blocked person maintained a property interest in the trust.
That finding should get a professional trustee's attention. It concerns the facts of that case, not a universal knowledge threshold for civil sanctions liability; OFAC's release in the same matter notes that its sanctions "may be enforced on a strict liability basis." The practical recommendation is to investigate indications of retained control rather than rely on nominal ownership.
The one-way door
There is an asymmetry here that catches people, and it comes from OFAC FAQ 402 (agency guidance, not law; U.S. federal), released August 13, 2014. This section concerns entities blocked by ownership under OFAC's 50 Percent Rule (also agency guidance); falling below that threshold does not itself remove a separate designation or every other sanctions restriction.
Divestment can work. If blocked persons divest so that their combined ownership falls below 50 percent, the entity is "no longer considered automatically to be a blocked entity." But the divestment must occur entirely outside U.S. jurisdiction and must not involve U.S. persons, and FAQ 402 calls for sufficient due diligence to establish that the divestment in fact occurred and was not merely a sham. The March 2026 advisory describes itself as supplementing the 50 Percent Rule with factors for exactly that diligence.
Once property has actually been blocked in the United States or in a U.S. person's possession or control, the door shuts. That property remains blocked unless and until OFAC authorizes dealings in it, or OFAC removes the blocked owner from the SDN List (where several blocked persons own the entity, enough of them to bring the aggregate below 50 percent). Critically, if the aggregate falls below 50 percent not through OFAC's removal of names from the SDN List but through the blocked persons' own actions, the property stays blocked. OFAC does not recognize the unlicensed transfer of a blocked person's interest after the property becomes blocked.
So the sequence matters more than the arithmetic. A genuine offshore divestment may end automatic blocking under the ownership rule for future transactions. The same private steps do not unblock property already frozen within U.S. jurisdiction.
What OFAC says it is not doing
This is the part that keeps the subject proportionate, and it comes from the advisory itself.
OFAC recognizes that a party seeking to comply may deal in property in which a blocked person previously held an interest but no longer does. It states that it does not seek to disturb legitimate dealings performed in good-faith compliance involving property in which no blocked interest exists. The red flags are expressly not a "one-size-fits-all" approach; OFAC frames them as tools to apply, consistent with a risk-based approach, in situations where information suggests a blocked person possessed a prior, documented interest in property.
That conditional is the scoping instruction. The advisory targets indications of a prior blocked interest. It does not establish an exemption from other risk-based counterparty or ownership diligence.
And where the information does show a retained interest, the advisory states the two outcomes plainly. Where a blocked person retains an interest in property in the United States or in a U.S. person's possession or control, the property must be blocked and reported to OFAC. Where the property is outside the United States and outside any U.S. person's possession or control, persons required to comply with U.S. sanctions should refrain from dealing in it, directly or indirectly, absent OFAC authorization.
What to do with this
Four practical starting points, with escalation to qualified counsel where the facts are uncertain.
Ask who owned it before. Where the ownership history suggests a blocked person's prior interest, examine that history alongside the current counterparty and beneficial owners.
Treat a clean name screen as the start. An unlisted nominal owner does not establish that a blocked person has relinquished the underlying interest.
Write down the commercial rationale. OFAC's converse formulation is a gift: arm's length, fair market value, competitive market, unrelated parties. Documented evidence of those features can support a genuine transfer, but it is not a safe harbor. Consider retained benefit, control and contrary evidence together. Keeping that record at the time is a practical recommendation, not an OFAC requirement.
Notice non-answers. Evasive or vague responses are on OFAC's own list. A counterparty who will not say who the beneficial owner was has told you something.
Scope note. Zimmermann Law is a New York firm advising on U.S. sanctions and compliance. Nothing here is advice on German, Austrian, Swiss or EU law, and the EU's own ownership-and-control test is not addressed. The firm does not act on OFAC delisting or sanctions litigation; those go to counsel who do. Where property may already be blocked, an application for OFAC authorization may be necessary before dealings can proceed; submitting an application does not authorize a transaction.
Where ownership has recently moved, we test the transfer against OFAC’s red flags and document the answer. Contact Zimmermann Law to talk it through.
Sources: OFAC, Sanctions Advisory: Guidance on Sham Transactions and Sanctions Evasion (March 31, 2026), pp. 1–5 — agency guidance, not law; U.S. federal; explanatory only and without the force of law by its own terms (n.1). OFAC FAQ 402 (released August 13, 2014) — agency guidance, not law; U.S. federal. OFAC, Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are Blocked (August 13, 2014) — agency guidance, not law; U.S. federal. 31 C.F.R. § 587.307 and § 587.312, Russian Harmful Foreign Activities Sanctions Regulations — mandatory, U.S. federal (eCFR, authoritative but unofficial). OFAC enforcement releases — GVA Capital Ltd. (June 12, 2025), IPI Partners, LLC (December 2, 2025) and an individual (December 9, 2025) — agency statements of enforcement outcomes, not precedent; U.S. federal. Sources checked October 9, 2026: the complete advisory and enforcement releases, ownership guidance, FAQ 402, and the cited eCFR sections. This conceptual review does not establish complete coverage of subsequent sanctions developments.
This post is for general information and is not legal advice.
Attorney Advertising. Zimmermann Law PLLC · New York · +1 (917) 426-4625 · contact@zimmermann-law.com