On March 31, 2026, OFAC published a landmark advisory titled ‘Guidance on Sham Transactions and Sanctions Evasion,’ fundamentally reframing how financial institutions and corporates must approach counterparty diligence.
The guidance targets structured arrangements where formal ownership records are used to obscure a sanctioned party’s actual economic interest in a transaction or entity — so-called sham transactions. OFAC’s message is unambiguous: the traditional 50% ownership rule is no longer sufficient as a standalone indicator of sanctions exposure. Compliance programs must now look beyond equity stakes to assess control, economic benefit, and other indicia of property interest held by sanctioned persons.
The guidance arrives in the context of a broader shift in OFAC enforcement, which in March 2026 simultaneously removed certain Russia-linked entities from the SDN list — including firms originally designated for shipping dual-use goods — without public explanation, reflecting the geopolitical realignment underway around the Russia-Ukraine conflict and U.S.-Russia diplomatic engagement.
For compliance functions, the practical implication of the sham transaction guidance is substantial: existing counterparty onboarding and monitoring frameworks must be updated to include red-flag detection for indirect sanctioned-party exposure. Institutions relying on database checks and equity ownership disclosures as their primary sanctions screen will need to layer in contractual relationship mapping, beneficial flow analysis, and transactional red-flag triggers.
By FCCT Editorial Team
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