New OFAC Sham Transactions Guidance: Red Flags, Erosion of the 50 Percent Rule, Increased Due Diligence Obligations

This CLE webinar will examine the U.S. Department of the Treasury's Office of Foreign Assets Control's (OFAC) recently issued advisory, "Guidance on Sham Transactions and Sanctions Evasion," and discuss what this may signal for agency enforcement activity. The panel will look at red flags that may indicate a sham transaction, provide examples of sham transactions, and discuss the possible erosion of the bright line 50 Percent Rule for ownership. The panel will address how the guidance may impact client advisement and offer best practices for minimizing the risk of enforcement action.

OFAC recently issued an advisory, "Guidance on Sham Transactions and Sanctions Evasion," that highlights sanctions risks arising from sham transactions used to evade sanctions and identifies the characteristics of such transactions. 

Sham transactions occur when blocked persons, often operating through opaque legal structures (e.g., trusts), proxies, or other intermediaries, effectuate transfers or other arrangements that conceal rather than extinguish their continuing interest in property such as investment vehicles, bank accounts, real estate holdings, and companies.

The guidance provides several non-exhaustive "red flags" that are indicia of sham transactions including: 

- Commercially unreasonable transactions

- Transfers to family members or close associates

- Unclear purpose of transfer

- Unduly complex corporate structures involving higher-risk jurisdictions

- Continued involvement of a blocked person.

The guidance suggests heightened due diligence requirements for covered entities and erodes the bright line distinction of the 50 Percent Rule whereby entities that are 50% or more owned by one or more blocked persons are considered blocked by operation of law.

Listen as our expert panel provides a comprehensive overview of OFAC's new sham transactions guidance. The panel will discuss how the new guidance differs from prior longstanding OFAC guidance, including how the 50 Percent Rule may now come into play, and what impact this may have on OFAC enforcement action. The panel will also offer best practices for compliance.