Trusts and Sanctions: A Convergence of Regulatory ApproachesTrusts and Sanctions: A Convergence of Regulatory Approaches

By Vladimir Zhuravchak, adv.

In spring 2026, two leading Western sanctions authorities converged on a common approach to trust-held assets linked to designated persons within weeks of each other. On 31 March, the U.S. Office of Foreign Assets Control (OFAC) published guidance on sham transactions. On 21 May, the Court of Justice of the European Union delivered judgments in Cases C‑483/23 and C‑428/24, C‑476/24. A year earlier, in April 2025, the UK Office of Financial Sanctions Implementation (OFSI) had published its Legal Services Threat Assessment, identifying the same problem. All three documents target the same practice: the transfer of assets into trusts, to nominees and family members, while the transferor retains effective control.

The near-simultaneous publication of the OFAC guidance and the European Court judgments is not coincidental — Western sanctions authorities coordinate their positions. Taken together with the earlier OFSI assessment, a coherent picture emerges: the formal separation of legal title and beneficial ownership that underpins the trust mechanism no longer operates as a universal shield against asset freezes in any of the major Western jurisdictions.

Three Italian Cases: What the Court of Justice Examined

All three cases arose from decisions by the Italian Financial Security Committee (Comitato di Sicurezza Finanziaria) to freeze assets indirectly linked to persons listed in Annex I to Regulation (EU) No 269/2014. They share a common factual pattern: the assets were held in Bermuda-law trusts administered by Swiss or Cypriot companies, and the designated persons formally had neither the right to dispose of the assets nor to receive income from them.

In Case C‑483/23 (T Trust), four Italian companies were controlled through a Bermuda holding company held in a trust administered by a Swiss trustee. The settlor had been removed as a beneficiary in February 2022 — days before being designated. The Italian authorities nevertheless froze the assets of all four companies, treating them as effectively belonging to the settlor.

In Cases C‑428/24 and C‑476/24 (FZ AR / SX), the original beneficiary was replaced by his spouse the day before his designation; she was subsequently designated as well. The trust instrument contained a sanctions compliance clause expressly prohibiting the trustee from distributing assets to any beneficiary for as long as that beneficiary remained on the sanctions list.

The applicants challenged the freezing decisions on the basis that the beneficiary had no legal right to the assets, could not manage them, and derived no income from them. The Court of Justice rejected this argument.

Substance Over Form: The Court’s Findings

The Court interpreted the concepts of “belonging to” and “controlled by” in Article 2(1) of Regulation No 269/2014 as covering all legal and factual situations in which a person holds power enabling them to use, benefit from, or dispose of the assets, or to influence decisions made by the trustee — irrespective of any formal legal nexus. The concept of “control” extends to the ability to influence the decisions of another person even in the absence of any legal or equity-based relationship between them.

A sanctions compliance clause in the trust instrument does not preclude a freeze. The Court drew a clear distinction between two provisions of the Regulation: Article 2(1) determines whether assets belong to or are controlled by a designated person — a question of fact; Article 2(2) prohibits making assets available to a designated person — the provision to which a compliance clause is relevant. In other words, such a clause may prevent specific distributions, but it does not resolve whether the assets belong to the designated person within the meaning of Article 2(1). The Court added a practical observation: the trust instrument is not subject to mandatory disclosure and may be amended or revoked unilaterally at any time.

Removing the settlor from the class of beneficiaries is not sufficient in itself. In Case C‑483/23, the Court held that the national court must examine whether the settlor retained any residual powers under Bermuda law: the power to revoke or amend the trust, to give binding instructions to the trustee, to appoint or remove the trustee or protector, or to add or exclude beneficiaries. The existence of any such power — even where the settlor has formally ceased to be a beneficiary — may be indicative of continuing control.

Unnecessary structural complexity is itself a relevant indicator. The Court expressly stated that the use of needlessly complex arrangements linked to a designated person may in itself suggest that the person exercises control over entities not included on the sanctions list. Additional specific indicators identified by the Court include: the trustee holding only the share capital of companies in the trust structure rather than serving as director, where those companies’ directors are personally or professionally connected to the beneficiary; entities established or renamed shortly before the imposition of sanctions; and trust assets deployed predominantly in the interests of the designated person or related entities.

The U.S. Approach: Sham Transactions and Economic Substance

The OFAC guidance of 31 March 2026 addresses the same factual landscape through different terminology. OFAC defines sham transactions as those in which blocked persons transfer assets on paper without relinquishing their effective interest in them. Such a transfer does not extinguish the blocked property interest — the assets remain frozen regardless of any change in formal ownership.

The guidance builds on the longstanding 50 Percent Rule: a designated person’s formal ownership stake in a legal entity is not a sufficient measure of whether assets belong to that person. OFAC applies functional definitions of “interest” and “property interest” that look through legal formalities to underlying economic realities.

The list of warning indicators substantially overlaps with those articulated by the Court of Justice: transfers at below-market value or without adequate consideration; transfers to family members or close associates who may be acting as nominees or proxies; absence of a discernible legitimate purpose; unnecessarily complex multi-layered structures involving jurisdictions with weak regulatory oversight; evidence that the designated person continues to be involved in managing or benefiting from the asset; transfers completed close in time to the date of designation; and evasive or non-responsive answers to questions about the designated person’s involvement in the structure.

The guidance is accompanied by concrete enforcement examples. In June 2025, OFAC imposed a civil monetary penalty of USD 215,988,868 — the statutory maximum — on GVA Capital Ltd. for managing investments on behalf of Suleiman Kerimov through his nephew, whom the firm knew to be acting as the blocked person’s proxy. In December 2025, OFAC reached a settlement agreement with Chicago-based private equity firm IPI Partners for maintaining investments from a sanctioned Russian oligarch over four years with knowledge of his status. Heritage Trust, a Delaware trust, was blocked as early as 2022 as a structure through which Kerimov retained a property interest via layered arrangements. Four Liechtenstein-based foundations nominally held by Potanin’s minor children were blocked by OFAC in advance of their formal designation.

The Trust Services Ban: Three Regimes

OFSI’s Threat Assessment does not articulate new legal doctrine but records observed patterns of non-compliance in relation to the holding of structures as such. The assessment rates it as “almost certain” that complex corporate structures, including trusts, linked to Russian designated persons have obscured the ownership and control of assets potentially subject to freezing.

A prohibition on providing trust and corporate services to Russia-linked structures exists in all three jurisdictions, though the scope of each regime differs. In the EU, Article 5m of Regulation 833/2014 has applied since 9 April 2022: it covers trusts and similar arrangements where the settlor or beneficiary is a Russian national or a person residing in Russia, a legal entity incorporated in Russia, or an entity more than 50% owned or controlled by any such person; an exemption applies where the sole settlor or beneficiary is a national or resident of an EU Member State. In the United States, the OFAC determination under Executive Order 14071 has applied since 7 June 2022: U.S. persons are prohibited from providing trust and corporate formation services to any person located in Russia and to Russian nationals wherever located. In the United Kingdom, an equivalent prohibition was introduced by the Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022, in force from 16 December 2022: trust services may not be provided to designated persons or to persons connected with Russia; the connecting factor is physical presence or ordinary residence in Russia for natural persons, and incorporation or domicile in Russia for legal entities — a narrower criterion than the EU’s nationality-based trigger. In all three regimes, the prohibition attaches to the act of providing services, independently of whether any specific assets of the structure are subject to a freeze. Of the suspected breach reports submitted to OFSI by legal services firms, 23% involved a connection to an intermediary jurisdiction; the most frequently identified were the British Virgin Islands, Cyprus, Guernsey, and Switzerland.

A further practical consequence highlighted by OFSI — and one that does not appear in any regulatory text — is the risk of counterparty de-risking. A bank, notary, registrar, or asset manager that encounters a trust structure with a sanctions nexus is entitled to decline to act regardless of whether any assets are formally frozen. The burden of demonstrating the absence of effective control rests on the party holding the structure, and the evidential threshold for satisfying that burden is not defined in any binding instrument. In practice, full disclosure of the trust instrument and the governance arrangements of the structure does not guarantee that a counterparty will regard the risk as acceptable.

Practical Implications

The three regimes — EU, U.S., and UK — operate under different legal frameworks and use different terminology, but they share a common functional standard: economic substance prevails over legal form. The practical consequences that follow are consistent across all three.

A sanctions compliance clause in a trust instrument is not a defence against a freeze under Article 2(1) — it is an argument directed at a different provision, and one that has been expressly rejected by the Court of Justice. Removing a settlor or beneficiary from the trust structure after the fact does not extinguish the sanctions nexus if that person retains any power — formal or informal — to influence the management of the structure or the disposition of its assets. The proximity of an asset transfer to the date of designation is an independent warning indicator for regulators in all three jurisdictions, regardless of whether the transfer was valid under applicable domestic law.

For legal advisers and trust managers, this means that analysis cannot be confined to the formal sanctions status of the participants in a structure. It must extend to the actual relationships between them: who controls the trustee, who appointed the directors, and whose interests the assets effectively serve. For banks and auditors, it means that reliance on current corporate documentation is insufficient where a structure has a trust element and a sanctions history: the analysis must encompass the history of how the structure was formed, the terms on which assets were transferred into it, and the nature of the relationships between its participants.

The judgments and guidance reviewed in this analysis do not mean that all assets ever associated with a designated person are automatically frozen. They do mean that sound legal documentation alone is no longer sufficient protection.