On March 31, 2026, the Office of Foreign Assets Control of the U.S. Department of the Treasury issued a sanctions advisory (Advisory) calling attention to the growing dangers of sham transactions, whereby sanctioned persons or organizations use proxies and other surrogates to engage in transactions or make arrangements on their behalf, thereby evading sanctions and doing business behind a veneer of legality. The Advisory highlights the severe risks to national security and foreign policy that sham transactions pose and enumerates red flags to be aware of when vetting prospective investors or counterparties and reviewing existing relationships. This article summarizes the Advisory; details the red flags; considers the relative dangers facing hedge funds and private equity funds, respectively; assesses the utility of the so-called “50-Percent Rule” in sanctions compliance; and presents practical compliance takeaways for fund managers from legal experts. See “SEC Risk Alert Highlights Continuing Broker-Dealer AML Shortcomings” (Sep. 28, 2023).