Jeremy Paner Explains How Private Fund Managers Should Approach OFAC’s Recent Advisory

Speaking to Hedge Fund Law Report, Jeremy Paner analyzed the implications of the U.S. Department of the Treasury’s Office of Foreign Assets Control’s (OFAC) advisory warning of the growing use of sham transactions to evade sanctions.

The advisory highlights that sanctioned individuals and entities are increasingly using proxies, family members and complex structures to obscure ownership and continue transacting in violation of U.S. sanctions, while reinforcing that even seemingly remote connections will attract OFAC scrutiny in an increasingly aggressive enforcement environment.

Paner specifically discussed the impact of the advisory for PE and hedge fund managers.

“The importance of the Advisory is that it’s a warning shot that OFAC will treat anyone that manages private funds as a gatekeeper,” Paner said. “Anybody involved in private funds needs to have a good answer to any scenario in which red flags are raised. If a fund manager doesn’t have an explanation, OFAC’s enforcement response is going to be very aggressive.”

He noted that OFAC’s expectations extend beyond overreliance on screening and application of the “50 Percent Rule.”

“When OFAC investigates a potential violation, the first thing the agency does is say, ‘Hey, let’s take a look at your compliance program.’ They want to see what has slipped through the cracks,” Paner said. “OFAC expects to see a compliance program that is commensurate with the specific risks that an entity faces and does not react well to a compliance program that is completely unable to mitigate the inherent risk.”

Paner cited a January 2025 enforcement case, in which OFAC penalized Family International Realty and its U.S.-based owner, with a civil penalty exceeding $1 million over 73 violations of its Russia/Ukraine-related sanctions.

“What was really noteworthy for fund managers was that OFAC explicitly warned financial institutions that they have to conduct ‘sufficient due diligence’ to ensure that fund managers are not acting as proxies for sanctioned parties,” Paner said.

Paner cautioned that OFAC expects firms to actively use information uncovered through routine business activities to identify potential sanctions risks.

“OFAC has always held the position that if an entity gets information in the ordinary course of its business, it needs to use that information [for compliance purposes],” Paner said. “But what some people are doing is conducting limited screening, considering the 50 Percent Rule and then burying their heads in the sand when it comes to emails received from the oligarchs.”

“They’re saying, ‘Well, we did everything we could have,’ but that’s just not how it works.”

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