Ever wonder why you’ve had a payment blocked or delayed?
By Stefanos Roulakis and Nicholas Tsichlis
Banks can often be more restrictive than regulators when it comes to sanctions implementation. One question we frequently get from clients is why even innocuous transactions can be delayed or blocked by a bank. This approach by banks may ensure adherence to regulations, but can hinder businesses and customers by halting legitimate transactions. While we and our clients regularly work cooperatively with banks to work with banks to clear any issues, part of our approach involves considering the bank’s perspective on why it takes what can seem to be an overly cautious approach.
Background on Sanctions and Banks’ Obligations
Sanctions are economic or financial hindrances implemented by governments or international bodies to influence or pressure the behavior of targeted countries, entities, or individuals. The U.S. Office of Foreign Assets Control (OFAC) plays a critical role in administering U.S. sanctions, which have a global connection due to the dominance of the U.S. dollar in international transactions. OFAC regulations, such as those outlined in 31 C.F.R. § 560.208, prohibit individuals from causing others to violate sanctions, including transactions processed through U.S. banks.
Banks are required to do three things. First, they must block transactions involving sanctioned parties by holding funds in interest-bearing accounts until OFAC permits release. Next, they must reject transactions that are suspected of violating sanctions. If they lack any clear form of evidence of a sanctioned party’s involvement, they must return funds to the originator. Third, banks must report both blocked and rejected transactions to OFAC. Banks risk penalties for facilitating any illegal payments, even if accidental, as U.S. law has a broad definition of “facilitation.”
Reasons for Banks’ Conservatism
Banks’ conservative approach to sanctions compliance is driven by several interconnected factors.
- Complex and Evolving Sanctions Landscape
Throughout the world, sanctions are becoming increasingly complex, and multiple jurisdictions impose overlapping restrictions.
- Severe Penalties for Non-Compliance
The risk of substantial fines for banks makes banks extra cautious. In 2023, OFAC imposed penalties totaling $1.5 billion against financial institutions. For example, State Street Bank faced a $7.4 million penalty for falsifying documents related to Russian sanctions, and another $3.43 million in fines to Swedbank Latvia for 386 transactions involving Crimea sanctions. Then, in 2025, an OCC penalty was issued for $10 million in fines due to shortcomings in BSA/AML and sanctions compliance. In Europe, fines for sanctions violations have totaled €490 million since 2020, with actual costs ranging from 5 to 8 times higher due to remediation efforts.
- Technological Challenges in Sanctions Screening
Sanctions screening systems face significant challenges worldwide. Up to 95% of alerts may be false positives and require manual review, correlating to delays. Ensuring accurate, up-to-date information across systems is also another difficult challenge banks face. Real-time monitoring is another crucial step in preventing illegal transactions, ensuring that illicit transactions are identified and prevented without delaying legitimate ones. Frequent updates to sanctions lists necessitate rapid adjustments to the system. Then, complex ownership structures/name variations complicate accurate identification between transactions.
The recent G7 sanctions targeting Russia increase the challenges banks currently face. In January 2025, the U.S. Treasury, in collaboration with G7 commitments, sanctioned major Russian oil producers, including Gazprom Neft, and over 180 vessels, requiring banks to update their screening systems promptly. Similarly, the EU’s 17th sanctions package in May 2025 added 189 vessels and 75 new listings, further complicating compliance systems. The frequent updates against Russian, Chinese, and Iranian goods, combined with high false positive rates, lead banks to adopt a very cautious approach, which often hinders or rejects transactions to avoid potential violations.
Banks are currently implementing AI and machine learning to enhance screening efficiency. However, the complex landscape of sanctions, including sector-specific measures like the G7’s $60/barrel oil price cap on Russian oil, demands sophisticated tools and expertise to minimize disruptions to legitimate business.
Recent Enforcement Actions and Penalties
Recent developments demonstrate ongoing risks
- OJSC Keremet Bank (January 2025): OFAC designated this Kyrgyz bank for facilitating sanctions evasion with Russian bank Promsvyazbank, under Executive Order 14024.
- OCC Penalty (January 2025): A $10 million fine was imposed for deficiencies in a bank’s BSA/AML and sanctions compliance programs.
- EFG International AG (March 2024): OFAC fined this Swiss bank $3.74 million for violating Russia-related sanctions.
Impact on Businesses
Banks’ conservative approach significantly affects businesses, particularly those in international trade. Rigorous screening can delay payments, disrupting cash flow. For example, a bulk carrier’s legal trade with Cuba under a U.S. general license faced months-long delays. Businesses must invest in compliance measures, including legal expertise and specialized software. Sanctions limit trading opportunities, forcing businesses to find alternative markets or suppliers. Inadvertent association with sanctioned entities can harm a business’s reputation, and non-compliance can lead to fines and legal actions, further impacting its financial stability.
Impact on the Maritime Industry
The maritime industry is responsible for transporting around 80% of global trade and is specifically affected by banks’ conservative approach to sanctions compliance. Due to the international nature of shipping and involvement of multiple jurisdictions, maritime transactions require the utmost level of scrutiny to verify they do not infringe upon any sanctions regulations.
Banks complying with evolving sanctions may delay or block payments related to maritime activities, even if such payments are legitimate.
For example, a vessel engaged in a legal trade under a U.S. general license experienced months-long payment delays from a bank due to OFAC-related concerns, despite the bank not having formally blocked the payment. Again, a shipping company’s routine payments to a crewing firm were elongated due to a name similarity with a sanctioned entity, further demonstrating how screening errors can disrupt operations.
The delays can disrupt cash flow and operational efficiency for maritime businesses. Banks must contribute due diligence and a proper screening process to invest significant resources in compliance, often leading to a cautious stance where they prefer to err on the side of blocking or delaying transactions rather than risk non-compliance. The maritime industry faces unique challenges due to complex supply chains, opaque beneficial ownership, and the need to screen multiple parties, including vessel captains, port authorities, insurers, and suppliers. The high frequency of sanctions designations further complicates compliance. For example, in 2023, the U.S. added 2,500 entities to the sanctions list.
Recent developments from the G7 and others, which intensified sanctions against Russia’s oil production and exports in 2025, further complicate these issues. New prohibitions on U.S. petroleum services to Russian entities and designations of major Russian oil companies, such as Gazprom Neft and Surgutneftegas will likely prompt banks to increase their vigilance when processing payments for maritime transactions involving Russian oil or other sanctioned goods. The increased level of scrutiny can correlate to additional hindrances and issues for the maritime industry.
In mitigating these risks, maritime businesses and their financial partners are increasingly
utilizing advanced technologies, including AI-powered sanctions screening tools, to enhance compliance capabilities and reduce false positives that lead to unnecessary delays. The UK’s Office of Financial Sanctions Implementation (OFSI) has also encouraged collaboration among vessel owners, financial institutions, and regulatory authorities to share best practices and enhance global compliance.
Conclusion
Banks’ approach to sanctions compliance is a rational response to the high risks and costs of non-compliance. The complex sanctions landscape, severe penalties, operational challenges, and reputational risks compel banks to prioritize caution, often at the expense of legitimate transactions. This conservatism has a significant impact on the maritime industry, resulting in delays in payment processing and increased operational costs. Recent enforcement actions, underscore ongoing scrutiny. While this approach can disrupt businesses, it reflects banks’ efforts to navigate a challenging regulatory environment.