Module 2 — Types of Sanctions (EU + US)

Goal of this module

After this module, you should be able to:

• Name the main types of sanctions used in EU and US regimes.
• Understand how each type creates compliance and business risk for PSPs, acquirers, processors, neo banks, and marketplaces.
• Know why sanctions controls must cover more than only the customer name.

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Why this matters for your role (payments + platforms)

Sanctions risk is not limited to “bad customers.” In your day-to-day work, sanctions risk appears in:

• Onboarding: merchants, sellers, customers, vendors, partners, service providers.
• Transactions: card payments, bank transfers, payouts, refunds, chargebacks, crypto on/off-ramps.
• Platforms: marketplace listings, fulfillment, cross-border shipping, digital services delivery.
• Operational touchpoints: customer support, disputes, invoicing, underwriting, account management.

A compliant program needs both:

1. Who is involved (party screening), and
2. What/where/how the activity happens (geography, sector, product/service, ownership/control, routing).

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The 4 main sanctions types (quick map)

Sanctions type	What it targets	Typical control pattern	Common failure mode
List-based	Named persons/entities/vessels/aircraft	Screening + escalation	Assuming “no exact match = safe”
Country/region-based	Certain countries/regions	Geo + product/service restrictions	Missing indirect routing/transshipment
Sectoral	Specific sectors/activities	Rules on instruments/services/terms	“Party is allowed” but transaction structure is not
Secondary (US-driven)	Non-US persons dealing with certain targets/activities	Risk-based escalation + de-risking	Treating it as “not our law”

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1) List-based sanctions (designated people and entities)

Authorities publish lists of designated individuals and entities.

Typical restrictions (how it works)

Most list-based sanctions revolve around:

• Asset freeze: you must not deal with the funds/economic resources of a designated party.
• No making funds/economic resources available: you must not provide funds, services, or value to a listed party, directly or indirectly.
• Deal bans / service bans: certain services are prohibited (depends on the regime and program).

What this means for PSPs, acquirers, processors, neo banks, marketplaces

List-based sanctions can arise in everyday scenarios:

• Merchant acquiring: onboarding a merchant who is listed, or owned/controlled by a listed person.
• Marketplaces: enabling seller accounts, listings, or payouts that generate value for a listed party.
• Payments processing: processing transactions where a listed party is payer, payee, or beneficial owner.
• Neo banks: providing accounts, cards, wallets, credit, or other financial services to a listed party.
• Indirect value: refunds, credits, fee rebates, promotions, or chargeback payouts benefiting a listed party.

Practical screening reality: names are messy

Names may appear with:

• aliases and alternative spellings,
• different alphabets and transliterations,
• partial names, reversed order, missing middle names,
• patronymics and naming conventions (region-dependent),
• inconsistent or missing dates/places of birth.

Operational takeaway: screening is not only “exact match.” It is match + context.

Important extension: ownership/control can “pull in” non-listed parties

Even if a counterparty is not explicitly listed, restrictions may extend if the party is owned or controlled by a listed person/entity (tests vary by regime).

Why this matters: A business can look “clean by name” but still be restricted due to ownership/control.

What you must do

If there is a match or close match:

• Pause onboarding/transaction (do not proceed).
• Escalate to Compliance/Sanctions with supporting information (names, DOB, nationality, address, IDs, ownership, transaction details).
• Do not “self-clear” based only on name similarity.

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2) Country / region-based sanctions

Some sanctions restrict business with specific countries or regions.

What these sanctions typically restrict

Country/region measures often include:

• Trade restrictions: goods, technology, dual-use items, and related services.
• Services restrictions: software support, cloud/IT services, consulting, auditing, legal services (varies by regime).
• Financial restrictions: financing, insurance/reinsurance, certain investments.
• Government-related restrictions: dealings with certain state bodies or state-owned entities.

Why “not listed” does not mean “not restricted”

A transaction may still be restricted due to:

• Destination (where goods/services end up),
• End-user (who ultimately uses it),
• End-use (what it will be used for),
• Routing/transshipment (indirect paths),
• IP/device/geolocation signals indicating restricted locations,
• Shipping/fulfillment location for marketplaces.

Practical examples (industry-relevant)

• Marketplace: seller is not listed, but shipping address is a restricted region → delivery may be prohibited.
• PSP/Acquirer: merchant provides digital services into restricted geographies → service delivery can be restricted.
• Neo bank: transfer involves a bank/beneficiary in a restricted region → flow may be restricted even if customer is not listed.

What you must do

Country/region sanctions require controls beyond name screening:

• Geographic controls: residence/country, shipping/billing, IP/device signals, bank country.
• Product/service controls: what is being sold or provided.
• Routing awareness: beneficiary bank, intermediaries, corridor risk.
• Escalate if geography signals conflict or appear manipulated.

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3) Sectoral sanctions

Sectoral sanctions target a specific part of an economy (e.g., energy, finance, defense) or specific activities.

What sectoral sanctions can restrict

Sectoral measures often restrict:

• Financing terms and instruments (e.g., certain debt/equity activities in defined contexts),
• Specific equipment/technology and related technical assistance,
• Certain services (e.g., brokering, underwriting, project-related services),
• Transactions linked to specific projects or extraction/production activities.

Why sectoral sanctions are operationally tricky

You may be allowed to deal with the party in general, but not:

• in a specific transaction type,
• with a specific instrument,
• under specific terms (e.g., tenor),
• for a specific purpose (end-use),
• involving a specific sector/project.

Practical examples (payments + platforms)

• Acquiring: merchant is not fully prohibited, but the activity relates to a restricted sector or project → certain service structures can be restricted.
• Neo bank: credit/financing features may trigger restrictions even when basic account services might not.
• Marketplace: listings include controlled equipment/technology intended for restricted sector use.

What you must do

Sectoral sanctions require:

• Strong merchant/customer due diligence (what they do, where they operate, who they serve).
• Controls over products and services you provide (especially financing-like features).
• Escalation when deals touch restricted sectors, projects, or transaction structures.

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4) Secondary sanctions (US-driven risk pattern)

Secondary sanctions create risk for non-US persons if they engage in certain targeted dealings.

Why it matters even if you are not a US company

Secondary sanctions risk can lead to:

• Banking de-risking: correspondent/sponsor banks refusing to process payments.
• USD clearing exposure: heightened controls or relationship termination.
• Commercial fallout: partners (banks, schemes, processors, vendors) ending relationships based on risk appetite.
• Reputational impact: adverse media and regulatory attention.

What you must do

Treat secondary sanctions risk as material:

• Flag and escalate higher-risk corridors, counterparties, and sectors.
• Assume that “technically permissible” activity can still be commercially blocked.
• Document decisions and rationale (audit trail).

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5) Export controls (sanctions-adjacent)

Export controls regulate goods, software, and technology exports, including dual-use items. They frequently intersect with sanctions.

Why this matters for your industry

Even if you do not ship goods directly:

• Marketplaces enable sales of controlled goods/technology and facilitate payment/delivery.
• Digital services (software, cloud access, technical support) can be “exports” depending on delivery/user location.
• Payments can facilitate transactions tied to controlled items or restricted end-uses.

Escalate if you suspect:

• controlled end-use (e.g., military or proliferation-related),
• restricted end-user,
• mismatches between stated business and goods/services,
• bypass attempts (VPNs, proxy addresses, inconsistent shipping/billing).

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What you must screen beyond the name (minimum mindset)

In real-world operations, “name-only” screening is not sufficient. Controls commonly need to consider:

• Identity attributes: DOB, nationality, residence, place of birth, IDs.
• Entity data: registration number, directors, UBOs, ownership/control.
• Geography signals: billing/shipping, IP/device location, bank country, corridors.
• Transaction context: payer/payee, purpose, goods/services, routing, intermediaries.
• Platform context: seller location, fulfillment location, delivery destination, digital delivery region.

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Common mistakes to avoid

• “No exact match, so it’s safe.” (False: close matches require context review.)
• “Counterparty isn’t listed, so it’s allowed.” (False: geography/sector/ownership can still restrict.)
• “Secondary sanctions don’t apply to us.” (Risky: banks/partners may block activity.)
• “Sanctions = export controls.” (Related, but not identical; manage overlap carefully.)

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Knowledge check (5 questions)

1. List-based sanctions only apply when there is an exact name match. True or false?
2. A transaction can be restricted due to destination/end-use/end-user, even if no party is listed. True or false?
3. Sectoral sanctions can allow dealing with a party but restrict how you deal (instrument/term/service). True or false?
4. Secondary sanctions risk can create real-world impact for non-US companies. True or false?
5. For marketplaces and PSPs, sanctions controls should consider more than names (geography + transaction context). True or false?

Answers

1. False. Screening is risk-based; close matches require context review and escalation.
   
2. True. Country/region measures and end-use/end-user restrictions can apply without a listed party.
   
3. True. Sectoral sanctions often restrict specific transaction structures, services, or instruments.
   
4. True. Even absent direct jurisdiction, banks and partners may refuse or terminate relationships.
   
5. True. Geography, ownership/control, routing, and transaction purpose can all create sanctions risk.

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