Customer Sanctions Risk Assessments: A Practical Guide for Tech Companies

As global regulatory expectations tighten and enforcement actions become more aggressive, tech companies are increasingly expected to demonstrate that they understand who they are doing business with -  and where the risks lie. Sanctions compliance, once primarily the domain of banks and large financial institutions, is now a growing priority across the tech sector. Whether you're a payments platform, SaaS provider, online marketplace, or social media app, you need to be able to identify and assess the sanctions risks posed by your customers.

Customer sanctions risk assessments are the foundation of a strong sanctions compliance programme. They help you determine which customers or customer types present a higher likelihood of exposure to sanctions breaches, enabling you to apply the appropriate level of due diligence and monitoring. This guide outlines the key steps, considerations, and best practices for conducting customer sanctions risk assessments in a tech environment.

Why Sanctions Risk Matters for Tech Companies

Sanctions are legal restrictions imposed by governments or international bodies that prohibit dealing with certain individuals, entities, countries, or sectors. Violating sanctions — even unintentionally — can lead to significant financial penalties, reputational damage, and loss of market access. For tech companies operating across borders and at scale, the risks are particularly acute.

Many tech businesses enable cross-border interactions, payments, and access to services that could be exploited by sanctioned individuals or entities. Even if you don't directly provide financial services, you could be held accountable if your platform is used to facilitate prohibited transactions. The UK’s Office of Financial Sanctions Implementation (OFSI), the US Treasury’s Office of Foreign Assets Control (OFAC), and similar regulators globally expect firms to take reasonable steps to prevent sanctions breaches.

By conducting a structured customer sanctions risk assessment, tech companies can not only stay compliant but also better understand their user base and protect themselves from abuse.

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1. Define the Scope of the Assessment

The first step in any sanctions risk assessment is to define its scope. This involves understanding which customers, business lines, and geographies are in scope for review. In a tech company, customers may not always look like traditional banking clients — they could be app users, developers, vendors, advertisers, or merchants.

Ask yourself:

• What customer types interact with your platform?
  
  
• Do they create accounts, make payments, or exchange value?
  
  
• Which countries are your users located in, and do you provide services in or to high-risk jurisdictions?
  
  

Clearly defining the population you're assessing helps ensure your risk review is targeted and meaningful. In high-growth tech environments, this step is also vital for scoping future changes and new product rollouts.

2. Understand Applicable Sanctions Regimes

Next, identify which sanctions regimes apply to your business. If your company is incorporated in the UK, then UK sanctions enforced by OFSI will certainly apply. But if you have operations, employees, or infrastructure in the US, or use US-origin technology, you may also fall under US OFAC jurisdiction.

Other regimes to consider may include:

• EU Sanctions (especially for companies operating in or with European customers)
  
  
• UN Sanctions (depending on your industry and reach)
  
  
• Canadian, Australian, or local sanctions laws in your customer base
  
  

Each regime may have different rules, definitions, and lists of restricted parties. It’s essential to understand how they interact and whether your company is exposed to “secondary sanctions” risks — e.g., being penalised by the US for engaging with parties sanctioned under OFAC rules, even if you are not US-based.

3. Identify Sanctions Risk Indicators

Once you understand your regulatory obligations, you can begin to identify what factors increase or reduce sanctions risk among your customers. Key risk indicators might include:

• Customer location: Are they based in or accessing your services from high-risk countries like Iran, North Korea, Syria, or Russia?
  
  
• IP addresses and payment methods: Are users routing through proxies, VPNs, or using methods associated with sanctioned jurisdictions?
  
  
• Customer type: Are you serving government-related entities, politically exposed persons (PEPs), or users with links to sensitive industries (e.g., defence, oil & gas)?
  
  
• Complex ownership structures: Are business customers owned or controlled by individuals or entities on a sanctions list?
  
  
• Product use cases: Could your service be used to transfer value or provide technical support to sanctioned actors?
  
  

These indicators should be tailored to your business model and continuously refined as your company evolves.

4. Collect and Analyse Relevant Data

An effective risk assessment relies on solid data. You’ll need to collect and analyse information from internal systems, onboarding processes, payment platforms, and user behaviour logs. Common data sources include:

• Customer account data (name, email, address, payment method)
  
  
• Device and IP geolocation data
  
  
• Business verification (e.g., KYB checks for merchants)
  
  
• Transaction and usage patterns
  
  

Ideally, this data is centralised and accessible in a structured format. Where gaps exist — such as missing country-of-residence fields or unstructured company ownership data — consider how these can be filled or estimated based on other available indicators.

Once the data is gathered, analyse it using a risk scoring model that assigns low, medium, or high sanctions risk levels to each customer or customer segment.

5. Segment Customers by Risk Level

Not all customers present the same level of risk. A robust risk assessment process should result in a segmentation model that enables prioritisation. For instance:

• Low risk: Users from low-risk jurisdictions with clear, verified identities and straightforward activity.
  
  
• Medium risk: Users from moderate-risk countries or with unusual usage patterns, but no confirmed red flags.
  
  
• High risk: Users connected to sanctioned jurisdictions, government agencies, or politically exposed individuals.
  
  

This segmentation informs the level of due diligence, screening frequency, and controls that are applied. For example, high-risk customers may require enhanced verification or manual review before onboarding or transaction approval.

Risk segmentation should be documented and revisited regularly to reflect changes in customer behaviour, new regulatory guidance, or geopolitical developments.

6. Implement Sanctions Screening Tools

To manage sanctions risk effectively, tech companies should implement automated screening tools that can check customers against relevant sanctions lists. These tools can screen at various points:

• During onboarding
  
  
• Before executing transactions
  
  
• Periodically during the customer lifecycle (known as ongoing monitoring)
  
  

Choose a screening tool that is reliable, scalable, and capable of handling fuzzy matches (e.g., spelling variations or transliterations). It should cover all applicable sanctions lists — such as OFSI, OFAC, EU, UN — and update them in real-time.

False positives are a common challenge in sanctions screening. Having a clear and consistent escalation process — including manual review and MLRO oversight — helps ensure legitimate customers aren’t unfairly blocked while maintaining regulatory compliance.

7. Apply Enhanced Due Diligence (EDD) Where Needed

For customers flagged as high-risk, Enhanced Due Diligence (EDD) may be necessary. This involves collecting additional information to better understand the customer and assess the true level of risk.

EDD measures may include:

• Verifying identity using official documents and third-party databases
  
  
• Confirming ownership and control of legal entities
  
  
• Investigating adverse media or reputational risks
  
  
• Documenting the customer’s rationale for using your service (e.g., commercial purpose, source of funds)
  
  

EDD should not be a checkbox exercise — it must genuinely inform your risk decision-making. In some cases, EDD may reveal that a customer should be rejected or offboarded due to unmanageable sanctions risk.

8. Document and Review the Assessment

A sanctions risk assessment is not complete until it is documented. Regulators expect tech companies to maintain clear, auditable records of their risk assessments, including:

• Methodology and data sources used
  
  
• Risk indicators considered
  
  
• Customer segmentation outcomes
  
  
• Actions taken based on assessment results
  
  

This documentation should be reviewed and updated at least annually, or more frequently if there are material changes to your business model, customer base, or the sanctions landscape. Risk assessments should also be presented to senior leadership and integrated into overall enterprise risk management processes.

9. Train Staff and Build a Compliance Culture

No matter how sophisticated your systems are, sanctions compliance ultimately depends on people. Staff must be trained to understand sanctions risks, identify red flags, and know when to escalate concerns.

Training should be tailored to specific roles — for instance, developers need to understand API-level controls, while customer support teams should know how to handle blocked accounts or questions about screening. Senior leadership should also be engaged to set the right tone and allocate appropriate resources.

A strong compliance culture encourages open communication, quick escalation of issues, and a proactive attitude toward risk management.

10. Continuously Improve Through Testing and Feedback

Sanctions compliance is not a one-time task — it requires continuous improvement. Tech companies should regularly test the effectiveness of their risk assessments and screening controls through:

• Quality assurance checks
  
  
• Internal audits
  
  
• Red teaming or penetration testing
  
  
• Reviewing feedback from regulators or customers
  
  

Metrics such as the number of false positives, average time to resolve matches, or trends in high-risk customer onboarding can all inform improvements. As your business evolves, so should your sanctions risk assessment framework.

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Conclusion

Sanctions risk assessments are no longer a "nice-to-have" for tech companies — they are an essential safeguard in an increasingly complex regulatory landscape. By understanding your customer base, identifying key risk indicators, segmenting users, and applying the right level of due diligence, you can build a sanctions compliance programme that is both effective and scalable.

With the right combination of data, technology, people, and process, tech companies can not only meet their legal obligations but also demonstrate integrity, protect their platforms from abuse, and foster trust with users and regulators alike.

sanctions.io is a highly reliable and cost-effective solution for real-time screening. AI-powered and with an enterprise-grade API with 99.99% uptime are reasons why customers globally trust us with their compliance efforts and sanctions screening needs.

To learn more about how our sanctions, PEP, and criminal watchlist screening service can support your organisation's compliance program: Book a free Discovery Call.

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