OFAC screening for custodial wallets
Custodial wallet providers act as the intermediary, so they must screen both incoming deposits and outgoing withdrawals for sanctions.
TL;DR
TL;DR: Custodial wallet providers should screen every deposit and withdrawal against the OFAC SDN List. As the intermediary holding customer funds, the custodian bears the screening responsibility.
Why the custodian is the responsible party
A custodian controls the private keys and executes the transfer, which makes it the party that "facilitates" a transaction for OFAC purposes. If a customer deposits from, or withdraws to, a designated address, the custodian has processed a prohibited transaction. OFAC strict liability means intent is not required, and civil penalties start at $356,000 per violation.
What to screen on each side
Screen the source address on deposit and the destination address on withdrawal, before the funds move. sanctionsai.dev provides a screening API that checks a wallet against 947 OFAC-listed crypto wallets and 19,218 SDN names in a single HTTP call under 100 ms, returning clean (ALLOW) or flagged (BLOCK). The data syncs hourly so the decision tracks the current US Treasury list.
Controls for custodians
- Block deposits from flagged addresses and withdrawals to flagged addresses.
- Screen the ultimate beneficial owner of an account, not just the deposit address.
- Keep a per-transfer log of each ALLOW or BLOCK decision.
Holding the keys means holding the compliance duty; screen before you sign.
Screening is also a customer-protection feature: it keeps the platform from becoming the route a designated party uses to move funds.