Example, I know one of the largest banks in Europe used to have payments they sent to one of their South American branch offices blocked from time to time because their address in Brazil or Argentina or something was on a street called "Avenue de Cuba".

A false negative can get you a fi ne of $250,000 and criminal penalties.

This isn't an issue of ( or not just an issue of) "not solving scale". Even if filtering issues if this sort were 99.9999% solved the risk asymmetry would still come down on taking an abundance of caution on nation-state levels of "oh crap" if you miss something.

I've worked in fintech/self-banking institutions. PayPal is a mockery of the entire industry. The example of the literal worst implementation anyone can think of and which leaves everyone scratching their head at how they manage to get away with running as fast and loose as they do.

Or you can do searches.

https://sanctionssearch.ofac.treas.gov

if they say that they will process payments unless prohibited by government sanctions and then do not process payments that is not prohibited I guess they would be getting sued for those payments.

Wrong. Assets under U.S. jurisdiction that are owned by or being transferred to persons or organizations on the Specially Designated Nationals and Blocked Persons List must be frozen. Furthermore, the Department of Treasury has a right to seize these funds without due process.