[Nifty3929]

You get to an important issue: Type 1 vs Type 2 errors - precision vs recall. Any system is going to have errors, so what do you prioritize? The company has only limited control over this choice, as you also point out that the gov't will punish them for false negatives but not false positives. So the company prioritizes recall over precision.

But you also imply that the gov't should punish BOTH types of errors, but I'm not sure that's fair. By extension it implies that the company should have a perfect system, with no errors of either type. That's not realistic, and a company should be punished for meeting an impossible goal.

Better is for the government to just be explicit about it: we're requiring companies to employ broad sanctions, and even if some innocents get swept up, we think it's worth it to stop the bad guys. Or the verse, if that's the gov't decision.

[some_random]

I'm not advocating for the gov to punish false positives, I don't know what exactly the issue is that's causing them, maybe incomplete information, maybe lack of resources, likely a combination of issues. Ultimately you're right though, there will be innocent people who are affected by sanctions