Broadly, this Note considers the efficacy of targeted banking sanctions and asset freezes in inhibiting terrorism and proliferation financing. Specifically, it asks whether recent settlements paid by sanction-violating banks increase the long-term effectiveness of and compliance with sanction regimes. This Note contends that whereas the current U.S. policy of collecting billions of dollars in penalties is effective in deterring financial institutions from violating sanctions, it has the negative impact of encouraging banks to de-risk and leave high-risk industries and countries altogether. Overreactive de-risking greatly impairs the intelligence community’s ability to identify and track clandestine transactions. Thus, in the long term, the U.S. Department of the Treasury will struggle to obtain the information necessary to enforce existing targeted asset freezes and will lack the capacity to track funding routed to and from emerging national security threats. In addition to impairing U.S. intelligence capabilities, the current OFAC enforcement policy will eliminate the humanitarian protections of a targeted smart sanctions policy by limiting civilian access to banking services. That is, when financial institutions overreact to fines levied on similarly situated banks, they become reluctant to deal in any innocuous transaction or industry that is even tangentially related to a sanctions regime, thereby turning a targeted asset freeze into an indiscriminant one. . . .