diff --git a/app/api/compliance/screen/route.ts b/app/api/compliance/screen/route.ts
index cb64fcb..ebdc0d7 100644
--- a/app/api/compliance/screen/route.ts
+++ b/app/api/compliance/screen/route.ts
@@ -81,15 +81,14 @@ export async function POST(req: NextRequest) {
   } catch (error) {
     console.error('Compliance screening error:', error);
 
-    // Return a graceful error response
     return NextResponse.json(
       {
         success: false,
-        result: 'PASS',
-        message: 'Compliance screening temporarily unavailable. Proceeding with caution.',
+        result: 'FAIL',
+        message: 'Compliance screening unavailable. Transaction blocked.',
         error: error instanceof Error ? error.message : 'Unknown error',
       },
-      { status: 500 }
+      { status: 503 }
     );
   }
 }
diff --git a/app/api/payout/route.ts b/app/api/payout/route.ts
index a798e68..c2bbbaf 100644
--- a/app/api/payout/route.ts
+++ b/app/api/payout/route.ts
@@ -19,6 +19,7 @@
 import { NextRequest, NextResponse } from "next/server";
 import { createClient } from "@/lib/supabase/server";
 import { circleDeveloperSdk } from "@/lib/circle/developer-controlled-wallets-client";
+import { screenAddress, mapComplianceResult } from "@/lib/compliance/utils";
 import { 
   signAndSubmitGatewayBurnIntent,
   executeGatewayMint,
@@ -271,6 +272,17 @@ export async function POST(req: NextRequest) {
     const amountInAtomicUnits = BigInt(convertToSmallestUnit(amount));
     const destinationChain: SupportedChain = requestedChain || "arcTestnet";
 
+    // Server-side compliance enforcement — must pass before any funds move
+    const complianceChain = CHAIN_TO_BLOCKCHAIN[destinationChain];
+    const circleComplianceResponse = await screenAddress(recipientAddress, complianceChain);
+    const complianceResult = mapComplianceResult(circleComplianceResponse);
+    if (complianceResult !== "PASS") {
+      return NextResponse.json(
+        { error: "Transaction blocked by compliance screening", result: complianceResult },
+        { status: 403 }
+      );
+    }
+
     // Fetch user's wallets
     const { data: wallets, error: walletsError } = await supabase
       .from("wallets")