How do you think a review process works? It's not instant. When you try to process the payment, the OFAC check fails, and it's flagged for manual review. Only option is to show the user an error
It isn't flagged and reviewed, it's just outright rejected with a cryptic error message indicating that someone, somewhere breached PayPal's terms of service. No money leaves the customer's account, no money arrives in the vendor's account; the process simply fails.