UNSANCTIONED

Trump Administration’s ‘Nerve Center’ for Sanctions Policy Is ‘Depleted’ at the Worst Possible Time

The Iran deal is on the brink. North Korea is under intense scrutiny. And Russia policy is, well, evolving. But the key office in Treasury remains understaffed.

Photo Illustration by Lyne Lucien/The Daily Beast

The little-known federal agency in charge of enforcing financial punishments against the United States’ geopolitical foes is busy these days. But it’s also starving for cash and staff, and its director left the government last week.

The Treasury Department’s Office of Foreign Assets Control (OFAC) is formally tasked with enforcing American sanctions that target countries like Russia, North Korea and Iran—all of which have been hit with tough economic penalties in recent months and years.

But according to more than a dozen congressional aides, attorneys and former employees, OFAC is operating shorthanded at a critical juncture. One former OFAC employee described the agency as “depleted.” Another punch to the gut came on Friday when John Smith, who served as director for the past three years, left the agency.

Recently, the division that oversees OFAC received a funding boost. A Treasury Department spokesman confirmed to The Daily Beast that the Terrorism and Financial Intelligence unit received a $25 million increase in its 2018 budget, and an additional $17 million increase for 2019 is pending.

But while the additional money was welcomed, not everyone is sure it will be sufficient in helping the agency tackle the immense responsibilities it is now being handed. The Trump administration is trying to squeeze North Korea as part of its “maximum pressure” campaign to get Kim Jong Un to negotiate over his country’s nuclear program. It is also reportedly set to reject a waiver of sanctions against Iran for its nuclear program. And on top of that, Congress continues to pressure the administration to swiftly and aggressively implement mandatory sanctions against Russia that were passed and signed into law last year.

“This is a small agency with an enormous and politically significant mission that is surprisingly underfunded given how important its work is, and given how readily U.S. policymakers reach for sanctions as a tool for foreign policy,” said Liz Rosenberg, a former senior adviser to the Treasury official responsible for economic sanctions across the entire U.S. government. “The last three administrations have all focused on sanctions as a national security tool, but this one has really doubled down.”

Crafting a sanctions regime is a delicate and complex inter-agency process that involves the State Department and the intelligence community along with officials at Treasury and the White House. OFAC is routinely referred to as the “nerve center” of that operation.

It’s also, in the words of another former staffer, the agency with the most significant “capacity challenges.” An individual with direct knowledge of the Treasury Department’s sanctions enforcement process noted that OFAC reports often include transliterated phrases because very few employees speak languages such as Russian or Chinese, which are necessary for Russian and North Korean sanctions designations. Often, the prospective employees who speak those languages have spent time overseas and therefore have more foreign contacts, which makes it more difficult to get the proper security clearance required to work at OFAC.

Adam M. Smith, a sanctions attorney at Gibson Dunn and a former senior adviser to the OFAC director, described the agency as “the little engine that could,” noting that OFAC employees do an “admirable job in meeting ever-increasing demands placed on them by this administration.”

But OFAC, which has more than 200 employees, none of which are political appointees, has historically been under-funded and over-exerted.

Lawmakers have long expressed concern about this, according to a congressional aide who has been directly involved in U.S. sanctions policy for several years. And as events warrant, personnel are often shifted from one portfolio to another on short notice. At a particular moment, half of the agency’s employees could be working on Iran-related sanctions, leaving other critical sanctions regimes—like North Korea and Russia—severely understaffed. This seems likely to become the case if President Donald Trump, as the Washington Post reported Monday night, decides to facilitate the process whereby sanctions could be re-imposed on Iranian oil exports, a move that could facilitate a tit-for-tat involving even deeper economic sanctions.

The Treasury Department only recently asked for more resources, after several years of requesting modest, if any, spending increases. The Terrorism and Financial Intelligence division asked for $139 million for its fiscal-year 2019 budget—an increase of nearly $37 million from last year. That value included a request for 69 new full-time staffers across the entire division.

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Of the total increase requested, $15.2 million is designated for North Korea sanctions alone. That’s because even with the development of a new sanctions regime targeting Iran likely fast approaching, and Russia remaining on OFAC’s radar, North Korea is the most pressing diplomatic challenge for the administration.

The White House has argued that Kim’s apparent willingness to negotiate over his nuclear program can be attributed directly to the administration’s “maximum pressure” campaign, which has relied heavily on economic sanctions enforced by OFAC. But aides and experts are worried that the agency may lack the resources to oversee the administration’s ambitious plans right now.

“There’s a real challenge of having enough focus and dedication and resourcing to the North Korean sanctions in general,” the congressional aide said, adding that lawmakers have for years asked Treasury to send them funding requests.

Lawyers who challenge OFAC’s enforcement are starting to notice the patchwork. Erich Ferrari, a prominent sanctions attorney in Washington who deals with OFAC frequently, told The Daily Beast that only three employees have been “active and engaged” on a recent North Korea enforcement action that his firm has been involved with.

“There’s not enough people to do the job, or to fulfill the mandate of OFAC to begin with,” Ferrari said, noting that the agency rarely has the staffing resources to deal properly with litigation and other challenges to sanctions designations.