The Little Sanctions Office That Could

About two hundred yards from the White House, there's a nondescript government building. Inside is a tiny agency that happens to be one of the most powerful in the world.

It's been called the most important agency that no one has ever heard of.

It's called OPHAK, the Office of Foreign Assets Control. It also goes by another name, the Sanction's Office, and that was John Smith, one of its previous directors. This office influences how trillions of dollars move around the world. Right now, the list of the US's economic sanctions runs over two thousand pages.

There are dozens of sanctions programs Russia, Ukraine, regions like Iran or Syria or North Korea, Cuba, so many others. So all of that is handled by these approximately three hundred people.

Three hundred people.

The cost to fund the entire agency that is o FAC is probably less than even a single tank or aircraft would be. By many many factors.

It feels like every day the White House announces and the media broadcasts news of fresh economic sanctions. The United States is reinstating some sanctions on Venezuela, more sanctions against Russia.

Today, imposing financial sanctions on four Israeli nationals, for their estates.

You think that the federal government is pouring money into the office that oversees them, but it's not, and that has consequences for national and even global security and the US government's ability to actually enforce sanctions from Bloomberg's Washington Bureau. This is the Big Take DC podcast. I'm your host Sleiah Mosen. During the Trump administration, when John Smith was running OPHAK, I was desperate to talk to him, but

Sanctions have been called the alternative between words and war, between military boots on the ground on the one hand, or just mirrored diplomacy on the other.

Let me take a second to explain just how sanctions work. We live in a world that runs on dollars literally, so when the US wants to put pressure on a foreign business, a government, or even a person, it uses the dollar as leverage.

So, for example, Russia's war in Ukraine. O fax actions and sanctions actions have frozen in the hundreds of billions of dollars.

OFEK is the kind of DC office that tends to pop up on the radar from time to time, but only in significant moments. After nine to eleven, President George W. U. Bush launched the global War on Terror with sanction.

Today we have launched a strike on the financial foundation of the global terror network.

The tanks came later.

Coalition forces have begun striking selected targets of military importance.

Bush promised to follow the money that enabled terrorists to take down the World Trade Center. He wasn't the first to view sanctions as a foreign policy tool. The US dabbled in them in the fallout from the American Revolution, so they're literally in our country's DNA. But OPHAK was born later.

It got its start in World War Two to help implement and enforce the US response to Nazi Germany.

When I covered the Treasure Department, I worked really closely with my colleague Nick Watdams. While I was looking at sanctions from the economic angle, he was focused on national security. He's now an editor at Bloomberg.

This is something that's become basically the go to tool of first resort for the un US government as a way to flex its muscle overseas, and OFIX sits at the very center.

In the twenty years since nine to eleven, the number of entities the US has sanctioned has skyrocketed by almost one thousand percent, but the office that manages them O FAC it's grown by just one hundred or so people. At least that's as far as I can tell from my sources, since Treasury doesn't disclose that publicly. It now has some three hundred lawyers and financial investigators to comb through troves of classified and public data, all in the

Seemingly every lawmaker now basically has a sanctions package in their back pocket that they want to unveil against whoever it might be.

Economic sanctions have become so important to the US government that in twenty twenty two, right after Russia invaded Ukraine, President Joe Biden talked about them very beginning of his State of the Union address.

We're cutting off Russia's largest Bank to the international financial system, preventing Russia's Central Bank from defending the Russian rubule, making putin six hundred and thirty billion dollar warfund worthless. We're choking Russia's access.

I remember that moment. I've covered sanctions for years, and it's the first time I've heard a president talk about them in such a high profile speech.

US sanctions are powerful because the US economy is so powerful. The US financial system is the avenue through which basically every banking transaction gets done. So if you then say, okay, you a foreign entity or a foreign person, we're not going to give you access to the US financial system, that person is essentially banished financially. They can't get a credit card, they can't get a bank account, they can't

Consider the action America took against Iran to rein in its nuclear ambitions. In twenty seventeen and eighteen, the Trump administration levied more than nine hundred sanctions on Iran related targets. In Iran's economy shrunk around five percent in each of those years. But in order for OPAC sanctions to have the economic bite that they're known for, someone needs to make sure they're being enforced.

One thing I heard that OFAC really needs more money for enforcement, like figuring out who's violating the sanctions and bringing a case that would then help punish that entity for not following the sanctions.

OPAC works with other parts of the government to enforce sanctions. For example, in twenty fourteen, OPHEK was part of a case against France's largest bank, accusing it of violating sanctions on Sudan, Iran, and Cuba. The bank pleaded guilty and paid almost nine billion dollars to settle the matter. But John Smith told me that this tiny office can't manage all of this on its own.

It's implementing dozens upon dozens of sanctions programs, including some of the most important to our US national security and foreign policy, and it simply doesn't have the resources that it needs.

Up next, what's stopping the federal government from giving this small but mighty office more to work with. John Smith used to run OPHAK, the US government's sanctions office.

It is startling just how little money it takes to run OPHAK.

As it is today, and he told me that OPHAC doesn't just run on an incredibly tight budget, but it actually turns a profit for the.

US OHFAC punches above its weight. Any dime that's given to OPHAC will be magnified far beyond it's a money maker. OPHAC has an enforced function where OPAC issues dozens of enforcement actions. Those enforcement actions can come often in the tens of millions or hundreds of millions of dollars a year that goes to the General Treasury.

Remember that French bank I mentioned, the one that had to pay billions of dollars for violating OPAC sanctions. Almost half of that money went to a federal fund, an account controlled by Congress. OPHAC did not get that money.

That is different than many enforcement agencies where Congress's passed laws that basically wants to encourage those enforcement agencies to do more enforcement actions, and so Congress's pass laws that allow certain enforcement agencies to keep the funds.

Basically, Congress hasn't given OPAC the resources to fully enforce all of its sanctions programs, so instead it puts some of that onus on the private sector.

It doesn't actually we enforce the sanctions a lot itself. It relies on banks.

My colleague Nick told me that OFAK has tossed the hot potato of enforcement over to businesses. One way it does this is by leaving banks and other companies guessing.

So they will issue a very ambiguous rule saying certain types of financial transactions with a Russian company or a type of Russian company will be banned. And then when you look at that rule you're a lawyer looking for exact language about that rule, it's extremely ambiguous and you have no idea what's going on. And so the response, if you're a lawyer for Citibank, you just say, Okay, we're not going to get anywhere near the Russian economy.

If there's one thing I've learned as a reporter at Bloomberg, it'said investors in the business sector don't like uncertainty, especially from the US government. But it seems like OFAC is accidentally creating some of that.

I had all sorts of conversations with people who would say, we would go to OPHAK for advice saying, hey, you guys issued this rule, clarify this rule for us, tell us what what this actually means. And the response would

John Smith believes there are real consequences to comically slow policy responses and strapped budgets.

Every bit of time lost, every bit of use of old technology means that were that much further behind those that seek to evade sanctions so they can raise money for terrorist attacks against US targets, against WMD related activities, where bad actors are raising money for nuclear proliferation, against counter narcotics efforts, where our sons and daughters and brothers and sisters, mothers and fathers may be harmed.

All this brings up a really important question. Do sanctions even work?

Nothing works one hundred percent, but sanctions have been demonstrated to work, but they take time. So for example, there was a tough economic sanctions program in World War two, but it wasn't sanctions alone that won that war. It was the US military might and our strategic sense, and sanctions played a role.

We could do an entire episode on whether sanctions work or not. It's really complicated and hard to measure. Take the example of Russia. In the two years since its invasion of Ukraine, the US has placed more than three thousand, five hundred sanctions on Russian individuals, businesses, and even aircraft. Now, Russia's economy is on track to strength by eight percent in the next two years, but Russian manufacturing has actually grown to support the war effort, so the country's GDP

Sanctions played a role in the apartheid crisis. We weren't sending troops to South Africa, but we included a global coalition that said to South Africa, we will no longer deal with you if you continue your apartheid regime and that jurisdiction and they finally changed. With respect to Iran, Iran said it would never negotiate over its nuclear program until it did and until it came to the negotiating table and we reached an agreement.

So if sanctions really can pack a punch, and OPAC is the main body responsible for them, why has its budget remained so low for so long. Smith told me that it comes down to Congress, which determines public spending.

You hear so much from members of Congress wanting more sanctions on Iran, Venezuela, Russia, China, across the board. Sometimes sanctions bills may be among the only bipartisan things that are passed through Congress. But while Congress may want more sanctions, Congress may not actually want to fund what they want.

In Congress, the Appropriations Committee decides what gets funding, but different committees determine how it's spent. In the case of sanctions, it's the Foreign Relations and Banking committees.

Sometimes I feel like there may be a disconnect between those panels that are pushing for additional sanctions, mandated sanctions, and those on the panels on the appropriations committees that are actually deciding what funds to provide.

But John Smith is still holding out hope that someday someone in a government might start paying attention to this underdog of an office.

I'm waiting for the administration or the Congress that says, well, wait, this agency is making money for the US government. Let's see what more they can do if we give them more than a drop of the buck. And increase.

To his mind, there's a lot at stake beyond the walls of that nondescript office building right by the White House.

I think it's the question, should we be doing more against human rights abuses and corruption around the world. Should we be doing more to focus on terrorist activities and support for terrorism around the world. The money sent to OPHAC really has an outsized impact.

Thanks for listening to The Big Take DC podcast from Bloomberg News. I'm Salaijah Mosen. This episode was produced by Julia Press, Naomi Shaven, and Stacey Wong. It was fact checked by Tiffany Choi. Alex Sugia and Blake Maples are our mix engineers. Our story editors are Wendy Benjaminson and Michael Shepherd. Nicole Beemster Bower is our executive producer. Sage Bauman is our head of podcasts. If you like what you heard, please be sure to subscribe, rate, and review