Bloomberg | James Gibney: In his three years in office, President Donald Trump has placed more people under sanctions than he has insulted on Twitter. But his ready resort to economic punishment has put ever greater strain on a bureaucracy that was overburdened even before he took office — and the more overloaded the sanctions machinery becomes, the less effective it is.

For the third year running, the Trump administration has added more names than any of its predecessors to the Specially Designated Nationals List maintained by the Treasury Department’s Office of Foreign Assets Control (OFAC), which administers and enforces more than 30 active programs of economic and trade sanctions. On average, Trump has made more than 1,000 designations each year — more than twice the annual average increase in the last two administrations.

Last year the U.S. rolled out new sanctions 82 times. Even as the coronavirus pandemic has slowed government — OFAC employees working from home struggle to access classified material — 15 more individuals and five more companies from Iran and Iraq were added to the list last week. In the last month, the U.S. has also tightened sanctions on North Korea and Syria.

Trump’s mercurial outbursts, dysfunctional policy process and politicized management have added to the burden. Last October, for instance, he threatened (on Twitter, of course) to “totally destroy and obliterate the Economy of Turkey” over its incursion into Syria. The relatively limited sanctions that OFAC hurriedly imposed were withdrawn after a week — an exercise that some foresight and diplomacy could have averted.

Even as Trump’s sanctionskrieg has intensified, high-level interventions have reportedly damaged morale and led to OFAC staff departures. Since October, there has been no undersecretary of the Treasury Department’s Terrorism and Financial Intelligence Unit, which oversees OFAC, because the White House reportedly deemed the department’s proposed nominee to be insufficiently pro-Trump.

For U.S. companies trying to stay on the right side of Uncle Sam, compliance with sanctions regimes has become more onerous. Almost half of OFAC’s active sanctions programs were updated last year, according to Bloomberg Law, and 23 have been changed since 2018. Lawyers who practice in this area tell me that while individual OFAC officials are highly responsive on urgent licensing cases, the office as a whole seems increasingly overwhelmed and is slow to answer queries.

A recent investigation by the Government Accountability Office detailed growing staff gaps: From 2014 to 2020, the percentage of OFAC’s authorized positions that were unfilled rose from 6% to 21%. In fiscal year 2020, one-fifth of its sanctions investigator positions were empty. That same year, the State Department Office of Economic Sanctions Policy and Implementation had less than half its authorized staff in place.

In practice, this means slower progress on both compliance and enforcement. Although OFAC now takes less time to process requests for exemptions to sanctions — the average time over the 2016-18 period was down to 48 days, from 53 days in 2014-2016 — the office is handling less than half as many applications. Moreover, even as the administration touted the record fines generated by enforcement actions last year ($1.3 billion), most of it came from two financial firms guilty of violations that began more than a decade ago, part of a growing backlog of enforcement actions. (A 2019 enforcement win for sanctions aficionados to savor: a $1 million settlement with a company that imported Chinese false eyelash kits sourced from North Korea.)

It’s true that the budgets for both OFAC and the State Department’s sanctions office have increased in recent years. But the sanctions machinery will still struggle to keep up.

The impact of the huge increase in sanctions is cumulative; it’s not as if the older programs are deactivated. (Iran’s Islamic Revolutionary Guard Corps, for instance, is now sanctioned under seven sanctions authorities.) Sanctions now also target a wider range of industries and have become more complex as they aim at trickier targets — Venezuela with its dueling governments, for instance, or the tangled financial holdings of Vladimir Putin’s allies. New threats are emerging: In this year’s budget pleading, Treasury noted that OFAC has only one investigator focused on the illicit use of virtual currency, a widening channel for sanctions evasion. Moreover, because public sector salaries can’t compete with those of law firms and companies also trying to bulk up, the bureaucracy will continue to bleed talent.

There is, of course, a rich debate over whether sanctions produce the right policy outcomes, the circumstances under which they are most effective and the best way to ensure that innocent civilians aren’t caught in the economic crossfire. The administration’s “maximum pressure” strategy toward Iran, North Korea and Venezuela has come under plenty of criticism for lacking a clarity of purpose. Are sanctions supposed to change a regime’s behavior, or the regime itself? Certainly plenty of nations have successfully resisted such U.S. pressure. (See, e.g., Cuba, 1962-present.)

In the short term, higher salaries and bigger budgets might help OFAC to keep up with Trump’s twitchy sanctions finger. Ultimately, however, the best way to retain the effectiveness and credibility of U.S. economic sanctions is to use them more judiciously, in closer conjunction with allies, and with clear and achievable goals in mind.



This column does not necessarily reflect the opinion of Bloomberg LP and its owners.