Speaker 1: About two hundred yards from the White House, there's a
Speaker 1: nondescript government building. Inside is a tiny agency that happens
Speaker 1: to be one of the most powerful in the world.
Speaker 2: It's been called the most important agency that no one
Speaker 2: has ever heard of.
Speaker 1: It's called OPHAK, the Office of Foreign Assets Control. It
Speaker 1: also goes by another name, the Sanction's Office, and that
Speaker 1: was John Smith, one of its previous directors. This office
Speaker 1: influences how trillions of dollars move around the world. Right now,
Speaker 1: the list of the US's economic sanctions runs over two
Speaker 1: thousand pages.
Speaker 2: There are dozens of sanctions programs Russia, Ukraine, regions like
Speaker 2: Iran or Syria or North Korea, Cuba, so many others.
Speaker 2: So all of that is handled by these approximately three
Speaker 2: hundred people.
Speaker 1: Three hundred people.
Speaker 2: The cost to fund the entire agency that is o
Speaker 2: FAC is probably less than even a single tank or
Speaker 2: aircraft would be. By many many factors.
Speaker 1: It feels like every day the White House announces and
Speaker 1: the media broadcasts news of fresh economic sanctions. The United
Speaker 1: States is reinstating some sanctions on Venezuela, more sanctions against Russia.
Speaker 2: Today, imposing financial sanctions on four Israeli nationals, for their estates.
Speaker 1: You think that the federal government is pouring money into
Speaker 1: the office that oversees them, but it's not, and that
Speaker 1: has consequences for national and even global security and the
Speaker 1: US government's ability to actually enforce sanctions from Bloomberg's Washington Bureau.
Speaker 1: This is the Big Take DC podcast. I'm your host
Speaker 1: Sleiah Mosen. During the Trump administration, when John Smith was
Speaker 1: running OPHAK, I was desperate to talk to him, but
Speaker 1: he knew better than to talk to me. I was
Speaker 1: a reporter covering US Treasure Department really closely, and I
Speaker 1: was obsessed with everything his office was doing and finding
Speaker 1: out the sanctions that they were working on before anyone else,
Speaker 1: because knowing that can tell you a lot about how
Speaker 1: the White House is thinking about foreign policy.
Speaker 2: Sanctions have been called the alternative between words and war,
Speaker 2: between military boots on the ground on the one hand,
Speaker 2: or just mirrored diplomacy on the other.
Speaker 1: Let me take a second to explain just how sanctions work.
Speaker 1: We live in a world that runs on dollars literally,
Speaker 1: so when the US wants to put pressure on a
Speaker 1: foreign business, a government, or even a person, it uses
Speaker 1: the dollar as leverage.
Speaker 2: So, for example, Russia's war in Ukraine. O fax actions
Speaker 2: and sanctions actions have frozen in the hundreds of billions
Speaker 2: of dollars.
Speaker 1: OFEK is the kind of DC office that tends to
Speaker 1: pop up on the radar from time to time, but
Speaker 1: only in significant moments. After nine to eleven, President George W. U.
Speaker 1: Bush launched the global War on Terror with sanction.
Speaker 3: Today we have launched a strike on the financial foundation
Speaker 3: of the global terror network.
Speaker 1: The tanks came later.
Speaker 3: Coalition forces have begun striking selected targets of military importance.
Speaker 1: Bush promised to follow the money that enabled terrorists to
Speaker 1: take down the World Trade Center. He wasn't the first
Speaker 1: to view sanctions as a foreign policy tool. The US
Speaker 1: dabbled in them in the fallout from the American Revolution,
Speaker 1: so they're literally in our country's DNA. But OPHAK was
Speaker 1: born later.
Speaker 2: It got its start in World War Two to help
Speaker 2: implement and enforce the US response to Nazi Germany.
Speaker 1: When I covered the Treasure Department, I worked really closely
Speaker 1: with my colleague Nick Watdams. While I was looking at
Speaker 1: sanctions from the economic angle, he was focused on national security.
Speaker 1: He's now an editor at Bloomberg.
Speaker 4: This is something that's become basically the go to tool
Speaker 4: of first resort for the un US government as a
Speaker 4: way to flex its muscle overseas, and OFIX sits at
Speaker 4: the very center.
Speaker 1: In the twenty years since nine to eleven, the number
Speaker 1: of entities the US has sanctioned has skyrocketed by almost
Speaker 1: one thousand percent, but the office that manages them O
Speaker 1: FAC it's grown by just one hundred or so people.
Speaker 1: At least that's as far as I can tell from
Speaker 1: my sources, since Treasury doesn't disclose that publicly. It now
Speaker 1: has some three hundred lawyers and financial investigators to comb
Speaker 1: through troves of classified and public data, all in the
Speaker 1: name of serving American foreign policy goals. But that increase
Speaker 1: is hardly enough to keep up with the increasing reliance
Speaker 1: on the office.
Speaker 4: Seemingly every lawmaker now basically has a sanctions package in
Speaker 4: their back pocket that they want to unveil against whoever
Speaker 4: it might be.
Speaker 1: Economic sanctions have become so important to the US government
Speaker 1: that in twenty twenty two, right after Russia invaded Ukraine,
Speaker 1: President Joe Biden talked about them very beginning of his
Speaker 1: State of the Union address.
Speaker 3: We're cutting off Russia's largest Bank to the international financial system,
Speaker 3: preventing Russia's Central Bank from defending the Russian rubule, making
Speaker 3: putin six hundred and thirty billion dollar warfund worthless. We're
Speaker 3: choking Russia's access.
Speaker 1: I remember that moment. I've covered sanctions for years, and
Speaker 1: it's the first time I've heard a president talk about
Speaker 1: them in such a high profile speech.
Speaker 4: US sanctions are powerful because the US economy is so powerful.
Speaker 4: The US financial system is the avenue through which basically
Speaker 4: every banking transaction gets done. So if you then say, okay,
Speaker 4: you a foreign entity or a foreign person, we're not
Speaker 4: going to give you access to the US financial system,
Speaker 4: that person is essentially banished financially. They can't get a
Speaker 4: credit card, they can't get a bank account, they can't
Speaker 4: pay their employees, they can't buy goods. So suddenly they
Speaker 4: are essentially ostracized from the entire global financial system.
Speaker 1: Consider the action America took against Iran to rein in
Speaker 1: its nuclear ambitions. In twenty seventeen and eighteen, the Trump
Speaker 1: administration levied more than nine hundred sanctions on Iran related targets.
Speaker 1: In Iran's economy shrunk around five percent in each of
Speaker 1: those years. But in order for OPAC sanctions to have
Speaker 1: the economic bite that they're known for, someone needs to
Speaker 1: make sure they're being enforced.
Speaker 4: One thing I heard that OFAC really needs more money
Speaker 4: for enforcement, like figuring out who's violating the sanctions and
Speaker 4: bringing a case that would then help punish that entity
Speaker 4: for not following the sanctions.
Speaker 1: OPAC works with other parts of the government to enforce sanctions.
Speaker 1: For example, in twenty fourteen, OPHEK was part of a
Speaker 1: case against France's largest bank, accusing it of violating sanctions
Speaker 1: on Sudan, Iran, and Cuba. The bank pleaded guilty and
Speaker 1: paid almost nine billion dollars to settle the matter. But
Speaker 1: John Smith told me that this tiny office can't manage
Speaker 1: all of this on its own.
Speaker 2: It's implementing dozens upon dozens of sanctions programs, including some
Speaker 2: of the most important to our US national security and
Speaker 2: foreign policy, and it simply doesn't have the resources that
Speaker 2: it needs.
Speaker 1: Up next, what's stopping the federal government from giving this
Speaker 1: small but mighty office more to work with. John Smith
Speaker 1: used to run OPHAK, the US government's sanctions office.
Speaker 2: It is startling just how little money it takes to
Speaker 2: run OPHAK.
Speaker 1: As it is today, and he told me that OPHAC
Speaker 1: doesn't just run on an incredibly tight budget, but it
Speaker 1: actually turns a profit for the.
Speaker 2: US OHFAC punches above its weight. Any dime that's given
Speaker 2: to OPHAC will be magnified far beyond it's a money maker.
Speaker 2: OPHAC has an enforced function where OPAC issues dozens of
Speaker 2: enforcement actions. Those enforcement actions can come often in the
Speaker 2: tens of millions or hundreds of millions of dollars a
Speaker 2: year that goes to the General Treasury.
Speaker 1: Remember that French bank I mentioned, the one that had
Speaker 1: to pay billions of dollars for violating OPAC sanctions. Almost
Speaker 1: half of that money went to a federal fund, an
Speaker 1: account controlled by Congress. OPHAC did not get that money.
Speaker 2: That is different than many enforcement agencies where Congress's passed
Speaker 2: laws that basically wants to encourage those enforcement agencies to
Speaker 2: do more enforcement actions, and so Congress's pass laws that
Speaker 2: allow certain enforcement agencies to keep the funds.
Speaker 1: Basically, Congress hasn't given OPAC the resources to fully enforce
Speaker 1: all of its sanctions programs, so instead it puts some
Speaker 1: of that onus on the private sector.
Speaker 4: It doesn't actually we enforce the sanctions a lot itself.
Speaker 4: It relies on banks.
Speaker 1: My colleague Nick told me that OFAK has tossed the
Speaker 1: hot potato of enforcement over to businesses. One way it
Speaker 1: does this is by leaving banks and other companies guessing.
Speaker 4: So they will issue a very ambiguous rule saying certain
Speaker 4: types of financial transactions with a Russian company or a
Speaker 4: type of Russian company will be banned. And then when
Speaker 4: you look at that rule you're a lawyer looking for
Speaker 4: exact language about that rule, it's extremely ambiguous and you
Speaker 4: have no idea what's going on. And so the response,
Speaker 4: if you're a lawyer for Citibank, you just say, Okay,
Speaker 4: we're not going to get anywhere near the Russian economy.
Speaker 1: If there's one thing I've learned as a reporter at Bloomberg,
Speaker 1: it'said investors in the business sector don't like uncertainty, especially
Speaker 1: from the US government. But it seems like OFAC is
Speaker 1: accidentally creating some of that.
Speaker 4: I had all sorts of conversations with people who would say,
Speaker 4: we would go to OPHAK for advice saying, hey, you
Speaker 4: guys issued this rule, clarify this rule for us, tell
Speaker 4: us what what this actually means. And the response would
Speaker 4: take like six months to a year. They would blame
Speaker 4: that on underfunding because OPAC only had like two lawyers
Speaker 4: working on a certain file, or they didn't have nearly
Speaker 4: enough compliance people, or half the compliance people were out
Speaker 4: on vacation or on leave, or they were sick or whatever.
Speaker 4: They could not get an answer.
Speaker 1: John Smith believes there are real consequences to comically slow
Speaker 1: policy responses and strapped budgets.
Speaker 2: Every bit of time lost, every bit of use of
Speaker 2: old technology means that were that much further behind those
Speaker 2: that seek to evade sanctions so they can raise money
Speaker 2: for terrorist attacks against US targets, against WMD related activities,
Speaker 2: where bad actors are raising money for nuclear proliferation, against
Speaker 2: counter narcotics efforts, where our sons and daughters and brothers
Speaker 2: and sisters, mothers and fathers may be harmed.
Speaker 1: All this brings up a really important question. Do sanctions
Speaker 1: even work?
Speaker 2: Nothing works one hundred percent, but sanctions have been demonstrated
Speaker 2: to work, but they take time. So for example, there
Speaker 2: was a tough economic sanctions program in World War two,
Speaker 2: but it wasn't sanctions alone that won that war. It
Speaker 2: was the US military might and our strategic sense, and
Speaker 2: sanctions played a role.
Speaker 1: We could do an entire episode on whether sanctions work
Speaker 1: or not. It's really complicated and hard to measure. Take
Speaker 1: the example of Russia. In the two years since its
Speaker 1: invasion of Ukraine, the US has placed more than three thousand,
Speaker 1: five hundred sanctions on Russian individuals, businesses, and even aircraft. Now,
Speaker 1: Russia's economy is on track to strength by eight percent
Speaker 1: in the next two years, but Russian manufacturing has actually
Speaker 1: grown to support the war effort, so the country's GDP
Speaker 1: is still growing. Smith did point to examples of sanctions working.
Speaker 2: Sanctions played a role in the apartheid crisis. We weren't
Speaker 2: sending troops to South Africa, but we included a global
Speaker 2: coalition that said to South Africa, we will no longer
Speaker 2: deal with you if you continue your apartheid regime and
Speaker 2: that jurisdiction and they finally changed. With respect to Iran,
Speaker 2: Iran said it would never negotiate over its nuclear program
Speaker 2: until it did and until it came to the negotiating
Speaker 2: table and we reached an agreement.
Speaker 1: So if sanctions really can pack a punch, and OPAC
Speaker 1: is the main body responsible for them, why has its
Speaker 1: budget remained so low for so long. Smith told me
Speaker 1: that it comes down to Congress, which determines public spending.
Speaker 2: You hear so much from members of Congress wanting more
Speaker 2: sanctions on Iran, Venezuela, Russia, China, across the board. Sometimes
Speaker 2: sanctions bills may be among the only bipartisan things that
Speaker 2: are passed through Congress. But while Congress may want more sanctions,
Speaker 2: Congress may not actually want to fund what they want.
Speaker 1: In Congress, the Appropriations Committee decides what gets funding, but
Speaker 1: different committees determine how it's spent. In the case of sanctions,
Speaker 1: it's the Foreign Relations and Banking committees.
Speaker 2: Sometimes I feel like there may be a disconnect between
Speaker 2: those panels that are pushing for additional sanctions, mandated sanctions,
Speaker 2: and those on the panels on the appropriations committees that
Speaker 2: are actually deciding what funds to provide.
Speaker 1: But John Smith is still holding out hope that someday
Speaker 1: someone in a government might start paying attention to this
Speaker 1: underdog of an office.
Speaker 2: I'm waiting for the administration or the Congress that says, well, wait,
Speaker 2: this agency is making money for the US government. Let's
Speaker 2: see what more they can do if we give them
Speaker 2: more than a drop of the buck. And increase.
Speaker 1: To his mind, there's a lot at stake beyond the
Speaker 1: walls of that nondescript office building right by the White House.
Speaker 2: I think it's the question, should we be doing more
Speaker 2: against human rights abuses and corruption around the world. Should
Speaker 2: we be doing more to focus on terrorist activities and
Speaker 2: support for terrorism around the world. The money sent to
Speaker 2: OPHAC really has an outsized impact.
Speaker 1: Thanks for listening to The Big Take DC podcast from
Speaker 1: Bloomberg News. I'm Salaijah Mosen. This episode was produced by
Speaker 1: Julia Press, Naomi Shaven, and Stacey Wong. It was fact
Speaker 1: checked by Tiffany Choi. Alex Sugia and Blake Maples are
Speaker 1: our mix engineers. Our story editors are Wendy Benjaminson and
Speaker 1: Michael Shepherd. Nicole Beemster Bower is our executive producer. Sage
Speaker 1: Bauman is our head of podcasts. If you like what
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Speaker 1: tuning in. I'll be back next week.