Freezing bank accounts and tracing assets

Pundits and policymakers alike increasingly push the narrative that America’s influence is waning and that it lacks the leadership to get anything done internationally. Despite the rhetoric plastered across editorial columns, a quiet, but ruthlessly effective effort is targeting and punishing international criminal actors and regimes on America’s newest front lines: the international financial system.

The little-known Office of Foreign Assets Control, or OFAC – housed within the Department of the Treasury’s Office of Terrorism and Financial Intelligence – has grown from a policy afterthought to one of the most valuable tools in America’s national security toolbox in under a decade. Under presidents Bush and Obama, OFAC’s ability to trace assets, freeze bank accounts, and disrupt financial transactions has advanced U.S. interests in situations where we otherwise have limited leverage.

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OFAC has been particularly good at utilizing narrow avenues of disproportionate leverage, such as the Belgian-based SWIFT system for securing international financial transactions, international currency exchanges that rely on the U.S. dollar as a reserve currency, and expensive reinsurance programs that are concentrated in London. U.S. efforts to target illicit financial transactions also leverages our crucial role in the global financial system – the U.S. is home to five of the top fifteen global financial centers, including New York, the number one financial center in the world.

Whether targeting terrorists in Pakistan, drug cartels in South America, the nuclear program in Iran, or war criminals in Africa, U.S. sanctions are now a symbol of innovative and effective U.S. leadership to advancing our interests and values around the world.

One of the most innovative uses of sanction at OFAC is Obama’s recent executive order on South Sudan. One of the keys to increasing international leverage at the Sudanese peace talks is to target the assets of senior government and rebel officials implicated in atrocities. Most South Sudanese elites keep their assets in a range of countries, including Ethiopia, Kenya, South Africa, Uganda, and the UAE. Previously, efforts to target assets in this many countries would have been too cumbersome and unwieldy to be effective, but the Treasury Department’s impressive development of economic tools has allowed the U.S. to target South Sudanese assets across the world in order to push these leaders at the peace talks.

Despite the increasing use of sanctions as a foreign policy tool under the Obama administration, the budget and staff for OFAC have not grown commensurate with its expanding duties. The office maintains a 170 person staff and a budget of less than $40 million. These are relatively small figures considering the office’s responsibility for actively administering 38 sanctions programs, a number that has grown rapidly in the past five years. In the past three months alone, the President issued six executive orders establishing new sanctions programs under OFAC enforcement, including three related to Ukraine and one each on officials in South Sudan, the Central African Republic, and Iraq. In that same three month time period, OFAC designated individuals for sanctions under ten existing programs.

Beyond simply the number of U.S. sanctions regimes, the way we design sanctions regimes today is far more complex than the types of sanctions enacted against Castro’s Cuba or Saddam’s Iraq. One of the reasons that U.S. sanctions under the Bush and Obama administrations have been so effective is because they’re designed as scalpels, not sledgehammers, targeting specific actors and illicit activity as opposed to broad embargoes against countries or industries. Focusing on bad actors and illicit activity make them easier to get buy-in from private actors and foreign governments, who are more likely to support crackdowns on such illegal activity, even if they may not support our political aims. But being so targeted comes at a cost. It takes more time, more attention to detail, and more people to effectively study a terrorist organization’s financial habits or a South Sudanese leader’s investments to determine what banks, front companies, and financial hubs need to be targeted to disrupt these financial flows.

This approach has created a multiplier effect for U.S. sanctions. Today, foreign governments, businesses, banks, and financial institutions around the world are more likely to comply with U.S.-imposed sanctions even when they are not legally obligated to do so. The multiplier effect can been seen most strikingly in Russia, where U.S. sanctions against just a handful of individuals tied to the invasion of Ukraine is leading to massive capital flight by private businesses, a number projected to be $130 billion by the end of the year, twice as much as in 2013.

Supporting OFAC with a budget expansion will allow it to take the actions necessary to ensure that our sanctions regime is composed of enforceable rules, not just words on paper. Each time we take an enforcement action, more soft law results and our impact is multiplied.

But it’s not enough to simply design an effective sanctions regime and obtain commitments from others to support it. Maintaining and enforcing an effective sanctions regime requires even further resources. Enforcing our sanctions on Iran’s nuclear program alone incorporates the rules and regulations set out by 10 statutes, 26 Executive Orders, and 4 United Nations Security Council resolutions. Despite concerns that the entire sanctions regime against Iran would collapse following an agreement to freeze Iran’s nuclear program in exchange for a small amount of sanctions relief, the Treasury Department has managed to keep the program intact thanks to their constant vigilance against companies attempting to break the rules. While not all sanctions programs are as complex as the one we’ve designed against Iran, they all demand dedicated attention to keep the sanctions effective.

There is a constant game of cat and mouse between actors violating sanctions and the Treasury Department seeking to shut them down. Intelligence analysts in OFAC and the Office of Terrorism and Financial Intelligence are constantly examining suspicious transactions, unearthing shell companies, and most importantly, sharing information with private companies to root out these illegal activities. Expanding the number of intelligence officers working within OFAC will allow these analysts the opportunity to focus on effectively enforcing specific sanctions regimes as opposed to constantly jumping from one crisis to the next.

Sanctions are not a silver bullet for every foreign policy challenge currently facing the U.S., but the tools developed by OFAC and the Treasury Department are effective weapons in the U.S. arsenal attempting to affect change in an increasingly interconnected global economy. We should not overemphasize sanctions as a replacement for traditional military and diplomatic assets, but Congress should support OFAC’s efforts with the resources necessary to keep up with its growing portfolio.

Sofer is a policy analyst with the National Security and International Policy team at the Center for American Progress, a liberal advocacy organization. Twitter: @KenSofer. Kumar is the Sudan and South Sudan policy analyst for the Enough Project, an organizatio dedicated to ending genocide and crimes against humanity. Twitter: @AkshayaSays

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