Sanctions

Congress Should Staff Up the Office of Foreign Assets Control

By Joshua White
Monday, March 11, 2019, 4:42 PM

Those familiar with the hard work done by the Office of Foreign Assets Control (OFAC) are likely to agree that this small agency with a big responsibility for implementing U.S. sanctions deserves more money and staff. While various reports have highlighted the office’s lack of resources, most of the attention to date has focused on the staffing of sanctions programs for key national security priorities such as Iran and North Korea. But the most egregious shortfalls are connected to sanctions programs meant to address human rights and conflict, particularly in East and Central Africa.

For two years, I led the team at OFAC charged with identifying and sanctioning the violent kleptocrats, warlords, arms smugglers and ivory traffickers who—along with their international networks of associates—have been responsible for some of the most heinous atrocities and human rights abuses committed during the 21st century. I’ve seen how sanctions can be hugely effective in creating incentives for peace in these horrific conflicts by pushing financial institutions to stop handling dirty money. Right now, just a small investment from Congress has the potential to make a profound difference in the lives of millions of suffering people while also protecting the U.S. financial system from abuse.

Addressing the Root Cause

The United States has spent billions in humanitarian aid in East and Central Africa, but profound crises in the region continue despite the influx of money and the often heroic work of aid workers and organizations. While those suffering from violence and hunger urgently need humanitarian assistance from the international community, this aid does not address the root problem. In countries such as the Central African Republic (CAR), the Democratic Republic of the Congo (DRC), South Sudan and Sudan, the continuing violence that has affected the lives of millions of innocent people has been motivated largely by the profit-driven interests of corrupt ruling elites and their shadowy networks. Those in power use war and widespread violence to jockey for control over lucrative natural resources and to rob state coffers. Many people in these countries, from civil society groups to youth activists, are calling for action against the elites who have violently hijacked their countries’ resources for personal profit.

A relatively small investment in sanctions focused on illicit actors, corrupt leaders and their networks can have an outsized impact in addressing the greed-fueled source of conflict and suffering that leads to the need for those billions in aid. The United States can both do what is right and save U.S. taxpayers money by making smart investments that address the structural causes of conflict and assist U.S. diplomatic efforts by building leverage for peace. Used strategically, sanctions can target not only the principal individuals responsible for significant corruption and human rights abuses, but also the support networks of companies and associates that enable their activity.  These “network sanctions” can shut out nefarious individuals and entities from exploiting the international financial system by making it difficult to move and conceal their ill-gotten gains, while also freezing any assets or property held within U.S. jurisdiction. 

How can these kind of targeted network sanctions work so effectively? The U.S. dollar is the currency of choice for international financial transactions and reserve holdings, and OFAC has a unique power to shut out illicit actors from the formal financial system. Kleptocrats in this region use relatively rudimentary means to launder their money, especially when compared to the cutting-edge schemes used by corrupt power players in places such as Russia and Iran who have extensive experience hiding the proceeds of ill-gotten wealth. In South Sudan, for example, it is common to find relatively amateurish tactics used in the systematic theft of ill-gotten fortunes. Crooked elites sometimes hide these assets in the names of others close to them, making their wives or young children shareholders in shell companies, the signatories for offshore bank accounts and the owners of luxury real estate abroad.  

In the internationalization of this dirty money lies its vulnerability. Local and regional banks in East and Central Africa are eager to obtain correspondent banking relationships with U.S. institutions and access the U.S. financial system in order to conduct international transactions in dollars. Deploying sanctions against corrupt profiteers and their networks ensures that local and regional financial institutions will be vigilant in scrutinizing transactions that could jeopardize their international banking relationships.

The Game-Changing Global Magnitsky Act

The passage of the Global Magnitsky Human Rights Accountability Act in December 2016 and the subsequent executive order implementing it nearly a year later were game-changers in the U.S. government’s ability to bring meaningful financial consequences in the form of economic sanctions against violent kleptocrats and their allies.  Arguably, nowhere has the impact of this young sanctions program been felt more strongly than in the DRC and South Sudan.

In December 2017, the Global Magnitsky executive order signed by President Trump authorizing these sanctions included an annex naming Israeli billionaire Dan Gertler and influential South Sudanese businessman Benjamin Bol Mel.  The Treasury Department sanctioned 19 of Gertler’s companies and one of his associates, and two of Bol Mel’s companies.  According to the department, Gertler "amassed his fortune through hundreds of millions of dollars’ worth of opaque and corrupt mining and oil deals in the DRC. Gertler has used his close friendship with [then] DRC President Joseph Kabila to act as a middleman for mining asset sales in the DRC, requiring some multinational companies to go through Gertler to do business with the Congolese state."

Fourteen more of Gertler’s companies were sanctioned by OFAC in June 2018.  Bol Mel was described as having served as the chairman of the South Sudan Chamber of Commerce and a principal financial advisor to South Sudanese President Salva Kiir while his company was allegedly receiving preferential treatment from high-level officials. 

Sanctions against these well-connected businessmen and their networks served to shut them out of the U.S. financial system and prevent their ability to directly transact in dollars, which are overwhelmingly cleared by financial institutions in New York. 

Continuing the Momentum

Bol Mel and Gertler are examples of the financial facilitators increasingly being targeted by OFAC for their links to powerful, profit-seeking elites responsible for conflict, but more sustained pressure is needed in order to change the incentive structure in East and Central Africa from war to peace. The impact of sanctions, especially when levied against those who have the resources to circumvent these measures, can diminish shortly following their imposition. Targets find workarounds and seek to evade the financial measures levied against them—as, indeed, Gertler has

To give economic sanctions teeth, the U.S. government needs to apply ongoing pressure through continuous sanctions designations. But the small, overburdened team at OFAC responsible for identifying and building the cases against actors such as Gertler and Bol Mel currently lacks adequate resources and staff. U.S. taxpayers are rightly spending approximately $750 million per year to provide life-saving assistance in South Sudan since the conflict erupted in 2013. Robustly deploying sanctions against those responsible for perpetuating the humanitarian crisis in South Sudan would require only a fraction of those millions and get at the root causes of the conflict. In fiscal 2018, the entire budget for the Office of Terrorism and Financial Intelligence (TFI), OFAC’s parent agency, was $122.165 million. OFAC’s budget makes up a small fraction of this total amount, and this funding was also used to support the operations of four other offices within the TFI. 

Congress could make a major difference through appropriations specifically directed toward OFAC’s work on network sanctions and anti-money laundering. This small investment can pay huge dividends to help millions of people in Africa caught in the crossfire of corruption-driven warfare. 

The recent funding deal that ended the government shutdown provided a significant increase in funding for the TFI—the full budget request of $159 million was appropriated. Congress also passed language to explain its intentions for this funding, stating that “African conflicts like South Sudan and human rights programs such as Global Magnitsky are under-staffed” and that part of this increased funding should be “focused on enforcing financial sanctions in African countries.” As discussions about funding decisions for the next fiscal year begin over the coming months, Congress should build on this nascent success by insisting on increasing OFAC’s staffing and overall capacity, which would allow the office to better use the robust financial tools at its disposal in the service of peace and human rights in East and Central Africa.  Just as importantly, congressional oversight will be critical to ensuring that the Trump administration adheres to the will of Congress by following through on this report language that clearly directs the TFI to bolster OFAC resources for its work on human rights and corruption in Africa.

In my experience,  OFAC and its counterparts in the TFI are doing the best they can with what they have. Notably, Under Secretary Sigal Mandelker, the senior-most Treasury official responsible for overseeing the implementation of U.S. sanctions and anti-money laundering measures, has been a vocal proponent for the robust use of Global Magnitsky sanctions—last year, she became the first ever official in her position to visit sub-Saharan Africa. War and grand corruption in Central and East Africa are inextricably linked, and these powerful financial tools can help dismantle those deadly ties. The team at OFAC needs just a little more attention and resources to effectively—and cost-efficiently—accomplish this goal. And Congress can make that happen.

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