Regulatory intelligence for US exporters

US Sanctions Agency Is Losing Record Number of Employees

The agency responsible for U.S. financial sanctions lost a record number of employees last year, a trend former officials and industry lawyers say has led to longer processing times and an influx of new officials.

Forty employees left the Treasury Department’s Office of Foreign Assets Control in 2019, amounting to the largest exodus from the agency in at least five years, according to an Export Compliance Daily review of agency data. About one in six employees left the agency during the 2019 fiscal year, records show, and more than 170 have left since the start of 2014.

The turnover has been exacerbated by the Trump administration’s hostility toward career civil servants and the political nature of its sanctions decisions, two former administration officials said, creating a fraught environment for officials charged with implementing some of the U.S.’s most sensitive foreign policy decisions.

“It often can be demoralizing to be a federal employee -- especially working at an agency like OFAC, which is called upon sometimes to work around the clock, 24/7, to move through the nation's top national security and foreign policy objective actions,” said John Smith, who left OFAC in 2018 after three years as director and more than 11 with the agency. He also noted the agency faces criticism from the administration, lawmakers and outside agencies.

“The numbers are increasing,” Smith said of the departures, “and that's a worry.”

In interviews, former agency officials and lawyers said they remain confident in OFAC leadership and complimented what they described as intelligent and committed employees throughout the agency. Smith also said the agency’s number of positions has increased, which could naturally lead to higher levels of turnover. The agency listed 240 employees on its roster last year compared with 179 in 2014.

But those interviewed acknowledged that turnover has long been an issue for OFAC, where career officials are often lured away by more lucrative private sector jobs. They also said the increased turnover has likely compounded some of the agency’s existing issues, including long wait times for license applications and a lack of institutional knowledge among new employees.

“It’s very difficult to replicate that with new staff,” said Alexandra Lopez-Casero, a trade lawyer with Nixon Peabody who has worked on OFAC issues for 16 years. “Some folks at OFAC are terrific,” she added. “But sometimes the questions that industry asks and the responses that come back, their responses are just not very specific, which can be frustrating for industry.”

While OFAC emphasized hiring to compensate for the departures -- including 21 people last year, records show -- the turnover rate will likely be difficult to reduce, former officials said. Although OFAC will likely never be able to compete with private sector salaries, some employees are being pushed out by an unpredictable execution of sanctions and a difficult atmosphere created by an administration skeptical of career civil servants. Former officials pointed to President Donald Trump’s October executive order on federal workers, which has been criticized as making loyalty to the president a litmus test for performance.

The atmosphere could change under a Joe Biden administration, Smith said, partly because the Democratic Party nominee was more supportive of government workers during his time as an elected official. “The current atmosphere is far more toxic than it has been in previous administrations,” Smith said, adding that the problems did not stem from Treasury but from higher levels of the administration. “It did exist before, but I believe the situation has gotten worse.”

Former officials said the agency is sometimes ordered to impose sanctions based on what one official referred to as “political desires,” which can run counter to creating an effective and consistent sanctions program. That drove some employees to leave, they said.

OFAC lost several senior officials last year, records show, including its deputy assistant director of licensing, its assistant director of licensing and its assistant director of regulatory affairs, who had about 30 years of combined experience. The departures also included lower-level agency officials, including compliance officers, sanctions investigators, enforcement officers and a sanctions licensing officer with nearly 20 years of experience. At least 59 officials -- about one in four employees -- listed on OFAC's 2019 roster had been at the agency for less than two years.

While some officials retired or took jobs in the private sector, several moved to other government positions. Felicia Swindells, a seven-year OFAC veteran who served as the former assistant director of policy, became an associate director at the Financial Crimes Enforcement Network. Adam Martinez, a 13-year agency veteran and the former director of OFAC’s management program, was named the chief management officer at the Export-Import Bank of the U.S.

A Treasury spokesperson said the agency does not “discuss specific investigative or operational assignments” and said it provides sufficient guidance to industry. “Treasury’s Office of Foreign Assets Control employs more than 200 staff who administer and enforce economic and trade sanctions based on U.S. foreign policy and national security goals,” the spokesperson said. “We dedicate the staff resources necessary to meet the objectives laid out by the Secretary.” The White House did not comment.

The departing employees may be contributing to already slow processing times at OFAC. Trade lawyers say license applications -- requests for their clients to transact with sanctioned parties despite U.S. restrictions -- have for years taken longer to fulfill at OFAC than at other agencies. Similar requests at the Commerce Department’s Bureau of Industry and Security or the State Department’s Directorate of Defense Trade Controls sometimes take a few months, lawyers said, but responses from OFAC can stretch for more than a year.

Alexandre Lamy, a sanctions and export control lawyer with Baker McKenzie, called a 10-month wait time at OFAC a “good result.” “We’ve seen some take much longer than that,” he added.

Former OFAC officials and lawyers said time spent training new hires may lead to a slowdown of operations, especially during the COVID-19 pandemic. But a more concerning problem, they said, comes with losing the institutional knowledge of officers with a decade or more of experience. “They’re great, they’re really smart, but the new people coming in aren't experts,” said a senior government official who recently left the administration and who worked closely with OFAC. “Whenever anybody leaves, especially in a government office, you just lose some of the sense of how things work.”

Lawyers said they have noticed more officials with historical knowledge of sanctions programs being replaced. “A lot of people we know over there have left for the private sector or retired,” said Erich Ferrari, a sanctions lawyer with Ferrari & Associates. “There's new people there, and they might not remember how they did things 10 years ago or 15 years ago in a certain context. So I think that's certainly at play.”

Although OFAC is a “very professional agency,” turnover could slow down operations, said Smith, who is now a national security partner with Morrison & Foerster. “When people leave, the next round of folks have to be trained and brought up to speed,” he said. “And that will lead to delays in processing license applications, issuing enforcement actions and other critical items that OFAC undertakes.”

Ferrari said he also noticed a slowdown in OFAC removing designations from sanctions lists, which may also be caused by turnover. “Most of the things we've experienced have involved cases getting kicked around,” he said, adding that new people coming in and out of those case files are likely still being “brought up to speed.”

OFAC is aware of the slowdown and wants to be faster, according to one former official, who requested anonymity to be able to speak openly about the agency. “Definitely things take a while longer than OFAC would like,” the person said.

Other issues surround OFAC’s guidance to industry. Lawyers said some officials at government roundtables -- held at annual conferences before the COVID-19 pandemic -- could not provide clear answers to industry questions because of their inexperience. “I would not suggest that anyone doesn't have knowledge,” Lopez-Casero said. “It's just difficult to build up the experience on how the agency would interpret a regulation over time if one has not been there for a sufficient amount of time.”

Smith said OFAC has “long been criticized for not being more transparent,” but said officials often face a difficult balancing act of clarifying issues for industry and preserving U.S. foreign policy interests. “Any criticism of OFAC with respect to a lack of particular guidance often doesn't reflect the incredibly sensitive and complex national security and foreign policy objectives that OFAC has to weigh in putting out guidance,” he said.

Former OFAC officials also said the Trump administration's unpredictable nature has made some employees less willing to speak publicly about sanctions issues because they fear contradicting the administration. That fear can sometimes extend to answering mundane regulatory questions.

“With that level of uncertainty, when you’re talking publicly, you’re a little bit more scared to say anything,” the former official said. “Not because you’re going to lose your job, but because you don’t want to say, ‘yeah, that’s the way we interpret it,’ and then find out the political powers decide we’re going to do something different tomorrow and push something through that you wouldn’t expect.”

The turnover rate can be reduced if the U.S. creates a more predictable approach to sanctions policy and takes steps to curb a toxic environment for government workers that has worsened under the Trump administration, former officials said. Smith suggested “a political atmosphere that is kinder toward career civil servants.” But even with those changes, former officials said impacts of the turnover will continue to be felt in the short term.

“It’s a burden for OFAC to train up a whole bunch of new people, and it’s a burden if they fail to train up the new people,” the former official said. “And that burden is going to come back one way or another.”