How the government furloughs will actually affect U.S. sanctions and OFAC

The Daily Beast ran an article on Wednesday citing how the government shutdown has vacated the Annex. I’m just going to tick this one off as yet another media piece on the shutdown designed to increase hit factors on the website. While the article is technically accurate (the building is pretty much empty), it offers no substance into how sanctions are actually affected. Overall, life with sanctions will indeed go on. Yes, certain services will be slowed and halted, but if anything OFAC is good at catching up. Instead, I’ve laid out a handy primer on the various services and how the shutdown effects them, all organized by division at OFAC.

What is interesting is how much sanctions implementation is a self-contained system. Most sanctions compliance falls on financial institutions which are the front line fight against sanctions. OFAC does not personally oversee the blocking of all wires. It’s mission is to draw up the different sanctions programs, assist others in implementing them (through outreach and licensing specific activities) and level penalties against anyone who fails to comply with the applicable laws. Outside of the scope of providing advice and quickly issuing a license, there is very little that will be effected by a week of shutdown. Will it suck for OFAC members to go back to work with massive backlogs? Absolutely. Will it inihibit our ability to preventing bad people from doing bad things with bad money moved through the U.S. financial system? Doubtful.

There are some longer term effects that I do worry about, mainly in the field of morale and retention. Also the fact that while Department of State has plenty of budget left from last year, the fact that OFAC had to furlough practically everyone means that we are looking at an agency that has been asked to do more and more by Congress with less and less. To put it in perspective, it costs about as much to deploy a rifle company to Afghanistan as it does to run OFAC for a year. Yet OFAC is on point for practically every single top national security item this administration is facing. Perhaps this is a signal that the next time Congress asks for more, they should also appropriate more.

My other long term worry is about OFAC morale and retention. On the one hand, if you are at the GS-09 level or above but living in a way that loss of a week’s worth of pay is going to put you in debt, you should probably seek financial counseling. On the other hand, and particularly in the compliance branch at OFAC, your pay is already much less than you would make in the private sector and you already put in way more hours than your average federal employee. When your entire office of a little more than a dozen people is in charge of implementing, enforcing and informing about sanctions writ large, it means early days and late departures. To lose 2% of your yearly pay because the guys who hold your money want to act like children makes you start eyeing the private sector even more. Put that on top of issues of promotion and that a bank is offering a pay check three times larger than what you make now, this furlough becomes yet another bizzaro-you sitting on your shoulder telling you to leave.

 

The Breakdown

To catagorize each service to the outside world being effected, I’ve decided to break the analysis down by each division. It’s easier to analyze this way. Also, I will be listing the divisions not by importance or effect of the shutdown but instead am simply starting on the second floor of the annex and heading up to the fifth floor. This assumes a single week of furlough and more looks at the short order effects of helping the financial community comply with sanctions. The divisions listed are those that actually work with the outside world and implement sanctions.

Policy and Legal

The furlough is going to have a doubtful effect on policy. It’s not like Congress is focusing on sanctions right now. I also don’t think that the furlough will have a long term effect on legal. I’m sure several tricky cases waiting for legal’s interpretation will be held up, but the most direct effect for the public is legal’s interpretive guidance. Given that this is a multi-month long process (I used to say six months to people), I doubt this will effect requests significantly.  Given that guidance is only a small part of legal, I’m sure the furlough is most likely to delay other things such as enforcement actions, cases and licenses instead.

Licensing

This is the division that I believe will have the greatest impact on implementing sanctions. Licensing is by far the largest division in OFAC and deals with hundreds of licensing requests daily. The shutdown means that the majority of licensing officers are not able to work on or process licenses. Most likely there is only one or two people there to process emergency licenses. Fortunately, many of the emergency provisions are already authorized in the various programs (human remains, emergency landing, etc.) but an issue does crop up from time to time. While those issues can be handled, don’t plan on booking travel to Cuba anytime soon. Or registering as an NGO in Sudan. Or exporting non-GL medical devices to Iran. Or anything else for that matter.

Enforcement

The shutdown will have a negligible impact on enforcement. Enforcement is in charge of investigating violations of all things not related to the financial industry, mainly exporters/importers, private corporations dealing in technology services, etc. Cases aren’t drawn up overnight and while the timeline for an Enforcement division case is much faster, if you look back at some of the settlements you will realize that many of these violations predate the penalty by at least a year or more.

Compliance

Other than licensing, this will be the division to feel the most significant impact. Compliance is in charge of implementation and outreach of sanctions as well as enforcement of financial institutions (i.e. the bulk of OFAC enforcement). Not only is their job massive, but this is the branch with the most day to day interaction to the outside world. Similar to enforcement, I don’t believe a week long shutdown will have a significant impact on OFAC enforcement actions. If you think Enforcement division penalties are for old violations, a settlement with compliance can be a multi-year process. A random sample of two cases (yes I’m lazy), Standard Chartered and ING, show that while the penalty was leveled in 2012 the violations occurred between 2003-2005 and 2002-2007 respectively. One week isn’t going to hurt.

Where the week will hurt is in keeping up with blocked and rejected assets as well as Compliance’s outreach efforts. The OFAC hotline (800-540-6322 if you dare) is manned by compliance officers and specialists throughout the day and receives upwards of a hundred calls a day ranging in issues from as simple as clarifying an SDN hit to as complex as implementing Iran legislation or installing a new filtering system. I used to assume 7 minutes a call and about a hundred calls a day. Thus compliance is most likely returning to nearly 60 hours of backlog. And did I mention that the people manning the hotline have other jobs as well? Like analyzing blocked assets or working on cases or putting out fires?

I wouldn’t be surprised if Compliance called a clean sweep on the hotline and started fresh. It’s frankly the most practical solution for them at this point. In the meantime, this awesome firm is offering pro bono OFAC advice to anyone so long as OFAC is currently on furlough.

Office of Global Targeting

Designations aren’t made in a day. Other then having to play catch up with their programs, I don’t think this will seriously effect any of the sanctions regimes. If anything, it will give everyone on the private side some time to catch their breath and not have to hang around after hours while updating their filters.