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By Yeganeh Torbati and Brett Wolf
WASHINGTON, Aug 7 (Reuters) - As Congress considers acontroversial nuclear deal with Iran, the U.S. Treasury agencycharged with implementing related financial sanctions is at riskof being overwhelmed by its expanding mission, former employeesand lawyers who deal with the office say.
The agency, the Office of Foreign Assets Control, isresponsible for enforcing a broad array of sanctions and forlicensing American companies wishing to do business withsanctioned countries. Both roles will be especially critical ifsome restrictions are relaxed under the proposed nuclearagreement with Iran.
But a growing reliance on sanctions to address situations asvaried as Russia's incursions into Ukraine, cyber attacks onU.S. businesses, and jihadist financing has increased pressureon the agency, which is being asked to police a bigger beatwhile staffing and budgets have not kept up.
Dozens of OFAC officials have left the agency in the pastfour years for better-paying jobs at law offices, consultingfirms and banks, which have aggressively built up theircompliance departments in response to big fines for sanctionsviolations.
"OFAC is left in a position where they can only deal withwhat's five inches in front of their faces," said Erich Ferrari,a Washington-based sanctions lawyer.
The agency has prided itself on the firepower of its smalland highly specialized staff of about 200, who collectivelyoversee more than 35 sanctions programs. But the size of theagency has also meant that each departure has an outsizedimpact, former officials say.
"OFAC is a small organization that is amongst the leanest,most productive I've seen anywhere in government," saidElizabeth Rosenberg, a former senior advisor at the TreasuryDepartment who left in 2013. "There's little redundancy."
The most high-profile recent departures have includedLorraine Lawlor, OFAC'S former chief of compliance programs wholeft in 2012 for Wells Fargo ; Sean Thornton, formerchief counsel who joined French bank BNP Paribas in2014; Eytan Fisch, former assistant director for policy who leftthis year for law firm Skadden; and Adam Smith, former senioradvisor to the director who left in July for law firm GibsonDunn.
At least 25 other sanctions compliance officers, lawyers,and others have left OFAC since 2011 for companies includingHSBC, Bank of America, Western Union,PayPal, and Credit Suisse, according to areview of LinkedIn profiles.
To be sure, the recruitment of regulators by business is aconstant in Washington, and there is no indication that the rateof departures at OFAC is greater than at other agencies. But theimpact is particularly acute given that the agency's staff andbudget has grown little in recent years, while its workload hasincreased.
At one point, OFAC staff were holding up to five happy hourseach month for departing colleagues, said David Brummond, aformer sanctions advisor who left OFAC in 2014 and is now withlaw firm DLA Piper.
"It just became funny," Brummond said. "You had to scheduleit into your social calendar."
Treasury did not provide details on the agency's staffinglevels or comment on whether the agency is short-staffed for thework it does.
"OFAC is comprised of a staff of talented individuals, andour sanctions have become an increasingly effective nationalsecurity and foreign policy instrument thanks in large measureto the careful work of our staff," the Treasury said in astatement.BIGGER PAYDAYIn some ways the problems faced by OFAC are born of the U.S.government's success, in winning high-profile penalties againstbanks for prohibited transactions with Iran, Sudan and othersanctioned countries.
Banks have responded by beefing up compliance departmentsand tapping senior OFAC officials to lead them. For example,shortly after BNP Paribas agreed to pay U.S. authorities $8.9billion in 2014 to resolve claims it violated sanctions, ithired Thornton.
Some of the departed officials had served for decades andtook with them considerable institutional knowledge of howsanctions have evolved.
OFAC employees, whose salaries top out at around $160,000per year, can easily double or triple their pay in the privatesector. Senior OFAC officials can command up to $1.2 million peryear, said a senior compliance official at a large U.S. bank.
Since 2011, the United States has implemented 29sanctions-related executive orders, according to a Reuterstally, almost double the number from 2006 to 2010 when therewere 16 such orders.
OFAC staff have numbered about 170 to 200 for at least thelast five years, former officials say. In fiscal 2013, the lastyear for which information is public, OFAC had a budget of about$31 million, compared to $29 million in 2009, documents show.
Sanctions have also become increasingly complex. Themeasures imposed on Russia in 2014, sanctions experts say, areespecially intricate and target specific activities rather thanbroad categories of business. And while sanctions ban most U.S.trade with Iran, they include exceptions that allowhumanitarian, medical and other business dealings.Such business often relies on the granting of licenses, whichlawyers said can take up to a year or more to acquire.
Ferrari said a license he requested for an Iranian animalshelter to raise funds in the United States took 18 months andthree separate applications before being granted.
Businesses sometimes give up in frustration after long waitsfor OFAC's go-ahead or guidance, lawyers say.
That could present a risk for implementation of the Irandeal, experts say. Without clear and quick guidance, businessesand banks will likely pull back from trade with Iran, even inareas permitted if sanctions are eased. In turn, if Iran did notget the relief it expected from eased sanctions, it would haveless incentive to abide by the terms of the deal.
Brummond said it is already a challenge to get agency staffon the phone to give guidance on new sanctions language and whatdirection regulations might take.
"Clients want the answer whether or not OFAC answers thephone. I try to explain to the client that I've left my fourthvoice mail," Brummond said. "I know who I'm calling on the otherside, and I know how buried they are." (Reporting by Yeganeh Torbati; editing by Kevin Krolicki andSue Horton)
