Trump's Sanctions Staff Defects as U.S. Expands Economic War

The U.S. office in charge of financial sanctions, President Donald Trump’s favorite weapon against American adversaries, risks being hobbled by staff departures due to management turmoil and growing private-sector demand for its expertise.

Trump has nearly doubled the number of people and companies under U.S. sanctions. But in the last two years, about 20 staff have left the office in charge of implementing and enforcing sanctions, the Office of Foreign Assets Control—about 10 percent of its workforce.

The sanctions office, part of a Treasury division overseen by Sigal Mandelker, has the power to freeze billions of dollars in assets, blacklist individuals and companies from participating in the U.S. economy and punish violations. The Trump administration has turned to sanctions to pressure countries including North Korea, Venezuela and Turkey.

The increased tempo and sophistication of the work of the sanctions office, known as OFAC, has contributed to attrition. Washington law firms, Wall Street banks and other companies have sought to hire Treasury’s sanctions officials to help them translate the agency’s decisions, which can have sweeping effects on financial markets.

But some who have left also blame Mandelker, 47, the undersecretary for Treasury’s Terrorism and Financial Intelligence unit, or TFI, which is composed of four offices, including OFAC.

While they say Mandelker is smart and well-versed, people familiar with her work also call her disorganized, indecisive and short-tempered and say she has embroiled her staff in feuds with a deputy, Marshall Billingslea.

Mandelker’s poor leadership has hurt morale across the units she oversees, according to more than 20 people familiar with the inner workings of her department, all of whom asked not to be identified because of the sensitivity of the situation.

Attrition Risks

The Treasury Department made Secretary Steven Mnuchin available for an interview after it was asked for comment from Mandelker. He expressed confidence in her work and said criticism of her is “completely inconsistent” with the operations of her division.

“Sigal and I have tremendous confidence in the career staff and their opinions,” he said. Mnuchin said attrition rates are lower at TFI than other parts of Treasury, though the department declined to provide numbers.

Mandelker said in written testimony for a House hearing last week that she was “humbled to supervise TFI’s career professionals who work day-in and day-out, often behind the scenes, to keep America safe.” She called OFAC the “beating heart of U.S. sanctions.”

Mnuchin has taken an increased interest in TFI’s work compared to his predecessors, often saying that he spends half his time on sanctions. Some of the people who blame Mandelker or Billingslea for the attrition say Mnuchin’s involvement in the office helps speed decisions, and that the secretary was more willing to hear and follow advice from civil servants than Mandelker.

“Given the activity and the impact on the private sector both here and abroad I can see why companies would want to hire experts to deal with this,” Mnuchin said.

It’s difficult to pinpoint risks from staff attrition at TFI, but one vulnerability could be legal. People under U.S. sanctions sometimes sue the government for relief. Russian billionaire Oleg Deripaska, who was sanctioned last year in response to Moscow’s interference in the 2016 election, filed a lawsuit last week claiming $7.5 billion in losses related to the U.S. penalties.

Deripaska’s lawsuit names OFAC’s current director, Andrea Gacki, as a defendant.

OFAC has never lost such a case, but if it does, it “could tie OFAC’s hands in actions in the future, while also making a mess of economies facing sanctions,” said Erich Ferrari, who founded Ferrari & Associates in Washington and helps people get removed from U.S. sanctions.

“Sanctions are hard. It takes a long time to really understand how the tool can be effective and what the legal bounds are,” said Ferrari, one of the lawyers representing Deripaska. “When you lose all of that institutional knowledge, you could end up getting sued for not understanding which actions may not be in accordance with the law.”

Sanctions Power

OFAC’s work is as enigmatic as it is powerful. One day in February, trading of some Venezuelan debt came to a standstill after Treasury updated its sanctions guidelines on transactions tied to Maduro’s regime. OFAC’s complex instructions were interpreted as forbidding most transactions. Treasury clarified its guidance a week later.

OFAC also has the ability to punish anyone who violates its financial restrictions, whether it’s BNP Paribas, one of the world’s largest banks, which agreed to pay a $9 billion fine in 2014, or a beauty company using North Korean materials to make false eyelashes.

Recent departures from TFI include Sarah Runge, who left after about 10 years to lead regulatory strategy at Credit Suisse Group, Jennifer Fowler, who left after 17 years for Brunswick Group in Washington and Heather Epstein, who is now at Barclays Plc. Neither responded messages seeking comment.

The more than 20 people interviewed who blame Mandelker for the departures from TFI said she has ignored the advice of veteran civil servants in the unit, frequently loses her temper and often leaves dozens of employees waiting up to 40 minutes for her to arrive at meetings.

Office Friction

Her clashes with Billingslea, a fellow political appointee who is a subordinate but like Mandelker is Senate-confirmed, have also discomfited some staff, the people said.

Trump has nominated Billingslea to be an assistant secretary at the State Department.

Treasury Department officials asked some of Mandelker’s subordinates and supporters to contact Bloomberg News in her defense, including Isabel Patelunas, an assistant secretary in TFI; Kenneth Blanco, who heads another unit Mandelker oversees called the Financial Crimes Enforcement Network; Paul Ahern, assistant general counsel at Treasury; and others who asked not to be named. They said Mandelker deserves credit for her leadership of a division of Treasury undertaking challenging and high-pressure work.

They said she’s passionate about her work, aggressively advocates for resources and has helped break silos within TFI. Stuart Levey, one of Mandelker’s predecessors who also worked with her during the post-9/11 era at Justice Department, said she operates well under pressure.

“In every administration from Clinton to Bush to Obama to Trump, I saw conflict within the agency because they were incredibly passionate people who cared deeply about the mission,” said John Smith, who worked for Treasury for 11 years and left OFAC as director in May due to personal reasons.

Mandelker has said she takes pride in a career directed at fighting human rights abuses, including in her current role at Treasury. The daughter of Holocaust survivors, she held various positions at the Justice and Homeland Security departments during President George W. Bush’s administration. She was a partner at New York law firm Proskauer Rose LLP before she joined the Trump administration.

The departures at TFI echo instability earlier in Trump’s administration at Treasury’s International Affairs unit, led by David Malpass. Following a Bloomberg News report that Malpass’s mismanagement pushed more than 20 civil servants out of the office, Treasury officials started hosting listening sessions, lunches between civil servants and Malpass, and increased transparency into decision-making, according to two people familiar with the matter.

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