[Senate Hearing 110-908]
[From the U.S. Government Publishing Office]
S. Hrg. 110-908
MINIMIZING POTENTIAL THREATS FROM IRAN: ASSESSING THE EFFECTIVENESS OF
CURRENT U.S. SANCTIONS ON IRAN
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
ON
OVERSIGHT OF IRAN POLICY INCLUDING EFFORTS TO ISOLATE AND CONTAIN IRAN
ECONOMICALLY; TO ASSESS PROGRESS, AND TO STRENGTHEN THESE EFFORTS WHILE
CONSIDERING ADDITIONAL DIPLOMATIC, ECONOMIC, POLITICAL AND OTHER STEPS
TO ENGAGE THE INTERNATIONAL COMMUNITY MORE EFFECTIVELY IN EFFORTS TO
PROMPT IRAN'S LEADERS TO RECONSIDER THEIR REPORTED NUCLEAR AMBITIONS,
THEIR SUPPORT FOR TERRORISM, AND THEIR CONTINUING OPPOSITION TO THE
MIDDLE EAST PEACE PROCESS
__________
WEDNESDAY, MARCH 21, 2007
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
CHRISTOPHER J. DODD, Connecticut, Chairman
TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York WAYNE ALLARD, Colorado
EVAN BAYH, Indiana MICHAEL B. ENZI, Wyoming
THOMAS R. CARPER, Delaware CHUCK HAGEL, Nebraska
ROBERT MENENDEZ, New Jersey JIM BUNNING, Kentucky
DANIEL K. AKAKA, Hawaii MIKE CRAPO, Idaho
SHERROD BROWN, Ohio JOHN E. SUNUNU, New Hampshire
ROBERT P. CASEY, Pennsylvania ELIZABETH DOLE, North Carolina
JON TESTER, Montana MEL MARTINEZ, Florida
Shawn Maher, Staff Director
William D. Duhnke, Republican Staff Director and Counsel
Janice M. O'Connell, Senior Professional Staff Member
Neal J. Orringer, Professional Staff Member
Skip Fischer, Republican Senior Professional Staff Member
John V. O'Hara, Republican Senior Investigative Counsel
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George Whittle, Editor
C O N T E N T S
----------
WEDNESDAY, MARCH 21, 2007
Page
Opening statement of Chairman Dodd............................... 1
Opening statements, comments, or prepared statements of:
Senator Shelby............................................... 5
Senator Tester............................................... 24
Prepared statement....................................... 50
Senator Hagel................................................ 27
Senator Reed................................................. 30
Senator Allard............................................... 32
Senator Bayh................................................. 35
Senator Casey................................................ 38
Senator Carper............................................... 40
Senator Menendez............................................. 43
WITNESSES
Nicholas Burns, Under Secretary for Political Affairs, Department
of State....................................................... 6
Prepared Statement........................................... 51
Response to written questions of:
Senator Menendez......................................... 75
Stuart Levey, Under Secretary for Terrorism and Financial
Intelligence, Department of the Treasury....................... 9
Prepared Statement........................................... 64
Mark Foulon, Acting Under Secretary for the Bureau of Industry
and Security, Department of Commerce........................... 12
Prepared Statement........................................... 68
Response to written questions of:
Senator Dodd............................................. 79
MINIMIZING POTENTIAL THREATS FROM IRAN: ASSESSING THE EFFECTIVENESS OF
CURRENT U.S. SANCTIONS ON IRAN
----------
WEDNESDAY, MARCH 21, 2007
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 9:05 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Christopher J. Dodd (Chairman of
the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD
Chairman Dodd. The Committee will come to order.
Before I begin the hearing this morning, I want to make a
point, if I can. I have talked to my Chairman, my fellow
chairman, the former chairman, Senator Shelby, about this issue
as well very briefly here this morning.
For many years this Committee and most committees here have
had the policy of having witnesses submit their testimony at
least 24 hours before a hearing. The reason for this, in fact
you can make a case that actually it should be 48, but at least
24, so that when we sit down to have these conversations that
we call hearings between the executive and legislative
branches, there is an opportunity for the members here to be
familiar with what the testimony will be so that we can have a
good deep discussion about the issues in front of us.
I know that the witnesses here this morning understand
this. They are professionals and have been through this on
many, many occasions. And yet I regret that, despite knowing
this, the Department of Treasury submitted its testimony
yesterday, late yesterday, as I understand it. And Secretary
Burns of the State Department's testimony arrived about an hour
ago or 2 hours ago here. That is just unacceptable. We have got
to have this stuff earlier.
I do not know whether members will be here or not but part
of what I suspect is that their staffs have not had a chance to
look at this, brief their members about it. When we come in
here, it just does not lend itself to a very productive session
where you have the opportunity to get a clear understanding of
where--because I know that time is spent, and I think this
haring was noticed about 2 weeks ago. Sometimes hearings are
noticed earlier than that, I realize that, with 10 days. But
nonetheless, this is a very, very important hearing involving a
very critical issue. And it is an issue that comes up all the
time among our constituents and others, the subject of Iran and
what our policies are going to be.
So I would urge the departments here not to let this happen
again under my stewardship here. I just do not accept it. And I
am being relatively mild about it today but it just does not
help me at all do a good job from this side of the dais if I do
not have that information ahead of time. So please do not let
that happen again, if I can.
Let me welcome all of you here this morning. Secretary
Burns, Under Secretary Levey, and Secretary Foulon. Am I
pronouncing that correctly?
Mr. Foulon. Yes, sir
Chairman Dodd. I want to thank you for joining us here
today.
Let me lay out some of the ground rules here how we will
proceed here this morning, if we can. Secretary Burns has a
meeting later this morning I have been told--we were noticed
about this early enough, that you have a meeting with the
President later this morning. And I do not want to be
disruptive of your schedule or the President's schedule.
So I am going to propose that Senator Shelby and I make
openings statements here this morning. We do not have other
members here yet but I am going to ask them to defer, should
they show up, to make any opening comments until their round
occurs during the questioning period. And then we are going to
begin, if we can, with Secretary Burns. We will finish that
round with you, sir, in order you to allow then to make your
schedule later this morning, then we will move very directly to
our other witnesses, as well.
I recognize that responses to certain foreign policy
related questions have to be tightly coordinated by the
agencies represented here, and I presume that has been the
case. So this arrangement means that once Secretary Burns
leaves, some of the questions related directly to the States'
role in all of this will have to probably be submitted in
writing. And we will certainly leave the record open for
several days so that you have a chance to do that so we can
have full record and response from the Department of State
regarding that.
What that in mind let me begin. I will make some brief
opening comments and then I will turn to Senator Shelby.
The purpose of today's hearing is to assist the Congress
and the American people to try and understand and make a
judgment about the Administration's policies toward Iran. The
Administration has publicly stated, appropriately in my view,
that Iran's leaders must--and I think I have these correct--
scale back its nuclear ambitions, reverse its support for
destabilizing and terrorism-related activity in Iraq and
throughout the region, mitigate its opposition to the Middle
East peace process, and stop efforts to undermine the
legitimate government in Lebanon. I share those publicly stated
aspirations.
The issue, obviously, before us is how do we get from here
to there? What steps do we take to try and effectuate the goals
that I have just enumerated?
This morning the Committee will receive testimony from key
Administration officials charged with implementing U.S. policy
with respect to Iran to determine whether current policies are
likely to achieve satisfactory policy results or whether
additional measures should be taken by the Administration and/
or by the Congress to achieve those policy goals.
It is well-known that there are currently many laws on the
books providing authority to the Treasury Department, the
Commerce Department, the State Department, and other Federal
agencies and financial regulators to undertake steps to
increase economic pressures on Iran including by threatening or
imposing sanctions on foreign firms supporting Iranian
activities, tightening export and re-export controls,
accelerating Treasury's current campaign to press U.S. and
foreign private sector entities, including business and banks,
not to deal with the government of Iran and taking other
similar steps.
I support the Administration's efforts to engage
systematically the private sector, including businesses and
banks, in efforts to economically isolate and pressure Iran.
Having said that, I fear that a larger coherent
Administration strategy and vision is lacking in this regard.
As Members of Congress, we cannot ignore the ongoing public
debate as to whether critical dialog, calibrated economic
pressure, and constructive engagement with Iran could bear
fruit or whether the wisest policy is one of containment,
sanctions, and ultimately regime change.
There has been a similar debate with respect to our
policies toward North Korea, I might add.
I would hope that our witnesses this morning would play a
constructive role in that ongoing debate with respect to our
U.S. policy toward Iran. U.S. economic sanctions are a critical
component of our policy toward Iran, as they have been for some
time in this and previous administrations.
But sanctions alone, in my view, are not sufficient. They
must be used as effective leverage undertaken as part of a
coherent, coordinated, comprehensive diplomatic and political
strategy which tips the scale such that it is more beneficial
for Iran to forswear its nuclear weapons ambitions and other
behavior that is undermining regional peace and stability.
I do not know if a strict policy of coercion and sanctions
will be enough eventually to bring about a more responsible
Iranian government. But I do know that strong international
reaction against the Iranian president's disgusting
declarations about the Holocaust and Israel's right to exist,
the public rebuke of a president by the supreme leader for his
reckless posturing on Iran's nuclear ambitions, the president's
parties weak showing in recent local elections, and other
similar recent developments offer reasons for hope. Hope that
if we work more intensively with our allies we might be able to
identify and engage with Iran's more moderate leadership inside
and outside of current government that could eventually be
persuaded to step back from its nuclear ambitions.
But all of our strategic partners, including the Europeans,
the Russians, the Chinese, the Indians, and moderate Arab
states throughout the Middle East must agree on an approach
that will take sustained diplomatic work to achieve.
Recent U.S. diplomatic political efforts to develop such a
unified front against Iran are coming very late in the game. It
was very unfortunate, in my view, that European efforts to
secure agreements with the more moderate Khatami government
were not encouraged or supported by the Administration at a
time when the United States international leverage was
decidedly greater than it is today.
Moreover, comments by Administration officials hinting at
the possibility of military actions against Iran, and these
were faceless names obviously, and leaks about plans being
drawn up by the Pentagon to target Iranian sites, all play into
the hands of extremist forces, in my view, in the region and
raise questions about U.S. intentions even among our allies who
might otherwise be with us.
The Administration is in a catch up mode, in my view, in
the diplomacy department with respect to Iran. After years of
sitting on the sidelines diplomatically, as with most
international efforts, only coordinated, effective,
multilateral efforts have any likelihood, in my view, of
success. The Administration's recent efforts at the U.N. seem
to be bearing some fruit in a second and tougher U.N. sanctions
resolution. But it remains to be seen how tough the Security
Counsel will be with respect to Iran.
U.S. representation at the United Nations, until recent
changes in personnel, has made American efforts to galvanize
international support with respect to Iran and other issues of
importance to the United States more difficult, in my view. It
is my hope that with the appointment of Ambassador Khalilzad,
that will change.
Over the years this Committee has provided various
statutory tools for U.S. administrations to use as leverage in
their efforts to induce change in Iran's behavior. With
modifications to the Bank Secrecy Act, Congress has empowered
the Department's Under Secretary of Treasury for Terrorism and
Financial Intelligence, working with the Office of Foreign
Asset Controls to freeze funds and recommend the prosecution of
entities and individuals who seek to exploit the domestic or
global financial system to support international terrorism and
weapons proliferation.
Congress has also endeavored, through the enactment and
reenactment of the Iran Sanctions Act, to provide the executive
branch with clear authority to, among other things, sanction
foreign companies to invest in Iran's principal economic
sector, the energy industry. Yet today, despite more than $125
billion in reported investments in Iran's energy sector by
foreign investors, not one foreign energy concern has been
sanctioned. I and other members of the Committee are anxious to
hear from our witnesses this morning why this has been the
practice.
To sum up, it is my hope that today's hearing will help us
to better understanding the Administration's policy goals as
they relate to Iran, what part economic sanctions play in
advancing those goals, what if any additional bilateral or
multilateral sanctions would accelerate the achievement of
those goals, and what the U.S. Congress ought to do to advance
that process.
I know that we have set an ambitious agenda for our
witnesses today, but this is a terribly important subject that
demands difficult questions and warrants honest answers. I am
sure that we will have both this morning from my colleagues and
the witnesses.
Senator Shelby.
STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. Thank you, Mr. Chairman.
Since the Banking Committee last met to hear testimony on
Iran's support for terrorism and its determination to develop a
nuclear capability, I believe the situation has only worsened.
Not only does Iran continue to defy overwhelming international
opposition to its nuclear related activities but in recent
weeks we have seen evidence of Iranian complicity in attacks on
Americans in Iraq.
Iran's intransigence on all three fronts clearly
demonstrate the severity of the situation confronting the U.S.
and our allies. Iran's continued support for the Hezbollah and
Palestinian terrorist organizations dramatically illustrate a
strong desire to remain on the wrong side of the war on terror.
Because there is virtually no region throughout the world
that has not been a target of a terrorist attack we must all
remain vigilant and employ every available means to detect and
to stop future attacks both here and abroad.
As we learned with illicit North Korean financial
activities, the U.S. has a powerful weapon in its arsenal,
financial sanctions. Properly employed, sanctions can restrict
a rogue regime's ability to operate with impunity. Treasury's
use of Section 311 of the PATRIOT Act in the case of North
Korea and its new authorities under Executive Order in the case
of Iran, I believe have proven effective.
We have enjoyed some success at both restraining the
ability of these regimes to finance illicit activities and
communicating to the world of international finance that
business as usual may carry risk.
Unfortunately, terrorism remains disturbingly cost-
effective. In other words, relatively small amounts of money
can support very large attacks. Terrorists deadly efficiency is
one of the major challenges that we face.
I am interested in hearing, Mr. Chairman, from today's
witnesses how current authorities are working and whether any
additional authority is needed to meet this challenge. In other
words, what can this Committee do to help in this regard?
Thank you for calling this hearing.
Chairman Dodd. Thank you very much, Senator Shelby.
I would say to my colleagues, Senator Tester and Reed and
Hagel have arrived, we are going to move right to the witnesses
if that is all right with you. And then any opening comments
you want to make I will make sure we get to you as quickly as
we can.
Secretary Burns has got a schedule. We are going to focus
on him until he has to leave and then we will submit questions.
But he is going to be here for a good round of questioning from
the members. It is not, I do not want to suggest, that
abbreviated. So you will have a good chance to focus on their
issues.
Secretary Burns, we welcome you here this morning and we
appreciate your willingness to participate, and thank you for
your work, by the way. I am someone who admires the job that
you do and I want you to know that. So thank you for coming.
STATEMENT OF NICHOLAS BURNS, UNDER SECRETARY FOR POLITICAL
AFFAIRS, DEPARTMENT OF STATE
Mr. Burns. Mr. Chairman, thank you. Senator Shelby,
Senators, thank you very much for inviting me and inviting my
colleagues from Treasury and Commerce to be here.
First of all, Mr. Chairman, thank you very much for
agreeing to allow me to depart a little bit early. I can stay
until about 10:30. I just have to be with the President and the
New Zealand Prime Minister at the White House. So I apologize
for that.
I also want to say that I very much apologize for the fact
that my testimony was late. That is no sign of disrespect for
you and your Committee. It is rather a sign of my particular
inefficiency yesterday in getting that out to you. So that will
not happen again and I think you were right to make the point.
Mr. Chairman, I have submitted a written testimony. I will
not read it to you because I think that might take up too much
of the time. But with your permission I would just like to give
you an idea of how we do believe that we have an overarching,
concerted policy to block and contain Iranian ambitions in a
number of areas. I would like to go through that a little bit
and I would be very happy to respond to your questions and that
of the other members.
I would first say that there is no question that the United
States is facing, in the Middle East today, a set of four great
challenges. And Iran is tied up in all of them. The effort that
we need to make to be successful in Iraq, where Iran has had a
perfidious and negative influence, in our judgment. The effort
to support the democratically elected government of Lebanon,
and Iran and Syria and Hezbollah have been trying to bring that
government down by extraconstitutional means. The effort to
produce a final peace after nearly 60 years of effort between
the Israelis and Palestinians, which the President and
Secretary Rice are currently engaged, following on the good
work of many past administrations, included that President
Clinton. Iran has been the primary international force
operating against such a peace. It does not believe in such a
peace and it has rejected all of the body of work that we know
of as the Middle East peace process over four to five decades.
And finally the effort by Iran itself to create a nuclear
weapons ability of its own. Iran is the leading state sponsor
of terrorism in the Middle East. It is the central banker of
the terrorist organization.
So in those four areas, arguably now the most critical set
of foreign policy challenges that the United States faces, Iran
is a problem in each of those areas.
Now we have devised over the past several years a
multifaceted effort to try to block the Iranian government in
each of these areas relying on the establishment of diplomatic
coalitions. And here, Mr. Chairman, as far back as February of
2005, more than 2 years ago, our Administration put our weight
behind the EU-3 and we supported the negotiations of the EU-3
with the Khatami government. We have been very much at the
heart of building an international coalition of countries
against Iran and the nuclear issue since then.
And that coalition is quite broad. It is the EU-3, it is
Russia and China, our Perm-5 members. It is India and Brazil
and Egypt, all of which have voted with us in the IAEA to
repudiate the Iranians and to sanction them.
So I do believe that we have been able to put together an
international diplomatic coalition that is shrinking the
diplomatic space for the Iranians, that has the Iranians
isolated, and that has some prospect of being successful in the
future. Although we need to see that diplomacy play out in the
future.
But we have taken a number of steps to try to limit Iran's
options. On the nuclear sphere, as you know, we are in the
Security Council this week on the nuclear issue. We are just
about to pass, we hope by the end of this week, a second
Chapter 7 resolution with the support of countries from all
across the world. That resolution will go into some new areas.
Second, my colleague, Stuart Levey, has been leading the
effort, as Senator Shelby recognized, to put forward financial
actions against Iranian state banks which we think have been
particularly effective.
Third, the Treasury and the State Department have been
combining efforts to try to convince international financial
institutions, lending institutions, that they ought to shut
down a business as usual approach with the Iranians. And that
has been successful, in part, as well. I am sure Stuart will
speak to that.
Fourth, we are now stationing two carrier battle groups in
the Persian Gulf in order to send a message to the Iranians. It
is not your lake. It is an international waterway. And free
commerce and free shipping and the security of our friends in
the Gulf is important to the United States.
Fifth, as you have seen, and the President talked about
this in his address back on January 10th, we have begun to push
back on those networks of Iranian intelligence and paramilitary
forces who have been providing sophisticated IED technology
that Sunni insurgent groups have used to kill our soldiers and
to wound our soldiers.
And so in these five areas, the United States is pushing
back against the Iranians.
I think it is important to note that because I think the
conventional wisdom was, about mid-autumn, just after our
congressional elections, but there was a sense around the world
that Iran was on the march, that Iran was proceeding unfettered
in each of these errors, nuclear and terrorism and in the
region. And I think we have had a fair measure of success and
now containing them and in limiting their options.
Iran is a country very much on the defensive right now. It
has very few friends in the world. Very few countries are
sticking up for it. And so the ability to fashion this
diplomatic coalition is important.
Second, Mr. Chairman, I would like to say this. We ought to
invest in diplomacy concerning Iran. Iran is a dangerous threat
to our country and we should not take that lightly nor should
we underestimate it. But there is no question that diplomacy
has a chance of succeeding.
We need to be patient in applying diplomacy. It has taken
us 2 years to buildup his coalition of countries on the nuclear
issue. And if we are consistent and steadfast in diplomacy, we
do not have a certainty of success. And of course, the
President and many other Administration officials have said
that all options remain on the table, as they should in dealing
with a country that could pose a mortal threat to our own in
the future. But we are accenting and stressing diplomacy. And
that is where the great preponderance of our efforts are today.
We believe that we should be patient, that we should apply
this, that we should have as big a tent as possible of
countries around the world to block the Iranians in each of
these areas. And I, for one, believe that conflict with Iran is
not inevitable. It is not inevitable if we play our cards right
and are smart about the application of diplomacy.
On the nuclear issue, as I said, we hope to have a Security
Council resolution by the end of the week. It would be
different from the first Chapter 7 resolution of December in
three different respects. It would, for the first time, open up
Iran to prohibitions on arms transfers by Iran to any other
state or organization. That would be quite significant if we
can get this by the end of the week.
Second, it would sanction the IRGC, the Iranian
Revolutionary Guard Corps command, which is the institution
that not only runs the Quds Force, which has been the force
opposing us in Iraq, it is also the institution that has been
bankrolling and directing the development of Iran's ballistic
missile and weapons of mass destruction industry which we are
directly concerned about.
And third, it would open up financial sanctions against
Bank Sepah, a bank that the Treasury Department has paid
particular attention to, and Stuart will talk about that, as
well as open up and encourage countries to begin to diminish
their export credits to Iran.
One of the problems we have had in trying to build an
effective sanctions regime is that not everybody is in it.
United States, of course, had has sanctions on Iran for the
better part of three decades. Many of our European allies have
put billions of dollars out to their firms to sponsor trade and
commerce between Germany and Italy and Spain and France, to
name four countries, and Iran itself. We are encouraging those
European allies to diminish their export credits.
I think as recently as 2005 there were $22 billion in
export credits made available by OECD countries. And we have
begun to see that come down in Japan, Germany, Italy, and
France. We would like to see it come down more. Because our
view is that American firms have paid the price, have made the
sacrifice. Every American administration since President Reagan
have made the sacrifice in trying to send this stiff message to
the Iranians. We need some help from our allies in Europe and
Japan and around the world in repressing on that front.
So I want to assert today, I will not belabor this point,
that we do have a diplomatic strategy, that I believe it is
beginning to work because Iran is increasingly isolated. We are
working inside the Security Council but we are also working
outside in what Treasury and Commerce have been doing on the
financial measures and financial sanctions. And we are
encouraging the EU and Japan to think of what they can do
outside of the Security Council, as well.
Finally Mr. Chairman, I would just say this, we are trying
to block Iran in other ways. It is the leading state sponsor
and central banker of terrorism, of Hamas, Hezbollah,
Palestinian Islamic Jihad and the Popular Front for the
Liberation of Palestine-General Command.
So we are trying to press against the Iranian ability to
destabilize the Israeli government, the moderate Palestinian
leadership, and the Lebanese government by choking off their
ability to be successful in funneling arms and funds to those
terrorist groups. That is an American national interest.
Finally, I would just say that we have an obligation to try
to reach out to the Iranian people. We do not have diplomatic
relations with the Iranian government. We have not since the
hostage crisis of 27 years ago. But we have made a big effort,
with support from the Congress, and Congress has been very
generous in giving the Administration $76 million last year, to
fund 24-hour Persian language radio, United States radio into
Iran to fund now 12 hours of Persian language TV into Iran, to
bring Iranian citizens on exchange to the United States many
for the first time, to send the U.S. national wrestling team--
wrestling is their national sport--to Iran. And they were
received very enthusiastically in January. And now we have a
program of inviting groups of professionals, health experts,
disaster relief experts, from Iran to visit our cities, our
medical institutions, our government offices so that there is a
degree of normalcy in the people-to-people relationship.
Because we appreciate that the people of Iran, by and large,
think well of the United States. One of the great ironies in
our Middle East situation right now is the United States is
popular, it seems to be popular in one country, Iran. The
Iranian people tend to like Americans.
And so we want to accentuate that people-to-people contact
while we stiff arm, block, contain, oppose the policies of the
Iranian government. And we think that this comprehensive policy
can work for the United States. It does rely on bipartisan
support. I have been very pleased in my conversations with
members of the Senate and House. I think we do have that
bipartisan support for our policies.
So I want to thank you for holding this briefing and I am
open to any question that you would like to ask me about any
aspect of this very difficult problem for us.
Chairman Dodd. Thank you very much, Mr. Secretary, and I
appreciate that. Your prepared remarks will be included in the
record, as will all of the prepared remarks and any supporting
data and information you want the Committee to be aware of, we
will include.
Secretary Levey.
STATEMENT OF STUART LEVEY, UNDER SECRETARY FOR TERRORISM AND
FINANCIAL INTELLIGENCE, DEPARTMENT OF THE TREASURY
Mr. Levey. Thank you, Mr. Chairman, members of the
Committee, Senator Shelby. Thank you for the opportunity to
speak with you today. I echo what Nick said about apologizing
for the lateness of our testimony. I, too, will promise you
that will not happen again.
You have just heard about our overall strategy with respect
to Iran from Under Secretary Burns. And as he mentioned, the
diplomatic efforts have yielded significant successes and a
unanimously adopted Security Council resolution and a follow-on
resolution that appears set to pass.
That our partners are now pressuring Iran to comply with
its international obligations is a real credit to our
diplomatic efforts and to Under Secretary Burns' patient and
persistent diplomacy, in particular, which I have been
privileged to witness firsthand.
I would like to give you an overview of Treasury's role in
this overall strategy. Working with State and Commerce and
other agencies, we have crafted what I think is an innovative
strategy to combat the dangerous and illicit conduct of the
Iranian regime. Our strategy involves the use of targeted
financial measures, as well as consultations with foreign
governments and with the international private sector about the
risks of doing business with Iran. Our initiatives and the
State Department's diplomatic efforts, I believe, are mutually
reinforcing.
Iran uses its integration into the world's financial system
to support and facilitate its proliferation, terrorism, and
other illicit activities. The regime disguises its hand in
terrorism and proliferation through an array of deceptive
techniques specifically designed to avoid detection and
suspicion by the law-abiding international community. It uses
front companies to engage in what are ostensibly innocent
commercial transactions but that are actually related to its
WMD programs.
We have also seen Iranian banks and other Iranian entities
request that financial institutions take their names off and
take other references to Iran off of transactions when they are
processing them in the international financial system. This
practice is specifically designed to evade controls put in
place by responsible financial institutions and it has the
effect of threatening to involve those financial institutions
in transactions that they would never willingly choose to be
engaged in.
So it is our approach to target those individuals and
entities that are engaged in this dangerous and deceptive
conduct. These kinds of targeted measures have several
advantages. Because they single out those responsible for
terrorism, proliferation, and other criminal activities, and
they make public their dangerous behavior, they are more apt to
be widely accepted around the world than sanctions that are
applied to an entire country.
Targeted financial measures also act as a deterrent by
warning people and businesses not to deal with the specific
designated target and sending a clear message that if they do
deal with them they could be next to be targeted.
We are using various types of targeted measures, as Senator
Shelby pointed out, to combat Iran's pursuit of nuclear weapons
and the development of ballistic missiles, as well as its
support for terrorism. In September of 2006, we cutoff one of
Iran's largest state-owned banks, Bank Saderat, from any direct
or indirect access to the U.S. financial system. When we did
so, we publicly explained why, because the government of Iran
was using Bank Saderat to transfer significant sums of money to
Hezbollah and was also being used to get money to terrorist
organizations that are recognized as terrorist organizations by
the EU like Hamas, the Palestinian Islamic Jihad, and the
Popular Front for the Liberation of Palestine-General Command.
In addition to that, we have acted against 19 separate
entities and individuals supporting Iran's WMD and missile
programs including Bank Sepah, as mentioned by Under Secretary
Burns, under Executive Order 13382. This Executive Order allows
us to target proliferators in exactly the same way that we have
been targeting terrorist supporters under executive orders.
Bank Sepah provides extensive financial services to Iranian
entities responsible for developing missiles that are capable
of carrying weapons of mass destruction. We hope to see Bank
Sepah added to the list at the United Nations this week.
Five of the Iranian entities that we have designated under
13382 have already been designated by the United Nations. When
our designations are not matched by U.N. designations, I can
tell you that they still receive a great deal of international
attention. I have traveled all over the world sharing our list
of Iranian designated entities with not only foreign
governments, but also with the private sector around the world
and stressing the importance of ensuring that these
proliferators are not allowed to access the international
financial system.
What I have found is that our list of proliferators is
indeed incorporated into the compliance system of the major
financial institutions around the world even when there is no
legal obligation to do so because they simply do not want to be
involved in the business of proliferation.
That leads to the private sector outreach and why it is so
effective, because aside from the formal actions that we have
taken, we have engaged in what I think is an unprecedented,
high level outreach to the private sector on this. Along with
the State Department, we have met with over 40 leading banks
worldwide to discuss the threat that Iran poses to the
international financial system and to their institutions.
Secretary Paulson personally kicked off this effort in
Singapore in discussions at the annual IMF/World Bank meetings
when he met with executives from major banks from Europe, the
Middle East, and Asia.
By doing this, what we have done is share information about
Iran's deceptive financial behavior and raised awareness about
the high financial and reputational risk of doing business with
Iran. Our use of targeted measures has allowed us to highlight
specific threats. This has yielded results. As the evidence of
Iran's deceptive practices as mounted, financial institutions
and other companies worldwide have begun to reevaluate their
business relationships. As I think the Committee knows, many
leading financial institutions have either scaled back
dramatically, or terminated entirely, their Iran-related
business. They have done so of their own accord, concluding
that they simply did not wish to be a banker for a regime that
deliberately conceals the nature of its illicit business. A
number of them have cutoff Iranian business in dollars but have
not done so in other currencies.
Regardless of the currency, though, the core risk with
Iranian business, which is that you simply cannot be sure that
the party that you are dealing with is not engaged in illicit
cavity, is the same. So scaling back dollar business reduces
but does not eliminate their risk.
Mr. Chairman, I think our overall approach is producing
results. Countries are implementing U.N. Security Council
Resolution 1737, support is coalescing behind a follow-on
resolution, and all of this is reinforced by the private sector
momentum I described. The indications are, as you mentioned in
your opening statement, Mr. Chairman, that this is having some
impact in Iran both financially and by stirring debate about
the direction in which that country is being led, internal
debate in Iran.
Thank you for the opportunity to testify and I look forward
to answering your questions.
Chairman Dodd. Thank you very much, Mr. Secretary.
Secretary Foulon.
STATEMENT OF MARK FOULON, ACTING UNDER SECRETARY FOR THE BUREAU
OF INDUSTRY AND SECURITY, DEPARTMENT OF COMMERCE
Mr. Foulon. Thank you, Mr. Chairman, Senator Shelby,
members of the committee.
First of all, let me thank you for the support that you
have given the Commerce Department and the Bureau of Industry
and Security over they ears as we pursue our nationals security
and economic mission. Thank you for today for the opportunity
to appear before you to discuss U.S. export control and
sanctions policies toward Iran.
I am pleased to be here with my colleagues from the
Departments of State and Treasury, with whom we work closely to
implement the Iran sanctions.
As you know, the United States has maintained sanctions
against Iran since 1979 with the reinforcing trade embargo
starting in May 1995. Iran has been designated as a state
sponsor of terrorism since 1984. And because of Iran's
continued active support for terrorism and concerns that it is
pursuing weapons of mass destruction, U.S. actions were
increased until a comprehensive embargo was put in place.
Under the embargo, the Departments of Commerce and Treasury
prohibit virtually all exports of U.S. origin goods to Iran.
Due to the comprehensive nature of the embargo, the Treasury
Department is the agency with primary jurisdiction for export
licensing to Iran. This approach is often used when the broad
nature of an embargo requires not only a prohibition on exports
of items under the Commerce Department's jurisdiction but also
comprehensive restrictions on financial transactions and
investments under the jurisdiction of the Treasury Department,
as Under Secretary Levey has just discussed with us.
Thus, the Commerce Department's primary role in the
licensing process is to provide technical assistance to
Treasury on the proper classification of items proposed for
export or re-export to Iran under a Treasury Department
license.
The Commerce Department also plays an important role in the
enforcement of the Iran sanctions by investigating for possible
prosecution and penalties violations of the Export
Administration Regulations. These investigations are conducted
by the Bureau of Industry and Security's Office of Export
Enforcement, which has approximately 100 Federal agents in 10
locations throughout the United States. Currently, more than 20
percent of our open investigations, around 150, involve Iran.
Since October of 2004 our investigations, which we often
take in conjunction with sister enforcement agencies such as
Immigration and Customs Enforcement or the FBI, have resulted
in 13 Iran-related criminal convictions with five more cases
pending sentencing.
Let me just point out two cases, in particular, as
representative of the types of activities and the types of
enforcement cases that Commerce agents have been bringing.
The first one is last November the sales director of United
Calibration Corporation was sentenced to 5 years probation, 6
months home confinement, 100 hours of community service, and a
fine of $10,000 for attempting to export machinery and
calibration software that could be used to measure the tensile
strength of steel. One use of such items could be to test the
chemical properties of metals that are used in the
manufacturing of nuclear materials.
A second example of the kind of cases we bring was last
December when a man named Ernest Koh was sentenced to 52 months
in prison for exporting parts for C-130 military transport
planes and P-3 naval aircraft. These parts were first diverted
to Malaysia and then illegally transshipped to Iran. The
investigation also found that Koh had laundered millions of
dollars from bank accounts in Singapore through accounts in the
United States to promote this illegal scheme.
In addition to criminal penalties, violators of the Iran
Sanctions Regulations can also face administrative penalties.
Last year our investigations led to such penalties in 16 cases,
totaling $1.6 million in fines.
I would like to make one additional point with regard to
penalties, particularly relevant to the point that Senator
Shelby made about whether we have all of the tools necessary to
do the job we are trying to do. Our underlying statute, the
Export Administration Act, has been in lapse since 2001. While
that act is in lapse we implement the Sanctions Regime, our
authorities, under the President's emergency authorities under
IEEPA. The important point to remember is that under IEEPA
penalties are substantially less than they would be under an
Export Administration Act, thereby negating some of the
deterrent effect of the penalties we are able to bring.
As the examples I cited also illustrate, enforcement of our
comprehensive embargo against Iran involves more than just
stopping direct shipments from the United States to Iran. We
are also focused on preventing the illegal transshipment of
U.S. goods through third countries to Iran and other embargoed
destinations. This effort takes two major forms.
The first is in coordination with the State Department,
Commerce works with other countries to identify foreign
entities that are trying to evade our embargo and our export
control laws to divert U.S. origin goods to Iran.
Second, the Commerce Department, the State Department,
Treasury, and other agencies are working to help foreign
governments improve their own export control regimes and their
own export control practices so they will block those types of
shipments going into Iran.
Now recently, in an effort to increase the options at our
disposal for combating such illicit transshipment to Iran and
elsewhere, we published last month an advance notice of
proposed rulemaking to amend our Export Administration
regulations to define a new group for countries, which we call
Country Group C. This group would be reserved for countries
that pose a diversion concern based on certain criteria such as
the amount and types of materials that transit through and the
strength of their own export controls.
At this point, this is still an idea we are working out and
a policy we are still developing. So no countries have been
identified yet for inclusion in this new Country Group C.
Mr. Chairman, as our presence here today demonstrate,
administering and enforcing the Iran sanctions involves many
agencies of the U.S. Government working together. These two
gentlemen to my right are no strangers to me as we work on Iran
issues.
We at the Commerce Department are pleased, and in fact
honored, to be a part of the Administration's Iran sanctions
team.
Thank you for this opportunity and thank you for your
questions.
Chairman Dodd. Thank you all very, very much.
What I am going to do here, if I can, we are going to ask
the clock go on for 7 minutes. I did a quick math count here
and I think, Secretary Burns, we can get every member to get a
least a round in here with you before you have to depart. And
then we will move to the other witnesses, as well. But during
the questioning, obviously, if there is a response that either
Secretary Foulon or Secretary Levey feel they want to
contribute to, please do not resist.
I have a couple of charts here I am going to put up. And
one is here, which I want to ask Secretary Burns about. This is
sort of a flowchart because I think a lot of people get
confused about who is in control, who is really--in Iran where
the power centers are.
[GRAPHIC] [TIFF OMITTED] T0311A.001
I was going to ask you to take a look at this and share
with us sort out how this breaks down. What are the key
intersections with these various agencies in the Iranian
government, the economic sector, the nuclear sector, the
military sector, and how they kind of relate.
Obviously, a great deal of attention has been focused on
the presidency here. In fact, I would argue to some degree we
have probably inflated the role of the presidency as a result
of our focus and attention on Mahmoud Ahmadinejad over the last
number of months, whereas power centers--there are other power
centers in Iran. It goes to the point I think you were raising
earlier about pursuing this diplomatic approach in Iran, which
I welcome the information from the Administration that that
door is now opening for us. And it might be worthwhile to run
through this a little bit and give us some sense of it.
Before I do that though, I want to ask you about the news
that we saw the other day and the Russian decision to
apparently be more supportive on the sanctions issue. The news
story reported that it was unclear what the motivations were
here. Is it one, to get paid for the contracts that they have
already had with Iran that are not forthcoming? Or are they
moving more to recognition of the larger question here, and
that is that the dangers posed by Iran possessing a weapons
capability here?
Can you share with us what the Administration's
observations are about this? How serious is it? And where is it
likely to lead?
Mr. Burns. Mr. Chairman, thank you. I will be happy to
answer that question and then go on to the very interesting
organizational chart behind you.
On the nuclear front, I do think that the weight of
international opinion is now shifting against the Iranians. It
has been very interesting to see the Russian government over
the last week decide that they are not going to provide fuel
for the Bushehr power plant. They have delayed the
implementation schedule in 2007. The very clear message, as we
translate it, from the Russian government to the Iranian
government is it is not going to be business as usual. This
mirrors a change that we have seen over the past few years.
You referred, in your opening remarks, Mr. Chairman, of the
fact that as recently as 2 years ago there were just three
countries negotiating with Iran: Britain, France, and Germany.
That was with the prior Iranian government before this radical
regime of Ahmadinejad took power.
And now you have a large international coalition. The
Russians were part of the sanctions decision in December. The
Russians are sponsoring, with the Chinese, the sanctions
resolution that the United States, is Britain, and France put
on the table just a week ago in New York. And so Russia is very
much our partner. Russia is bringing its weight to bear against
Iran. I think that countries are worried.
This Iranian government is just proceeding right down the
track toward the ability to master the enrichment and
reprocessing process. They have strung together, we think, the
IAEA thinks, about 160 or so--they are trying to--centrifuges.
Their ambition is to engage in P2 centrifuge research and also
to get to 3,000 centrifuges within a year.
If that happens and if the Iranians proceed without being
blocked, then their scientists and nuclear engineers will have
the intellectual capacity to design and fabricate a nuclear
weapon. It is our opinion that Iran must not be able to secure
a nuclear weapons capability.
That is also how we appreciate the Chinese and the Russian
and the European attitude. It has really been extraordinary to
see the dimensions of this international coalition.
In the U.N. it is the five permanent measures now
sponsoring one resolution. In the IAEA, as I said before, India
and Egypt and Brazil and Argentina and Japan have all voted
against Iran. Iran essentially has four friends in the world:
Syria, Belarus, Venezuela and Cuba. And with friends like that,
compared to this large coalition, I think they are rather
isolated. So I think the Russian actions over the last week
have been very important.
Chairman Dodd. They go beyond just an effort to get paid?
Mr. Burns. Is our appreciation of the Russian government
does not wish to see Iran possess nuclear weapons. So that is a
point of agreement.
On your organizational chart, if you would like----
Chairman Dodd. By the way, all members have a copy of this
chart in front of you, as well. I presume if you have any
additions you want to make to this chart, please let us know.
Mr. Burns. I think the important message from your chart
would be this to me, in that Iran is not a monolithic power
structure. It is not one person. It is not one ideology. It is
not one set of motivations. If anything, your organization
chart shows competing power centers.
The most important person is the person at the center at
the top, the Supreme Leader, Ali Khamenei. He is the successor
to the Ayatollah Khomeini. Iran is, in many ways, a
theologically based state. It is a mullocracy, of sorts, and
the Supreme Leader is by far the most important political,
economic and military leader in the country.
The title is accurate. He has supreme power over all
others.
But underneath him there are competing power centers. The
person directly below him, the president of Iran, is Mahmoud
Ahmadinejad. He is this radical, in our view irresponsible
demagogue who has said that the Holocaust did not happen, that
Israel should be wiped off the face of the earth, that Iran
should become a nuclear weapons state.
He is opposed, we think, by many of the other power centers
on your chart. Certainly, the Expediency Council chaired by Mr.
Rafsanjani, the former president if Iran. Most, I think,
analysts would say that there are not friends, that they are
not partners, and that they are rivals. The National Security
Council, I believe--yes, the National Security Council appears
on the upper right of your chart. And that is headed by Dr. Ali
Larijani, who we also believe is a competing figure to
Ahmadinejad.
So I think we look at Iran as a divisive government with
different power centers, different motivations. I think you see
that in the actions of the government.
The most significant thing we have done, in my judgment,
over the last 27 years is to offer negotiations on the nuclear
issue last June 1st. Secretary Rice was the first Secretary of
State since 1979 to say she would sit down with the Iranians at
the negotiating table about with the Chinese, Russians, and
Europeans on our side in an attempt to forestall a nuclear
weapons capability by Iran.
They did not answer that offer for four-and-a-half months
because we think they were fighting among these various power
centers over the offer. We do think that there are elements in
the power structure who want to negotiate with the Perm-5
countries, including the United States. We know there are
others, including President Ahmadinejad, who do not want
negotiations.
So it is a tumultuous political scene, as best as we can
understand it. I want to be a little bit humble here because we
have not had an American diplomat in Iran since the hostages
left on January 20th, 1981. We have no embassy there. So we are
peering into the country from the outside, trying to understand
it with a lot of help from friends around the world. There are
very few American academics or business people there. So we are
somewhat limited, but that is our appreciation.
And finally, Mr. Chairman, the last box that I would draw
attention to is the Revolutionary Guard, which is in the center
right of your chart. The Revolutionary Guard was created after
the revolution to be the arm of the religious ideologues, of
the Ayatollah Khomeini and others. They are the people who have
sponsored the terrorist attacks against the United States, in
1983 against our Marine barracks and against our Embassy in
Lebanon, in 1996 against Khobar Towers in Dhahran, Saudi
Arabia.
It is the Quds Force, a subset of the Revolutionary Guard,
that are right now providing this explosive IED technology that
we believe Shia militant groups have used to target our
soldiers in Iraq. So that is a particular interest of ours, and
it is a particularly malevolent branch of the Iranian
government.
Chairman Dodd. You mentioned the diplomatic efforts. It
seems to me I heard that we had actually made an offer to
establish diplomatic relations or at least to establish an
embassy in Tehran once again. Is that accurate?
Mr. Burns. We have not made such an offer, no. We do not
seek, at this point, normal diplomatic relations with Iran.
The problem is, Mr. Chairman, as you know well, they are
trying to build a nuclear weapons capability. They are the
leading state sponsor of terrorism. They have directed that
against the United States. And then they are the leading force,
radical force, against what we want in Israel, in Lebanon, and
in Iraq.
So our appreciation as we are better off, and I think this
unites the last few American administrations, President
Clinton's and President Bush's especially. We are better off
trying to isolate them and pressure them from the outside than
trying to make nice to them and do business with them from the
inside.
Chairman Dodd. My time is expired.
I had a chart here I wanted to raise about the existing
contracts with other countries that you have addressed here
earlier. I will leave it up and presumably you want to address
it.
[GRAPHIC] [TIFF OMITTED] T0311A.002
[GRAPHIC] [TIFF OMITTED] T0311A.003
But these are the $126 billion of agreements that have been
reached with other nations, many of whom are allies of ours,
ongoing and no action has been taken on them. I see Secretary
Levey reacting to this already. This has to be explained to
some degree.
The Iranian Sanctions Act does allow us to have tools to
deal with some of these issues. You have got a present when
here in January of 2007, at least it was on my chart earlier,
2007 here for $20 billion with the Malaysian government here.
I am very interested in--jawboning works to some degree.
But we have given you tools up here now, the Congress has, over
the years. These are very specific tools that allow you to take
much more specific actions than just asking people not to do
certain things.
I am very interested at some point here this morning that
you address the issue of why over $126 billion in contracts in
the energy-related areas, totaling more than 1.3 billion
barrels of oil per day, not to mention some 13 billion cubic
feet of natural gas going forward.
That is not exactly a modest amount coming out. If these
tools exist, why we are not using them more definitively, more
accurately.
But let me turn to Senator Shelby and you can respond to
this at some point in your questions.
Senator Shelby. Thank you, Mr. Chairman.
Secretary Burns, the Administration has worked very hard to
get resolutions condemning Iran's nuclear activities and
imposing sanctions through the U.N. Security Council. What
additional measures, either within the confines of Security
Council Resolution 1737 or in a new resolution, do you believe
are necessary to ensure that foreign companies and financial
institutions refrain from doing business with Iran as banks,
oil, gas, you name it, the big ones.
And given the scale of Islamic Revolutionary Guard business
activities and the Corps' major role in supporting terroristic
organization, why is it not listed in Resolution 1737's Annex?
I understand the commander of the Corps is listed but not the
entire Corps.
You brought up the Revolutionary Guards and I thought I
would respond.
Mr. Burns. Senator Shelby, thank you very much.
First, let me just, if I could, unite your question with
that of the chairman. I had the pleasure of testifying before
you, Senator Shelby, last summer to say that the Administration
agreed with the reauthorization of the Iran Sanctions Act. And
we do. I think that we find this Act has been useful in
deterring some foreign investment in the oil and gas sectors in
Iran but obviously not all, as your chart shows. There has
still been significant activity.
In that respect, Mr. Chairman and Senator Shelby, I know
that the last two administrations--and I served in President
Clinton's Administration--have essentially taken the view that
this Act is useful as a deterrent.
The problem comes in application. I just want to be very
frank here. I think that the last two administrations, Clinton
and Bush, have used the waiver authority once, very
infrequently. The problem is as you try to build a diplomatic
coalition to oppose the Iranians, we want to the pressure of
the sanctions to be on Iran itself and not so much on our
allies. Because that would disrupt and maybe even disassemble
our coalitions.
So right now we have succeeded in getting France and
Britain and Germany and Russia and China all on the same music
sheet with us. And yet, if we turn around and sanction them but
not the Iranians, they might be less willing to support us on
some of these diplomatic efforts like denying Iran a nuclear
weapon.
And so that is the dilemma that I think both of the last
administrations, if I can say as someone who has served in
both, have felt. We would like to see the legislation as it
progresses--and I know there is new legislation in the House
being considered by Chairman Lantos and Congresswoman Ros-
Lehtinen. We would like to see it focus on Iran, on the Iranian
government, and on the state structures of Iran, and not so
much on our allies.
But I would say this, if you give us a law and if you pass
a law, we will implement the law to the best of our ability.
That is our obligation.
In this case, I think there have been no new final oil and
gas investment deals, I am told, since 2004. I can check that
figure, Mr. Chairman, and get back to you in writing, if you
would like. But we are now beginning to jawbone Shell and the
China National Oil Company and the Malaysians involved in a
prospective deal. In all three areas, they have announced the
interest to conclude a deal but have not concluded one. We have
gone to the CEOs and major financial officers of those
corporations just in the last few weeks and months to say this
is a bad idea. You should not do it. And if Congress does pass
tougher sanctions legislation, you will be subject to our law
and we will not be able to protect those companies.
So we have made that point to all of them.
Senator Shelby. But Mr. Secretary, to be effective they are
going to have to believe you are going to do something, the oil
companies and everybody else. Otherwise they probably will not
blink.
Mr. Burns. We have asked--I think that your legislation and
whatever comes through the House and Senate this year, new
legislation, is coinciding with a general trend, I think,
toward sanctions by our allies. Until about a year ago, the
European allies and Japan were not interested in sanctions
against Iran.
Senator Shelby. What about China?
Mr. Burns. I do not think the Chinese are there yet,
unfortunately. We differ with the Chinese. We think the Chinese
have too much of a business as usual attitude with Iran, too
much trade going on.
But I think that as your legislation proceeds, you are
going to see the EU and Japan consider what they can do to shut
off some of this normal commerce that has been underway. We are
in favor of the Europeans doing less and we are not in favor of
any of these oil and gas deals.
Senator Shelby, on the IRGC, we have worked very hard over
the last few weeks to put into this second Chapter 7 resolution
that is being debated today in New York a specific set of
sanctions against IRGC front companies and individuals that are
important in the ballistic missile and WMD area.
Senator Shelby. Secretary Burns, as sanctions have taken
effect, have they weakened the Iranian leadership? Or have they
given the Iranian people a rallying point behind their
president?
Mr. Burns. I think, for the most part, the sanctions and
the international efforts against Iran have weakened the
government of Ahmadinejad and put him on the defensive in his
own political system because their policy is not working.
The Chairman referred to this extraordinary episode when
the newspaper controlled by the Supreme Leader Khamenei
criticized Ahmadinejad about a month ago for his handling of a
nuclear issue. So we think this policy of pressure, the
financial sanctions by the Treasury Department, the financial
measures, banks stopping lending, the U.N. Security Council
sanctions, are beginning to have an effect. And we hope they
will not becoming a rallying point for the people of Iran,
because we want the people of Iran to know that we want them to
have civil nuclear power. We would be willing to participate in
a consortium with the Russians and the Europeans to build a
nuclear power center but without access to the fuel cycle.
Senator Shelby. Secretary Levey, in 1998, I was in
Islamabad and I had the opportunity to spend some time with the
infamous Dr. Khan. We talked about nuclear proliferation, among
other things. I asked Dr. Khan, I said doctor, in your
judgment, how long will it be before Iran has nuclear weapons?
And he did not blink at all and hesitate at all. He said 10 to
12 years. That has been nearly 9 years.
Are they on track from the statement of Dr. Khan to me?
Mr. Levey. I think what Under Secretary Burns said in his
opening statement about where they would be within a year is
something we need to take very seriously and why we are working
so diligently to stop the proliferation in Iran's nuclear
program. I would not hazard a guess about exactly how long they
have but it is not off by orders of magnitude.
Senator Shelby. Is the recent Russian attitude, is this
about payment of money from Iran? In other words, are they
behind in their payments to the Russians for aid and help in
the construction of the power plant or whatever you want to
call it? Or is this a change of heart? Or is it too early to
say?
Could it be about both?
Mr. Levey. I do not have much more to say than what Nick
said about that. I think we are seeing that they are standing
with us in terms of sponsoring this new resolution. I have been
to Russia twice, once with Under Secretary Burns, to talk to
them about this. And we have been engaging them very
diligently. My Assistant Secretary was just there last week.
We would like to think that there is a change of heart and
if they stand with us on this resolution that would be an
excellent sign.
Senator Shelby. But you have not seen a 180 degree turn yet
have you, Secretary Burns, on the part of the Russians?
Mr. Burns. We have a very different relationship with Iran
than does Russia. Russia trades with Iran. Russia sells
military arms, and we disagree with that, to Iran. Russia has
diplomatic relationships. We do not have a similar exact
policy. But the Russians have been turning toward applying
pressure, sanctions. They voted for one resolution and they are
sponsoring the second. That is a pretty good indication of
where they are going.
Senator Shelby. Secretary Levey, is the level of support
that you receive from the intelligence community sufficient to
allow for additional sanctions if warranted? Do you have what
you need as far as information? I know you work with the intel
community.
Mr. Levey. Senator Shelby, yes, I think we have been
getting really excellent cooperation from the intelligence
community, not just because of the intelligence office that you
helped us create within Treasury, but also because, I think, of
the successful integration of that office into the overall
intelligence committee. We have been getting excellent support.
Senator Shelby. How is your office that we created in
Treasury doing?
Mr. Levey. Well, I like to think it is doing quite well.
You will be the judges of that, I suppose, in many ways.
Senator Shelby. I think you are making a lot of progress.
Mr. Levey. I appreciate that. We are working well with the
whole interagency. I think we have been putting pressure here
in the Iran area but also, as the Chairman pointed out, we have
worked very hard on the North Korea issue and on terrorism as
well. We have a lot more to do but I think we are making good
progress.
Senator Shelby. Thank you, Mr. Chairman.
Chairman Dodd. Thank you very much.
Senator Tester.
STATEMENT OF SENATOR JON TESTER
Senator Tester. Thank you, Mr. Chairman, and I want to
thank the members here who testified today. I appreciate the
work you folks have done and appreciate the potential of
continuing your good work into the future.
I was particularly heartened by Secretary Burns's statement
that aggressive diplomacy may really bring Iran to a situation
where they become regular good citizens within the world. We
can only hope.
Back in 2003, and this is for Secretary Burns, back in 2003
I think I read this in the Post last month, that Iran came
forth with a proposition to deal with the nuclear issue. I do
not want to put words in your mouth but I think you had said
that you did not think that that was a genuine offer.
I guess my question is what would constitute a genuine
offer? Now that we have got more people in the fold today, what
would make it a genuine offer if Iran were to come forth with
such an offer again?
Mr. Burns. Thank you, Senator.
I was at NATO in 2003 so I did not participate in this
series of discussions. But from talking to people who were in
the White House and the State Department at the time, there was
a lot of doubt about whether or not that particular offer
reflected the views of the Iranian leadership. I know I have
seen arguments on both sides of that.
I guess I would say to you that what is really important is
what they are doing now. We have put this big offer out there,
June 1 of last year, 2006, by Secretary Rice. We, the United
States, will sit down at the negotiating table with you. The
offer was made with Russia, China, and the Europeans and us. We
only asked one thing: suspend for the life of those
negotiations your enrichment program. And the Iranians have
refused to do that.
So I think the ball is in their court. We are willing to
negotiate on the nuclear issue. And you have seen on Iraq we
just sat down with the Iranians and the Syrians 10 days ago in
Iraq, our Ambassador Zal Khalilzad did, to talk about Iraq. And
those meetings will continue in the future. So there are lines
open to them.
Senator Tester. And just for my information, had Iran been
closing off the shipping lanes?
Mr. Burns. The Iranians, of course, call it the Persian
Gulf. We call it the Gulf.
We have had the American fleet in the Gulf since 1949 to
protect the waterways. And since the Iranian revolution of
1979, there been times when we have had to have a show of naval
force to keep the Gulf open and to send the signal that we do
not want and we will not support and we will not tolerate any
interdiction of international shipping in that area.
So the deployment of two carrier battle groups to the Gulf
by the United States in the last 2 months is an expression of
that policy.
Senator Tester. I appreciate that answer and appreciate the
conciseness of it.
Talked about $22 billion trade credit at one point in time.
You said it is smaller now than it was then. Specifically what
level is it at now? And these are credits, correct me if I am
wrong, that are used to enhance and encourage trade with Iran.
What level are they at now?
Mr. Burns. Of course, the United States has been out of the
trade business for 27 years with Iran. These are our allies,
the European allies, the OECD countries, Japan.
The 2005 figure is $22 billion of various types of export
credits available. And we have been leaning on the European
governments to reduce that because we say to the Europeans, you
know, it cannot be business as usual with Iran. You cannot try
to sanction them on a nuclear issue but make profits on the
economic side.
So the Italians, Germans, French, and Japanese have told us
that their export credit levels are coming down. I do not have
2006 figures. Maybe Mark or Stuart do.
Senator Tester. It would just seem to me, and I know you
guys are doing the best you can, but it would just seem to me
if our allies that understand what is going on with Iran, why
aren't they just zeroing these trade credits out? I know that
is what your wish is, certainly what mine is. But it does not
make a lot of sense to me that if they understand what kind of
impact Iran and their nuclear capabilities can have on our
world, that they do not just say enough.
Mr. Burns. You know, we just have a fundamentally different
relationship, we the United States, then the European allies
do. They all trade with Iran. They all have diplomatic
relations. We have began to see that comity break down,
however. I think the European governments are now of the mind
that they should reduce the level of what they do with the
Iranians and they have been good partners on the nuclear issue.
I must say that.
Senator Tester. If, in fact, you can find out what those
trade credits are at, I would sure like to know. It would be
great if you could.
It is my understanding that half the population of Iran is
under the age of 25. You talked about radio and TV as being
used as a method for outreach to contact the regular citizenry.
What role can the Internet play in this? And does it play in
it? Are you utilizing it? Where are they at technologically?
Mr. Burns. The have the same view that you do. The younger
portion of the Iranian population is Internet savvy and a lot
takes place on the Iranian blogs that they cannot do out in the
open because the government is so repressive.
And so Congress was good enough to give us $5 million last
year, and we are using that to fund what we call a virtual
presence embassy, a virtual presence post. We have a computer
network that allows us to speak to young Iranians. We have
webpages for different cities in Iran that talk about--that
give the honest truth about U.S. Government policy. We are
really encouraging a dialog with young people through the
Internet.
Senator Tester. Is there any way you can monitor how
effective that is, as well as radio and TV too?
Mr. Burns. Yes, and I think actually we have to report to
the Congress on how we are spending that money. And we have
established a set of metrics that would give us a rough
indication--because the problem is we are not there--but a
rough indication of a type of impact we are having. But we are
convinced that reaching out to young people through the
Internet is a good way to go.
Senator Tester. Just one more, if I might.
The situation with Korea and their nuclear--and then they
backed off. And I was told it was because of financial
sanctions that were put on. I do not know if that was all of it
or not, but it seemed to me that working with our allies
evidently something happened and it was more than just business
as usual.
Can you apply what happened to Korea and the fact that they
backed off on or apparently backed off on their nuclear
development to Iran? And can we use that as a template to apply
pressure to Iran to get the same results, assuming those
results are accurate?
Mr. Burns. Senator, I think we can in a rough sort of way,
I do. It is ironic that a lot of countries criticize the United
States for not being willing to engage in one-to-one talks with
North Korea. We always felt it made much more sense to have the
pressure of China and Russia and Japan and South Korea with us.
And that worked. And we have now seen progress in the North
Korea talks. My colleague, Chris Hill, is in Beijing pushing
that today.
We have the same view of Iran. This is not about the United
States and Iran, this argument over nuclear weapons on
terrorism. We have been able to have this coalition of China,
Russia, Britain, France, Germany and a wider coalition
including India, Brazil this has been very effective. So I
think it is a template of sorts. This multilateral pressure, we
think, is the way to go. And diplomacy, we think, can be
effective.
I cannot guarantee that. It is going to take some time to
play out. But it certainly is the preferred option right now.
Senator Tester. Thank you. Thank you, Mr. Chairman. I will
let the other members have at it.
Chairman Dodd. Thank you very much.
Senator Hagel.
STATEMENT OF SENATOR CHUCK HAGEL
Senator Hagel. Mr. Chairman, thank you. Gentlemen, welcome.
Secretary Burns, in the Regional security conference
setting in Baghdad almost 2 weeks ago, did we take any
initiatives or did the Iranians approach us for any off-line
conversations, meetings, opportunities to engage?
Mr. Burns. Senator, we had two representatives in that
meeting, Ambassador Zal Khalilzad and Ambassador David
Satterfield, and I have spoken to both of them.
It was one of his first pro forma organizational meetings.
There was a lot of talk about whether or not we create working
groups to work on particular issues concerning Iraq's security,
for instance, being first and foremost, and whether there be
further meetings.
The United States took the position in that meeting that
there should be further meetings. There should be meetings of
the neighbors of Iraq with the U.S. in Iraq. And there should
be meetings of a larger group of countries, including some of
our Perm-5 and G-8 allies.
And so we are hopeful that at the Ambassadorial level and
perhaps even at the ministerial level Secretary Rice might
engage with the Iranians and Syrians and the other countries in
the configuration.
To the best of my knowledge, and I have not had exhaustive
conversations with both of them but I have had good enough
ones, that is pretty much how the meeting went. And so we have
the ability now to not talk to them and let them know how
unhappy we are with their policy in Iraq.
And in another channel, we have this offer to negotiate on
the nuclear issue, which they keep turning down, which is also
the offer that we have made with China, Russia, and the
Europeans together.
Senator Hagel. Does that mean we did not have any off-line
conversations, meetings, engagement with the Iranians at the
conference?
Mr. Burns. Senator, as I understand it, Ambassador
Khalilzad had a quick conversation with the Iranian Deputy
Foreign Minister, but very quick and I think rather
perfunctory, kind of standing around before the meeting was to
take place.
Senator Hagel. To your knowledge, is there a follow-up
effort planned by either side? Or is there a discussion of this
as we get to the next meeting at the ministerial level between
the Iranians and the United States? Or any initiatives on our
side for that to happen?
Mr. Burns. We are not anticipating, at the present time,
any one-to-one meetings between Iran and the United States. But
we do have this multilateral configuration where Iran and the
U.S. are around a table talking about Iraq. And we have the
prospect of nuclear negotiations.
That is where our real emphasis is. The two aspects of
Iranian behavior that are the most injuries to the United
States and to our interests are will they get a nuclear weapon
and therefore disrupt the balance of power in the Middle East
in a negative way to our interests? And two, will they stop
being such a negative influence in Iraq?
So we are focusing on those two channels. But they are both
multilateral. Neither of them is a singular conversation
between the two countries.
Senator Hagel. You noted in your testimony and some of the
responses you have given to the questions, as well as Secretary
Levey, that we, the United States, are looking at diplomatic
initiatives, engagements which is, I think your term was,
Secretary Burns, a more comprehensive policy, which some of us
have been advocating for some time using all of the instruments
of power: military, economic, and diplomatic.
Can you tell this Committee whether we are thinking through
what we might be in a position to suggest or offer in the way
of diplomatic initiatives to Iran if, in fact, we were able to
get some agreements? For example, opening up a consulate, not
necessarily formal diplomatic relations yet. You noted, I
believe, in your comments about engaging. You have noted that
the younger generation it appears, I think in your words, that
country is probably--at least by the latest poll numbers--the
one country in the Middle East that actually might like
Americans.
So what are we doing? What are we contemplating? What are
we thinking through in the way of trying to take advantage of
that situation in the way of initiatives? Now I know a number
of things have to come together for that to happen. But what
can you share with us on that front?
Mr. Burns. Thank you, Senator.
I think the most important thing we have done is to put in
writing an incentives package for Iran should they come to the
negotiating table on the nuclear issue. We gave them a written
document on June 1st, 2006, the Permanent 5 and Germany. That
document essentially said there are two paths for Iran and the
way you relate to us on the nuclear issue. If you continue to
try to build a nuclear weapons capacity, we will sanction you.
You have seen as now, we are on the verge of a second
resolution in New York.
We said there is another path, and that would be a
negotiation. Now what would be the subject of that negotiation?
We would be willing, the six countries including Russia and
China, to help you build a civil nuclear power industry so that
the people of Iran have the benefit of nuclear power. But we
are not willing to give you access to the more sensitive
aspects of the fuel cycle, the enrichment and reprocessing.
That would be done offshore.
We also added in that package a relief from some sanctions
provisions, normalization of some economic ties between a lot
of us, including the United States, with Iran. We thought it
was a very substantial package because we thought that the
Iranians needed to know what might be put on the table when
they got to the table. We thought it would be an incentive.
But as I described, we think there has been this rather
tumultuous internal debate which has prevented them from
accepting that offer.
Second, Senator, we are not anticipating at this time the
establishment of normal diplomatic relations between the United
States and Iran. There is too much bad blood. There is too much
that Iran has to account for, including attacks on our military
personnel and on our diplomats.
But we are proceeding, with the help of the Congress and
with financing from Congress, to try to open up the people-to-
people ties between Americans and Iranians in a way that we
have never tried before.
Senator Hagel. For example? Give me an example of a
program.
Mr. Burns. Well, I know wrestling is a big sport in the
Midwest and our national wrestling team went to Iran at our
suggestion to compete in a tournament against the Iranians.
They were received very enthusiastically, a standing ovation by
the crowd in Iran. One of our wrestlers actually won his weight
class, which is also a nice benefit.
Senator Hagel. He must have been from Nebraska.
Mr. Burns. He must have been, or Iowa.
And we are trying very hard to bring Iranians here. So we
brought a group of health professionals Harvard Medical School
and to Washington. We are bringing disaster relief experts. We
are trying to break down the barriers that have separated us
from the Iranians for the better part of three decades. So that
is very much a part of our policy.
Senator Hagel. Would you give us a quick glimpse into what
is going on at the U.N. today regarding the Security Council
debate on this resolution? It appears obviously, as our
colleagues have noted, that the Russians have come a
considerable way in this. But where that, you believe, is going
to go? And then how would that enhance our position, bringing
together our allies in using not just a unilateral sanction
which there is some question, as the chairman has noted and I
suspect he is going to get back to you on that, on why
unilateral sanctions maybe in this case are not a particularly
effective.
If you could give us a sense of what you believe is going
to happen today and where that goes from today.
Mr. Burns. Thank you, Senator.
We hope to have a resolution passed in the Security Council
by the weekend. This is a resolution sponsored by the U.S., the
UK, France, Germany, China and Russia. We are all together on
it. It would substantially increase the type of sanctions
placed on Iran from the first resolution passed on December 23.
It would add arms sales as a sanction. It would add sanctions
on the IRGC, the Revolutionary Guard Corps Command. It would
open up a process to eventually make progress on export
credits. So we think it is a good one.
We are working now with the other members of the Council,
the non-permanent members, and we hope very much that South
Africa, the current president of the Security Council, will
want to negotiate with us in a productive way. But we are
prepared to push this through because it is the right thing to
do, to apply this kind of multilateral pressure on the
Iranians.
Senator Hagel. Thank you.
Chairman Dodd. Thank you very much, Senator.
Senator Reed.
STATEMENT OF SENATOR JACK REED
Senator Reed. Thank you very much, Mr. Chairman. Thank you,
gentlemen.
Secretary Levey, as I understand the statute, subsidiaries
of U.S. firms are not barred from dealing with Iran as long as
the subsidiary has no operational relationship to the parent
company. Is that an accurate assessment of the current status
of the law?
Mr. Levey. Basically you are right, Senator, that currently
foreign subsidiaries are not cutoff in that same way.
Senator Reed. Do you have a current list and do you
deliberately go out and identify those foreign subsidies of
American firms that are trading with Iran? And can you give us
that information?
Mr. Levey. We do not have a comprehensive list of this.
This is something which there is some ongoing effort in the
Government, as you may be aware. The SEC has an Office of
Global Risk where they require companies to make disclosures of
information and then they try to put it out in the public
domain so that investors are aware of information the SEC deems
to be material of that purpose. But that is the status of kind
of a governmentally created set of information.
Senator Reed. It would just seem to me that that would be a
very productive use of your time, to identify subsidiaries of
American companies that are dealing in Iran, profiting from
Iran, and taking those profits and sending them back to the
parent company in the United States.
Just simply, I think, that knowledge, publicly might go a
long way in curtailing the activities of these companies.
I presume from your response, there are a number of
companies operating in Iran that have--there are subsidiaries
of American corporations; is that correct?
Mr. Levey. There certainly are some. I think there is
probably a lot less than some people might imagine. I obviously
do not know for certain.
What I have been able to glean from sort of an anecdotal
perspective is that a lot of companies are pulling out of Iran
for much of the same reasons that we have already been
discussing here, including moving subsidiary operations. Some
of the ones that I think are more significant are making that
same decision.
Senator Reed. I think the tempo might increase if public
attention was more focused, and you might be able to do that
through your office.
Just one other question about trade with Iran. Is Turkey
still buying gas directly from Iran?
Mr. Burns. I believe so, Senator.
Senator Reed. Is there any effort on our part to talk to
our NATO ally and convince them not to do that?
Mr. Burns. We are trying to convince all companies seeking
investment in oil and gas with Iran to not do it. We are
jawboning pretty heavily, pretty seriously.
A number of our allies, Turkey is a prominent one, a
partner like India is another, have long-term oil and gas
relationships. And we are trying to suggest that there are
alternatives for the future.
For instance, with Pakistan, India, and Afghanistan the
alternative to Iranian gas would be Kazakhstan. And so we are
trying to produce a movement toward a systemic shift away from
reliance on Iranian energy. It is very difficult, obviously, in
a neighborhood where countries are energy dependent.
Senator Reed. Secretary Burns, again thank you for not only
your testimony today but for your service over many years.
You suggest, I think with some credibility, that in one
sense the position of the Iranian government has weakened
because of their growing isolation from the world powers. But
in another sense, they have seen their strategic position
enhanced. The regime in Tehran is now an ally of them. They
have quite an active participation in western Afghanistan,
contrary to the Taliban years, where they have councils with
economic issues, they are building roads.
The issue I have is Senator Dodd has shown this chart of
the Revolutionary Guard and I think you have talked about it.
But the long-term relationship between organizations like the
Badr Brigade with the Quds Force with the Revolutionary Guard,
now those people have been transformed into significant members
of the Iraqi government. How does that complicate our
relationship with Iraq and Iran?
You talk about the Iranian influence in Iraq. Some of it is
clearly hostile to our purposes. But much of it seems to be at
the invitation of Iraqi political figures that we support and
deem legitimate. And how do you parse that very difficult
dilemma?
Mr. Burns. I think it is a bit of a mix, as you suggest. On
the one hand, the Iranians have clearly profited from the fact
that Saddam Hussein has fallen from power and now no more. They
have clearly profited from the fact that the Taliban
disappeared as a power center in Afghanistan.
But on the other hand they are more isolated on the nuclear
issue than they were a year ago or 2 years ago. They have
played their cards wrong. They have not given any indication of
interest in negotiations, which have stiffened the spine of
countries like Russia. So I think they have actually
miscalculated on the nuclear issue.
I think their credibility has been hurt in the Middle East
and around the world by Ahmadinejad. Now he is popular in some
parts of the Middle East because he was seen to be Hezbollah's
protector in those parts of the Middle East where Hezbollah is
popular.
But on the other hand, he is the guy who says that another
state, a member state of the United Nations, should be wiped
off the map of the world, Israel. He has denied the Holocaust.
T hat has hurt him very much in Europe.
And I think that Iran now has responsibilities in Iraq that
it did not have before. So we are suggesting that they have to
meet those responsibilities. You are right that many of the
Shia leaders in power in Baghdad sought refuge in Iran during
the Saddam years. And so there are personal and institutional
and official links between some of the Shia leaders and their
institutions and Iran.
But now Iran has to act as a normal state and help keep
Iraq together and be more responsible than it has been. And I
am not sure Iran is meeting that test either.
So overall while their strategic position is improved in
some ways, I think on balance they are weaker today than they
were a year ago, and they have got much more international
opposition to them on a number of fronts.
Senator Reed. Is that weakness a function of declining oil
prices in some respects?
Mr. Burns. They have got a problem with energy because they
are importing about 40 percent of their gasoline, which is a
great irony considering the fact that they are the second
leading oil producer in the world. They have set prices
artificially low and so that has been a major expense for the
state. There is a profligate use of energy by people in terms
of the use of automobiles, for instance, in Tehran itself.
Senator Reed. It sounds familiar.
Mr. Burns. And so they are facing an energy challenge. And
as the energy prices dip over time, their ability to finance
Hezbollah and Hamas is going to be decreased.
Senator Reed. Thank you, Mr. Secretary. Thank you,
gentlemen.
Chairman Dodd. Thank you, Senator Reed.
Senator Allard.
STATEMENT OF SENATOR WAYNE ALLARD
Senator Allard. Thank you, Mr. Chairman. Welcome, Secretary
Burns. I have a question for you.
The media has recently reported a chlorine gas aspect to
the explosive devices in Iraq, and I made note of your comments
here on the Revolutionary Guard that they were making many of
the explosive devices in Iran and then exporting them into
Iraq. Is that chlorine coming out of Iran?
Mr. Burns. Senator, I just have no way of knowing. It was
very worrisome to see this chlorine gas explosion a couple days
ago. It is not the first that we have seen and so we are trying
our very best to do what we can to diminish the IED and the
bomb threats but they are continuous.
What we know about Iran, what we do know, is that they have
provided these explosively formed projectiles, the
sophisticated IED technology, to Shia militant groups. We have
seen the markings of the Iranian government. We know that for
sure. And we know that the Shia militant groups have used those
devices to attack American soldiers.
We think we have a general rough estimate of how many
soldiers have been killed by that and we saw the level of
frequency increase in the latter part of 2006.
But we have no indications that I know of that Iranians are
actually conducting the attacks. These are Shia militants
inside Iraqi doing so.
Senator Allard. If we should happen to tie that to Iran,
how does the chemical weapons treaty kick in? Or does it at
all?
Mr. Burns. Senator, I just have no indication whatsoever
that Iran is behind the chlorine gas attacks. Obviously we are
investigating it with the Iraqi authorities. I just would not
want to speculate on a hypothetical basis because it would be a
very serious charge I would be making and I do not want to do
that today. I do not have the intelligence knowledge to do
that.
Senator Allard. I understand. Let me structure that
differently.
How does the chemical weapons treaty handle sanctions?
Mr. Burns. Senator, I would be very happy to reply to that
question in writing. I, myself, am not an expert on that
particular treaty. But it is a good question and I will be
happy to give you a written answer on it.
Senator Allard. Good. I am glad we have got your attention
on that. It is something I have thought about. If you could get
a written response I think it would be helpful both to me and
the Committee.
Also, I would like to follow up a little bit on Senator
Reed's line of questioning on the importation of natural gas
from Iran to Turkey. My information is that is occurring. But
when they built the pipeline across Iran to carry Turkmenistan
natural gas over to Turkey, and I guess the countries built
their respective parts of that pipeline, do we have any
monitoring going on as to whether Iran is injecting any natural
gas into that line that is transporting from Turkmenistan over
to Turkey?
Mr. Burns. Senator, I do not know the answer to that
particular question, but again I would be glad to investigate
that for you, see what we know inside of our Government, and
report it back to you.
Senator Allard. I would like to know just what level of
monitoring is going on there, if any. That is the bottom line
on that question. So again, if you can provide that in writing,
I certainly we would appreciate it and probably the Committee
would, too, also if you would, please.
Let me ask you this question: how does the State Department
make the determination to provide a waiver of sanctions? What
is the process? And what criteria are used? Can you share that
with me?
Mr. Burns. We have a waiver provision under the law that
has been given to us by the Congress, the first Iran Sanctions
Act, and now the reauthorization of 2006. If we believe that a
particular foreign company has violated the provisions of the
Act, then we have a responsibility to report that to you, and
the president has the possibility of using the waiver authority
in that instance.
As I said to the Chairman earlier, I also served in the
Clinton Administration. I am a foreign service officer. I can
check this but I believe that the Clinton and Bush
Administrations have only used that waiver authority once.
Senator Allard. Where I am driving my question is to
establish that belief what criteria do we rely on?
Mr. Burns. We have a very active effort that encompasses a
number of departments, and both Mark and Stu can speak to this,
to try to track what companies are trying to invest or seeking
investments with Iran in oil and gas.
As I said before, we have asked our Ambassadors to be very
active. I know we have in the case of Shell, Royal Dutch Shell.
I know we have with the Chinese, because I made the demarche to
the Chinese to say to these companies and countries we think it
would be a mistake for you to finish an investment deal.
A number of the deals that are on the chart that the
Chairman had of more recent vintage are ideas on paper or
preliminary deals that have not yet been consummated. So we do
have an opportunity here to try to convince these companies not
to go forward.
And frankly, we also tell them that there is the Iran
Sanctions Act, that the Congress is considering modifications
in it. And so the specter of that is useful to the
Administration, as I think it was to President Clinton's
Administration.
Senator Allard. I did not want to get into a repeat
response that you had given to Senator Reed. My understanding
is the source is the SEC records and what they have online.
I guess to pursue this issue a little further, could we be
accused, in any way, of having a double standard in the way
that we deal with various countries?
Mr. Burns. I would not say that. I think that we have
applied pressure fairly across the international political
spectrum. We have been as tough on some of our West European
allies as we have been on the Chinese in terms of these
prospective oil and gas deals, if that is what the question is.
Senator Allard. Yes, that is.
Mr. Burns. We are pressing on all fronts. We think that oil
and gas investment with Iran is wrong. It is contrary to the
international interest to isolate and pressure that regime.
Senator Allard. I just bring that question up because I
would be concerned about how our allies might react when we
deal with some of these sanctions.
Mr. Chairman, my time is about ready to expire, so thank
you
Chairman Dodd. Thank you. And by the way, the written
questions and requests for submissions we have already raised
with the Secretary, and he has promised to comply with that.
Mr. Secretary, we have about three or four members and I
know the time is getting beyond what we promised you could
leave. If we could maybe ask my colleagues, instead of 7
minutes, 5 minutes at least to try to get these questions in so
that everyone has a chance.
You have some interest. We had over two-thirds of the
members of this Committee show up this morning to be a part of
this. So I will try and move along here. You let us know when
the hour has arrived you just have to leave and we will respect
that. So if you can stay a few more minutes, we would
appreciate that.
Mr. Burns. Mr. Chairman, if you would permit me, I am very
open to talking to members and I would be happy to see you
individually, too.
My problem is I have a boss who is always on time and I am
expected in his office, in the Oval Office, at 11. And I have
got to get by car from here to there.
And I do not mean to be disrespectful, but I am supposed to
attend this meeting with him with the Prime Minister of New
Zealand.
I would be happy to come to each of the Senator's office to
talk to them, or I would be happy to come back to this
Committee at anytime to testify in open testimony.
I apologize for the situation.
Chairman Dodd. No, not at all. In fairness to the
Secretary, he did promise at the beginning that was going to be
the circumstances. And I appreciate that very much.
Our other two members will stay here and so we will
continue pursuing this.
But thank you very much. I must say, Secretary Burns, the
Administration is very fortunate to have you. You are a voice
of moderation and rationality in all of this and we appreciate
it. I do certainly, anyway.
So thank you very much.
Senator Carper. Mr. Chairman, I would be delighted to
accept the offer from the Secretary.
When you have a chance to come by and visit with us, I hope
before the end of this month, I would be especially interested
in talking about a piece that was written by Walter Isaacson in
Time Magazine about a week or so ago, following his visit with
the Iranian ambassador to the U.N.
Thank you.
Chairman Dodd. Thanks very much.
Senator Bayh.
STATEMENT OF SENATOR EVAN BAYH
Senator Bayh. Thank you. And Mr. Secretary, thank you.
Gentleman, I am grateful for your efforts. This is an important
challenge facing our country.
You have had some success. I think you hear from this
Committee and on my own behalf, I urge you to do more.
Secretary Levey, I would like to start with you. As I
understand it, we have been bringing pressure to cutoff
transactions with regard to two of the Iranian banks; is that
correct? Why not all of them?
Mr. Levey. That is an excellent question, Senator. Here is
what our thinking is on that. We are trying to establish, as
Under Secretary Burns said, an international coalition to bring
pressure on Iran.
What we found as the most effective way to do that is not
just to exercise power--and I think you will find that this is
going to be the theme of a lot of answers--not just exercise
the power that we have, but to exercise it in a way that brings
others on board.
So, what we have done with respect to the two banks that we
have taken action against is not just cut them off, but to
explain why we have cut them off. So with Saderat, it was about
terrorist financing. With Sepah, it was about proliferation
finance.
The result of that has been to really cause others around
the world to take a close look at whether they are going to do
business with these banks.
Senator Bayh. Are you telling us there is no evidence that
the other three Iranian banks have been involved in similar
activities?
Mr. Levey. Not at all, and I certainly do not want to
suggest that we will not take further actions at the
appropriate time.
What I am saying is that we thought it was the appropriate
time and we had evidence that we could put in the public domain
with respect to those banks. As Under Secretary Burns
mentioned, we are about to see the possibility of Bank Sepah
listed at the United Nations and in the Security Council Annex,
which would be a very dramatic step, something which I do not
think would have been possible if we had just said we are going
to cutoff all Iranian banks.
Senator Bayh. Perhaps. Again, I think what you have done to
date is good. But I think we need to keep the pressure on and
be even more aggressive. The clock is ticking. We do not know
with precision when Iran will reach the point of no return with
regard to a nuclear capability. The effort here is to try and
avoid the necessity to resort to military force.
And so we want to be a aggressive sooner rather than later
when it comes to this situation.
And so I would encourage a very thorough scrutiny of these
three additional banks. And if the actions taken with regard to
the two have had a beneficial impact, as I understand it, with
regard to increasing the inconvenience and cost to Iran, why
not do more with regard to the other three?
Mr. Levey. I take your point and I think in principle we
are very much in agreement. We want to be as aggressive as
possible and as effective as possible.
Senator Bayh. Which of the international banks that you
have been trying to convince to not do business with the two
Iranian entities have not been cooperative?
You spoke about the beneficial impacts of risks to
reputation. Let us put that on the table here. Who has not been
cooperating?
Mr. Levey. I think generally speaking, I think that all of
the banks have been taking this seriously. And every single
bank that we have engaged with has told us that they are either
cutting back or cutting off entirely their business with Iran
or with respect to these specific banks.
Senator Bayh. Is there a way to verify that when they make
those statements? Or are they just facilitating transactions in
euros rather than dollars?
Mr. Levey. Some of them have been straightforward with us
that they are cutting off only dollar transactions. I am glad
you asked this. Some of them say we got your message, we are
cutting off the business in dollars.
That is what I think they think they need to do in order to
comply with our law. But that is the beginning of the
conversation, not the end, from my perspective. Because then I
ask them, what is the difference in the risk of the
transactions. If you really want to stay away from the
terrorist financing transactions or the proliferation financing
transactions, how can you be sure you are doing that if you are
doing it in euros?
I do not think there is a really intellectually coherent
response to that question.
Senator Bayh. When we encounter that situation, since they
do not have an intellectually coherent response, what do we do?
What is the sanction for them at that point? We cutoff a Macao
bank for facilitating a North Korean business. If European
banks are just doing a bait and switch, why shouldn't they pay
some consequence?
Mr. Levey. I think--there is a large step--to be honest
with you, my inclinations are the same as yours, Senator, I can
assure you. But what was going on in the Macao bank was----
Senator Bayh. I am trying to help you here.
Mr. Levey. I understand.
What was going on in the Macao bank was illegal under the
domestic law of any country and also putting--facilitating
criminal activity. What is going on when a bank in Europe
decides to do business in euros with an Iranian bank is not
illegal under European law. And so it is a big step for us to
then take the dramatic action that we took against Bauco Delta
Asia in Macao against a European bank for doing that.
I think what we have to do, at least in the first instance,
is really try to persuade----
Senator Bayh. Should it be illegal under American law,
facilitating transactions with a state that facilitates
terrorist acts, that is attempting to acquire a nuclear
capability. Should that be illegal under American law?
Mr. Levey. I think that while it is tempting to say yes to
that question, I think we are getting into an area where the
reaction to that would be real hostility for the
extraterritorial application of U.S. law.
What we are doing by trying to persuade these banks is
already, I think, viewed by some as trying to project our own
policies internationally. It is having some effect. If we were
to make it illegal for banks to do business in the United
States if they did business with Iran, I think that would be a
very, very----
Senator Bayh. So we have to weigh the risk of a backlash to
the attempted extraterritorial application of U.S. law versus
the facilitation of Iran obtaining a nuclear capability. Those
are the two risks we have to weigh?
Mr. Levey. I think--that is one way of putting it. I think
the way others would describe that is that they will say we do
not want to do any business with Iran that we think is
advancing their proliferation efforts. But we want to do what
we think is legal business with Iran.
And that is what I run into when I have this discussion,
that the business they are doing is not advancing their
proliferation, it is not advancing terrorism, that they are
being very careful. That is the way the conversation actually
goes when we have it.
Senator Bayh. The reason we are here today is the national
security interests of the United States of America are
implicated. I understand the possible financial backlash. But
there are greater stakes in this dialog than that.
Mr. Chairman, my time is expired. I did have one question
for Secretary Burns, but I guess I will have to follow up on
that later.
Secretary Levey, you are not as involved as Secretary Burns
would be with the application or the lack thereof of the
Iranian Sanctions Act; is that correct?
Mr. Levey. That is correct.
Senator Bayh. Lucky you. I did have some questions about
that, Mr. Chairman, why in the last decade there has only been
finding of violation. I find that to be rather incredible. But
I guess that will be a conversation for another day.
I would just conclude, Mr. Chairman, by thanking you for
conducting this hearing. I think it is very important.
And gentleman, I would urge you on. This seems to be having
some impact but we need to extend that.
Chairman, I am grateful to you for emphasizing that today.
Chairman Dodd. Thank you, Senator.
We raised the issue earlier, in fact we had the chart up
here talking about the $126 billion in various transactions
where there has been zero sanctions against that kind of
business.
Your questions were excellent. Thank you very much.
Senator Casey.
STATEMENT OF SENATOR ROBERT P. CASEY
Senator Casey. Chairman Dodd, thank you very much for this
hearing. And I want to thank both of our witnesses for your
testimony and for your public service.
Chairman Dodd. By the way, let me just point out to Senator
Bayh, as well, Secretary Burns has agreed by the way, in a very
prompt fashion, to respond, knowing his time was going to be
limited here, to written questions. So I would urge you to
frame those questions, submit them to the Secretary so we can
get some answers right back to complete the hearing so we have
a full record on these issues.
Thank you.
Senator Casey. Thank you and I, too, had questions for
Secretary Burns and will meet him at another time.
I wanted to get back to the issue of terrorism because it
was cited not only in your testimony, Secretary Levey, but also
in Secretary Burns's testimony. He said, and I'm quoting from
age 10, this is a summary of the section on terrorism. He
concludes with this sentence in the section. He says, and I am
reading halfway through the sentence, ``We are disrupting
Iran's ability to support groups such as Hezbollah and Hamas
while increasing the political costs of the support.''
You say, in your testimony, which I guess is on page two,
that you speak of Tehran arming and funding and advising
Hezbollah, as well as supporting the Palestinian Islamic Jihad
and Hamas. You go through there.
The question I have is based upon the information we have
to date, and based upon that long history that you point to,
what has happened in the last year in terms of Iran's support
for those organizations due to, or maybe there is no connection
here, but due to the fact that Iran has been let us say
distracted because of the international pressure on the nuclear
question. Is there any indication that they been distracted
from that? Or has that support intensified or increased? Just
say in the last year.
Mr. Levey. Senator, the information that I have is not what
I would like to be able to report to you. I do not think that
their support for terrorism has decreased in any way. All the
estimates that we have in our assessment is that they are
sending over $200 million a year in that general amount to
Hezbollah alone. They remain the primary funder for Hamas, and
the Palestinian Islamic Jihad.
With respect to the Palestinian Islamic Jihad, they even
condition their funding on attacks, is the information we have.
So their support for terrorism is not waning in any way.
Now the action that we took with respect to Bank Saderat, I
would just take 1 minute to mention that, is disruptive in
terms of making that support more difficult because that really
was the node that they were using to supply this money,
particularly to Hezbollah.
As I think some of the Senators understand, with respect to
Hezbollah, it is difficult for the United States to get at that
as effectively as we would like to because the European Union
does not recognize Hezbollah as a terrorist organization, which
is something we would very much like to see changed. And so
that is something we are working on quite diligently.
Senator Casey. You said that with regard to Hezbollah, $200
million per year?
Mr. Levey. Yes.
Senator Casey. What do you know about the other two? Do you
have a specific number you can apply or attach to Hamas or
Islamic Jihad?
Mr. Levey. I do not have a specific number that I can give
you, Senator, but it is our information that they are the
primary funder, particularly with respect to Palestinian
Islamic Jihad, and that, as I mentioned, that they condition
their funding on the use for attacks.
Senator Bayh. With regard to those two or frankly any other
terrorist organization, if it is not part of the record of this
hearing, if you are able to calculate and determine that and
then submit it as part of your testimony, then I would ask you
to that.
Mr. Levey. We will do the best we can. It may have to be,
as you might understand, it may have to be a classified answer.
Senator Casey. OK.
Also, with regard to these questions that center on
terrorism, I know that when Secretary Burns said the sentence I
read before ``We are disrupting Iran's ability to support these
organizations.''
What, in particular, has been done, if it is not
classified? And second, what can you tell us in terms of
amplifying the answer to that question about the impact it has
had?
In other words, what strategies are in place and how are
they worked?
Mr. Levey. The fact that Iran is a state sponsor of
terrorism, designated as such by the United States, as Under
Secretary Foulon indicated in his opening statement, subjects
them to formal sanctions by the United States in terms of what
can be exported to Iran. So there is that.
In addition to that, we have been highlighting exactly what
Iran is doing. That is something that is important. We took the
action against Bank Saderat that I mentioned, which cut off the
easiest way that they were funneling the money to these
terrorist organizations which is a way of disrupting their
support. They have to go to something that is much more
cumbersome like shipping cash in trucks across Syria into
Lebanon in order to fund this, which is much riskier, for
obvious reasons.
But I think maybe the most effective thing that we can be
doing is focusing on the IRGC. Under Secretary Burns mentioned
that we are trying to get the IRGC mentioned in this follow-on
resolution. But as I think Senator Shelby said earlier, the
commander of the IRGC was already listed in the first
resolution.
So one thing that I have been doing is making the point to
my colleagues around the world, both in the private sector and
the public sector, that under 1737 that already has been passed
calls for the freezing of assets not just for the individual,
Safavi, who is listed, but for all the entities under his
ownership and control, which obviously already includes the
IRGC.
So we have been sharing lists of companies that we think
are controlled by the IRGC and trying to put pressure on the
IRGC as that organization within Iran that is its coercive arm,
that is being used to sort of export terrorism around the
world.
Senator Casey. My last question is this, I have 1 minute
left, With regard to your ability individually but also
obviously our Government, our ability to have a positive and
constructive impact on the question of how we disrupt their
terrorist links what, if any, and I am assuming there are some,
but what, if any, stumbling blocks or obstacles are in our way
with regard to the Europeans? What is the basic impediment to
doing that in terms of our ability to engage the Europeans to
do what we think they must do in terms of combating this
terrorist threat?
Mr. Levey. The major stumbling block, the one that looms
larger than all the others combined, is that the Europeans will
not recognize Hezbollah as a terrorist organization. It is a
terrorist organization. I think that some in Europe agree with
that but the Europeans will only act as a unanimous body by
consensus. And so they have not been willing to recognize
Hezbollah as a terrorist organization.
Since Hezbollah is often the first stop for Iranian support
for other terrorist organizations, that eliminates sort of our
best opportunity to stop that external support for terrorism
coming from Iran. That would be the most effective change if
that could be done.
Senator Casey. Thank you.
Chairman Dodd. Thank you very much, Senator.
Senator Carper.
STATEMENT OF SENATOR THOMAS R. CARPER
Senator Carper. Thanks, gentlemen. And thanks for staying.
You do not have a meeting with the President at noon, do you?
Mr. Levey. No such luck for me.
Senator Carper. This may have been covered before I
arrived, and if it has been I would just ask you to bear with
me and comment on it, if you will. This may be more in the
purview of Secretary Burns, but if you could cast some light on
it, I would appreciate it.
I have been following the back and forth between Russia and
Iran with respect to Russia's support and willingness to go
forward to enable Iran to complete the work on their nuclear
power plant, which is a project I think may have been in the
works for several decades. I think the Russians have been
involved in for a number of years. The Russians are asserting
that they are not prepared to go forward because Iran has not
been making payments, I guess, since January.
I am not sure in reading the press accounts who struck John
or who struck Ivan or what is going on here. Do you all have a
sense for what is happening here? What is going on?
Mr. Levey. To be honest with you, Senator Carper, I think--
all I would be doing is reflecting what Under Secretary Burns
tried to express on this issue before, which is that we have
seen a change, a slow change in Russia, in terms of their
willingness to stand up against Iran's nuclear program. The
most significant thing being that they are currently sponsoring
this resolution that is being considered at the United Nations
right now. They voted for the first resolution to sanction Iran
for its defiance on the nuclear program.
I do not know the details of this particular dispute
between Russia and Iran and how that plays into it, but this is
an encouraging sign that at least on the resolutions they are
standing up against it.
There is certainly a difference, as Under Secretary Burns
said, between our view of Iran generally and our relationship
with Iran than Russia's, which has a long-standing trade ties
and so forth. But we are starting to see that, at least on the
nuclear issue, they are more on the same page with us.
Senator Carper. There is a question whether or not Iran has
actually been making their payments. Do we have any ability to
monitor that or to know?
Mr. Levey. I am not sure that we do. I would only be
speculating. I do not know whether we do or not.
Senator Carper. Thank you.
Is it Secretary Foulon?
Mr. Foulon. Foulon.
Senator Carper. Foulon.
Mr. Foulon. It embarrassed me when I used to play
basketball.
Senator Carper. Welcome to this March madness here.
According to your testimony, I think there are a couple of
instances in which Commerce is, I believe, involved in the
sanctions against exports to Iran. First, when transferring
sensitive technologies to Iranian nationals, I think those are
deemed exports within the U.S.
And second when sensitive technologies are exported to
another country and that country wants to re-export those
technologies to Iran.
In both cases exports wanting to export need to receive, I
believe, special licenses from your department, from Commerce.
A couple of questions if I could.
First of all, to what extent has commerce evaluated how
well export controls work for Iranian nationals and re-exports?
Mr. Foulon. Let me take it in the two different pieces, the
first piece around deemed exports which, as you pointed out, is
the transfer of controlled technology to non-U.S. citizens in
the United States. In terms of how that program works, just so
you are clear and everybody on the Committee is clear, is that
we are trying to implement the regulations in such a way that
American research institutions, universities, laboratories have
access to Iranian citizens without those Iranian students then
being able to take that information back.
As we evaluate the program through our intelligence open
source and other ways follow the careers of the various Iranian
students or researchers who receive the deemed export licenses,
then we are able to evaluate the effectiveness. Last year we
provided 38 licenses to Iranians.
To this point, without going into details in open session
that we cannot do, in closed session we would be delighted to
do so, we believe the program is being implemented successfully
with respect to those applications that we receive. The gap
that we need to fill now is to make sure that universities,
industries, businesses, research laboratories fully understand
the regulations, fully understand the need for this extra
deemed export license screening.
That is why we do over 100 outreach events every year, to
universities, to industries, to others to make sure they are
aware.
In terms of the re-exports, for most re-exports of
controlled items by American companies or by American persons
into Iran, those are covered by the Department of Treasury and
the OFAC licenses.
Where we, where the Department of Commerce has a role is if
it is an item that we call EAR99. It it one that does not
appear on any the control lists but is kind of all other
things, a catchall category. If a non-American citizen outside
the United States is exporting an EAR99 item to an end user
with proliferation or terrorism concerns, then we must do the
licensing for that with a presumption of denial.
Since I have checked back as far back as 2000, we have had
no instances of that occurring, Senator.
Senator Carper. Thank you.
A question both, if I could, for you and Secretary--do you
pronounce your name Levey?
Mr. Levey. I pronounce it Levey but I do not take it
personally. So whatever you call me.
Senator Carper. I know a fellow whose last name is spelled
closely to yours and he pronounces it Levy, so you guys have to
get together and straighten this out.
A question for both of you, if I could. The Iranian regime
has sought, I think for some time, to acquire as we know,
technology for its nuclear program, its nuclear program, and
its aging military platforms by using a middleman, if you will,
I think in this country, I think in Canada, maybe Europe to
purchase technology and illegally export it to Iran.
I believe in the middle of December last year a report to
the Financial Times quoted a U.S. Administration official
saying something to the effect that increasing numbers of
controlled items are being diverted from ports in the United
Arab Emirates to Iran.
I was wondering if you all might detail for us the
cooperation you are receiving from the international community
in combating the exporting of sensitive technologies to Iran?
And specifically, is the United Arab Emirates taking the
necessary measures they need to control, to ensure that
controlled export items are not being diverted to Iran?
Mr. Foulon. Thank you, Senator. You put your finger on a
very important issue, the issue we call the transshipment
issue. It is one we have given great attention to over the last
four or 5 years. We have tried to develop a tool kit of
policies, procedures that we can use in dealing directly with
the countries of transshipment concern, the areas of
transshipment concern.
So before I turn to the United Arab Emirates, let me lay
out in a little bit more detail kind of how we view the tool
kit and how we implement those policies, which we tailor to
each of the individual transshipment countries. It is
everything from, with Hong Kong for example, we have annual
meetings, close enforcement, data exchange, close enforcement
cooperation. Hong Kong has a very sound export control law and
they implement it very well.
So countries have a law, they have how well they implement
the law, they have cooperation with us in terms of data
sharing, in terms of enforcement cooperation. In some we had
actually have Bureau of Industry and Security Commerce
Department people on the ground who do spot checks, end use
checks to identify the magnitude of the diversion concern.
With respect to the United Arab Emirates, we have been in
close contact for the past several years in terms of
encouraging them to implement, to pass and implement an
effective export control law that would help screen out
sensitive items going into Iran. As you know, geography is
destiny. And no one's geography is more destined than that of
the United Arab Emirates.
We were delighted 2 weeks ago when the UAE Minister of
Economy, Sheikha Lubna bint Qasimi, announced that their export
control law was in the final stages. So we will look forward to
seeing that export control law passed. We will provide
technical assistance to help them implement it and enforce it.
We have an officer on the ground and we will continue to
cooperate and exchange data.
So based on the statements that the Minister of Economy
said 2 weeks ago, the United Arab Emirates is on the right
track, we believe.
Let me just close by saying that we are always looking at
the list of tools, the types of policies we have. Which is why
2 months ago we first raised the idea of creating a new country
group. Our exports controls divide countries into groups. A is
the NATO allies and so on. To create a new Country Group C,
which would be countries of diversion concern.
So if we find that there are countries that are not
adequately protecting it from their side we will protect it
from our side, using Country Group C.
Senator Carper. Thanks very much.
Mr. Chairman, thank you for your indulgence.
Chairman Dodd. Not at all. Thank you.
I am going to come back to this, Secretary Foulon, because
we have one agent in the United Arab Emirates. With all due
respect, this is not what I call a very aggressive program
considering this is a major port of entry and transit. The idea
that we have one person on the ground there to monitor all of
this is--well anyway, it speaks for itself, quite obviously
here. We have to do a better job than that. We will come back
to it.
Senator Menendez.
STATEMENT OF SENATOR ROBERT MENENDEZ
Senator Menendez. Thank you, Mr. Chairman.
I want to thank you for calling what I think is an
incredibly important and timely hearing early on in the
Committee's agenda.
I appreciate the fact that we did not let the Iran
Sanctions Act expire the end of the last session. But I am one
of those, Mr. Chairman, that as I listened to the testimony
here and the testimony that preceded before I got here but I
got a good sense of it, it seems to me that it is not enough
that our current sanction law permits foreign subsidiaries of
United States companies to violate the spirit of the U.S. law
by investing in Iran's energy sector. That the current
sanctions law against Iran continues to allow U.S. pension
funds to invest in foreign companies which invest in Iran
without informing their investors. That, in fact, the current
sanctions law allows a Presidential waiver that is so huge and
broad that it does not provide even for true congressional
oversight.
And that it is not enough to have renewed current sanctions
that allows the administration to ignore certain investments in
the Iranian energy industry so as to avoid either applying
sections or waiving them. And that is the point I want to pick
up with you, Secretary Levey.
There has only been one determination of a violation. I
know that is done by the State Department. But nonetheless,
there has only been one determination of violation in nearly a
decade of what was ILSA.
But in the same period of time the Energy Information
Agency, a part of the Department of Energy, and the
Congressional Research Service have both reported major
investments. It seems to me that how can we totally dismiss the
findings of another arm of the U.S. Government and ignore them
in pursuing sanctions against those companies?
Mr. Levey. I had a feeling I was going to be upset that
Under Secretary Burns got away when he did.
As you indicated in your question, the Iran Sanctions Act
is administrated by the State Department, but I think----
Senator Menendez. I know you all said you work so closely
together in the comprehensive nature of enforcing this that I
am sure that you have some insights into it.
Mr. Levey. I am not going to be able to hide.
I think the general answer applies to the Iran Sanctions
Act, it applies to a lot of the other things you mention in
your question about what we do with respect to foreign subs,
forced divestment, a lot of the other things I know people are
thinking about.
I think the basic response, and then we can perhaps discuss
it in more detail, is we want to put as much pressure as
possible on Iran. The best way to do that, as Under Secretary
Burns said at the outset, is to have a broad coalition that
will all work together to put pressure on Iran.
If we start sanctioning European companies or Japanese
companies or fill-in-the-blank companies for investing in Iran,
then there will be a kind of backlash against us and it has the
chance of disassembling the coalition.
Senator Menendez. You mean we will get weaker sanctions
than the ones that we have right now?
Mr. Levey. I think the theory is that potentially we would
not get any sanctions at the United Nations without having a
coalition.
Senator Menendez. As I look at the language even of what is
going to be ratcheted up now, it is all a suggestion that
member companies not do X, Y, or Z. But it is not a ban against
doing X, Y, or Z.
Mr. Levey. I think you are right, Senator. And as I think
you know, we have been advocating for stronger resolution at
the U.N. in the first instance, and I think would support a
stronger resolution in the second instance. What we are trying
to do essentially is this is what we think the market will
bear.
Senator Menendez. Can I ask you this? There are media
reports that suggest the Administration is considering
sanctions against companies investing in Iran's oil sector. Can
you shed any light on that? Have you been part of those
discussions?
Mr. Levey. I have seen the same media reports. What I do
know, and I do not know whether there is anything internally
going on in the State Department, there may be. But I do know
that we have been talking to these companies that are
considering these oil investments. I know that the Treasury
Department has been part of some of those discussions where we
are explaining to them, frankly, that if they do go forward
with these investments that sanctions are certainly a
possibility.
And even aside from the sanctions that one of the things
that we say to them is if you invest in this oil sector, what
you are doing is helping this regime generate income that will
be put toward all the policies that we have been discussing
here today that are so negative, their nuclear program,
terrorism, et cetera. So we do try to persuade.
And with some success, as the Chairman said. Not complete
success, but with some success.
Senator Menendez. Let me ask you something that maybe you
can help me with here, understand the nature of the law a
little better.
Under existing U.S. law if a U.S. company invest $20
million over the course of a year in Iran's energy sector, the
president would have to impose sanctions; is that correct?
Mr. Levey. I do not know that that is the case. As I
understand it, that is not the case, that it is not a
mandatory----
Senator Menendez. He could waive it?
Mr. Levey. There is a waiver provision and there is also
investigations that have to go on.
Senator Menendez. But assuming there is a determination
that a U.S. company invests $20 million over the course of a
year in Iran's energy sector. Does the president have
discretion from imposing sanctions?
Mr. Levey. I could be wrong with this. I do not think a
U.S. company is permitted to do that.
Senator Menendez. But if a U.S. company does that through a
foreign subsidiary?
Mr. Levey. The rules with respect to foreign subsidiaries
are somewhat different, that essentially if a U.S. company is
using a foreign subsidiary to evade our sanctions--and this is
something we have to determine on a case-by-case basis--then we
can investigate that and take action against them.
But if their foreign subsidiary is actually acquired for
other purposes and is not being used specifically to evade our
sanctions, then it is permitted to do business with Iran.
Senator Menendez. But if they have a foreign subsidiary and
make that investment through that foreign subsidiary, you are
telling me that if that is not their primary purpose then they
can avoid the sanctions regime?
Mr. Levey. I think you are right. I do not know whether the
standard is primary purpose or not. So I would not want to say
that but I think you are right.
Senator Menendez. I think, Mr. Chairman, this is one of the
big problems we have, U.S. foreign subsidiaries, as I
understand it, can actually make such investments. They go
basically without the purview of the sanctions regime. And so
therefore those who believe that an economic enterprise is more
important than the security of the United States are allowed to
do so.
This is just one of the many problems that we have with a
law that is not vigorously applied, it has had only one finding
in a decade, and that we talk about we want to act tough with
Iran. And it seems to me we act like a pussy cat along the way.
I will save the rest of my questions for Secretary Burns,
since I think that is where the bulk of them might have to be
answered.
Chairman Dodd. Thank you, Senator.
Let me point out, as I understand it on this last point
that Senator Menendez has raised here, is there can be no U.S.
personnel involved in the subsidiary and its efforts have to be
totally independent of the parent. I think those are additional
criteria that are included in that.
But obviously, at the end of the day, it could have these
additional criteria if the resources continue to flow and
provide an economic support for activity and increase the
coffers of Iran, then obviously the purpose behind it seems to
be circumvented. If the intention here is to limit the amount
of financial support for this government and its activities
then these provisions--I want to pick up on the point Senator
Menendez has raised, and others, Senator Bayh raised it. I
think all of us have to one degree or another here, Senator
Reed.
And that is this call. This chart, I do not have it up here
any longer, but you have got it in front of you, going back to
1999. As Secretary Burns pointed out, some of these are
apparently not yet contracts but discussions, the latest being
with a Malaysian company for $20 billion by the way. This is
providing a revenue source of $126 billion in the last 6 or 7
years to Iran, companies that clearly would be subject to
sanctions based on the Iranian Sanctions Act. You can waive
them and so forth. Not a single one has been called on this.
If we are trying to get, and again you can make a case, and
you have here, that the reaction to this could be a negative
one on the part of various allies around the world. But I think
Senator Menendez raises a very legitimate point, in the absence
of not doing anything here we are not getting stronger
sanctions out of the multilateral group here, but weaker ones,
in fact.
And that if you want to get serious about it, or the
administration ought to take the view that the section of the
law ought to go. And instead of having this myth up there that,
frankly, we are going to take actions and never do, it seems to
weaken our position in my view in terms of building that kind
of international support. If, in fact, we use some examples
here, getting very serious about this.
The point that Senator Bayh made, I think needs to be
repeated. We are talking about a government here that is deeply
involved in the financing of global terrorism, of organizations
and individuals who are determined to do us great, great harm,
who are trying to acquire a capability that poses incredible
risk to the world, incredible risk to the world.
Here we are talking about some economic sanctions for many
of us here who would like to do everything we possibly could to
avoid that option that none of us are going to take off the
table, that some apparently may be trying to rush to a little
bit more quickly, and that is the military option in Iran, the
dangerous implications of that step.
And one certain way it seems to avoid having to get to that
point is to get very, very serious about the sanctions we are
talking about. In the absence of doing that, I think history
will be a very tough judge, that you have $126 billion in 6 or
7 years flowing into the coffers of the government by allies of
ours around the world who are refusing to join in a serious
effort here to bring a halt to this.
And you have got to get a lot tougher of this, in my view,
or we are going to pay an awful price in the end.
You have explained it to the best of your ability here and
Secretary Burns obviously has some more responding to do to
these issues. But I think you have heard here from a good
percentage of this Committee here this morning that is very,
very concerned about what this is all headed.
Mr. Foulon. Mr. Chairman, just bearing to the question that
Senator Menendez raised and that you also have raised
concerning the sufficiency of legal authorities, and it also
bears on your comments on the adequacy of having only one
export control officer in the United Arab Emirates.
I would just revert back to the comments I made in my
opening statement that there is one area where we do not have
the legal authorities that we might otherwise have, which is
the fact that the Export Administration Act is in lapse. As a
result of that, for example, our attache in the United Arab
Emirates does not have overseas investigative authority but
must work through Immigration and Customs Enforcement.
Again, the penalties are not sufficient to be an adequate
deterrent.
So I would just flag that as an area in which there is
opportunity to strengthen our ability to achieve our common
goals on this.
Chairman Dodd. I thank you for that.
Let me raise a couple of additional quick questions, if I
can, for you here. Concerns have been raised over the FBI's use
of national security letters as authorized by the PATRIOT Act.
The Banking Committee added provisions, later incorporated in
Title III, to expand information access and sharing authorities
for financial institutions, regulators and law enforcement.
I wonder if you could assure the Committee, this is for
you, Secretary Levey, assure the Committee that you have
implemented reasonable standards to enforce these provisions
and that the Treasury Department has complied with both the
spirit and letter of the law on that point.
Mr. Levey. I think I very definitely can give you that
assurance, Mr. Chairman. The expansions of authorities that we
received in the PATRIOT Act, for the most part, were not
information collection in the sense of the FBI national
security letter authority that I think you are referring to.
But all of the--the one provision in there that does allow
us to collect information, we have very strict standards in
place for how it is used. And it is 314(a) of the PATRIOT Act
where we are able to get information from financial
institutions is response to law enforcement requests so that
they can identify which institution has an account for someone
that a person that law enforcement is looking for or is
investigating that they can follow up with.
The 314 authority works in a way where law enforcement then
has to take that lead and acquire the actual underlying
information through legal process. There is no other PATRIOT
Act authority that we were given that I think implicates any of
the concerns that you are referring to.
Chairman Dodd. I appreciate that.
Let me go back if I can, Secretary Foulon, to the question
that was raised earlier by Senator Carper dealing with the
number of agents on the ground, and your response to it here.
What we are talking about here, as all of us, I think most
people are aware, products can be shipped and end up going
through three or four or five different countries before they
get to their ultimate destination is what we are talking about
here. Foreign governments may or may not cooperate. And that is
what we are trying to drive at here, and the overseas export
control investigations or arrests here.
How does the Commerce Department ensure effective
enforcement of re-export requirements toward Iran? And how many
enforcement cases have involved illegal re-exports of U.S.
controlled technology to Iran?
I am not necessarily expecting you to have that data at
your fingertips, so you may want to submit it in writing.
Unless you have it, I would be interested in hearing, or some
broad response to it.
And are there any cases that suggest a pattern of what
technology Iran is seeking and who is supplying it? Can you
answer that?
Mr. Foulon. Thank you, Senator. As I--one of the cases I
referred to in my opening remarks was a case of a transshipment
from Malaysia, as you will recall. There are other cases of
transshipments through the United Arab Emirates and other
economies in the area.
I would be happy to get back to you with a greater
compilation based on the cases we have had, how many of those
involve transshipment.
Chairman Dodd. And also whether or not you are getting
patterns here. It seems to me that is a very important
question, to determine whether or not--it may not exist but it
seems to me that may be an interesting question to pursue, the
patterns of technology that are being sought and requested by
Iran, as well.
Mr. Foulon. I think there are clearly patterns of
technology. Certainly various types of aircraft parts for civil
and military aircraft. But let me get back to you with a more
structured analysis of the patterns we see.
In terms of how do we know how we are doing? How do we know
we are capturing the transshipments that go through? We use all
of the tools of law enforcement. I would say it is not just the
Commerce Department and the Bureau of Industry and Security. We
work very closely with Immigrations and Customs Enforcement. We
work with Customs and Border Protection, with the FBI. We work
very closely with the intelligence community. We look through
the shipper's export declarations. All exporters are required
to file a declaration. We have a staff that analyzes those and
tries to determine are there trends, are there vulnerabilities?
Do we see a pattern of certain types of exports going through?
And so it is the full panoply of law enforcement.
And then the great benefit we have as well, Senator, is
because in the Bureau of Industry and Security we have the
licensing officers together with the enforcement people. They
talk. And licensing officers see things that enforcement people
may not see otherwise, a certain number of licenses going in a
certain way or types of commodities going to a certain----
Chairman Dodd. Have you requested more personnel in the
UAE?
Mr. Foulon. We have not at this point. As we have looked at
the authorities our person there has, the amount of licensed
exports through the United Arab Emirates----
Chairman Dodd. Is it your sense you need more people on the
ground there, your personal opinion?
Mr. Foulon. From the Commerce Department perspective, which
is all I can speak to, as I do not know the larger issues, as
we evaluate the workload against the resources against the
amount that a person can do, we are confident that our person
there is doing the job that he needs to do.
Chairman Dodd. And you do not need any additional personnel
there?
Mr. Foulon. We believe that the workload and the personnel
match at this point, Senator.
Chairman Dodd. Thank you both very, very much.
Again, we will leave the record open here for a few days
for some additional questions that may be forthcoming.
This is a very, very important hearing, a very important
subject matter, and one the Committee is going to pay a lot of
attention to in the couple of days with a possibility for
additional legislation in this area, as well. So we are going
to want to be in communication with all of you as we move
forward here.
The Committee will stand adjourned.
[Whereupon, at 11:24 a.m. the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF SENATOR TESTER
Mr. Chairman, thank you. I welcome the witnesses, especially
Ambassador Burns, whose resume includes a career in the foreign service
and work for both Secretary Albright and Secretary Rice. That is the
kind of very rare non-partisan commitment to making our country better
that I believe public service is really all about. Thank you for your
service and for your testimony today.
I am heartened by the testimony I have heard today about the
efforts that are being made to prevent Iran from gaining nuclear
capabilities and about the importance of giving diplomacy every last
chance to succeed. I absolutely agree with that. And this really is
probably one of the most important hearings that we can have in the
Senate, because we have to get our Iran policy just right.
We have almost 200,000 U.S. troops involved in combat on the east
and west borders of Iran. Iran is led a by a president who is, I am
afraid, a real madman who is funding Hamas and Hezbollah, and who
appears bent on developing some kind of nuclear program--something we
cannot allow. So this is a very dangerous situation. There is no margin
for error when it comes to dealing with these issues.
I understand that the Congress, mostly supported by both the
Clinton and Bush administrations, has done a great deal to impose and
then tighten sanctions against Iran. Given the stakes and the
continuing level of President Ahmadinejad's rhetoric, I think most
Americans can understand why these sanctions have been needed, and I
think most people support these sanctions.
But as much as I support these sanctions, it seems to me that we
have a very delicate task ahead of us. On the one hand, we should
continue to use every element of diplomatic pressure, and every
workable sanction program to move the Iranians away from the nuclear
program. On the other hand, we absolutely must not lose the Iranian
people. It is my understanding that between the various ethnic
minorities, half the population being under 25, and an unemployment
rate of more than 11 percent, you have all the makings of a
considerable, though still quiet, opposition to the current
government--opposition that may even be felt by some of the mullahs
that oversee the government. It does not make sense to push these folks
back toward supporting the current regime.
So I hope that we can have a good discussion about how to ensure
that our message gets through to the Iranian people. I understand that
there is money in the FY 08 budget to increase people-to-people
contacts--that is a good start. But I look forward to hearing from our
witnesses about what else we can do, from making increased use of the
Internet as a means of reaching the Iranian people to finding new ways
to reach the 50 percent of the population under age 25. Thank you.
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RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM NICHOLAS
BURNS
Q.1. Is it not true that under current U.S. law, if U.S.
Company X invests $20 million over the course of one year in
Iran's energy sector that the President must impose sanctions?
A.1. A U.S. firm would be subject to the restrictions of the
Iran Transactions Regulations (ITR) which prohibit virtually
all commercial dealings by U.S. persons with Iran or Iranian
entities. A U.S. firm would thus be unable, under ordinary
circumstances, to make such an investment. If a U.S. firm were
somehow to make such an investment despite the prohibitions in
the ITR, it would be subject to criminal and/or administrative
penalties.
Q.2. Is it also not true that under current U.S. law, if a
foreign subsidiary of that same U.S. Company X invests $20
million of the course of one year in Iran's energy sector that
there would be no consequences for U.S. Company X (meaning the
U.S. parent company)?
A.2. It is true that in general, foreign subsidiaries of U.S.
firms are not directly subject to the provisions of the Iran
Transactions Regulations (``ITR'') (which apply to U.S.
persons), and thus are able to engage in activities that would
be forbidden to the parent company. It is also true that in
general, parent firms are not penalized for decisions
independently made by their foreign subsidiaries. However, the
parent company would be subject to the penalties of the ITR if
the parent were involved in any way--financially, or in terms
of decision-making--in a transaction by a subsidiary that
contravened the Regulations. In addition, a parent company that
deliberately created or used a foreign subsidiary in order to
evade the restrictions of the ITR would be subject to
penalties.
Q.3. Is it not true that this allows U.S. companies to do
business in Iraq [sic] through their foreign subsidiaries?
A.3. In a situation of this kind, the ``business'' concerned
would be done by the foreign subsidiary, acting independently,
not by the U.S. parent. If the U.S. parent is involved in, for
example, setting up or running the subsidiary's business in
Iran, the U.S. parent would be subject to penalties.
Q.4. My understanding of our sanctions program is that the goal
is to make sure that Iran cannot use money from its petroleum
sector to fund its development of a nuclear weapons program.
Would you not, then, advocate for a change in current U.S.
law to close this loophole?
A.4. Entities established under the laws a particular foreign
country are generally regarded as ``nationals'' of that country
and are subject to its laws. This is true even if most or all
of the equity in the entity is owned by nationals of another
country. While we understand your concerns, we believe that an
attempt, direct or indirect, to make foreign-incorporated
subsidiaries subject to U.S. law rather than to the laws of the
country of incorporation would be roundly condemned and stoutly
resisted by other countries, and would set an undesirable
precedent that could destabilize the structure of international
commerce. Certainly we would not want to see foreign
governments assert that U.S.-incorporated subsidiaries owned by
their companies are subject to their laws rather than to U.S.
laws. Such a step would also likely be ineffective because
other countries may have on the books or may enact blocking
legislation that would prohibit subsidiaries located in their
countries from complying with U.S. sanctions laws. The likely
result then would be a dispute between us and countries in
which U.S. subsidiaries are located, taking the focus off of
united action against Iran.
Q.5. In the ten plus years since the Iran-Libya Sanctions Act
(ILSA) was enacted, there has been one determination of a
violation of ILSA. In that case, sanctions were waived as
provided for in law.
Since that time the State Department has made no other
determinations of foreign investments in Iran that violate the
ILSA standard. However, in this same period the Energy
Information Agency, a part of the Department of Energy, and the
Congressional Research Service have both reported major
investments.
If the U.S. Department of Energy has made such findings,
how can another arm of the U.S. government ignore them?
A.5. In the Iran and Libya Sanctions Act (ILSA), now the Iran
Sanctions Act (ISA), there are specific definitional
requirements. By delegation from the President to the
Secretary, the Department of State has responsibility for
determining whether particular activities constitute investment
within the meaning of the Iran and Libya Sanctions Act (ILSA),
now the Iran Sanctions Act (ISA).
Q.6. Does the State Department disagree with the Department of
Energy report?
A.6. The Department of Energy report is a useful survey of
energy matters in Iran. However, by delegation from the
President to the Secretary of State, the Department of State
has responsibility for determining whether particular
activities constitute investment within the meaning of the Iran
and Libya Sanctions Act (ILSA), now the Iran Sanctions Act
(ISA).
Q.7. There have been reports in the media that the State
Department is considering sanctions against companies investing
in Iran's oil sector.
In your opinion, what effect would such sanctions have on
those companies?
A.7. As you indicate, there have been recent reports referring
to the possible imposition of sanctions in connection with
deals being discussed or contemplated that have not yet been
finalized. We hope that the many financial, legal, and
reputational risks of investment in Iran's petroleum sector,
and our vigorous efforts to highlight these risks, will
continue to make companies wary of going forward with such
deals.
Q.8. The U.S. Ambassador to India recently warned that the Iran
gas pipeline to India/Pakistan may be a violation of the Iran
Sanctions Act.
Has the State Department reviewed the transaction to see if
it is a violation?
A.8. We have repeatedly made clear at senior levels of the
governments of India and Pakistan, our opposition to this
project and the concerns it raises under U.S. policy and U.S.
law--the Iran Sanctions Act. We have also stressed that Iran is
an undependable supplier, and that relying on gas piped from
Iran will not enhance the energy security of either country.
Despite years of discussion, no firm agreement has been signed,
and the project has not yet reached a stage for a determination
under ISA. Major issues concerning the pipeline--including
structure, financing, routing, and gas prices--remain to be
resolved.
Q.9. We heard at the hearing about the broad international
coalition to deny Iran a nuclear weapons capability, to stop it
from sponsoring terrorism, to help build democracy in Iran to
counter the totalitarian regime of Ahmadinejad. All of these
measures, all of the sanctions contained in ISA, all of the
sanctions that may be leveled at Iran in the Security Council,
are targeted to give Iran a message, a strong message that
developing a clandestine nuclear weapons program, that
deceiving the international community, deceiving the IAEA is
not acceptable. Here's the problem: Iran continues to enrich
uranium. Iran has not dismantled its nuclear program. The goal
of the original ILSA sanctions was to cut off funding from
Iran's energy sector which would be used to fund its nuclear
weapons program.
Don't you think it's time to turn up the heat, to tighten
the noose on Ahmadinejad's regime?
A.9. The Department considers the threat of a nuclear-armed
Iran one of the most important issues facing our nation today.
It has implemented a broad diplomatic strategy over the past
year and will continue to do so. The strategy has multiple
pressure points, including a steady increase in action at the
UNSC, which has adopted two unanimous resolutions imposing
sanctions against Iran under Chapter VII of the UN Charter in
three months; designating Iranian individuals and entities
associated with WMD and missile programs, effectively denying
them access to the U.S. financial system; terminating the
ability of two Iranian banks to conduct transactions in
dollars; working with foreign governments to curtail business
transactions with companies tied to Iran's nuclear activities;
and encouraging the reduction of official export credits for
Iran. Our strategy also includes the disruption of Iran-backed
militant networks which threaten our troops in Iraq; and
increased people-to-people outreach.
We have engaged senior levels of government and companies
to make clear our opposition to oil and gas investment in Iran,
the damaging effect of such activities on our common diplomatic
efforts with Iran, and the potential implications under U.S.
sanctions laws. As a consequence, Iran has enjoyed little
recent success in finalizing deals with international oil and
gas companies to develop its fields.
Q.10. Don't you think it's time to expand the sanctions in ISA
and to actually implement them?
A.10. Last year, we worked with Congress on amending and
extending the Iran Libya Sanctions Act (ILSA), which became
ISA, the Iran Sanctions Act. As Secretary Rice has said, ISA
has proved a useful tool, particularly in emphasizing to
foreign governments and companies the risks of investing in
Iran, including the potential implications under U.S. law. Iran
continues to experience difficulty in finalizing investment
deals, and in recent years, few foreign companies have
committed to developing Iranian oil and gas fields. Still, our
allies remain crucial to the success of our diplomatic efforts
against Iran, as evidenced by their support for two recent UN
Security Council Resolutions imposing sanctions on Iran. It is
imperative that we keep the focus on Iran, rather than
modifying ISA to turn the weight of sanctions against allies.
Q.11. What exactly has the State Department done to press the
Libyan government to fulfill its obligations to the Pan Am 103
families and the $2 million per family?
A.11. Claims filed by American citizen victims of Libyan
terrorist acts and their families, including Pan Am 103, have
been at the top of our bilateral agenda both before and since
the reestablishment of direct bilateral relations between the
U.S. and Libya.
In 2002, 269 of the 270 estate representatives of the Pan
Am 103 families entered into an out-of-court settlement of
their pending lawsuit against Libya that linked payments to the
lifting of various sanctions within a stipulated time period.
Pursuant to that settlement, the Government of Libya paid each
of the participating claimants $8 million. There is currently a
legal dispute over whether the settlement requires Libya to pay
$2 million in additional compensation to each claimant. The
United States is not a party to the settlement, but legal
counsel for the Pan Am families has advised the State
Department that the families have initiated court proceedings
to resolve this matter. We have always encouraged, and will
continue to encourage, the Libyan Government to deal with
pending lawsuits in good faith. At the request of the families'
legal representatives, we are also seeking to facilitate direct
contacts between the two sides in an attempt to bring the case
to closure outside of a potentially lengthy judicial process.
Q.12. What steps does the State Department plan to take to
carry out that sense of the Senate and make sure the Libyans
honor their obligations?
A.12. Our commitment to our citizens is unwavering and we
remain very active in promoting the resolution of pending
claims out of court wherever possible to allow claimants to
avoid the burden and delay of litigation. At the same time,
Libya continues to reaffirm its commitment to deal with the
court cases in good faith and is actively participating in the
U.S. legal proceedings brought by American citizens.
To improve our liability to pursue resolution of pending
claims and other pressing bilateral interests, we have asked
for agrement from the Libyan Government so that the President
may appoint an Ambassador to Tripoli. The appointment of an
Ambassador to a country is not a reward. Rather it is one of
our most important tools. A fully functioning embassy, headed
by a confirmed ambassador, is critical to pursuing the most
pressing bilateral issues, including pending claims.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR DODD FROM MARK FOULON
Q.1. What patterns do you see of diversions to Iran through
third countries?
A.1. BIS's Office of Export Enforcement (OEE) has observed in
the course of our investigations several patterns of Iranian
diversions. The major pattern involves the establishment of
Iranian controlled trading companies in United Arab Emirates
(UAE) and utilization of free trade zones. These trading
companies procure U.S.-origin items, usually concealing the
fact that the items are destined for Iran.
Until recently, Singapore and Hong Kong had also been
significant diversion points to Iran. While several significant
diverters still operate out of Hong Kong and Singapore, OEE has
observed the majority of diverters that we are aware of
shifting their routing of goods through Malaysia for diversion
to Iran. OEE believes this is occurring because Hong Kong and
Singapore have adopted and implemented export control regimes,
while Malaysia has not. OEE is also investigating incidents of
diversion to Iran through the United Kingdom, France, and
Spain.
Q.2. What technologies are the Iranians seeking in this way?
A.2. Since October 2004, investigations by OEE, at times
working with U.S. Immigration and Customs Enforcement or other
law enforcement agencies, have resulted in 13 criminal
convictions related to illegal exports of dual-use items to
Iran, with five more cases pending sentencing. A review of
these cases provides insight into some of the commodities being
sought by the Iranians.
Computer equipment
Aircraft parts and components
Fork lifts
Alloyed piping
Nickel alloyed piping
Night vision lenses
Oil burning nozzles
Submersible pumps
In addition, of the 136 open investigations involving
Iranian transactions for which an ECCN has been identified as
part of the ongoing investigation, the below listed commodities
make up the top five commodities.
10-- Category 3 Electronics [includes generation 2 night
vision goggles]
10-- Category 9 Propulsion Systems, Space Vehicles and
Related Equipment [includes aircraft engines]
7--Category 2 Materials Processing [includes cryogenic
pumps]
6-- Category 0 Nuclear Materials, Facilities, and Equipment
(and Misc. Items) [includes riot shields and centrifuge]
5--Category 5 (Part 1) Telecommunications [includes
satellites]
Q.3. How many of your Iran cases and investigations involve
diversions, and through which countries?
A.3. OEE has 136 open investigations involving Iranian
transactions. Of these 136 cases, the following is a break down
of cases depicting known countries used as transshipment
points:
58--UAE
10--UK
10--Singapore
5--Malaysia
6--France
A further break out of the 13 criminal convictions and the
five cases pending sentencing reveals multiple transshipment
countries. Oftentimes these cases reveal that multiple
diversion points have been used in furtherance of the alleged
illegal exports.
4--UAE
3--UK
3--Singapore
3--Malaysia
1--France
1--Taiwan
2--Canada
1--Austria
3--Germany
1--Canada
1--Netherlands
1--Australia
1--Israel