    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

                         H.R. 1327, THE IRAN SANCTIONS

                              ENABLING ACT OF 2009

    =======================================================================

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON

                             INTERNATIONAL MONETARY

                                POLICY AND TRADE

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 12, 2009

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 111-13

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                     BARNEY FRANK, Massachusetts, Chairman

    PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
    MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
    CAROLYN B. MALONEY, New York         PETER T. KING, New York
    LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
    NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
    MELVIN L. WATT, North Carolina       RON PAUL, Texas
    GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
    BRAD SHERMAN, California             WALTER B. JONES, Jr., North
    GREGORY W. MEEKS, New York               Carolina
    DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
    MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
    RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West
    WM. LACY CLAY, Missouri                  Virginia
    CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
    JOE BACA, California                 SCOTT GARRETT, New Jersey
    STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
    BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
    DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
    AL GREEN, Texas                      TOM PRICE, Georgia
    EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
    MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
    GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
    PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
    KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
    RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
    CHARLES A. WILSON, Ohio              KEVIN McCARTHY, California
    ED PERLMUTTER, Colorado              BILL POSEY, Florida
    JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
    BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
    ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
    JACKIE SPEIER, California            LEONARD LANCE, New Jersey
    TRAVIS CHILDERS, Mississippi
    WALT MINNICK, Idaho
    JOHN ADLER, New Jersey
    MARY JO KILROY, Ohio
    STEVE DRIEHAUS, Ohio
    SUZANNE KOSMAS, Florida
    ALAN GRAYSON, Florida
    JIM HIMES, Connecticut
    GARY PETERS, Michigan
    DAN MAFFEI, New York

            Jeanne M. Roslanowick, Staff Director and Chief Counsel
            Subcommittee on International Monetary Policy and Trade

                      GREGORY W. MEEKS, New York, Chairman

    LUIS V. GUTIERREZ, Illinois          GARY G. MILLER, California
    MAXINE WATERS, California            EDWARD R. ROYCE, California
    MELVIN L. WATT, North Carolina       RON PAUL, Texas
    GWEN MOORE, Wisconsin                DONALD A. MANZULLO, Illinois
    ANDRE CARSON, Indiana                MICHELE BACHMANN, Minnesota
    STEVE DRIEHAUS, Ohio                 ERIK PAULSEN, Minnesota
    GARY PETERS, Michigan
    DAN MAFFEI, New York
                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        March 12, 2009...............................................     1
    Appendix:
        March 12, 2009...............................................    35

                                   WITNESSES
                            Thursday, March 12, 2009

    Deutch, Hon. Ted, a State Senator from the State of Florida......     8
    Isaacson, Jason F., Director, Government and International
      Affairs, American Jewish Committee (AJC).......................    13
    Kittrie, Orde F., Esq., Professor of Law, Sandra Day O'Connor
      College of Law, Arizona State University.......................    16
    Parsi, Dr. Trita, President, National Iranian-American Council...    10

                                    APPENDIX

    Prepared statements:
        Peters, Hon. Gary C..........................................    36
        Deutch, Hon. Ted.............................................    37
        Isaacson, Jason F............................................    65
        Kittrie, Orde F..............................................    70
        Parsi, Dr. Trita.............................................    83

                         H.R. 1327, THE IRAN SANCTIONS

                              ENABLING ACT OF 2009

                                  ----------

                            Thursday, March 12, 2009

                 U.S. House of Representatives,
                          Subcommittee on International
                             Monetary Policy and Trade,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 10:07 a.m., in
    Rayburn House Office Building, Hon. Gregory Meeks [chairman of
    the subcommittee] presiding.
        Members present: Representatives Meeks, Waters, Moore of
    Wisconsin, Driehaus; Royce and Paulsen.
        Also present: Representatives Ellison, Sherman, and Klein.
        Chairman Meeks. Good morning. Let me welcome everyone to
    our first International Monetary Policy and Trade Subcommittee
    hearing, and I want to welcome you to this important hearing on
    the Iran Sanctions Enabling Act of 2009. This bill in many ways
    resembles similar bills introduced in the House and the Senate
    in the last Congress. It was important then and it is important
    now.
        I am just going to start jumping into it with my opening
    statement, and then we are going to move on because I know that
    we have various competing hearings that are taking place, and
    members want to have opening statements, which we will do, and
    ask questions.
        I believe in a sticks-and-carrots approach when seeking a
    favorable outcome to foreign policy. While this bill is clearly
    about the sticks, I want to state for the record that there are
    important incentives that should be a part of our efforts to
    stop nuclear weapons development in Iran. Some of these
    incentives are outlined in the most recent U.N. Security
    Council resolution that bans certain aspects of trade with
    Iran.
        As in previous versions of this bill, we are not mandating
    divestment with this bill, but instead we are making it
    feasible for States to divest, and most importantly, for
    citizens to exercise the power of the purse through their
    investment decisions. Specifically, this legislation makes it
    clear that it is the policy of the United States to support
    State and local governments to divest from or prohibit the
    investment of assets they control and persons who have
    investments of more than $20 million in Iran's energy sector.
        These are uncertain times for both of our countries. Today
    we find ourselves in a relationship with Iran that is based on
    a long history of hostility and lack of trust. Clearly Iranian
    citizens and their neighbors in the region are waiting to see
    the change president Barack Obama has pledged.
        In fact, we have already seen significant change. The Obama
    Administration has expressed noticeably increased openness to
    diplomatic relations with Iran. This is in striking contrast to
    previous Administrations. From my perspective, we have an
    enormous opportunity to forge a new path forward in our
    relationship with Iran.
        We should, of course, proceed with caution, and we are.
    Iran is still not fulfilling its international obligations, and
    we must act accordingly. Recently, U.S. ambassador to the U.N.,
    Susan Rice, acknowledged this point and outlined several
    concerns. She pointed out the findings in a recent U.N. report
    that Iran's nuclear program has military dimensions and that
    they are troubling.
        In addition, she stated to a U.N. Security Council
    subcommittee that deals with enforcement of sanctions against
    Iran, ``Iran also still refuses to respond constructively to
    IAEA questions about its past work to develop a nuclear weapons
    capability.'' The United States urges its fellow Security
    Council members not only to take note of the IAEA's serious
    findings, but also to vigorously support the IAEA in its
    continuing investigations of these critical matters.
        While much discussion about the United States and Iran
    focuses on our differences, we should not close our eyes to
    common interests. Both countries share the goal of bringing
    security and stability to Iraq and Afghanistan and combating
    the terrorism that stems from the extreme version of Islam.
    Just as the United States recently reached out to Iran
    regarding Afghanistan, I believe it is possible for both sides
    to build on common interests in these areas.
        Many of us in Washington have called for direct engagement
    with Iran over its efforts to acquire nuclear weapons, but
    direct dialogue alone will likely prove insufficient. Indeed,
    the legislation at hand should be a part of a comprehensive
    diplomatic strategy to head off security threats while also
    engaging the Iranian people to forge a new chapter in our
    bilateral relationship.
        The Iran Sanctions Enabling Act of 2009 would place
    economic pressure on the Iranian regime with the goal of
    halting Iran's nuclear program. This divestment bill is
    designed to dissuade foreign companies from investing in energy
    operations whose profits could be used to threaten the United
    States and our allies. Without mandating that they do so, this
    legislation recognizes the right and maximizes the ability of
    Americans to speak out through their investment decisions about
    their opposition to many aspects of Iranian activities.
        And as I have watched this situation with Iran with great
    interest in the past few years, along the way, I have developed
    a tremendous appreciation for the work of the National Iranian-
    American Council. I am pleased that we will hear the
    perspective of NIAC's president, Trita Parsi. This group is on
    the front lines providing the infrastructure for building
    bridges among Iranian-American organizations and the peoples of
    American and Iran.
        I also appreciate the testimony of Mr. Orde Kittrie, who is
    a distinguished expert on legal matters related to non-
    proliferation, Mr. Jason Isaacson, a leading advocate on U.S.-
    Israel relations and the search for Middle East peace, and Mr.
    Ted Deutch, a Florida State Senator who spearheaded legislation
    that made Florida the first State to force its pension fund to
    divest from companies doing business in Iran's energy sector.
        I look forward to hearing from these witnesses, and I now
    turn to Mr. Royce.
        Mr. Royce. Thank you, Mr. Chairman.
        Not withstanding recent statements made by the
    Administration's Director of National Intelligence, I have
    little doubt that Iran is pursuing nuclear weapons capability.
    Last month, the IAEA reported that Iran now has produced enough
    low-enriched uranium that a further enriched weapons grade
    level, they could produce a nuclear weapon.
        Enrichment capability, the key aspect of a nuclear weapons
    program, frankly is being mastered by the Iranian regime, and
    not so long ago I remember talking about 164 centrifuges in
    Iran. Today, we are talking about numbers that are measured in
    the thousands every time we have an update.
        Iran continues to deny IAEA inspectors access to key
    nuclear facilities, making an accurate assessment of Iran's
    nuclear program impossible. What is certain, though, is that
    regional security--and frankly, our security--will be seriously
    harmed if Iran develops nuclear weapons.
        While Iran has raced forward, international efforts to halt
    the program have been lackluster. The bungled National
    Intelligence Estimate from a year-and-a-half ago made that
    effort even more difficult. Russia and China have consistently
    blocked tough sanctions against Iran. Some believe President
    Obama's popularity will make it easier to line up international
    sanctions, but given the global downturn, unfortunately,
    countries that were previously reluctant to pass up on business
    opportunities in Iran will be even more so reluctant today, I'm
    afraid.
        The United States has taken some innovative actions. Under
    the previous Administration, the Treasury persuaded many
    foreign banks not to provide financing for exports to Iran or
    to process its dollar transactions, and I think this was one
    thing that was pretty effective. That effort should be
    continued while targeting Iran's central bank and forging an
    effort to deny refined petroleum products to Iran. With Iran
    forced to import more than 40 percent of its gasoline, this, I
    think, could have a real impact.
        The purpose of the legislation we are discussing today is
    to permit State and local governments, educational
    institutions, and private fund managers to divest from entities
    that invest $20 million or more in Iran's energy sector. In
    addition, this bill would provide a safe harbor to any
    investment company that divests from or avoids investing in
    certain entities.
        This legislation would give support to efforts happening at
    the local level, including in my home State of California. It
    is good policy, and frankly it is in the interest of our non-
    proliferation goal.
        The 1980's era divestment campaign against the apartheid
    regime in South Africa is a model. Of course, that regime was
    universally abhorred and the financial markets were not under
    the type of stress they are today. For far too many, business
    with Iran is okay by them, and that is why I think this
    legislation is important.
        One thing is certain. Time is not on our side. There will
    be no single solution, but a need to levy as much pressure as
    possible and leverage from every conceivable avenue, and this
    is something that is going to add to that approach.
        And I thank you again for holding this hearing, Mr.
    Chairman.
        Chairman Meeks. I now recognize the gentlelady from
    California, Ms. Waters, for 3 minutes.
        Ms. Waters. Thank you, Mr. Chairman.
        First, I would like to congratulate you on your
    chairmanship and to commend you for choosing this subject
    matter as your first legislation to hear. This is important
    legislation and I certainly think that this committee can play
    an important role in creating the public policy that deals with
    Iran and help to provide some pressure on the Iranian
    government while we are also moving toward some diplomatic
    efforts based on this Administration's initiation of diplomacy.
        I would like to just follow my colleague from California by
    saying that State divestment does work. I was the author in the
    State of California of the divestment legislation that divested
    our pension funds from businesses that were doing business in
    South Africa. And I dare say that of all the sanctions we have
    imposed on Iran over the past 15 years, this one I think stands
    to really exert economic pressure in ways that they have not
    felt before.
        I believe this bill will cause, allow, or support States
    that come up with divestment public policy. Disallowing
    investments in the energy sector of $20 million or more is
    extremely powerful, and so without another word, I support this
    and I think this is the right thing to do.
        We have, again, been attempting to apply economic
    sanctions, and while we have been doing this, they have
    continued to develop nuclear capability. I think given the
    state of their economy at this time, which is in terrible
    shambles, that this will further cause them to have to think
    about whether or not they are going to completely disable their
    entire economic sector or whether or not they are willing to
    begin to talk about how they are going to cease and desist from
    terrorist activities.
        So I thank you for this hearing and I yield back my time.
        Chairman Meeks. Thank you. And as the gentlelady said, this
    is my first hearing as chair, and already I realized one thing
    that I should have done in the beginning was to ask that,
    without objection, all members' opening statements be made a
    part of the record.
        Mr. Royce. I object.
        [Laughter]
        Mr. Royce. I withdraw my objection.
        Ms. Waters. You can do it at any time, Mr. Chairman.
        Chairman Meeks. I now recognize Mr. Paulsen for 3 minutes.
        Mr. Paulsen. Thank you, Mr. Chairman, for holding this
    important subcommittee hearing on proposed legislation that
    would help increase the economic pressure on the Iranian
    government.
        Mr. Chairman, I believe action on this issue cannot come
    soon enough. Last month, the Institute for Science and
    International Security reported that while Iran does not yet
    have a nuclear weapon, it does have enough low-enriched uranium
    for a single nuclear weapon, and clearly the Iranians are
    making drastic improvements for their nuclear program. This
    could further threaten the stability of an already volatile
    region.
        A new Administration is in office and reevaluating the
    Nation's policy, particularly the U.S.-Iran relationship. This
    is going to be one of the biggest challenges the President
    faces. I look forward to hearing from Administration officials
    down the road on how they plan to deal with the Iran issue and
    how Congress can play a key role in helping develop that
    strategy.
        I believe we must have as many tools as possible at our
    disposal for the United States. I also believe we must work
    with our allies in the region to have any effect in bringing
    about regime change.
        So the subcommittee hearing today will consider legislation
    that deals with an issue not typically the focus of this
    committee, international relations and supplementing sanctions,
    but H.R. 1327 as introduced by Chairman Frank last week would
    permit State governments, local governments, and educational
    institutions to alter the way they approach investments related
    to Iran's energy sector.
        In addition, the legislation would extend to private actors
    the ability to consider the U.S.-Iran relationship in their
    investment calculus by providing safe harbor to registered
    investment advisors who divest or elect not to invest in
    securities of companies that engage in investment activities in
    Iran as outlined in the Act.
        So I believe this legislation is a very positive step in
    the right direction. I am pleased to see the committee take
    such a strong interest in this issue under your leadership, Mr.
    Chairman. It is my hope that when the time is right, we can
    have another hearing and another opportunity to hear from
    Administration officials as well as their economic plans
    dealing with Iran going forward.
        So thanks for bringing such a distinguished panel forward.
    I look forward to hearing their views, and I yield back.
        Chairman Meeks. I now call on the gentleman from
    California, who is not on this subcommittee, but he has worked
    very hard on this issue for a long period of time, and he is on
    both the Financial Services and the Foreign Affairs Committees.
    Mr. Sherman.
        Mr. Sherman. I thank the Chair for letting me participate
    in these hearings.
        Along with Chairman Frank, Mr. Berman, and Chairman Meeks,
    I am an original co-sponsor of a bill, as I was in the 110th
    Congress. I think we owe a special debt of gratitude to the
    mullahs who run Iran whose corruption and mismanagement have
    made that country vulnerable to economic pressure in spite of
    the fact that they benefitted from the huge windfall when oil
    was selling at $150 a barrel.
        First, a bit of legislative history. This bill in fact
    passed the House twice last Congress, once as H.R. 2347, the
    Iran Sanctions Enabling Act, on July 31, 2007, and again as
    part of a larger Iran sanctions package, the Comprehensive Iran
    Sanctions Accountability and Divestment Act of 2008, which
    passed the House on September 26, 2008.
        The first time the bill passed, it was 408 to 6; the second
    time it passed, it was by voice vote. It was not terribly
    controversial in the Senate by itself, but due to delay, never
    passed the Senate.
        The companion legislation was introduced by Senator Obama.
    He has supported this concept consistently, as his policy has
    consistently been one of both sanctions and engagement, and he
    continues to support this legislation. It is unfortunate that
    even after both Senate leaderships, Democrat and Republican,
    approved this bill as part of a group of amendments to the
    defense bill, there were partisan disagreements on totally
    unrelated issues, and this bill did not become law last year.
        I am quite hopeful that it will become law this year. This
    bill will cease to operate, as it should, when Iran changes its
    policies with regard to nuclear weapons and support for
    terrorism.
        This bill, H.R. 1327, will simply allow States and
    municipalities to enact Iran divestment legislation and would
    provide protection to asset managers covered by the Investment
    Company Act from suits brought on the rather stretched theory
    that they have a fiduciary duty to invest even in firms that
    prop up the Iranian regime.
        This bill specifies that they are free to divest in those
    companies, mostly international energy companies, that invest
    more than $20 million in the Iran oil sector. This year's
    version of the bill would also provide for allowing for
    divestment for those who are involved in shipping for Iran's
    energy sector as well as companies that provide products and
    services related to pipeline construction.
        This bill is purely permissive. It is about the freedom to
    make investment decisions. It does not require any State, city,
    town, or an asset manager to do anything at all. It simply
    allows them to be able to employ their consciences if they
    chose, as they chose, without fear of a frivolous lawsuit.
        And in fact, if there are some misguided asset managers who
    choose to deliberately buy stock in foreign oil companies that
    are investing in Iran, there is nothing in this bill that
    prevents them from doing so.
        Now it is true that the Iran oil sector is probably the
    source of the country's wealth, but it is also an Achilles
    heel. Iran cannot sustain current levels of oil production
    without significant investment, chiefly international
    investment.
        With us today is my friend Senator Ted Deutch, who authored
    the first law in the country, Florida's divestment law. Welcome
    back to Washington. I am proud to say that Florida was first--
    California, I believe, was second in passing similar laws--and
    we want to protect both States and others from frivolous
    lawsuits.
        I want to urge my colleagues to consider two provisions for
    addition to the bill as it goes forward. First, I think we need
    a grandfather clause to ensure that we do not unintentionally
    imperil State enactments that don't follow precisely the
    criteria of Section 3C of the bill if they were adopted before
    we adopted the Federal law.
        The dozen States that have enacted divestment policies so
    far use criteria that are perhaps a bit different from this
    bill. They may slightly define differently which business
    activities in Iran justify divestment.
        The State enactments are not identical to what we have in
    the Federal bill, but we can hardly blame the States for not
    following the Federal prescription. After all, they acted
    first, and we cannot blame Senator Deutch for not complying in
    2007 to the standards that we plan to adopt in 2009.
        We should make sure that our bill does not invalidate,
    weaken, imperil, or fail to protect State statutes that have
    already been enacted.
        Second, another weakness of the Iranian economy has come
    into focus just in the last 2 years, and that is the fact that
    Iran has to import more than 50 percent of its refined
    petroleum products, gasoline. It has oil, but it doesn't have
    sufficient refinery capacity. The companies that provide this
    gasoline as well as those that might help build domestic
    refining capacity in Iran should be discouraged from doing so,
    so we should consider adding a provision to this bill that
    includes refined petroleum and refining equipment as triggers
    for allowing divestiture.
        I urge my colleagues to support this bill. It has passed
    the House twice, it is consistent with the leadership position
    on both sides of the aisle in the Senate, and it is fully in
    accord with President Obama's policies.
        Thank you.
        Chairman Meeks. Representative Ellison wanted to make an
    opening statement, but he is not here, so I guess what we will
    do is we will start with the introductions and we will allow
    Mr. Ellison to make an opening statement at a later time. I see
    his stuff is still here.
        With that, I am delighted to have a member of the committee
    who is here, and he came for a special request in doing this
    hearing, and he wanted to make sure that he had a chance to
    introduce one of our panelists. We know that when we have
    someone from our home State come in, especially one whom we
    have worked with, it becomes very important.
        So for purposes of an introduction, I yield to my good
    friend Mr. Klein from Florida.
        Mr. Klein. Thank you, Mr. Chairman, and thank you Mr.
    Sherman, for bringing this piece of legislation forward. I also
    thank the committee for considering it.
        As a member of both the Financial Services Committee and
    the Foreign Affairs Committee, I think all of us understand the
    importance of this piece of legislation. This is one that I
    think we as a country understand the importance of working with
    other countries, but certainly setting our own precedent and
    our own position of stopping economic dealings as much as we
    can with Iran, and certainly giving the ability for our local
    governments, State governments, and certainly any kind of other
    activity to be protected if the choices are made to not make
    the investments which continue to do business with Iran.
        This is a special privilege for me because I am here to
    introduce a good friend, Senator Ted Deutch, who is a resident
    of the same community I come from. He serves in the Florida
    State senate. He represents parts of Palm Beach and Broward
    counties, which is South Florida, and it was his initiative and
    his work in the community and throughout the State of Florida
    that literally brought this issue along to the point where the
    State of Florida became the first State to allow pension boards
    to divest from companies that do business in Iran and Sudan
    without any liability risk.
        The legislation comes before us after other States have
    followed Senator Deutch's and the State of Florida's lead, but
    what we now believe is important, as we have said, is a
    national standard. And Senator Deutch's example, in the
    information he will provide you today, will help this committee
    and the public understand the importance of why the State of
    Florida did this, and why it is important for us to consider
    this as national legislation.
        So welcome, Senator Deutch. I will turn it back over to the
    chairman.
        Chairman Meeks. The Senator is now recognized to give his
    statement for 5 minutes.

    STATEMENT OF THE HONORABLE TED DEUTCH, A STATE SENATOR FROM THE
                            STATE OF FLORIDA

        Mr. Deutch. Thank you.
        First, to Congressman Klein, it is an honor--Congressman,
    you failed to point out that I have the good fortune to have
    succeeded you in District 30 of the Florida State senate. It is
    an honor to be there. I bring greetings from our colleagues in
    Tallahassee who continue to hold you in high regard both for
    the leadership you provided in Florida in the State senate and
    the leadership you continue to provide in Congress. Thank you
    very much.
        Mr. Chairman and members of the committee, thank you for
    the opportunity to speak today in support of H.R. 1327, the
    Iran Sanctions Enabling Act of 2009.
        I am grateful for the efforts of the bill's sponsors to
    enable investors to make investment decisions that are
    consistent with the principles and convictions of the American
    people. This good legislation will also permit every State and
    local government to take action to help prevent Iran's
    development of nuclear weapons just as the Florida legislature
    did with its passage of the Protecting Florida's Investments
    Act in 2007.
        Before asking our pension board in Florida to divest from
    Iran or from Sudan, which our legislation also required, we
    asked the very citizens whose dollars were at risk. We spoke to
    our public employees, our teachers, our firefighters, and our
    police. And when our citizens learned that their retirement
    dollars were helping to fund a genocidal regime in Sudan and an
    Iranian government whose leader has spoken openly of genocide
    should he acquire nuclear weapons, they were outraged. They
    demanded that we take action and offered significant support as
    we moved ahead.
        But others were not as supportive. The pension fund
    managers fought back hard. They asked that we not bother with
    morals or national security or fighting to prevent genocide.
    The pension board cared little about the investment wishes of
    its investors.
        That is where the legislature came in. Our citizens wanted
    us to act. How could the State of Florida--how can any State--
    make investments that could make its investors, their children,
    and our Nation less secure?
        H.R. 1327 specifically gives State and local governments
    the authority to divest from companies engaged in significant
    business with Iran's energy sector and identified using
    credible information available to the public.
        I suggest to the members of this committee that you look to
    the State of Florida to find such credible information. Florida
    State Board of Administration, the entity that invests on
    behalf of the Florida retirement system, is responsible for
    complying with the terms of the Protecting Florida's
    Investments Act.
        On a quarterly basis, the SBA assembles and publishes a
    list of companies that have prohibited business in Iran. Under
    our legislation, a company that invests $20 million or more in
    contributing Iran's ability to develop its petroleum resources
    will be put on the list, and the list is available on the
    internet at SBAFLA.com.
        A fundamental question that I am continually asked is,
    ``Are you doing this to make a statement or do you truly
    believe that you can impact Iran's pursuit of nuclear
    weapons?''
        The State of Florida has divested more than $1.1 billion of
    investments thus far, and the retirement system of our public
    employees no longer owns one dime of direct holdings in
    companies enabling Iran to press ahead with its pursuit of
    nuclear weapons. That is an important statement.
        But there is $3 trillion held in public pension funds. When
    State and local governments, on behalf of their citizens,
    declare that they intend to sell every share they own unless
    the companies withdraw from Iran and join the world's efforts
    to prevent a nuclear armed Iran, the companies will take
    notice. And when our actions are strengthened by the efforts of
    this Congress, divestment can and will have an impact.
        Last June, when oil traded at over $140 a barrel, we were
    told this type of economic pressure would have no impact.
    Today, with oil under $50 a barrel, economic pressure is
    exactly what is needed to cut off the flow of funds to Iran.
        Let me be clear. I believe that we have the economic power
    to stop Iran's quest for nuclear weapons. We have the economic
    power to eliminate the threat to the United States and our
    allies that a nuclear armed Iran would present. And whatever
    your political views, wherever you are on the political
    spectrum, right or left, Democrat or Republican, exercising
    this economic power is fundamentally in line with your beliefs.
        Mr. Chairman, as elected officials, we often attempt to
    explain to our constituents that it is not always possible to
    move as quickly as we may like. Sometimes it takes time to move
    new policies forward. But we simply don't have time to waste.
        This morning, there are executives sitting in corporate
    suites in the Netherlands, in the U.K., France, Russia, and
    China who are watching this debate. They know there is a
    divestment effort in this country, but they are waiting to see
    if the path is cleared for the effort to become a movement. If
    it is not, they will continue to do business as usual. But if
    this movement accelerates quickly and dramatically and major
    investors of public pension funds use the power of the purse,
    these executives and these companies will be forced to consider
    whether to proceed as they have in the past.
        In closing, I return to where I started, with the public
    employees, teachers, nurses, firefighters, police, and
    professors. Give them the option to act with conviction.
    Respect their values, for they are our values. Our public
    money, their money, should not be used to aid Iran's quest for
    nuclear weapons.
        This bill removes the hurdles that so many pension boards
    have constructed to prevent divestment. When it passes, it will
    be full speed ahead in standing up for our citizens, their
    values, and our collective efforts to prevent a nuclear armed
    Iran.
        Thank you, Mr. Chairman and members of the subcommittee,
    for giving me the opportunity to address you today, and on
    behalf of State and local government officials throughout
    America, thank you for this vitally important legislation.
        [The prepared statement of State Senator Deutch can be
    found on page 37 of the appendix.]
        Chairman Meeks. We now will hear from Mr. Trita Parsi. He
    is the founder and president of the National Iranian-American
    Council and an expert on U.S.-Iranian relations, Iranian
    politics, and the balance of power in the Middle East.
        He is the author of ``Treacherous Alliance: The Secret
    Dealings of Iran, Israel, and the United States,'' a book that
    I have read and found to be very informative. In that book, he
    conducted more than 130 interviews with senior Israeli,
    Iranian, and American decisionmakers. ``Treacherous Alliance''
    is the silver medal winner of the 2008 Arthur Ross Book Award
    from the Council of Foreign Relations.
        Mr. Parsi has followed Middle East politics through work in
    the field and extensive experience from Capitol Hill and the
    United Nations. He is frequently consulted by Western and Asian
    governments on foreign policy matters.
        He received his Ph.D. from Johns Hopkins University School
    of Advanced International Studies. In addition to that, he
    holds a Masters degree in international relations from Uppsala
    University and a Masters degree in economics from the Stockholm
    School of Economics, and he has served as adjunct professor of
    international relations at Johns Hopkins University.
        He is currently an adjunct scholar at the Middle East
    Institute.
        Mr. Parsi, we welcome you.

       STATEMENT OF DR. TRITA PARSI, PRESIDENT, NATIONAL IRANIAN-
                            AMERICAN COUNCIL

        Mr. Parsi. Thank you so much, Mr. Chairman, and let me join
    in congratulating you for your chairmanship.
        Mr. Chairman and Congressman Paulsen, thank you so much for
    allowing me to come before you to discuss our policies towards
    Iran, particularly the efforts to change Iranian policy
    behavior through instruments of economic pressure such as
    divestment.
        Before I proceed, let me just see if I can add this joint
    statement, expert statement, to the record. It is an effort by
    the American Foreign Policy Project with some of the foremost
    experts on U.S.-Iran relations, chaired by ambassador Thomas
    Pickering and ambassador James Dobbins, giving, I think, very,
    very healthy advice on how to proceed in dealing with the
    government in Iran.
        As a representative of the largest grassroots organization
    representing Americans of Iranian descent, the National
    Iranian-American Council, I want to emphasize that no group of
    Americans have suffered more from the policies of the Iranian
    government than our community. Whether they were victims of
    persecution, arbitrary arrest or detention, imprisonment or
    killings of family members, the vast majority of Iranian
    Americans have made America their home precisely because they
    have differences with the Iranian government.
        In recent years, we have actually seen what seems to be a
    specific targeting of Iranian Americans by the government of
    Iran. Just a few weeks ago, Roxana Saberi, an Iranian-American
    journalist with NPR and a former Miss America finalist, was
    arrested while working in Tehran. Other cases exist, and in all
    of them, the human rights of these Iranian-Americans were
    violated.
        Yet, at the same time, no other group of Americans has
    visited Iran in the numbers that Iranian-Americans have, and
    with each visit, we bear witness to the effects of economic
    sanctions on the Iranian economy, on the Iranian people, and
    much less so, on the Iranian government. Though mostly
    anecdotal, their observations are instrumental into
    understanding why U.S. sanctions policies have failed to reach
    their objectives while further sanctions will likely make
    little difference in how the dynamics of Iranian society and
    Iran's political system can be better utilized to bring about
    the desired change in Iranian behavior.
        My prepared remarks today will focus on how America's
    objectives with Iran can best be achieved, ensuring a peaceful
    Iran that contributes to region stability, that does not
    develop a nuclear bomb, and that ceases to support militant
    organizations.
        There is no doubt that U.S. sanctions, including recent
    financial sanctions, have hurt the Iranian economy. Investments
    have diminished, risk assessments have increased, and major oil
    contracts have been canceled or put on hold.
        However, with all the economic pain the sanctions have
    imposed on the Iranian economy, there has not been a single
    instance in which that pain has translated into a desirable
    change in Iranian policy. As a result, we stand here today in
    this hearing, more than 15 years after the first round of
    comprehensive U.S. sanctions were imposed, faced with a more
    powerful and a more problematic Iran than ever before.
        What is worse, the sanctions and economic pressure have
    actually contributed to several unhelpful developments inside
    Iran. I will only mention a few of them here, and I will go
    into greater detail in the written testimony.
        First, the Iranian people, who tend to have very positive
    views and admiration for America, for American values, and for
    the American people, have suffered the brunt of the economic
    pressures.
        Second, the Iranian government's success in circumventing
    sanctions has made Iran less sensitive to new sanctions. There
    is a diminishing return on additional sanctions. In December
    2004, President George Bush recognized this when he said, ``We
    have sanctioned ourselves out of influence with Iran.
    Paradoxically, the large number of sanctions that we have had
    has reduced our leverage with Iran rather than increased it.''
        Finally, economic sanctions have undermined Iran's pro-
    democracy movement by weakening Iran's civil society and by
    hampering the emergence of a wealthy middle class, key
    components of any indigenous process of democratization. This
    will have severe implications if Iran continues to move towards
    a nuclear capability, which as we have seen in the last couple
    of years, it has.
        But don't we need more leverage over Iran in any future
    negotiations and don't additional sanctions or instruments of
    economic pressure such as divestment provide that, many would
    ask. My answer to both of those questions would be no.
        The reality is that Washington actually has significant
    leverage with Tehran if willingness exists to trade away
    existing sanctions for extensive changes in Iranian policies.
    Tehran is aware that its key objective of political and
    economic rehabilitation in the region, in which Iran would be
    included in the region's security architecture and granted a
    role commensurate with its political weight, cannot be achieved
    unless it mends fences with Washington.
        As such, Washington is the gatekeeper for Iran's political
    future in the region--that is leverage--if, again, there is a
    willingness to provide Iran with a seat at the table in return
    for those desired changes in policies. So it is not the threat
    or imposition of new sanctions that is likely to achieve the
    desired changes in Iranian behavior that I think we all agree
    with, but rather the promise of lifting existing ones.
        But this leverage can only be achieved and utilized in the
    context of a negotiation, and that is why President Obama has
    emphasized repeatedly his desire for diplomacy with Tehran.
        And this is why I personally believe that the timing of the
    proposed legislation before us today may be of concern.
    Washington and Tehran are currently in a phrase in which they
    are finding themselves both expressing a desire for diplomacy,
    but mutual distrust is making it difficult for them to find
    their way to the negotiating table.
        In this atmosphere of mistrust, neither side has much room
    for error. As difficult as the process of negotiations
    certainly will be, the process of reaching the negotiating
    table may actually be even more problematic and sensitive. The
    slightest misstep, whether a misguided comment or actions that
    are interpreted as hostile from either side, may prevent the
    two parties from reaching the negotiating table. I think the
    Obama Administration has recognized this and spent its first
    week seeking to create a more positive atmosphere, and the
    Administration should be commended for its efforts in this
    arena.
        These efforts, however, can be undermined if Congress
    passes additional punitive economic measures before diplomacy
    has yet even been given a chance to proceed, to begin, and to
    succeed. Such a step would only reduce the prospects of
    diplomacy by further poisoning the atmosphere, which in turn
    lessens America's ability to tap into its reservoir of leverage
    with Iran in the first place.
        After a decade-and-a-half of failed economic pressure and 3
    decades of hostility, it is not sanctions or divestment that
    deserve another chance. It is diplomacy and the opportunity to
    use the leverage that existing sanctions provide in the context
    of a negotiation that should be given the space and time to
    succeed.
        Thank you so much, Mr. Chairman.
        [The prepared statement of Dr. Parsi can be found on page
    83 of the appendix.]
        Chairman Meeks. Thank you.
        Now we will hear from Mr. Jason Isaacson, who is and has
    been the director of the American Jewish Committee's Office of
    Government and International Affairs in Washington, D.C., since
    July 1991.
        Long involved in government, politics, and journalism at
    the local levels, Mr. Isaacson has studied, written, and worked
    as an advocate on U.S.-Israel relations, the search for Middle
    East peace, and a range of domestic and international issues.
        In his current post, Mr. Isaacson is responsible for
    maintaining relations between the AJC and the White House,
    Congress, Federal agencies, foreign governments and their
    embassies in Washington, political parties, and other civic,
    religious, and human relations groups in Washington. He
    oversees AJC's international offices and the agency's efforts
    to secure the welfare and security of Jews around the world. He
    also serves as director of AJC's Pacific Rim Institute.
        Before joining AJC, Mr. Isaacson was the Chief of Staff to
    Senator Christopher J. Dodd of Connecticut and was responsible
    for managing the legislative and political agendas of a Senator
    active in foreign policy, particular regarding the Middle East,
    Eastern Europe, and Latin America, and domestic affairs
    focusing on children's issues and securities market reform.
        Welcome, Mr. Isaacson.

      STATEMENT OF JASON F. ISAACSON, DIRECTOR OF GOVERNMENT AND
         INTERNATIONAL AFFAIRS, AMERICAN JEWISH COMMITTEE (AJC)

        Mr. Isaacson. Thank you very much, Mr. Chairman.
        Mr. Chairman, members of the subcommittee, I am honored to
    testify on behalf of the American Jewish Committee in support
    of the Iran Sanctions Enabling Act. AJC is grateful to Chairman
    Frank and to you, Chairman Meeks, and to the other sponsors for
    developing early in the new Congress this well-crafted tool to
    address the grave threats posed by Iran's regime.
        My testimony will highlight two key points. First, stopping
    Iran's nuclear program is a matter of the greatest urgency
    because Iran is close to achieving a nuclear capability that
    would alter the world as we know it in terrible ways. Second,
    this legislation, clarifying the authority of State and local
    governments and investment managers to divest from entities
    that invest heavily in Iran's energy sector, can significantly
    assist the overall effort to halt Iran's nuclear program.
        Iran is on the doorstep of nuclear arms capability. It has
    already crossed a significant threshold, amassing enough
    enriched uranium to make, with further enrichment, its first
    nuclear bomb. It is well-positioned to rapidly enrich to bomb
    grade without IAEA inspectors realizing it until it is too
    late. We have breathtakingly little time.
        Some observers see a nuclear Iran primarily as an
    existential peril to Israel, a country it repeatedly threatens
    and attacks by proxy. I do not want to minimize that very real
    danger, but I want to highlight that a nuclear Iran will pose
    an even broader threat throughout the Arab gulf, to the entire
    region, and indeed, to global peace and security.
        I will give a few examples of what could lie ahead. A
    nuclear Iran could dominate the world's most abundant sources
    of energy, the gulf and the Caspian basin. Challenged, Iran
    could attempt to close the Strait of Hormuz, or it might seek
    to realize its expansionist vision by taking territory from one
    or more gulf States.
        Over the last 15 years, AJC has paid periodic visits to the
    gulf, conferring with U.S. allies in the struggle against
    terrorism and extremism and the quest for Middle East peace. We
    regularly hear on these visits the concerns of gulf leaders
    about Iran's assertion of regional power and its attempts to
    radicalize their societies.
        It isn't only Israel that is threatened. The Palestinian
    Authority, Egypt, Jordan, and others are menaced by Iran's
    presence in the Palestinian territories and Lebanon through its
    support of Hezbollah and Hamas. From North Africa to the Levant
    to the gulf, pragmatic governments and civil society leaders
    recognize the danger of a further empowered Iran. Many look to
    the United States for assurance that this nightmare can be
    averted. Unless we act boldly, these governments may feel
    compelled to accommodate Iran, potentially destabilizing
    nuclear programs of their own, or both.
        The shadow cast by a nuclear capable Iran, which my
    colleague Emanuele Ottolenghi outlines in his just-published
    book, ``Under a Mushroom Cloud: Europe, Irna and the Bomb''--
    and there are copies on the table by our side--clearly pales in
    comparison with the dangers of Iran actually launching a
    nuclear weapon or transferring a nuclear device to a terrorist
    proxy.
        A dirty bomb in the center of Chicago, London, or Tel Aviv
    is horrifyingly in the realm of possibility. If Iran's leaders
    wish to make good on their oft-repeated promise to wipe Israel
    off the map, we could not rely on deterrence to dissuade them,
    not in a country whose rulers have demonstrated their
    willingness to sacrifice millions of their citizens to achieve
    their vision.
        What can be done to stop Iran's nuclear drive? First, our
    government should make it abundantly clear that we will not
    allow a nuclear Iran and that the U.N. Security Council demand
    that Iran verifiably suspend enrichment is not negotiable.
    Second, we should offer Iran incentives, as E.U. and U.S.
    negotiators have previously tabled, for ending its nuclear
    enrichment and meetings its non-proliferation obligations.
    Third, we should make it unbearably costly for Iran's regime to
    continue its defiance, even as we make it clear to Iran's
    people, against whom we hold no grief, that the choice lies
    with their regime.
        If our Administration pursues engagement with Iran,
    simultaneously intensifying sanctions is critical. Only tough
    sanctions with firm goal posts and deadlines would prevent
    Iran's rulers from seeing our overtures as a sign of weakness,
    motivate them to be forthcoming, and remove the cover of drawn
    out negotiations while they complete their quest for nuclear
    arms.
        Additional U.S. sanctions also are important to discourage
    large new investments and contracts that help sustain Iran's
    regime. This is where the Iran Sanctions Enabling Act will make
    a significant contribution.
        Iran's strained economy is the regime's Achilles heal, as
    Congressman Sherman noted previously, and provides our most
    effective leverage, especially now, with oil prices sharply
    depressed. Billions of dollars of U.S. public employee pension
    funds and other public funds are invested in the foreign
    corporations that most heavily engage in Iran's oil sector. A
    movement of concerned citizens seeks to curb investment of
    public funds in these companies.
        Divestment mandates already on the books in 10 States and
    multiple localities affect more than half-a-trillion dollars in
    assets, a sum that is growing as grassroots concern spreads.
    H.R. 1327 will endorse and accelerate that trend, adding to the
    economic pressure on the regime.
        The American Jewish Committee strongly supports this
    legislation and wishes to express our appreciation for the
    opportunity to testify before the subcommittee on this critical
    matter. I would also be remiss if I did not thank my AJC
    colleague Deborah Fuller for her exceptional work on this
    issue.
        And thank you, Mr. Chairman. I would ask that my full
    testimony be entered in the committee record.
        [The prepared statement of Mr. Isaacson can be found on
    page 65 of the appendix.]
        Chairman Meeks. And in fact, the full testimony of both
    Senator Deutch and Mr. Parsi also will be, without objection,
    part of the record.
        Last but far from least, we have with us Mr. Orde Felix
    Kittrie, who is a professor of law at Arizona State University
    and a visiting scholar at the Johns Hopkins University School
    of Advanced International Studies.
        Mr. Kittrie also serves as chair of the non-proliferation
    arms control and disarmament committee of the American branch
    of the International Law Association and chair of the non-
    proliferation and arms control and disarmament committee of the
    American Society of International Law.
        Professor Kittrie is a leading expert on legal issues
    relating to nuclear non-proliferation. In April of 2008,
    Professor Kittrie was appointed to a National Academies of
    Science committee created by Congress to issue a report in time
    for the next Administration assessing and making
    recommendations to improve current U.S. Government programs to
    prevent the proliferation of nuclear, chemical, and biological
    weapons. Also in 2008, Professor Kittrie testified before a
    United States Finance Committee hearing on S. 970, the Iran
    Counter-Proliferation Act.
        Prior to 2004, Professor Kittrie worked for 11 years at the
    U.S. Department of State, and for 3 years he served as an
    attorney specializing in trade controls, in which capacity he
    was the principal drafter of U.N. Security Council resolutions,
    U.S. Executive orders, and U.S. regulations imposing or
    implementing embargoes on terrorism and supporting other outlaw
    regimes.
        Professor Kittrie is a proud Mexican American and is active
    in the Latino community, and a speaker about crime and
    immigration issues.
        He earned his undergraduate degree from Yale University and
    his J.D. from the University of Michigan.
        Welcome, professor.

     STATEMENT OF ORDE F. KITTRIE, ESQ., PROFESSOR OF LAW, SANDRA
         DAY O'CONNOR COLLEGE OF LAW, ARIZONA STATE UNIVERSITY

        Mr. Kittrie. Thank you, Chairman Meeks, and distinguished
    members of the committee and the subcommittee. I appreciate the
    opportunity to speak with you today.
        If President Obama is to persuade Iran to negotiate away
    its illegal nuclear program, he will first need more leverage
    than what the Bush Administration has left him. The Iranian
    regime continues to insist there are no incentives--no
    incentives--in exchange for which it would halt or even
    meaningfully limit its nuclear program. So incentives are going
    to be a necessary part of any deal with Iran, but are
    apparently not sufficient to convince Iran to halt its nuclear
    program.
        The IAEA, followed by Joint Chief Chairman Mullen, recently
    announced that Iran has sufficient nuclear fuel to enrich into
    a bomb, and Iran last month launched a satellite into orbit. We
    are at 5 minutes to midnight when it comes to stopping Iran
    from acquiring the capacity to launch a nuclear-armed missile.
    The time is now to change Iran's cost-benefit analysis.
        During the campaign, then-Senator Obama stated that,
    ``Tough-minded diplomacy would include real leverage through
    stronger sanctions on Iran.'' With H.R. 1327, you can take a
    first step towards assisting President Obama's diplomacy by
    increasing U.S. leverage over Iran. Congresswoman Waters
    described the powerful success of sanctions against apartheid.
        The international community has learned in recent years
    that strong sanctions can also stop illicit nuclear weapons
    programs. For example, strong sanctions induced Libya's
    government to both forsake terrorism and completely and
    verifiably relinquish its nuclear, chemical, and biological
    weapons programs. As a result, Libya allowed a team of British
    and American government experts to enter Libya and completely
    dismantle Libya's WMD infrastructure by April 2004. That is
    what I hope happens with Iran.
        However, the sanctions imposed on Iran by the international
    community thus far are much weaker than the sanctions which
    stopped the Libyan nuclear weapons program. It is no surprise
    that sanctions have yet to have an impact on the Iranian regime
    and its nuclear program.
        In fact, the Iran sanctions are thus far weaker than the
    sanctions imposed by the Security Council on South Africa in
    response to apartheid, weaker than those imposed on Liberia and
    Cote D'Ivoire during their civil wars, and Sierra Leone in
    response to its military coup, on the Federal Republic of
    Yugoslavia during the Bosnian crisis, and the Haitian response
    to its 1991 military coup.
        Others will tell you that sanctions on Iran have proven
    ineffective. In my opinion, strong sanctions on Iran have yet
    to be tried. That is unfortunate, because Iran's heavy
    dependence on foreign trade leaves it potentially highly
    vulnerable to strong economic sanctions.
        Why are the Security Council sanctions on Iran so weak thus
    far? In considerable part because Russia and China have used
    their vetoes over Security Council sanctions to protect their
    lucrative trade with Iran.
        Europe has played a more constructive role but could do
    much better. Europe supplies one-third of Iran's imports,
    including a high proportion of Iran's sophisticated machinery
    needs and 40 percent of Iran's total gasoline. If Europe were
    to follow the U.S. lead and impose a nearly comprehensive
    embargo on Iran, it might quickly succeed in coercing Iran to
    cease its nuclear weapons program.
        The E.U. exported about $15 billion worth of goods to Iran
    in 2007. Although vital for Iran, this was less than 1 percent
    of the E.U.'s total worldwide trade. However, despite this
    relatively cheap price, there is currently no sign that the
    E.U. plans to impose such vigorous additional sanctions against
    Iran, and there is, unfortunately, even less hope of the
    Security Council doing so thanks to Russian and Chinese
    opposition.
        Well what can Congress do? Congress can increase U.S.
    leverage over Iran by putting these foreign countries and
    companies that keep the Iranian economy afloat to a business
    choice, a choice between doing business with Iran and doing
    business in the United States.
        The U.S. Treasury has successfully put foreign banks to
    such a choice, convincing more than 80 banks, including most of
    the world's top financial institutions, to cease all or some of
    their business with Iran. The result has been increased
    pressure on the Iranian regime.
        For example, in November 2008, a group of 60 Iranian
    economists called for the regime to drastically change course.
    These 60 Iranian economists said in an open letter that
    President Ahmadinejad's tension-creating foreign policy has
    ``scared off foreign investment and inflicted heavy damage on
    the economy.'' The economists said the current sanctions, as
    weak as they are, have cost Iran billions of dollars.
        Additional sanctions imposed by you here in Congress could
    contribute to reaching a tipping point in which economic
    pressures and protests convince the Iranian regime its illicit
    nuclear program poses too great a risk to its grip over the
    Iranian people. Then-Senator Obama made similar points in 2007
    when he introduced a bill nearly identical to H.R. 1327.
        I, Orde Kittrie, have testified in favor of Iran pension
    divestment bills before the State legislatures of Maryland,
    Virginia, and Ohio, as well as before the D.C. City Council,
    and have advised several other State legislatures that were
    considering such bills.
        I have heard State legislators express concerns about the
    very preemption and fiduciary obligation issues so effectively
    addressed by your bill. I am convinced that if it is enacted
    into law, more States will chose to divest their pensions from
    companies involved with Iran's energy sector--14 States have
    thus far enacted such divestment laws or policies. With H.R.
    1327, I hope we can get much closer to 50 States.
        As Congressman Sherman suggests, and as my written
    statement indicates, I urge that H.R. 1327 be amended to
    include as potential targets for divestment the handful of
    companies that supply refined petroleum to Iran. Iran's heavy
    dependence on imported gasoline is a potential Achilles heel.
    Targeting those few foreign companies that supply refined
    petroleum to Iran could help convince them to stop.
        In conclusion, in light of Iran's rapidly advancing nuclear
    program, a failure by the United States to quickly and
    dramatically improve its peaceful leverage over Iran will
    inevitably leave us with a terrible choice: allowing Iran to
    obtain a nuclear arsenal or taking military action to stop
    Iran's nuclear weapons program. H.R. 1327 can contribute to
    increasing leverage over Iran and thus improve the prospects
    for successful diplomacy with Iran.
        The 110th Congress passed no Iran sanctions legislation. I
    urge this Congress to do better by quickly passing both this
    bill and others that will increase U.S. leverage over Iran in
    additional important ways.
        Thank you.
        [The prepared statement of Professor Kittrie can be found
    on page 70 of the appendix.]
        Chairman Meeks. Thank you.
        And just prior to taking the testimony, I know Mr. Ellison
    was here, and I'm going to give him first the opportunity for
    an opening statement if he would like.
        Mr. Ellison. Mr. Chairman, thank you for your opportunity
    to allow me to make an opening statement.
        In some ways, the statement I was going to make has already
    been answered because today, Mr. Chairman, my point is not to
    make a lot of statements about what my beliefs are, but
    actually to learn from the witnesses. I think that one of the
    real questions as we proceed with this legislation is whether
    or not it is effective, does it really work, what are the
    metrics we would apply to determine whether it works, how do we
    know if this effort is working?
        As has been pointed out already, we have been trying
    punitive economic sanctions for quite a while now. One of our
    witnesses has pointed out that he believes they haven't been
    tough enough, but at the same time, we have had almost no
    direct diplomacy over the past 30 years, and it seems to me
    that if you just compare the passage of time that we might try
    some real diplomacy. And because of the position that the Obama
    Administration seems to be pointing us toward, we may well have
    an opportunity at that.
        My next question is timing. Is this the right time? It is
    not as if there are no economic sanctions against Iran. Do we
    need more, and at this time, will this signal be one that might
    thwart or undermine what progress we could make with direct
    negotiations without preconditions?
        Let me say that there is no question that given the human
    rights issues that take place in Iran, which I am extremely
    concerned about, which many of my constituents have brought to
    my attention, given Iran's support for militant organizations
    which has contributed to instability in the region, and given
    the extreme danger of introducing a nuclear weapon into the
    Middle East--or at least more because we know there already are
    some countries that have them--that this is dangerous to the
    region and the world.
        But the question is not how much can we demonstrate our
    anger towards Iran for doing these things, human rights issues,
    the nuclear weapons issue, supporting militant organizations--
    not how well can we demonstrate our anger toward them, but how
    effectively we can change their behavior, and I think that
    needs to be how we operate and what we focus our attention on.
        We are clearly angry with Iran and have been ever since the
    incident with American victims of kidnap who were taken in
    1979, and that issue has remained an issue for the United
    States ever since. But are we willing to let go of some of that
    in order to have a wise, smart, and effective policy?
        So those are the questions that I hope get answered for me
    today.
        Thank you, Mr. Chairman.
        Chairman Meeks. Thank you, and we will start the questions.
        I guess I will start by asking Senator Deutch first,
    because this bill specifically deals with divestment from State
    and local municipalities. And some question has been raised by
    observers that there may be difficulty in tracking company
    business in Iran, and some have argued that there may be tax
    penalties to State governments.
        I was wondering if you could just answer giving us the
    experience of Florida about tracking who is doing business in
    Iran and how to get them to divest as well as what, if any,
    penalties the State of Florida has felt as the result of
    divestment.
        Mr. Deutch. Sure. Thank you, Mr. Chairman.
        One of the greatest objections to our divestment
    legislation is that it would be extremely difficult if not
    impossible to determine what companies should be on the list,
    it would be extremely costly to sell the shares in those
    companies, and most importantly, that there would be violation
    of the obligation of fiduciary duty that the fund managers
    have.
        In terms of identifying the companies, our pension board,
    the SBA, despite their opposition to the bill, have carried out
    their obligation since the bill passed better than we ever
    could have hoped. There is a quarterly reporting requirement
    that the SBA uses. They conduct research using outside research
    groups first. There are several independent research groups
    that they employ to do the screening of the companies, to
    investigate which companies should be on the scrutinized
    companies list.
        And then when they come back, when those recommendations
    are made, they then with their own internal investigators
    analyze the SEC reports, industry analysis, government
    agencies, including the SEC's Office of Global Security Risk,
    the Office of Foreign Asset Control at Treasury, and the
    Congressional Research Service.
        There is extensive research that goes into determining
    which companies should be on the list. So they have figured out
    how to do it. That information is available to the public,
    which I think will help other States as we go forward.
        And then just briefly in terms of cost, Mr. Chairman, what
    we have learned is that there are transactions on a daily
    basis, stocks, equities that are bought and sold every day,
    there is a budget to do that. There has been no dramatic impact
    on the cost of those transactions by fulfilling the mandate of
    the divestment legislation that we passed.
        Chairman Meeks. Professor Kittrie, let me ask you a
    question. In my opening statement, I said that I clearly
    believe that there have to be sticks, and I also believe there
    have to be carrots. I would like to get your viewpoint on--even
    though it is not the specific subject matter of this hearing,
    but given the fact that we need these sticks, what carrots do
    you think can also be offered?
        Mr. Kittrie. Sure. That is a very good question.
        With respect to carrots, my sense is that there are a
    number of carrots already on the table. These were the offers
    made by the European Union with American concurrence to the
    Iranians. These carrots included increased trade, included
    assisting the Iranians with light water reactors. I think we
    also need to provide the Iranians security assurances as part
    of a kind of a grand bargain with them in which they would halt
    their nuclear program and also their support for terrorism.
        But as I mentioned, I don't get the sense that the carrots
    currently on the table, or in fact any carrots, are sufficient
    to get the Iranians to halt their nuclear program and their
    support for terrorism. Thus, we need increased leverage.
        And indeed, Senator Obama, in his statements last year
    supporting a very similar bill, seemed to talk in those terms.
    He said, ``I have called for direct engagement with Iran over
    its efforts to acquire nuclear weapons, but direct dialogue
    should be part of a comprehensive diplomatic strategy to head
    off this unacceptable threat. So should the legislation Senator
    Brownback and I are introducing today,'' he said.
        Senator Obama also said, ``Sustained and aggressive
    diplomacy combined with tough sanctions should be our primary
    means to deal with Iran. It is incumbent upon us to find and
    implement ways to pressure Iran short of war, ways that
    demonstrate our deep concern about Iran's behavior, ways that
    will help us to exert leadership on this issue. This bill is
    one of those ways.'' And I have seen nothing--
        I thought Senator Obama was right when he said that a
    couple of years ago, and I have seen nothing in the ensuing 2
    years to change my sense that what is necessary is both
    diplomacy talks and increased leverage.
        Thank you.
        Chairman Meeks. My time has expired on this, and on this I
    am going to try to be closer to the time so that we can go
    around more if we can and members can ask and engage in more
    questions, so I now yield to Mr. Paulsen.
        Mr. Paulsen. Thank you, Mr. Chairman.
        Beyond the two options of stalled diplomacy, and military
    action such as a blockage, there is a consensus growing around
    a third option now to tighten sanctions. However, the Iranian
    regime is likely to absorb such sanctions if the United States
    does not simultaneously reach out to the Iranian people
    themselves.
        Professor Kittrie and Mr. Isaacson in particular, what
    impediments exist right now to the U.S. Government reaching out
    to the Iranian opposition groups such as the National Council
    of Resistance of Iran and the MEK? First, if you could comment
    on that?
        Mr. Kittrie. In terms of opposition groups in Iran, I am
    not an expert by any means in Iranian opposition groups.
        I know that some such as the MEK have been tied to acts of
    terrorism. It seems to me we need to be very careful in
    reaching out to Iranian opposition groups, to reach out to
    groups that are constructive players and can be constructive
    players.
        The Iranian people, we know from polls, that the Iranian
    people don't support the current regime in Iran. They wish for
    something more moderate. We ought to be reaching out as best we
    can to opposition figures that are more moderate, as opposed to
    the MEK who may be in some ways just as radical.
        Mr. Paulsen. And Mr. Isaacson, maybe before you comment, I
    understand the United Kingdom and the E.U. have both removed
    these organizations from their terrorist lists. Why does the
    United States continue to list them? Is the situation where
    Europe is going down the road of not having tough sanctions and
    they are kind of being more lenient with these groups as well?
    Maybe you can comment.
        Mr. Isaacson. Like Professor Kittrie, I have some
    recollection of past reports on these groups, the MEK in
    particular.
        I believe that we have to find ways, certainly, to reach
    out to the Iranian people. There are particular opposition
    groups that I think the United States has been able to engage
    in the past and should continue to engage, but I would be very
    careful as we move forward in looking at the records, at the
    principles of some of the groups that we do engage.
        But it is essential that people-to-people exchanges be
    encouraged in ways that can advance the policy that you have
    been advocating, Congressman. We have to find ways to
    demonstrate that it is not the Iranian people that we have a
    grudge against, it is the actions of the Iranian regime which
    threaten the region and threaten the world.
        Mr. Paulsen. The President has stated that the U.S. policy
    toward Iran will be based on tough, principled diplomacy,
    including engagement, and the Administration is currently in
    the midst of a policy review, and then it is going to decide
    how and when to engage. But the President has already stated
    that U.S. policy will be clear that Iran should not be allowed
    to acquire a nuclear weapon or have that capability.
        Again, Professor Kittrie and Mr. Isaacson, if you could
    design the Administration's policy of engagement, how would you
    do it, keeping in mind the ultimate goal to deny Iran the
    capability of getting these weapons, and in a short period of
    time, obviously. You mentioned that we are at 5 minutes to
    midnight.
        Mr. Isaacson. If I can continue, Congressman.
        As was said by an earlier witness, there are some common
    interests that the United States and Iran clearly have that
    have to do with some regional security questions. There is an
    opportunity for certain kinds of engagement, but it has to be
    extremely clear-eyed, and it has to have certain deadlines and
    certain goalposts.
        As I said in my testimony, for several years the European
    Union had these endless discussions with the Iranian regime.
    The stockpile of carrots was very high, the stockpile of sticks
    was very small, and the result of this was endless frustrating
    discussions that led nowhere. I'm very concerned that if we
    engage without making sure that we are maintaining tough
    sanctions, that we are keeping the Iranians focused on the
    downside of continuing on the path that we are on, we are going
    to go nowhere.
        And also, we don't have time to kill. This is a matter of
    weeks or months, it is not a matter of years. The Europeans
    earnestly tried to resolve this problem of the Iranian nuclear
    program, they tried for years, and they have gotten nowhere,
    regrettably. The United States was a side party to that; it
    wasn't directly involved in those negotiations.
        But as we pursue the negotiating option, the diplomatic
    option--which does have merit, it does have potential--we have
    to be very careful that we not take our foot off the sanctions
    pedal as well.
        Mr. Paulsen. And Professor Kittrie, how do we prevent the
    Iranians from simply dragging out negotiations if we have weeks
    and months?
        Mr. Kittrie. I think we have to learn very carefully the
    lessons of the European engagement with Iran. If you look at
    the record of that engagement, it went on for years and the
    Iranians mostly continued to move their nuclear program forward
    during that time. There are some quotes from Iranian leaders
    afterwards, including some quotes that I have in a scholarly
    article I wrote about this issue, in which the Iranian
    negotiators crowed, bragged about the fact that they moved
    their nuclear program forward while talk, talk, talking with
    the Europeans.
        We don't want that to happen to us, especially because at
    the current pace, 90 days of negotiations may be enough for the
    Iranians to enrich close to another full bomb's worth of low-
    enriched uranium.
        So it seems to me we need to set very clear deadlines and
    we need to put on the table carrots, including, I think, very
    generous carrots. As I mentioned, even more generous carrots
    than those that were put on the table by the Europeans, carrots
    that only the United States can bring to the table, including
    security assurances and the like.
        But at the same time, we have to make very, very clear what
    is coming down the pike in terms of sanctions, tough sanctions,
    and we need to get as best we can. And I think the Obama
    Administration seems to be doing a good job of this.
        We need to get the Russians and hopefully the Chinese on
    board, because the only way to get U.N. Security Council
    sanctions is to get them on board. So in some sense, we may
    need a grand bargain with the Russians before we can
    effectively get the Iranians to agree to a grand bargain.
        Chairman Meeks. Ms. Waters.
        Ms. Waters. Thank you very much, Mr. Chairman.
        Let me just first say to Mr. Parsi that I am extremely
    sympathetic to the Iranian people on the ground, the innocent
    civilians and citizens who are at the mercy of the leadership
    of the Iranians in charge and the U.S. Government.
        We had to confront that very issue when we imposed
    sanctions against the apartheid regime in South Africa, and it
    was very hard to do that because the military and the police
    structure, regime, they put pressure on so many ways. People
    lost their lives, on and on and on. But we persisted and of
    course, you know the end of that story. We were able to bring
    down the unconscionable apartheid in South Africa. So I am not
    dismissing that at all.
        But let me get a little bit of discussion from you about
    your statement, ``It is not the threat of imposition of new
    sanctions that is likely to achieve the desired changes in
    Iranian behavior but the promise of lifting existing ones.''
    Without trying to envision a total negotiation, give me some
    example of what you mean.
        How would that kind of discussion go? What existing
    sanctions could be lifted that would cause the Iranian
    government to take some significant action against its
    continued development of nuclear capability? Give me some idea
    of what you are thinking.
        Mr. Parsi. Thank you so much, Congresswoman, and I very
    much appreciate your comments about the effects of the
    sanctions on the Iranian people.
        The case of South Africa is obviously a very interesting
    one. Let me just quickly address that. You had a situation, as
    you correctly pointed out, the opposition inside the country
    favored the sanctions. They wanted the sanctions to be imposed
    because of the apartheid regime.
        You have an opposite situation in the country right now.
    Polls have consistently shown that the Iranian people are
    opposed to the sanctions because they feel that they are being
    directly affected by them. Obviously South Africa did not have
    any oil and there was a consensus in the international
    community about targeting South Africa with sanctions, and that
    was very important in making sure that was a successful case of
    sanctioning a regime. Unfortunately, those factors do not
    really exist in the Iranian case.
        One more added factor there: In order for a threat or a
    promise to be effective, the other side has to feel confident
    that if they cease to do an activity that is objectionable from
    our end, then we would cease to do the punishment. I think
    after about 15 or 20 years now of different sanctions in which
    various efforts of outreach has taken place by sides, there is
    unfortunately very little confidence that any change in Iranian
    behavior actually would lead to change in the sanctions.
        This has been cemented by some of the outreach that
    occurred during the Bush Administration. For instance, the 2003
    proposal that goes directly to your question in which the
    Iranians put on the table a negotiation offer that included a
    wide variety of different issues. What they asked for in
    return, I think, was very interesting. It was a lifting of
    existing sanctions. I think there are a lot of things that can
    be achieved precisely because of the way that existing
    sanctions have hurt the Iranian economy.
        If there is a negotiation in which we are willing to say,
    ``We want to see a cease for the support for a militant
    organization. We want to see a completely different Iranian
    behavior in Iraq and in Afghanistan, a constructive behavior.
    And in return, what we are offering, instead of what we are
    threatening, is the lifting of existing sanctions,'' precisely
    because of the different weight that existing sanctions have
    versus the imposition of new sanctions while we at this point
    have essentially no trade with that country.
        Ms. Waters. I would like to, if I may, Mr. Chairman, ask
    Mr. Isaacson, do you think that is a way to proceed, that there
    is a possibility that the lifting of sanctions could result in
    the kind of positive behavior that we are looking for from Iran
    to cease and desist any number of things, whether it is
    involvement in Iraq or whether it is continuing on the path
    toward development of nuclear capability? Do you think that
    this kind of lifting of sanctions could extract those kinds of
    actions from the Iranian government?
        Mr. Isaacson. Congresswoman, not without something in
    return. I think as the end goal of a negotiation, the lifting
    of U.S. sanctions should the Iranians comply with their
    international obligations, that would obviously be something
    that we would be in a position to offer, and it would be, I
    think, worth a great deal to the Iranians.
        I would also like to just respectfully disagree with a
    comment that Mr. Parsi said, if I may do that, Congresswoman,
    on this very issue. I think that what we can do with the kind
    of legislation that is before you today is to expand the scope
    of the pressure that has been put on the Iranian regime.
        It is not just a unilateral effort by the United States. By
    imposing this economic pressure from foreign companies that are
    doing business with Iran, I think what you have the chance of
    doing is giving greater leverage to what the United States is
    already trying to do. People have said unilateral sanctions
    don't work, that the history of sanctions over the years has
    not had the desired effect.
        I think before we take all of those sticks off of our
    table, let us try something different, let us try something
    more comprehensive. Let's make sure that the rest of the
    international community, the rest of the business community is
    brought into this game as well.
        I really do not believe, I don't believe anyone does, that
    the Iranians are going to just give up their quest for nuclear
    weapons without extreme pressure. I think that the kind of
    legislation you have before you will add to the pressure that
    is already existing.
        And then if the Iranians demonstrate that they are willing
    to take the steps that are necessary, not just in the nuclear
    program, but on support for terrorism, on human rights issues,
    other concerns of yours and of the international community,
    then certainly those sanctions will be backed off. That is
    obviously going to be part of the bargain.
        Ms. Waters. Thank you.
        Chairman Meeks. We have been joined by a freshman member, a
    new member of the committee, Mr. Steve Driehaus from Ohio.
        Mr. Driehaus. Thank you very much, Mr. Chairman, and thank
    you for calling this hearing.
        I support H.R. 1327, and Dr. Kittrie, I was a member of the
    Ohio legislature when you came to testify, and I supported that
    legislation at the time.
        As has been mentioned, I think the South Africa example is
    a prescient example. I was a student at Miami University at the
    time and helped form a group that tried to get Miami University
    to divest its interests in South Africa. And it was through
    those hundreds of efforts such as that across the country that
    I think we brought enormous pressure upon the government of
    South Africa to bring an end to the apartheid regime that was
    so onerous to the people.
        But Mr. Parsi, I do respect the concerns that you raise
    concerning the people of Iran, and I think it is a point that
    we have to take very, very seriously. But you mentioned in your
    testimony a couple of things. First, that you believe that
    lifting some of the sanctions would be beneficial. I would
    simply suggest to you that carrot doesn't exist unless you
    impose the sanctions in the first place, and so without the
    stick already in place, it is impossible to get to the carrot.
        But you also made another point which I think is very
    interesting. When you were talking about South Africa, you
    mentioned the consensus that the international community had
    when it came to sanctions against the apartheid regime.
        Dr. Kittrie, you talked quite a bit about our European
    partners. And while I don't hold much hope that China and
    Russia will be joining us anytime soon in calling for sanctions
    against Iran, I do believe there is greater hope amongst our
    European allies. And when we talk about a third of Iranian
    imports coming from our European allies, it seems to me that
    there is a possibility that we could reach the type of
    consensus, Mr. Parsi, that you spoke of.
        So I guess what I am asking, Dr. Kittrie, is can you give
    me specific steps that you might suggest in terms of working
    with our European partners to achieve this type of
    international consensus? Because my fear is that despite the
    multitude of efforts that might exist in the United States, it
    is not enough because it is not enough of the pie that we are
    affecting when it comes to Iran.
        Mr. Kittrie. Your question, Congressman, is a very good
    one, and it seems to me that we have a track record of success
    from which we can learn lessons with respect to the Europeans,
    and that track record of success is under Secretary Stuart
    Levy's efforts at the Treasury Department. And I think it is a
    very important signal that, as I understand it, the Obama folks
    have carried him over, taken the relatively rare step of taking
    what was a Bush political appointee, and now he is going to be
    Obama's Undersecretary for Terrorist Finance.
        What he has done is he has gone directly to the companies
    and he has managed to convince 80 banks, including many of the
    largest banks in Europe, to stop doing business with Iran. And
    what he has discovered is that sometimes it is easier to put
    the companies to a business choice and then get the governments
    to come around than it is to go to the governments alone.
        So one of the nice things about H.R. 1327 is that it puts
    these companies to a business choice. It says to them ``You
    companies, if you continue to invest in Iran's energy sector
    and do some of these other things, you will lose investors from
    these various States.''
        So I think in some senses, we are with this legislation
    taking the lessons learned from Undersecretary Levy's very
    successful efforts, which depend in part on special leverage
    the Treasury has, and we are giving to the States the same kind
    of leverage so they can replicate that approach of going
    directly to the companies.
        Mr. Driehaus. Could you further extend that example, Dr.
    Kittrie, by suggesting not that we only work through Treasury
    and the banks, but also through U.S. contracts? We spend an
    awful lot of money with foreign contractors, we have an awful
    lot of friends in Europe that use U.S. tax dollars when it
    comes to a multitude of contracts. Could you not extend that
    same logic to U.S. contracts and allow our partners to engage
    in that business decision, if they want to accept U.S. tax
    dollars, then they have to go down this road?
        Mr. Kittrie. Your suggestion is an excellent one. In fact,
    I will give you a very specific example of how it is playing
    out currently.
        As I mentioned, Iran imports 40 percent of its gasoline--it
    doesn't have sufficient refinery capacity, so it imports 40
    percent of its gasoline. The leading supplier of gasoline to
    Iran is a Swiss company called Vitol.
        On January 16th, the last 4 days of the Bush
    Administration, the Department of Energy entered into a
    contract to buy tens of millions of dollars of gasoline from
    Vitol. The Bush Administration could have put Vitol to a
    choice: ``We will buy from you if you stop selling to Iran,''
    but the Bush Administration didn't do that.
        About 10 days ago, several of your colleagues, Congressman
    Berman, Congressman Sherman, and various others, about eight of
    them, got together and wrote a letter to the Department of
    Energy saying, ``Look, can you put a hold on this contract? Can
    you put Vitol to a choice between selling to the Department of
    Energy and selling to Iran?'' And this was a particularly
    powerful message with respect to Vitol because Vitol in fact in
    November 2007 was convicted of grand larceny in New York State
    court in connection with the oil for food program in the Iraq
    sanctions, so there is an argument that Vitol should have been
    debarred anyway.
        But that is exactly the sort of choice that Congress and
    the Obama Administration could be putting these companies to,
    and potentially having a very large impact.
        Mr. Driehaus. Thank you, Mr. Chairman.
        Chairman Meeks. Mr. Ellison.
        Mr. Ellison. Let me thank all of the panelists. It has been
    a very illuminating panel today.
        Mr. Isaacson, I just have a question for you first. I'm
    curious to know what metrics do you propose we might apply to
    determine the effectiveness of the divestment measures here?
    How do we know they are working and how can we sort of assess
    our progress?
        Mr. Isaacson. Well, of course, we will be on kind of an
    accelerated timetable, I'm afraid, because we don't have a
    whole lot of time. I think we will all know when the
    negotiators that the Obama Administration is planning to use to
    engage Iran find results in these discussions.
        Mr. Ellison. Thank you.
        I understand Dennis Ross has been appointed to the Iran
    desk. Have you checked in with him about--I mean recently--I
    know that he has made statements over time, but right now, what
    is his assessment of this bill in this moment now that he has
    gotten this new assignment. Have you had an opportunity to
    talk--
        Mr. Isaacson. I'm afraid I can't tell you that,
    Congressman. I simply haven't spoken with him about this in
    this time period.
        Mr. Ellison. That is fair. And I agree, I just was
    wondering whether we did that.
        Let me ask you this question, Dr. Parsi. Do you have any
    idea as to what metrics we might apply to determine whether
    this divestment action and maybe even our previous sanctions
    are working, are having the desired effect? Because I know
    there is a lot of criticism of that National Intelligence
    Estimate that was in December of 2007, I think.
        But one of the things that it said that I think needs some
    attention is that the Iranian government is not immune from
    manipulation, from changing its position. Can you dismiss
    sanctions as part of what that assessment might have been
    referring to, or what are your views about this?
        Mr. Parsi. I think sanctions, obviously, in any
    comprehensive approach play a significant role. The question
    is, do you put it at the center, as we have for the last 15
    years, particularly during the last 8 years, or is it one of
    the instruments that are being used? I think we have a lot of
    focus on sanctions.
        In regards to the question of metrics, we have heard a lot
    of people saying it has been a success. Well, the ultimate
    metric is to see, has Iran's nuclear program stopped from
    advancing? Let's just remind ourselves, in 2003 when it first
    was revealed--or the end of 2002--the Iranians operated
    probably less than centrifuges. After several years of
    intensified sanctions, more economic pressure, they are now
    above 4,000. Let's use that as one of the metrics of seeing how
    it has not gone forward.
        And I wanted to say, if I could, part of the reason why the
    Bush Administration, in my view, was not very successful in
    dealing with Iran was because we had an approach in which we
    were not building consensus with our allies, we were pressuring
    our allies. If we are sanctioning and targeting companies of
    our allies, that is not an effort to build consensus, that is
    an effort to further pressure them, and we have seen the
    results of that in the last 8 years.
        Mr. Ellison. Dr. Parsi, you have been to Iran, you were
    born there, and you are an American citizen and all, but you
    have a lot of familiarity with Iran. And this is a difficult
    question to ask you, and I allow that, but could you tell us
    anything about the collective psychology of the Iranian regime
    which might make it less subjective to what it views as
    coercive force?
        I mean could you speak to that issue? How do they view
    this? Do they view this as, ``Oh, they are getting on us now so
    we better do it,'' or do they say, ``No, we are going to resist
    because''--I mean how do you view their reaction to something
    like this?
        Mr. Parsi. First, let me say I'm not--I'm on my way of
    becoming a citizen, and secondly, understanding the Iranian
    government is a very, very tricky thing.
        They have a policy that they call assimilated rationality.
    They want the outside world not to be able to figure them out.
    In fact, they want them to think that they are irrational. They
    think it buys them security. I think it is a disastrous policy
    for them to pursue.
        But there are a couple of things I think we can say. For
    instance, after the offer of changing the policy as it was made
    in 2003 and the Bush Administration did not even respond, what
    happened was that the elements within the government who were
    arguing that the United States actually is not interested in
    changing Iranian behavior, they are just interesting in
    defeating and weakening Iran, they are the ones who were
    strengthened because it was an offer to change the behavior and
    it wasn't even responded to.
        And I think we see a mirror image. They are having a
    similar debate right now, how do they put more pressure on the
    United States?
        Mr. Ellison. I just want to make a final comment.
        This debate I have been following and I have tried to pay
    attention to it, and I get a certain sense of concern when I
    hear experts and leaders in our country say they are immune
    from any incentives, and then of course we hear their people in
    their government who say, ``We are immune from anything.'' It
    seems like we are setting up a situation where maybe we won't
    get to even talk about talking.
        Mr. Deutch. Mr. Chairman, if it is appropriate, I would
    like to respond to the question as well.
        Mr. Ellison. Only if I get to respond too, Mr. Chairman,
        Chairman Meeks. I just want to make sure we are out of here
    by 12:00.
        Mr. Deutch. Thank you, Congressman. I wanted to respond to
    the question of how do we tell whether this is a success, and I
    would first of all refer you to the news just yesterday that
    executives of Vitol announced that they were going to--that
    they have chosen not to move forward with a proposed contract
    for oil fields in Iran. That is success. They cited the
    sanctions movement in the United States in making that
    decision. That is the kind of success that we are capable of
    achieving here with respect to these companies.
        But one broader point, and that is I don't believe we can
    measure success only by looking at the results in Iran. This is
    not the government's money we are speaking of. This is the
    money of our citizens that is being invested.
        It would be a success, I would respectfully suggest, if our
    citizens had the ability to make the determination for
    themselves through their elected officials at every local and
    State government to make the decision that they don't want
    their money invested in companies that are making it easier for
    Iran to develop nuclear weapons. If they have that voice, if we
    give them that voice, which this legislation will do, that I
    would suggest would be a great success.
        Mr. Kittrie. Thanks. I just wanted to say in terms of
    metrics for success, which is a very good question, that the
    U.N. Security Council has provided us with metrics for success.
    The U.N. Security Council in three Security Council
    resolutions, including Resolution 1737 of December 2006, has
    issued an order to Iran binding international law that Iran
    shall without further delay suspend various proliferation,
    sensitive nuclear activities, including all enrichment related
    and reprocessing activities and work on all heavy water
    projects.
        Rather than comply with this legally binding Security
    Council mandate, Iran has openly and admittedly accelerated its
    enrichment activities as reported by the International Atomic
    Energy Agency. If Iran wants the sanctions to come off, all it
    needs to do is comply with international law, comply with the
    U.N. Security Council resolution ordering it to stop enrichment
    reprocessing and heavy water work and comply with U.N. Security
    Council Resolution 1373 which bans support for terrorism.
        If Iran wants the sanctions to stop, that is all it needs
    to do. The recipe is clear and the metrics are clear.
        Thank you.
        Mr. Ellison. Well, I just want to say that I appreciate
    everything the panel said.
        I understand that the three of your gentleman probably see
    this issue similarly, but I do hope that you spend time after
    the hearing talking with Dr. Parsi because I think there is a
    lot to be learned from everyone at this table.
        And my gut tells me that the proof of the pudding is in the
    tasting, that is to begin to impact Iranian behavior around
    these issues. And we can't get married to tools. We have to be
    focused on a goal. The goal is not in my view, Senator, to take
    negative action on a particular company, it is to stop Iranian
    weaponization. The metric can't be that it is the standard that
    the U.N. has set that Professor Kittrie speaks of, but the
    ultimate measure of the success of a program is whether it
    achieves its end goal, which is to cease that enrichment.
        So with that, I just thank you, Mr. Chairman, and all the
    members of the panel. Thank you very much.
        Chairman Meeks. We have been joined by Congresswoman Gwen
    Moore from Wisconsin, and I don't know if you have any
    questions. If you have, please feel free at this time.
        Ms. Moore. Well, Mr. Chairman, I am very grateful to be
    here. I had another meeting of the Subcommittee on Capital
    Markets, which was very interesting, on the mark to market. So
    I am very grateful that you are still assembled, and I will
    reserve my questions for the next panel.
        Chairman Meeks. This is it.
        Ms. Moore. This is it?
        Chairman Meeks. If you have any questions, we have to be
    out of here in the next 10 minutes.
        Ms. Moore. Okay.
        Chairman Meeks. This is your one and only shot.
        Ms. Moore. Well, I just appreciate all of you coming here.
        It is very important, I think, to disaggregate sanctions
    against a regime that continues to enrich uranium without the
    sanction of the international energy commission.
        But I do think that it is important for us to develop other
    means of dealing with this other than sanctioning them, because
    I understand there is a great deal of misery among the Iranian
    people. And so I welcome, Mr. Chairman, the opportunity to come
    up with more innovative and creative ways and diplomatic ways,
    as Mr. Ellison said, to de-weaponize the Iranian regime other
    than imposing real hardship on the Iranian people.
        Thank you.
        Chairman Meeks. Let me just ask, as we wrap up, I was just
    reading an article and talking about that, and I think it is
    the general sense of most American citizens also that war is
    not the answer. And for me, that is one reason why I have
    looked at the sanctions bill, etc., because war is not the
    answer.
        But we do have a great need of dialogue and of
    conversation. And I know that during the campaign season, there
    were questions of whether or not you dialogue with Iran without
    preconditions or with preconditions, etc., especially dealing
    with the incentives that are necessary.
        I was wondering if I could just hear from each of you in
    regards to should there be dialogue with Iran and should there
    be dialogue with or without preconditions.
        Mr. Kittrie. Sure. I agree completely with what Senator
    Obama had to say a couple of years ago in introducing a bill
    very similar to this one. He said, ``While we should take no
    option, including military action, off the table, sustained and
    aggressive diplomacy combined with tough sanctions should be
    our primary means to deal with Iran.''
        He also said, and I agree, ``It is incumbent upon us to
    find and implement ways to pressure Iran short of war, ways
    that demonstrate our deep concern about Iran's behavior. This
    bill is one of those ways,'' he said, and I believe that this
    bill, H.R. 1327, which is very similar to the bill he
    introduced, is one of those ways.
        And I do believe--I spent many years at the U.S. State
    Department negotiating nuclear agreements between the United
    States and Russia. I don't love the Russians, but you have to
    talk with your adversaries and you have to see if you can come
    up with a deal. And if you are creative, you often can come up
    with a deal. I think the Russians had certain incentives then
    that perhaps, as I mentioned, the Iranians don't share. And as
    I mentioned, I think we are going to need to, as Senator Obama
    called for, increase the pressure on Iran while also talking to
    them and trying to be creative in terms of incentives to come
    up with a package deal.
        I just want to mention I have heard now several times the
    concern that H.R. 1327 might harm humanitarian interests. I am
    very sympathetic to the need to not want to hurt the innocent,
    but neither current U.N. nor current U.S. sanctions deprive
    Iran of either food or medicine. Neither will this bill, H.R.
    1327, deprive Iran of either food or medicine.
        If the people of Iran are not as prosperous today as they
    would like to be, it is because the Iranian regime has
    mismanaged the Iranian economy and chosen to isolate itself
    from the international community by persisting in its nuclear
    program in explicit defiance of three legally binding U.N.
    Security Council resolutions.
        It seems to me that whatever inconvenience the Iranian
    people might incur from a tightening of sanctions attributable
    to this bill, H.R. 1327, would pale in comparison to the
    humanitarian costs to the United States and its allies of an
    Iranian nuclear arsenal, including the greatly increased risk
    of stepped-up terrorism under an Iranian nuclear umbrella, a
    likely cascade of nuclear proliferation in the Middle East, and
    the greatly increased risk of a nuclear 9/11, which would cost
    more than half-a-million American lives per detonated nuclear
    weapon.
        Thank you.
        Chairman Meeks. Mr. Isaacson.
        Mr. Isaacson. Thank you, Mr. Chairman.
        I think you are facing a couple of choices with Iran. As
    panelists here have said, and as you yourself have said, Mr.
    Chairman, the danger that is posed by a nuclear capable Iran is
    so ominous and is so foreseeable that we have to try a path
    away from that.
        And if we are to avoid having to go to war to prevent Iran
    from having a nuclear device, we need to try everything. We
    need to try the toughest possible sanctions, we need to try
    diplomatic engagement without releasing the constraints that
    are put on Iran, the pressure that is put on Iran from those
    sanctions that we have already applied and from further
    sanctions.
        Engagement can work. It has worked in instances in the
    past. Diplomacy must be tried, but it must be tried with clear
    goals and clear deadlines. I think the kind of sanctions
    legislation that is being discussed today will add to the
    arsenal that the United States has and really must be pursued.
        Chairman Meeks. Mr. Parsi.
        Mr. Parsi. To answer your first question, negotiations
    without preconditions I would say absolutely, precisely because
    of the time factor. While we insisted on preconditions for 5
    years, the Iranians went ahead with their nuclear program
    because there was no opportunity to negotiate because we
    insisted on a precondition that even senior State Department
    officials said were self-defeating, including President Obama.
        I would argue that precisely because of the danger of
    seeing nuclear proliferation in the region--which I believe
    would be the case if the Iranians were to weaponize and it
    would spread--precisely because of that danger, precisely
    because of the lack of time, we have to really get serious
    about matters.
        And if sanctions, a strategy based solely on coercion had
    been successful in the last 15 years, we would not be sitting
    here today talking about it being 5 minutes to 12:00. If we are
    in this situation of 5 minutes to 12:00, we have to try
    something new, something that we didn't dare to try before,
    something that has been successful elsewhere, but we have not
    yet given it a full chance with Iran.
        I think actually my biggest fear is that if we continue on
    this path of only coercive diplomacy, then we will eventually
    see a nuclear armed Iran, and I think that would be disastrous.
    That is the path we have gone so far.
        Chairman Meeks. Mr. Deutch.
        Mr. Deutch. Thank you, Mr. Chairman.
        Mr. Chairman, the Florida legislature does not engage in
    foreign policy, nor do any of our fellow legislators around the
    country. We follow the foreign policy of the United States.
    American foreign policy and the congressional legislation in
    support of it dictates that American companies cannot make
    investments in the Iranian energy sector at this level of they
    will be subject to sanctions.
        Currently, the only way to effectively convince our foreign
    companies to make the same decision to leave Iran and when they
    leave take with them the financial resources that the Iranians
    require to develop nuclear weapons, the only way to do that is
    to help them understand that we, through our pension funds, do
    not support the positions and the investments that they are
    making. What we do is entirely consistent with American foreign
    policy.
        I believe that we should do everything that we can, and in
    legislatures and county commissions and city councils, this is
    the option that we have. I beseech of you and this committee
    and the Members of Congress that while time is running out, it
    is running even faster for State legislatures throughout the
    country. This legislation will make it possible for all of
    those legislatures to move forward.
        I believe that we must do everything we can. I don't want
    to look back at a time when the Iranians have nuclear weapons
    to wish that we could have done more.
        Mr. Chairman, there is one moment in world history to
    prevent the Iranians from having nuclear weapons, and this is
    it. I ask that you move this good bill forward so that we at
    the local level can do everything we can to support you in
    American foreign policy.
        Chairman Meeks. Ms. Moore wants one question, and this will
    be the final, final question.
        Ms. Moore. Thank you so much, Mr. Chairman, and forgive me
    if this has already been addressed in the hearing--and it
    literally is 5 minutes to 12:00, Mr. Parsi.
        [Laughter]
        Ms. Moore. I guess I really am sincerely asking a question
    I don't know the answer to, and that is, I know that sanctions
    worked very well eventually with South Africa in ending
    apartheid.
        What compelling evidence in terms of the development in
    Iran can you give us that these kinds of sanctions will in fact
    work to pressure the Iranian government to end its nuclear
    ambitions? I mean, sanctions haven't worked so far. So what can
    you tell us?
        Mr. Deutch. Thank you, Congresswoman.
        Yesterday, Vitol, which is one of the largest players in
    the Iranian energy sector, announced that they are not going to
    move forward with a proposed contract in the fields of Iran.
        That is exactly the kind of success that we will be able to
    have if this bill passes and States and local governments are
    able to divest. When the companies that we have divested from
    in Florida understand that it is not in their interest to
    continue to make major investments in the Iranian oil and
    natural gas sector--and that is all we are focused on, no
    consumer products--when they realize it is in their best
    interest and they start to pull out, as we saw just yesterday,
    the result will be that there will be a rapid decline in the
    amount of investment in those oil fields.
        With that reduction, it will become exceedingly more
    difficult for the Iranian government to continue to move
    forward to its plans to build its energy sector, and without
    that foreign investment, it cannot go forward.
        This is but one piece of the puzzle. I think we are all in
    agreement on that. But there have been successes. Those
    successes will multiply if this good legislation is passed.
        Ms. Moore. Mr. Parsi.
        Mr. Parsi. Thank you.
        I have very much enjoyed listening to the Senator from
    Florida, but if it is not obvious, we may have a slight
    disagreement. I think the Senator is absolutely right, and I
    mentioned it earlier on, there are plenty of companies that
    have, as a result of many different factors, including
    sanctions from the United States, pulled out of Iran. That is
    definitely true.
        I wouldn't call that a success, I would call that a
    tactical victory. Success happens when you actually achieve the
    objectives of the sanctions policy, when you have the reversal
    of the nuclear program in Iran, when you have an end to Iranian
    meddling throughout the region or support for militant
    organizations. We have not yet seen any indication that
    sanctions will actually bring that about.
        If the aim solely is to hurt Iran's economy, then yes,
    success is there. But if the aim is to change the behavior, and
    particularly on this most pressing issue of a nuclear program,
    then I fear that additional sanctions will actually be an
    obstacle because it will make it more difficult for the
    President to pursue diplomacy with the Iranians.
        Chairman Meeks. The Chair notes that some members may have
    additional questions for this panel which they may wish to
    submit in writing, and without objection, the hearing record
    will remain open for 30 days for members to submit written
    questions to these witnesses and to place their responses in
    the record.
        Let me thank the witnesses for being here, and as one who
    does believe in dialogue and thinking that it will help
    resolve, let me end with two quotes from Yitzhak Rabin. One,
    ``Peace is not made with our friends. Peace is made with our
    enemies.'' And two, ``The path is indeed long and our work is
    not nearly done.''
        Thank you for being here.
        The hearing is adjourned.
        [Whereupon, at 11:58 a.m., the hearing was adjourned.]

                                A P P E N D I X

                                 March 12, 2009

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