[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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