[Senate Hearing 111-410]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-410

 
MINIMIZING POTENTIAL THREATS FROM IRAN: ADMINISTRATION PERSPECTIVES ON 
            ECONOMIC SANCTIONS AND OTHER U.S. POLICY OPTIONS

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   ON

 ADMINISTRATION PERSPECTIVES ON RECENT DEVELOPMENTS IN IRAN AND FUTURE 
                          U.S. POLICY OPTIONS

                               __________

                            OCTOBER 6, 2009

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html




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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman

TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          MEL MARTINEZ, Florida
DANIEL K. AKAKA, Hawaii              BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  JIM DeMINT, South Carolina
JON TESTER, Montana                  DAVID VITTER, Louisiana
HERB KOHL, Wisconsin                 MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             KAY BAILEY HUTCHISON, Texas
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado

                    Edward Silverman, Staff Director

        William D. Duhnke, Republican Staff Director and Counsel

               Colin McGinnis, Professional Staff Member

                Neal Orringer, Professional Staff Member

                Misha Mintz-Roth, Legislative Assistant

          John O'Hara, Republican Senior Investigative Counsel

                Mark Oesterle, Republican Chief Counsel

                       Dawn Ratliff, Chief Clerk

                      Devin Hartley, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                        TUESDAY, OCTOBER 6, 2009

                                                                   Page

Opening statement of Chairman Dodd...............................     1
    Prepared statement...........................................    47
Opening statements, comments, or prepared statement of:
    Senator Shelby...............................................     3
        Prepared statement.......................................    48
    Senator Menendez.............................................     5
    Senator Schumer..............................................     9
        Prepared statement.......................................    48

                               WITNESSES

Sam Brownback, a U.S. Senator from the State of Kansas...........     6
    Prepared statement...........................................    49
Robert P. Casey, Jr., a U.S. Senator from the State of 
  Pennsylvania...................................................     7
    Prepared statement...........................................    51
James B. Steinberg, Deputy Secretary of State, Department of 
  State..........................................................    13
    Prepared statement...........................................    53
    Responses to written questions of:
        Senator Vitter...........................................    63
Stuart A. Levey, Under Secretary for Terrorism and Financial 
  Intelligence, Department of The Treasury.......................    15
    Prepared statement...........................................    57
    Responses to written questions of:
        Senator Vitter...........................................    65
Daniel O. Hill, Acting Under Secretary for Industry and Security, 
  Department of Commerce.........................................    17
    Prepared statement...........................................    60

                                 (iii)


MINIMIZING POTENTIAL THREATS FROM IRAN: ADMINISTRATION PERSPECTIVES ON 
            ECONOMIC SANCTIONS AND OTHER U.S. POLICY OPTIONS

                              ----------                              


                        TUESDAY, OCTOBER 6, 2009

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 9:32 a.m. in room SD-106, Dirksen 
Senate Office Building, Senator Christopher J. Dodd, Chairman 
of the Committee, presiding.

       OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD

    Chairman Dodd. The Committee will come to order.
    Let me welcome all of our guests who are here in the 
hearing room this morning and welcome our witnesses to this 
hearing, as well as my colleagues who are here today. Our 
hearing is ``Minimizing Potential Threats from Iran: 
Administration Perspectives on Economic Sanctions and Other 
U.S. Policy Options.'' I am going to make some brief opening 
comments. I will then turn to my colleague from Alabama. 
Normally we move right into our witnesses, but this is a 
subject matter, I know, in which many members have interest. So 
I will ask if anyone has any very brief opening comments they 
would like to make, and then we will turn to our two colleagues 
who are here--Senator Brownback and Senator Casey.
    I should let you know I extended the invitation to others 
as well who have an interest in the subject matter. My 
colleague from Connecticut, Senator Lieberman, and my wife this 
morning are attending a funeral. We lost a wonderful young 
captain who was killed in Afghanistan, and the funeral services 
are for him this morning. And Joe, properly, and my wife are 
there at the funeral services in New Haven this morning. So I 
apologize for his absence. He has a strong interest in the 
subject matter, as many of you know, along with Senator Kyl and 
Senator Bayh, who have also offered a proposal dealing with 
sanctions.
    So we will move along here and get to our witnesses from 
the administration as quickly as we can. But I thank everyone 
for their tremendous interest, appropriate interest in this 
subject matter.
    Today we confront, of course, a serious threat to our 
Nation's security and global stability: the prospect of a 
nuclear-armed Iran. If Iran were to acquire a nuclear weapons 
capability, it would pose, I think all of us agree, a serious 
threat to peace and security in the Middle East, especially to 
our closest friend in the region--Israel--not to mention to 
ourselves and others as well.
    At our last Iran hearing in July, Senator Shelby and I 
agreed to hear from the Obama administration before moving 
forward on any sanctions legislation. Much, of course, has 
happened in that time.
    Last week, in Geneva, after revealing another covert 
uranium enrichment facility in Iran, the administration held 
its first diplomatic meetings with Iran and other permanent 
members of the U.N. Security Council and Germany. Under 
Secretary of State William Burns met one-on-one with Iran's 
chief nuclear negotiator. This dialogue demonstrated the United 
States' commitment, in my view, to pursuing every avenue to 
push Iran to come clean on its nuclear program and abide by 
international nonproliferation commitments.
    President Obama described the talks, and I quote, as ``a 
constructive beginning.'' Participants agreed to follow-up 
talks later this month. The International Atomic Energy Agency 
is to be granted access to Iran's uranium enrichment site in 
Qom, and Iran has indicated a willingness in principle to 
export low-enriched uranium to Russia and France for processing 
for medical uses.
    Whether Tehran will keep these commitments, or if it will 
prove yet to be another stall tactic to avoid tougher 
sanctions, obviously remains to be seen. And the situation is 
increasingly urgent, as I think many would agree. Over the 
weekend, the New York Times reported that the IAEA scientists 
believe Iran has enough sensitive data to assemble a nuclear 
weapon. Ultimately, we will only succeed if Iran's leaders are 
persuaded to cooperate or face sustained, progressively 
intensifying multilateral economic and diplomatic pressure on 
their government, including tougher sanctions. They must make a 
clear choice: come clean on their nuclear program, suspend 
enrichment, and stop supporting terrorists around the world, or 
continue to deepen their international isolation.
    Increased international pressure and the specter of biting 
sanctions are clearly what have brought Iran to the table for 
substantive talks, in my view. Worldwide condemnation of 
Tehran's secret enrichment activities, its human rights abuses, 
and post-election crackdown have unified the international 
community to intensify the pressure on Iran's leaders. We must 
not let up now.
    I intend to move forward in this Committee this month on 
comprehensive sanctions legislation. I am committed, as I think 
colleagues are as well, to ensuring that this Congress equips 
this President with all of the tools that he needs to confront 
the threats posed by Iran. Just as last year, we will 
incorporate the best of our Senate colleagues' contributions 
into one original Committee bill, including penalties on 
companies that support Iran's import of refined petroleum 
products or bolstering its domestic capacity, advanced by 
Senators Bayh, Lieberman, and Kyl, the authorization for State 
and local governments to divest from companies involved in 
critical businesses with Iran sponsored by our colleagues who 
are here today, Senators Brownback and Casey.
    In addition, our legislation will further tighten our trade 
embargo on Iran, enhance Treasury's mandate to freeze assets 
tied to Iran's terrorist and proliferation activities, and help 
to cutoff Iran's access to the most sensitive and advanced 
technology available through tougher export controls on these 
products sent to Iran through its black market trading 
partners.
    I would hope our legislation will complement, as I believe 
it will, and reinforce ongoing diplomatic efforts and send a 
very, very clear signal to Iran's leaders of what is in store 
if they continue to defy the will of the international 
community.
    We are very fortunate to be joined today by some of the 
administration's chief architects of Iran policy:

    Deputy Secretary of State James Steinberg will elaborate on 
ongoing diplomatic efforts to curb Iran's nuclear ambitions, 
assess our chances for success, and survey the policy options.
    Under Secretary of the Treasury Stuart Levey joins us once 
again. A welcome holdover from the Bush administration, he will 
discuss the tough targeted financial measures already deployed 
against Iran and explore with us other pressure points in the 
global financial system that could be employed against Iran's 
Government.
    And, finally, we will hear from the Acting Under Secretary 
of Commerce Dan Hill. It has been over 2 years since the Bush 
administration proposed restricting export licenses to 
countries where sensitive technology flows to rogue nations, 
such as Iran, via third nations, combating black market 
proliferation networks which flourish throughout Asia and the 
Middle East.
    But first we are going to hear from two of our colleagues 
after we hear from Senator Shelby and others this morning who 
may be here. Senator Casey and Senator Brownback will describe 
their legislation currently under review by our Committee on 
the role of divestment from firms doing business in Iran's 
energy sector.
    We welcome to the hearing those members who are here and 
our guests who are in the audience, but let me turn first to 
Senator Shelby.

             STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you, Mr. Chairman.
    Recent developments in Iran underscore the importance of 
this morning's hearing. Last month, we learned that Iran has a 
secret uranium enrichment facility. Last week, the Iranians 
announced that they had reached a last-minute deal to send 
their supplies of low-enriched uranium to France and Russia for 
further enrichment. Just yesterday, news reports revealed that 
senior staff at the International Atomic Energy Agency have 
concluded that Iran has acquired ``sufficient information to be 
able to design and produce a workable nuclear weapon.''
    Although Iran denies that it is trying to develop nuclear 
weapons, it has taken no credible steps to prove otherwise. 
Iran's troubling conduct is not limited to its pursuit of 
nuclear weapons. Iran has the dubious distinction of being the 
most active state sponsor of terrorism for 10 years running, 
according to our State Department. Because of Iran's extensive 
financing of terrorism around the globe, the Treasury 
Department has referred to Iran as ``the central banker of 
international terrorism.''
    There should be no doubt that Iran remains a serious and 
growing threat to the entire Middle East region, to our 
European allies, and to the interests of the United States. The 
issue is not whether we must take action to check Iran's 
hostile ambitions but, rather, I believe, how to maximize the 
effectiveness of the actions that we take.
    There is a long history of failed policy designed to rein 
in Iran. As Secretary of Defense Gates noted last October, and 
I quote, ``Every administration since 1979 has reached out to 
the Iranians in one way or another, and all have failed.''
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much, Senator.
    Any opening comments? I know Senator Corker--it is a 
modified Corker rule we are applying here this morning, but 
several members----
    Senator Shelby. Corker II.
    Chairman Dodd. That is right. Any comments, Jack? No? Jim? 
Go ahead, Jim.
    Senator Bunning. Thank you, Mr. Chairman.
    I believe this is probably the most important hearing that 
I have been with you since I have been on the Banking 
Committee. The danger of a nuclear Iran poses one of if not the 
greatest threat to our national security. Now more than ever, 
we need to use every economic and diplomatic tool at the 
disposal of the United States and the rest of the free world to 
prevent this from happening.
    We have had sanctions against Iran on our books since 1987, 
the first year I was in Congress. They, along with other 
multilateral efforts, have served to put a financial choke on 
Iran's rogue behavior. Now is the time to expand these 
sanctions even further and close several loopholes in existing 
laws.
    In the past, I have authored legislation to enforce a 
mandatory ruling of investigations of potential violations of 
existing Iran sanctions under the Iran Sanctions Act of 1996. I 
was pleased last year to see this Committee incorporate my 
amendment into the Chairman's mark of S. 3445, the 
Comprehensive Iran Sanctions Accountability and Divestiture 
Act. I am looking forward to working with the Chairman and 
Senator Shelby to ensure that this language and its stated 
purpose are incorporated in any new Iran sanction legislation 
that this Committee will take up.
    As it stands, the State Department is encouraged but not 
required to provide a determination on whether or not a company 
is in violation of our sanctions, thus giving these sanctions 
little or no enforceability. Time and time again, I have asked 
the State Department for transparency on this issue as well as 
guidance on how to develop workable guidelines on enforcement 
that will give our sanctions real teeth. Now is the time to 
enforce these sanctions and deny Iran the financial capital 
needed to fully fund their nuclear proliferation and support 
for international terrorism.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much, Senator.
    Anyone else wish to be heard? Bob, do you want to be heard 
on this at all quickly? Senator Menendez.

              STATEMENT OF SENATOR ROBERT MENENDEZ

    Senator Menendez. Thank you, Mr. Chairman. I appreciate the 
opportunity.
    Mr. Chairman, I just want to say that I appreciate you 
holding this hearing, incredibly important, incredibly timely, 
in the midst of all the Committee's other work, and to state my 
strong support for strong actions on Iran's financial and 
energy sector should efforts to engage with the regime fail to 
produce desired results.
    You know, although the administration's meetings with Iran 
officials in Geneva last week have been called ``a constructive 
beginning''--and I look forward to hearing how that definition 
was defined through our witnesses-what we need now is 
meaningful action by the Iranian Government to live up to its 
obligations under multiple U.N. Security Council resolutions.
    Current engagement efforts must not be an open-ended 
process. We cannot weather endless rounds of fruitless 
negotiations while the Iranian regime surreptitiously advances 
its nuclear ambitions. The Iranians have a history of using 
talks to stall for time in developing their nuclear program. 
This fact and the troubling disclosure of a covert enrichment 
facility at Qom underscore the urgency with which we must be 
prepared to resort to severe sanctions to arrest Iran's nuclear 
ambitions.
    I continue to ask, How long are we to pursue what up to now 
have been fruitless negotiations while the Iranian Government 
continues to pursue a clandestine nuclear program with the 
clock running out?
    And so I hope that the negotiations can provide a 
resolution, but I also believe that there are many areas of 
Iran's financial and energy sector where sanctions can have a 
profound effect. Sanctioning Iran's central bank or, for that 
matter, banks that continue to do business with Iranian banks 
could cause the Iranian banking system to collapse. Sanctioning 
suppliers of refined petroleum products to Iran and thereby 
curtailing Iran's ability to import such products could be 
devastating to Iran's economy. Those are but two examples.
    I firmly believe, however, that use economic pressure is 
far superior to the other alternatives which we might have to 
consider in the future if we do not act now. And so I believe 
that the opportunity for those sanctions, if the talks soon do 
not really produce meaningful results, is a far better 
alternative than the options that would be left to us on the 
table.
    Thank you, Mr. Chairman, and I would ask that my full 
statement be included in the record.
    Chairman Dodd. That will be the case. Thank you, Senator.
    Chairman Dodd. By the way, for the record purposes, any 
statements that members want to put in the record will be 
included, along with any supporting documentation. That will be 
true of all of our witnesses as well. I will make that point.
    Senator Brownback and Senator Casey, we welcome both of you 
to our Committee, and we are glad you are able to be here this 
morning to present your thoughts and ideas. Senator Brownback, 
we will begin with you.

           STATEMENT OF SAM BROWNBACK, A U.S. SENATOR
                    FROM THE STATE OF KANSAS

    Senator Brownback. Thank you very much, Mr. Chairman. I 
appreciate that. Ranking Member Shelby, members of the 
Committee, thank you very much for attending and for letting us 
speak here today. I have worked for a number of years on 
Iranian policy issues. It has been a difficult task and one I 
cannot say we have got a whole lot to show for over a number of 
years.
    In spite of all the efforts and the diplomatic efforts, the 
Iranian regime has continued to choose a collision course with 
the free world. The Iranian Government is the leading state 
sponsor of terrorism worldwide, as Senator Shelby noted, the 
foremost exporter of extremist ideology, the primary source of 
instability in the Middle East. The regime's leaders have 
brutally oppressed their own citizens. They have threatened to 
commit genocide against the state of Israel, the region's only 
full-fledged democracy. And the regime's radicalism and 
brutality not only harms our interest and threatens our 
national security, but also challenges our moral obligations.
    It simply, in my estimation, would be unconscionable to 
allow the mullahs to acquire nuclear weapons. Were they to 
achieve this goal, they would possess a trump card to ensure 
the continuation and augmentation of all these dangerous and 
destabilizing actions.
    Mr. Chairman, you have been willing to hear us on our 
simple piece of legislation. It is a piece of the puzzle, I 
believe. It certainly is not the whole thing. It is an effort, 
like Senator Menendez is saying, that you try to get out in 
front with some things to try to head off a much bigger 
collision, and that is what we are after with this.
    There is a very simple divestiture piece. It is modeled 
after something that was done 2 years ago on the Sudan 
divestiture effort, which was modeled after the South African 
divestiture effort. This allows State and local units of 
government to divest from investments associated with Iranian 
companies or companies doing business in Iran in such a way to 
bring an economic pressure on them. A number of States have 
already done this, and yet they are in this legal limbo whether 
or not they can actually legally do it. This makes it clear 
that they can do it.
    Iran's Sanctions Enabling Act, S. 1065, currently has 33 
bipartisan cosponsors of it. The administration I believe would 
support it. Then-Senator Obama in the last Congress was the 
cosponsor along with me of this same bill. So I think the 
President--I know he is well aware of it and is supportive of 
it.
    I would say, though, that this is only one piece of it. We 
have got to do, I think--and this Committee is a key one in 
doing this--a broad set of sanctions proposal. I have pushed in 
the past that we should look at human rights as being our first 
concern and the last of our concessions, not the other way 
around. I think we need to showcase that in this overall piece 
because that gets the people of Iran, which are natural allies, 
on our side if we emphasize the Iranian people and their need 
for human rights. Along this line, I think appointment of a 
special envoy for human rights in Iran to elevate and lift up 
the issues would be good.
    Another issue that is working its way through the foreign 
operations budget now is the Global Interest Freedom 
Consortium. It is a small amount of money, $30 million, to 
allow people to be able to communicate over blogs, Facebook, 
and Twitter from the Iranian revolution. We saw this during the 
election. It has been very effective as the regime tries to 
block people getting onto the Internet, and yet some of these 
fairly simple mechanisms can allow them to communicate over the 
Internet. I think that would be a key thing as well for this 
Committee to support and add its voice to.
    And, finally, Radio Farda I think has been a good key piece 
of the overall communications effort with the Iranian people, 
and I would urge its continuation and support.
    That is hitting a round of issues, but, Chairman, I think 
we have got to go at this strong, because the collision course 
is what has been set by the Iranian regime, and anything we can 
do to stop that prior to them developing nuclear weapons are 
things I think we have to engage, and we have to engage them 
now. We have got to push this forward at this point in time and 
not wait and not dither, saying, well, we are waiting on 
something else or we are waiting diplomatically for things to 
move, because I think diplomatically the Iranians are just 
using that to stall for time while the collision course gathers 
steam.
    Thank you, Chairman.
    Chairman Dodd. Thank you very much, Senator.
    Senator Casey.

       STATEMENT OF ROBERT P. CASEY, JR., A U.S. SENATOR
                 FROM THE STATE OF PENNSYLVANIA

    Senator Casey. Mr. Chairman, thank you very much, and I am 
honored to be back before this Committee as a former member.
    Chairman Dodd. Good to have you back. Anytime you want to 
come back.
    Senator Casey. We meet here at a time of grave challenge 
with regard to what Iran has been up to, and I want to commend 
the work of this Committee, Mr. Chairman and Ranking Member 
Shelby and the entire Committee, for focusing, appropriately 
so, on this grave challenge. I do want to commend the work of 
Senator Brownback not just on his work on our particular piece 
of legislation but generally over many years on these issues.
    We have, as I said, a challenge before us, and I know that 
many saw some hope in some of the discussions last week in 
Geneva. But I do not think we should be under any illusions 
with regard to what this regime has been doing.
    This is a regime which has refused to recognize the will of 
the Iranian people and last June's election. This is a regime 
that has repeatedly disregarded U.N. resolutions on its nuclear 
program. And this is a regime that previously agreed to send 
uranium abroad for enrichment, only to later renege on the 
deal. And, finally, this is a regime which continues to 
threaten our ally Israel and, of course, is a direct threat to 
our national security interests.
    Iran, the regime in Iran, has repeatedly claimed that its 
nuclear program is only for peaceful purposes. But the facts, 
especially in recent weeks, do not add up. The United Nations 
says Iran violated international law by not notifying the IAEA 
when construction on the Fordu site started more than 3 years 
ago. Why are international inspectors invited only after the 
regime is caught misleading the world again?
    So I believe we have several strategies here that have to 
be employed, and they are on concurrent or parallel tracks.
    First, the negotiations conducted by the administration are 
important and should continue. At a minimum, this international 
effort will help restore America's long-held reputation of 
being an honest broker, of a country that values diplomacy, of 
a country that values relationships with allies and welcomes 
new ones. Internationally, the U.S. is on better footing on 
this ground than it has been in years. Ties with traditional 
allies in Europe have been strengthened, and those on the 
fence, like Russia and China, are showing signs of cooperation 
on issues that are critical to our national interests.
    But, second, I believe the Senate must act, and in summary, 
what we are trying to do is to give not only the Federal 
Government all the tools it needs, the administration as well, 
but in particular to give other levels of Government--in this 
case, pension funds--give them the tools they need to 
participate in this strategy.
    I believe the Senate should do its part by providing the 
administration all the tools it needs to put pressure on the 
Iranian regime. Iran's leaders need to know that if they decide 
to renege on their commitments, as has been done in the past, 
the United States is prepared to impose a series of tough 
sanctions--tough sanctions including measures that will allow 
State pension funds to divest from Iran and restrict petroleum 
imports.
    The Iran Sanctions Enabling Act, which Senator Brownback 
and I introduced last May, would allow State and local 
government pension funds to divest from companies that do more 
than $20 million in business with the Iranian energy sector. As 
Senator Brownback noted, this measure is similar to legislation 
used with regard to Sudan in the past. Eighteen State 
legislatures have passed individual Iran sanction measures, and 
we need to do the same thing at the Federal level to give these 
pension funds the authority that they need to help us out on 
this grave challenge.
    Finally, in terms of a third strategy, we need to be 
prepared--and I would add to the second part of that the Kyl-
Bayh-Lieberman legislation as well that I and many others are 
cosponsors of.
    Third, I would think we need to be prepared to support 
democratic voices and human rights activists in Iran. This is 
not about regime change, but a genuine commitment to democratic 
values. In a speech before the U.N. General Assembly, President 
Obama said, and I quote:

        There are basic principles that are universal. There are 
        certain truths that are self-evident. And the United States 
        will never waver in our efforts to stand up for the right of 
        people everywhere to determine their own destiny.

    Our long-held commitment to human rights should not fall 
off the table during these important deliberations on Iran's 
nuclear program. In fact, these should be fully addressed, and 
our diplomats should raise specific concerns with regard to 
human rights in Iran.
    Ultimately, the political fate of Iran is up to its people 
to decide, and we should take the lead from them. We should 
remain open to their calls for assistance.
    In closing, Mr. Chairman, if history is any indication, 
Congress should be prepared to hand the President the leverage 
he needs to send a message to the Iranian regime that America 
cannot and will not accept an Iran with nuclear weapons. The 
administration needs all the tools at its disposal to increase 
pressure on the regime diplomatically, politically, and through 
more stringent economic sanctions.
    I call on my colleagues in the Senate to listen to 
legislatures in so many States across the country who have 
passed divestment legislation. The American people do not want 
to do anything with investing in Iran's energy sector. We need 
to send a strong message to the regime and the international 
community that a nuclear-armed Iran is unacceptable.
    Mr. Chairman, thank you very much.
    Chairman Dodd. Thank you very much, Senator, and I 
appreciate that very much.
    We have been joined by a couple of our other colleagues 
here, and I want to turn to Senator Schumer. I see Senator 
Bayh, who is also one of the authors of one of the proposals 
that we hope to incorporate in this bill.
    Just to notify my colleagues, I want to thank people like 
Senator Casey, Senator Brownback, Senator Lieberman, and 
others. We had planned on this hearing actually prior to the 
announcement of these talks that opened up on October 1, but I 
think it is very timely that we do so. I think the point is 
providing the tools necessary to go forward are essential.
    So let me turn to Senator Schumer briefly. If I could ask 
my colleagues to be relatively brief with opening statements, 
we are going to have full statements in the record.

            STATEMENT OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. I would ask unanimous consent that my 
entire statement----
    Chairman Dodd. You are excused, by the way. If you want to 
sit for a minute, we will have these opening statements, and 
then any questions we will ask you to hold up a minute.
    Senator Schumer. I ask unanimous consent that my entire 
statement be read in the record, and thank you, Mr. Chairman, 
first, for holding these hearings. They could not come at a 
better and more important time, and I want to thank all of my 
colleagues, Senator Brownback, Senator Casey, Senator Bayh, 
Senator Lieberman, Senator Kyl, who worked so hard on this.
    Look, we have to do something. This has been an issue 
important to me for about 10 years. I believe when it comes to 
Iran, we should never take the military option off the table, 
but I have long argued that economic sanctions are the 
preferred and probably the most effective way to choke Iran's 
nuclear ambitions.
    The Obama administration has recently begun direct 
diplomatic negotiations with Iran, and the first round of these 
talks did yield some important concessions from the Iranians 
last week. These negotiations certainly continue, but they do 
not supplant the need for action by this Congress now.
    Iran, when it is caught red-handed, has a habit of 
promising just enough to avoid a strong response from the 
international community. Not this time. We should continue 
talks with the Iranians, but we should not trust them. The 
threat of new sanctions will only serve to strengthen the 
President's hand as we pursue a diplomatic solution. And as I 
mentioned, economic sanctions are the right way to go. I am 
going to try to summarize here in the interest of time.
    The bill sponsored by Senators Bayh, Kyl, and Lieberman I 
think is exactly the right way to go. Gasoline is one of the 
few pressure points where, if we act unilaterally, we will have 
real effect on the Iranian economy. Most of the other things we 
have to do multilaterally. But that is one thing that we can 
do, and I am glad it is in the legislation.
    Two other things that we can do unilaterally: First, 
Senator Graham and I introduced something called RICA, the 
Reduce Iranian Cyber-Suppression Act, and what it would do, it 
would bar companies that export sensitive communication 
technology equipment to Iran from applying or renewing 
procurement contracts with the U.S. Government. Many of the 
large ones, particularly in Europe, do this. It allows the 
Iranian secret police and others to spy and do other things 
against their citizens. We should stop them from selling it by 
using tough sanctions.
    And another point in the bill, 27 of us last year called 
for the Iranian central bank--we blocked off the bank, the 
correspondent reactions of banks with one another, and that 
really hurt Iran. So what they did is they had their central 
bank move in, and now it does what commercial banks do. We 
should block, and I hope we will put it in this legislation, 
the Iranian central bank, called the Bank Markazi, from playing 
a role in helping other banks circumvent U.S. financial 
sanctions. We should treat them as a commercial bank and block 
them off.
    Finally, one other point, Mr. Chairman, and that is that we 
need to enforce as well as put new tools to use sanctions. Our 
existing sanctions are riddled with leaks in the form of 
trading partners who funnel our exports through a back door to 
Iran. We send them exports, and then they send them to Iran. We 
can plug these leaks by increasing the amount of inspector we 
have stationed in the United Arab Emirates and other countries 
where black markets are serving to circumvent our sanctions.
    A GAO report, for instance, found that enforcement is 
lacking particularly in the UAE, and so today at least I am 
asking the administration to deploy more inspectors to the UAE 
and other areas of vulnerability of sanctions.
    It is a very good bill, Mr. Chairman. I hope we move it 
quickly. I ask that my entire statement be read into the 
record, and I thank my colleagues.
    Chairman Dodd. Thank you, Senator. It will be included.
    Chairman Dodd. Senator Bayh, any opening comments?
    Senator Bayh. Just very briefly, Mr. Chairman. First, I 
would like to thank you for your leadership. With all the other 
issues you have on your plate, this is a clear signal of how 
seriously you take this matter, and so I want to thank you for 
that.
    Also, for your willingness to incorporate the legislation I 
have worked on with Senators Lieberman and Kyl. We have 76 
cosponsors of that legislation spanning both sides of the 
political aisle and running, frankly, the length of the 
ideological spectrum, from left to right. So there is real 
consensus about the need to bring urgency to this issue because 
time is not our friend. Iran is moving aggressively down a 
nuclear path. If we don't take aggressive steps, 1 day, we will 
wake up to the unpleasant surprise of them having become a 
nuclear power, and at that point, it will be a much more 
difficult problem to deal with.
    Also, on the issue that I focused on here, vulnerability to 
restricting imports of refined petroleum products. They 
recognize that vulnerability. They are moving aggressively to 
deal with it by increasing their refining capacity. So we have 
a window of opportunity here in the next year or two to act, to 
really raise the price that they have to pay for their nuclear 
ambitions and hopefully get them to change their minds.
    The last thing I will just say, Mr. Chairman, is this 
legislation offers our best chance to avoid the very painful 
dilemma of having to choose between either a nuclear Iran, 
which is unacceptable, or military action to avoid that 
eventuality, which would be very difficult in and of itself.
    So I thank you for your leadership, for including our 
approach. I want to thank our colleagues for focusing on this, 
as well. Frankly, we need to use the entire spectrum of 
sanctions to try and deter the Nation of Iran from pursuing 
these weapons.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you, Senator, very much.
    Do any of our colleagues have questions for our two 
friends, Senator Brownback and Senator Casey? If not, you are 
both--I am sorry, Bob. Did you have----
    Senator Corker. I would just--first of all, I couldn't 
agree more with the opening statements and things that have 
been said about this. I absolutely believe that Iran obviously 
is pursuing a nuclear weapon and that is absolutely 
unacceptable.
    I guess the question I would have for all of the sponsors, 
which it sounds like we have many of in the Senate, is are we 
looking at something that is enabling, that gives the 
administration tools that they can use should they decide it is 
appropriate to use them, or are we prescribing? I mean, to me, 
that is something that is of concern, especially with what has 
just occurred. I mean, we do have an opportunity, hopefully, to 
actually have sanctions in place that mean something for the 
first time in decades, and I wonder whether the Senate and 
House, acting in a prescriptive way, is actually helpful or 
harmful. I guess the question is, are we talking about enabling 
legislation or are we talking about directing, prescriptive 
type of legislation?
    Chairman Dodd. Do either one of you want to respond to that 
very briefly?
    Senator Brownback. Just briefly on ours, it is clearly 
enabling, because what we are doing is allowing State and local 
pension funds to divest, and right now, they have a 
questionable legal authority whether they can do that. So this 
is then their choice, but it is something a number of them will 
take advantage of.
    Chairman Dodd. Senator Casey, any quick comments?
    Senator Casey. No. I would agree with that assessment in 
terms of our legislation. But at the same time, if the other 
major piece, the Bayh-Kyl-Lieberman, were to pass, it does give 
the President authority. It is not--in my understanding, it is 
not prescriptive, but I think it sends a very powerful message 
to the Iranian regime and to the world that the U.S. Congress 
is united on this. So I think it could be a combination of both 
empowerment in terms of the pension funds, but also giving the 
President authority that is unilateral.
    Chairman Dodd. Thank you very much. We thank both of you 
very much for your participation this morning. We look forward 
to working with you.
    That was a very good question, Bob, and it is an important 
one, obviously. I think the enabling point is one, because we 
do need to modify some laws that would allow the administration 
to act, and thereby giving them those tools ahead of time--and 
I suspect that there are other ideas they have which probably 
will not be included necessarily in our legislation, as well. 
So it is an excellent question and one that we are sensitive to 
here, as well. I appreciate it very much.
    Let me turn to our witnesses. Again, I thank you for being 
with us. Jim Steinberg is well known to many of us here. He is 
Deputy Secretary of State, the second highest official at the 
Department. He works closely with Secretary of State Clinton, 
our former colleague, and Under Secretary William Burns. By the 
way, I want to thank Secretary Burns. I talked to him over the 
weekend. He called and gave me a good briefing on the events as 
they unfolded on October 1 and was constructive and somewhat 
optimistic, although cautious, obviously, about progress. But I 
appreciate very much his doing so.
    During the Clinton administration, Jim Steinberg served as 
Deputy National Security Advisor and Director of Policy and 
Planning at the State Department. And while I don't mention it 
here, he formerly sat behind these daises up here as a Senate 
staffer, so he knows our job as well as the job of the 
executive branch. Jim, welcome back to the Senate.
    Stuart Levey is the Under Secretary for Terrorism and 
Financial Intelligence at the Department of Treasury, the first 
ever to hold this position. Appointed by President Bush, Mr. 
Levey has earned renown for honing U.S. sanctions policy and 
employing targeted financial measures against financiers of 
terrorism and weapons proliferation. You have a wonderful 
reputation. You have done a great job and we are delighted you 
are staying on to continue this effort, so thank you for being 
with us this morning.
    I have already introduced Dan Hill, but let me just briefly 
give you a little background. Dan Hill is the Acting Under 
Secretary for Industry and Security at the Department of 
Commerce. In this capacity, he oversees policies for licensing 
exports of dual-use products, that is, goods and services that 
have both military and commercial applications. A senior career 
commercial official, Mr. Hill is playing a key role in the 
administration's review of U.S. export control systems. We 
thank you very much, Mr. Hill, for being with us.
    I am going to ask you to try and keep your comments 
relatively brief, if you could. And again, your full statements 
and supporting documents will be a part of the record.
    We will begin with you, Jim.

  STATEMENT OF JAMES B. STEINBERG, DEPUTY SECRETARY OF STATE, 
                      DEPARTMENT OF STATE

    Mr. Steinberg. Well, thank you, Mr. Chairman, Ranking 
Member Shelby, and all the Members of the Committee. It is 
always good to be back in the Senate.
    I want to express appreciation on behalf of the whole 
administration for the interest you, this Committee, and the 
entire Congress has expressed in this subject. It is an 
important issue for all of us and I am confident that we will 
have a very useful discussion this morning about how we can 
best achieve our common objective, which is how to address the 
challenge posed by Iran's nuclear programs. Strong 
Congressional interest in this issue is extremely valuable to 
us in our efforts and I am appreciative of all the work that 
you have already done on this.
    I ask, obviously, that my full statement be part of the 
record, but I will just make a few points in summary.
    I want to begin by being clear about our objective. Our 
goal is to prevent Iran from achieving a nuclear weapons 
capability, and we will work with our allies and partners 
toward that goal, as well as to counter Iranian actions that 
threaten to destabilize the greater Middle East and the rest of 
the world.
    To that end, as you have observed, we pursued a dual-track 
strategy of economic sanctions and engagement. We think that 
only by using them together and coordinating them closely can 
we achieve this important objective.
    Let me just take a minute to explain how we are 
implementing the strategy, including last week's meeting in 
Geneva, and I would be happy to take your questions when I am 
finished.
    We understand Congress's concerns and sense of urgency that 
you have all expressed this morning and look forward to working 
with you and consulting with you on any legislative effort with 
the aim of maximizing our ability to pursue this two-track 
strategy to convince Iran to meet its obligations while 
preserving the President's flexibility to carry out the 
strategy successfully. This Committee and others have already 
provided crucial leadership and important work and we 
appreciate the importance of working with you in this shared 
objective.
    I want to emphasize that we are pursuing engagement not 
because we believe in talking for talking's sake, but because 
we believe it will advance our goals. In the past, as we have 
attempted isolation without engagement, Iran has developed a 
growing mastery of the nuclear fuel cycle while flagrantly 
flouting its international obligations. Its leaders have 
neglected the rights of its citizens. Its government has 
continued to pursue a wide range of destabilizing activities 
abroad.
    Now, we are realistic about the prospects of engagement. We 
are and we have forcefully presented our concerns to Iran's 
leaders and made clear the choices they have before them. But 
engagement not only increases the chances of achieving our 
goals through negotiations. As so many of you have observed, it 
also forges a strong consensus with others if negotiations do 
not produce the results that we seek.
    Our objective is a positive outcome that successfully 
addresses the security concerns posed by Iran's nuclear program 
to the United States, to Iran's neighbors, and to the 
international community. We are making clear the steps that 
Iran can take to help resolve our concerns and those of the 
international community and the benefits that that would bring 
in turn.
    Iran must demonstrate through its actions the exclusively 
peaceful intentions of its nuclear program. That means allowing 
unfettered access to international inspectors, cooperating 
fully with the IAEA's investigation, and taking up the 
longstanding proposals of the P5+1, including a halt to uranium 
enrichment.
    In response to the clear and unified message of the P5+1 in 
Geneva last week, Iran pledged to take several concrete steps 
along these lines, including IAEA inspections of the previously 
undisclosed facility at Qom, now scheduled for October 25, and 
an agreement in principle regarding a supply of low enriched 
uranium for the Tehran research reactor.
    If implemented--and I stress, if implemented--this 
agreement would limit Iran's potential to achieve a short-term 
breakout in developing weapons grade highly enriched uranium, 
and in so doing would help demonstrate whether Iran is serious 
about proving its peaceful--exclusively peaceful intentions. 
But as Chairman Dodd noted in quoting President Obama earlier 
last week, he said this is a constructive beginning, but it 
must be followed by constructive action by the Iranian 
government. We will look for and judge by the constructive 
actions ahead of another meeting of the P5+1 with Iran, which 
we anticipate to take place later this month.
    While we are beginning this diplomatic process, our 
patience is not limitless. We are sensitive to the security 
concerns of many countries in the region, and these concerns 
have heightened our sense of urgency. In the event that Iran 
passes up this opportunity, our engagement will make it 
possible to mobilize international action more effectively. By 
our openness to a negotiated resolution, we can clearly 
increase our ability to persuade others to stand by with us if 
more forceful action is needed. Our efforts to convince Iran to 
change course will be more effective if we act in concert with 
others.
    Our efforts have already shown some signs of paying off. 
Three years ago, the United States was virtually alone in 
applying pressure on Iran. Now, a growing number of countries 
share our concern about Iran's negative policies and have 
signaled willingness to join our dual-track strategy. We have 
pursued a progressive tightening of U.N. sanctions on Iran with 
Resolutions 1737, 1747, and 1803. We have worked with our 
colleagues at Treasury and with the international financial 
community through the Financial Action Task Force. The European 
Union has adopted measures to delimit the granting of export 
credits. And as a result of sanctions and international 
efforts, the cost of doing business with Iran is going up.
    I also want to note, as so many of you have done, that our 
concerns with Iran go beyond the nuclear issue. The Iran 
government's terrible repression of peaceful protesters, 
opposition politicians, and journalists following the elections 
reveal to the world much about the character of that government 
and has increased its isolation.
    We are also deeply concerned about the American citizens 
held in Iran and urge the Iranian government to promptly return 
them to their families. We have expressed those concerns 
directly to the Iranian government.
    Tehran's aggressive foreign policy presents another threat. 
In recent years, Iran has benefited from and exploited 
instability in Iraq, Afghanistan, Lebanon, and the Palestinian 
Territories. Our strategy in the greater Middle East is aimed 
at bolstering security for our partners while reducing Iran's 
ability to exploit these challenges for its own gain.
    We have been working with our regional partners, including 
Egypt, Jordan, Iraq, Israel, Lebanon, and the Gulf States, to 
develop cooperation that will enable us to manage the 
political, diplomatic, and security challenges that Iran poses. 
These efforts are beginning to show signs of success, including 
the GCC+3 Forum, inter-Arab cooperation to help address the 
political crisis in Lebanon, security and military talks with 
the Gulf States, and Arab governments' increasing support for 
Iraq. We are also working actively on a comprehensive Middle 
East peace process.
    And some regional governments have chosen to conclude 
modeled nuclear cooperation agreements in partnership with the 
United States, thus disproving Iran's claims that the West 
seeks to block the pursuit of peaceful nuclear energy by 
countries.
    Well aware of the regional and global consequences of a 
nuclear Iran, we will continue with our dual-track strategy. We 
in the international community very much hope that Iran will 
make the correct choices for itself, the region, and the world. 
Yet we will be prepared to move ahead swiftly and effectively 
with additional measures with the confidence that our 
engagement today will make such measures unified and effective.
    So in conclusion, again, Mr. Chairman, thank you for your 
interest in this, for all the Members of the Committee, and we 
look forward to working with you in the days and weeks ahead.
    Chairman Dodd. Thank you very much, Mr. Secretary. We 
appreciate very much your approach. We will have some questions 
for you in a minute.
    Secretary Levey, thank you again for joining us, and thank 
you again for your service.

STATEMENT OF STUART A. LEVEY, UNDER SECRETARY FOR TERRORISM AND 
       FINANCIAL INTELLIGENCE, DEPARTMENT OF THE TREASURY

    Mr. Levey. Thank you, Mr. Chairman, Members of the 
Committee. It is good to be back here again to discuss this 
critical issue. We appreciate your focus on this issue and the 
support you have given us at Treasury over the years.
    Deputy Secretary Steinberg has already given an overview of 
our two-track strategy toward Iran, focused both on engagement 
and on being ready to impose clear consequences on Iran if that 
engagement does not yield the outcomes we seek. For that 
reason, we have been working with our colleagues across the 
U.S. Government to develop a strategy for imposing substantial 
costs on the government of Iran if the President determines 
that that is what is needed.
    The plan we are developing is necessarily comprehensive. As 
many of you noted in your statements, no single sanction alone 
is a silver bullet. We will need to impose measures 
simultaneously in many different forms in order to be 
effective. the plan we are developing also takes into account 
Iran's potential vulnerabilities and those activities that are 
likely to have the greatest influence on Iran's decisionmakers. 
We should be realistic about the ability of sanctions to 
achieve our political and security objectives with Iran. If, 
however, we accurately target the key vulnerabilities and 
fissures within Iran and then act together with a broad 
coalition of governments and key private sector actors, we can, 
at the very least, demonstrate to the Iranian government that 
there are serious costs to any continued refusal to cooperate 
with the international community.
    Although we cannot describe the particulars of our planning 
in an open hearing, I would like to explain some of our 
thinking.
    First, we will build to some extent on what we have done 
before and the efforts that you mention, Mr. Chairman. As this 
Committee knows well, beginning in 2006, we developed and 
implemented a strategy to target Iran's illicit activities. We 
used our authorities to designate more than 100 entities and 
individuals supporting Iran's nuclear missile enterprises, 
including the key organizations within Iran, scores of their 
front companies, Iran's major banks that finance their conduct, 
and Iran's major shipping line that handles illicit shipments 
for these dangerous enterprises. We also acted against the IRGC 
and several of its companies, as well as the Qods Force for its 
role in supporting terrorist organizations.
    Many of our actions have been implemented internationally 
by the U.N. Security Council, and still others by the European 
Union and Australia. We combined those government actions with 
outreach to scores of banks and other private sector leaders 
around the world. We discussed the risks of doing business with 
Iran and shared information with them about Iran's illicit and 
deceptive practices.
    As a result, the international private sector amplified the 
effect of our government actions as banks and companies around 
the world came to understand that if they are dealing with 
Iran, it is nearly impossible to protect themselves from being 
entangled in that country's illicit conduct. At this point, 
most of the world's major banks have cutoff or significantly 
scaled back their business with Iran, and Iran is increasingly 
dependent on an ever-shrinking number of trade and finance 
facilitators.
    The second point I would make is that if we must increase 
sanctions, we will need to adjust our strategy to the current 
situation in Iran. Due to economic mismanagement, some experts 
estimate Iran's unemployment rate to be well over 20 percent, 
with the lack of jobs disproportionately affecting the young. 
Three out of four unemployed Iranians are under 30. Foreign 
investment in Iran has declined substantially.
    The Iranian government's reliance on corruption and 
nepotism in business limits opportunities for all Iranians. The 
government awards no-bid contracts to companies associated with 
the IRGC. These companies operate under names that obscure 
their IRGC affiliation so that many unwitting non-Iranians are, 
in fact, doing business with the IRGC.
    In the name of privatization, the IRGC has taken over broad 
swaths of the Iranian economy. The IRGC seeks to monopolize 
black market trade of popular items, funneling the proceeds 
from these transactions through a patronage system and then 
using them to help subsidize the government's support for 
terrorist groups.
    There is now a broad acknowledgment that the Iranian 
government engages in deceptive financial and commercial 
conduct in order to obscure its development of nuclear missile 
programs and to facilitate its support for terrorism. 
International understanding of those practices have been 
underscored by the U.S. Security Council resolutions on Iran 
and by six warnings issued by the Financial Action Task Force 
about the risks Iran poses to the financial system. Secretary 
Geithner reinforced all of these concerns this week, meeting 
with his counterparts at the IMF in Istanbul.
    Across the board, transactions with Iran are already 
handled differently than transactions with any other country, 
except perhaps for North Korea, engendering either heightened 
suspicion or outright refusal to engage in them.
    The vulnerabilities in Iran could be compounded by the 
internal fractures resulting from the elections. As Secretary 
Gates recently stated, it is clear in the aftermath of the 
election that there are some fairly deep fissures in Iranian 
society and politics, and probably even in the leadership.
    Finally, and I think most important, as the Deputy 
Secretary pointed out, we will need a united coalition. We are 
intensifying work with our allies and other partners to ensure 
that if we must strengthen sanctions, we will do so with as 
much international support as possible. I think that will be 
critical to our success.
    Thank you, and I would be happy to answer your questions.
    Chairman Dodd. Thank you very much, Mr. Secretary.
    Mr. Hill, we appreciate you being here, Mr. Secretary, as 
well.

    STATEMENT OF DANIEL O. HILL, ACTING UNDER SECRETARY FOR 
         INDUSTRY AND SECURITY, DEPARTMENT OF COMMERCE

    Mr. Hill. Thank you, Mr. Chairman. Mr. Chairman, Senator 
Shelby, Members of the Committee, I welcome the opportunity to 
appear before the Committee today to discuss the Department of 
Commerce's role in administering and enforcing U.S. dual-use 
export control policies toward Iran. We work closely with our 
colleagues at the Department of State and the Department of 
Treasury as well as other agencies to implement the 
longstanding U.S. embargo on Iran.
    All exports to Iran are subject to both the Export 
Administration Regulations and the Department of Treasury's 
Iranian Transaction Regulations. The Treasury is the lead 
agency for administering the embargo, including licensing 
activities, which features not only a prohibition on exports 
and reexports of items under our jurisdiction at the Department 
of Commerce, but also comprehensive restrictions on financial 
transactions and investments.
    Commerce, however, is responsible for several aspects of 
the embargo of Iran. First, we provide critical technical 
assistance to Treasury on the proper classification of items 
proposed for export or reexport to Iran under a license.
    Second, we play a vital role in enforcing the embargo by 
investigating transactions that may constitute violations of 
our regulations. An export or reexport of an item subject to 
our regulations without Treasury authorization would generally 
constitute a violation of law. The Bureau of Industry and 
Security at the U.S. Department of Commerce has approximately 
100 Federal law enforcement agents in ten field offices around 
the United States. We have agents stationed at Main Commerce, 
as well.
    We have had a number of significant cases involving Iran 
which have, in turn, led to successful enforcement actions. 
Currently, we have 235 open investigations involving Iran, 
which constitutes a little less than one-third of all the 
investigations we have of possible violations of our 
regulations. I have attached to my written testimony lists of 
recent enforcement cases for Iran that sheds light on our 
activities.
    We also have Export Control Officers in five foreign 
locations: Abu Dhabi in the United Arab Emirates, one in 
Beijing, one in Hong Kong, New Delhi, and Moscow. We hope to 
add more to Singapore and a second one in Beijing in the coming 
year. These Export Control Officers conduct pre-license checks 
and post-shipment verification visits to verify that items will 
be and are being lawfully used and have not been diverted to 
prohibited users or uses within the country or illegally 
transshipped to another country, such as Iran.
    We coordinate closely with the Department of State and 
other agencies as we work with other countries, including 
states that we have concerns that may be involved in 
transshipments to Iran, to establish and strengthen these 
states' export and transshipment control systems. This enables 
those countries to cooperate with us, build their export 
control system based on our best practices, and to cooperate 
with us on specific transactions, as well as take actions 
against parties in their own countries who are illegally 
exporting items.
    We have a set of unique tools at the Department of Commerce 
to enforce the export controls. The first tool that I would 
like to talk about is our Temporary Denial Orders. A Temporary 
Denial Order is a legal order that can be issued quickly for 
180 days at a time to prevent an imminent violation of the 
Commerce regulations.
    For example, in 2008, we issued a Temporary Denial Order 
denying the export privileges of Balli Group PLC and related 
countries and individuals known as the Balli Group, Blue 
Airways, and Mahan Airways for 180 days. Evidence obtained by 
our agents showed that the parties knowingly reexported three 
U.S.-origin aircraft to Iran in violation of our regulations 
and they were preparing to reexport three additional aircraft 
to Iran in further violation of our regulations. Our Temporary 
Denial Order effectively precluded the United States or foreign 
parties from engaging in that activity, and ultimately, the 
Temporary Denial Order prevented the illegal reexport of the 
three commercial aircraft to Iran.
    A second tool we have is what we call the Entity List. This 
is a list that can be used to prohibit the export or reexport 
of any item subject to our regulation to any listed entity. In 
2008, for example, we added 75 foreign parties to the Entity 
List because of their involvement in a global procurement 
network that sought to illegally acquire U.S.-origin electronic 
components and devices capable of being used to construct 
improvised explosive devices. These commodities have been used 
in IEDs and other explosive devices against our Coalition 
forces in Iran and Afghanistan. This network acquired the U.S.-
origin commodities and illegally exported them to Iran.
    As a consequence of the addition of these entities to our 
Entity List, no United States or foreign party may export or 
reexport any items subject to our regulations to these entities 
without a license. Exporting or reexporting of any items to the 
entities without the required license is a violation of law.
    We maintain a robust outreach program to educate the 
private sector on our embargo on Iran and we have detailed 
guidance on our website. We focus on key companies, such as 
freight forwarders, integrators, air cargo carriers, and 
shipping lines with regard to the embargo of Iran. Our efforts 
are targeted toward educating exporters on vigilance in 
partnering with firms based in major transshipment hubs, not 
only in the Persian Gulf region, but also in Southeast Asia.
    In conclusion, I have detailed the role the Department of 
Commerce plays in the administration's enforcement of the 
embargo on Iran and I would be happy to answer any questions at 
this time.
    Chairman Dodd. Thank you very much, Mr. Secretary. I 
appreciate very much your testimony. We will have some 
questions about that.
    Let me just say to my colleagues, I will try and keep 
around that 5 to 6, 7 minutes if we can. There are ten of us--
roughly ten of us here, so we don't want to keep our witnesses 
any longer than necessary.
    Let me begin, if I can, Secretary Steinberg. Critics of the 
administration deride the government's current approach as 
rewarding Iran's misbehavior with just talks, in a sense. You 
get a flavor of that with some of the comments that are made. 
However, as you outlined, our strategy is more nuanced than 
that and it has a dual-track approach, as you pointed out, 
engagement backed by the threat of severe sanctions. How has 
that open-hand diplomacy disarmed our international critics and 
provided the United States with the cooperation that I think 
all of you in one way or another have mentioned here?
    Obviously, you can go it alone, and then we have seen in 
the past--I recall the South African sanctions. We were almost 
alone in that process and had the positive impact, even though 
it would have been better had we had more cooperation. But 
certainly, I think, ultimately, we had an effect on what was 
occurring. But ideally, you get cooperation. If you are seeking 
success here, you need to achieve that. So I am curious as to 
whether or not this approach has helped in building that 
additional support that is necessary.
    And then I would second like to know whether Iran is using 
the talks to make sincere commitments on nonproliferation or to 
stall severe multilateral sanctions. Again, we have a history 
here that raises concerns. You have raised them yourselves. We 
don't know the answer to that yet. Obviously, there is a 
history here which would cause one to have deep concerns about 
how serious Iran is about complying here or just buying the 
time, as many of my colleagues have indicated in their 
statements.
    So I would like to know what benchmarks that you are using 
to correctly judge Iran's commitments down the road. What are 
you looking at here specifically that will give you a stronger 
sense of whether or not we are on the right track with all of 
this. Why don't you begin with that, if you can.
    Mr. Steinberg. Well, thank you, Mr. Chairman. As you said, 
I think one of the keys and one of the important elements of 
our decision to deepen our engagement here is because it does 
strengthen our ability to get the international community to 
support our dual-track approach. When there is a recognition 
that we are going the last mile to seek a diplomatic 
resolution, there is greater understanding if we have to take 
other measures.
    And I think you saw this coming out of the meetings that 
both the President and the Secretary had in New York and 
Pittsburgh over the last several weeks, the comments by 
President Medvedev, for example, a clear indication that they 
Russians understand in light of Iran's behavior and the fact 
that we have made a good effort to try to solve this that the 
Russians seem to be more open to additional sanctions. You are 
seeing a coming together of countries around the world to 
recognize that this is Iran's last opportunity, and if they 
fail to take it, there is a greater openness to this.
    I don't want to underestimate the difficulty. It is very 
critical that we get the support of the Security Council, if we 
can, because that really strengthens the effectiveness. I, 
myself, was in Beijing last week to discuss this with very 
senior Chinese leadership to make clear that we view this as 
critical and a core interest of ours that is important to our 
relationship with China, that they work with us as we engage, 
that they be supportive of our efforts if we need to take 
stronger measures.
    So I think that there is a strong sense that these efforts 
will pay off, and frankly, the spotlight now is on Iran. We 
have come to the table. Everyone is looking for their response. 
And I think by being able to focus that international spotlight 
now on these discussions, people will judge Iran by its 
actions, which leads nicely into your second question, which is 
I think we now actually do have some very concrete benchmarks 
that we can judge whether Iran is now beginning to get serious 
in light of this additional pressure and the global attention 
or whether this is a stalling tactic.
    In particular, we have two very specific commitments that 
we are going to be following up on in just the coming weeks, 
the commitment to ship out the low enriched uranium for 
fabrication into fuel for their research reactor, and the 
commitment to provide the IAEA access to this previously 
undisclosed facility. We have meetings with the Iranians 
scheduled on October 19 to review the details of how to carry 
out this shipment out of the LEU and the inspections of the Qom 
site, the Fordu site are scheduled for October 25. So by the 
end of the month, we will have some very clear indications 
about what their intentions are.
    Going beyond that, we have on the table, as you know well, 
Mr. Chairman, a proposal for a freeze for freeze that would 
begin us down the path of stopping their enrichment program, 
and so we will expect a quick response by then, as well. So I 
think we do have a number of concrete benchmarks.
    I think it is very important that by giving the Iranians 
the sense that the patience is not limitless that we have had 
some success. At the July G8 meetings in Italy, the G8 leaders 
made clear that they anticipated review where we were in 
September, and I think that giving them that sense of a time 
horizon had an impact on getting the Iranians to come forward.
    The President has also made clear that his patience is not 
limitless on this. He sent a very strong message, both publicly 
and privately, that we expect a firm and clear response from 
Iran in the near future.
    Chairman Dodd. Let me ask both of you, quickly, a question 
that has been raised and that is certainly in the minds of 
many--I saw a small piece the other day--those who are 
objecting to this stronger set of sanctions, particularly when 
it comes to gasoline and petroleum issues, that this may have a 
counter effect within the population of Iran, that it could 
trigger a domestic backlash in Iran against the West. It has 
been pointed out that, obviously, the protests have been 
devastating, what has happened to people there, and yet 
highlighted for the world the repressive actions of the Iranian 
Government. But it has been a critical element--I think all of 
us in talking about additional pressures--that we not lose the 
support of the average Iranian in this process here who will 
obviously be affected by these policies we are talking about.
    How do you address that question? It seems to me I recall 
other examples, having been here on the sanctions issues in 
South Africa and elsewhere, that those same criticisms were 
raised at the time, that this was going to have the reverse 
effect. It did not, of course, and we have now learned since 
how important those sanctions were to emboldening and 
encouraging the population that were living under a regime that 
was so repressive.
    What is the answer here, in effect? Do you believe those 
criticisms are legitimate? And if so, how do we address them? 
Or do you believe the Iranian population themselves, those who 
are putting so much on the line, would welcome this approach 
that we are engaging in today?
    Mr. Steinberg. Mr. Chairman, how to impose sanctions and 
have them be effective is a matter of judgment and not science. 
We have had a lot of experience, as you said, over the years 
with sanctions. We know that sometimes they have an impact on 
the population, and the government is able to insulate itself 
from those sanctions. Other times they can provide leverage by 
putting additional pressure on the government.
    So I think that is something that we are going to have to 
fine-tune as we go forward. I think it is important that we 
have a broad range of tools available to us, but I think we do 
need to have a more refined judgment about precisely how to 
exploit the kind of vulnerabilities that Under Secretary Levey 
talked about to see which are the smart sanctions that have the 
biggest impact.
    So, for example, Under Secretary Levey talked about the 
role of the IRGC. That may be a place where we could be 
particularly effective. And I think we will want to work with 
you, working with the experts in this area, as we develop this 
toolkit to think about how the targeting is most effective in 
both supporting those we want to support in Iran and putting 
the pressure on those who need to make the decisions to desist 
from the program that they are currently involved in.
    Chairman Dodd. Secretary Levey, do you want to quickly 
comment on that as well?
    Mr. Levey. Well, I agree with what the Deputy Secretary 
just said. We have learned over the last few years how to do 
this better, and some of the lessons that we have learned are 
that, to the extent we can focus on illicit conduct of the 
government in Iran, we will have a better chance of not only 
getting better support within Iran, but getting a better 
multilateral coalition to impose the measures with us, which is 
my second point, that, you know, if we can do this with other 
countries, we are much, much better off than if we do it 
unilaterally. So as we go forward, as the Deputy Secretary 
said, we need to be very careful and craft this plan in as 
careful a way as possible to make sure we have the desired 
effect.
    Chairman Dodd. Are you concerned at all about the 
population--not that that should be the sole determining 
factor, but it is a critical element, it seems to me. You have 
had great courage being shown by huge populations that have 
responded to the elections, particularly in Iran. We have heard 
over and over again the continued support among large 
populations for what we are trying to do here and how we 
maneuver and handle that situation so it does not become a 
liability but a continuing asset for us in this effort.
    Do you have any concerns about that?
    Mr. Steinberg. Mr. Chairman, as I said, I do think we 
always have to worry about the humanitarian impact and the 
political impact, because we want to take advantage of the 
dynamic there and not to undercut the opposition, not to hurt 
those who are being courageous, as you said.
    And I think part of it will be a judgment call, as Under 
Secretary Levey has said, about whether there is a broad 
international consensus, whether this is seen as the 
international community taking an action so that it is not the 
United States alone singling them out, that I think will have 
an impact on the political dynamic within Iran. It may also 
depend on what other measures are taken and how obvious it is 
that Iran is refusing to take any kind of positive action.
    So I think it is a delicate judgment. There may be other 
steps that we want to take first. We need to look at the full 
suite of tools that are available to us, both in terms of the 
sequence and how it applies in the circumstances.
    Chairman Dodd. I went way over the time, and I apologize. 
Senator Shelby.
    Senator Shelby. Thank you, Mr. Chairman.
    Secretary Steinberg, why have we allowed the Iranians a 
month from the time the secret nuclear site was discovered to 
the time that the International Atomic Energy Agency inspectors 
will visit the site? There is a lag time there. It seems like a 
pretty good sized one.
    Mr. Steinberg. Thank you, Mr. Shelby. As you will recall, 
these meetings took place on October 1st, and the inspections 
are now scheduled on October 25th. We obviously need to do--we 
want the IAEA to do the kind of work it needs to do to make 
sure that these inspections are effective. It is the kind of 
thing where it is not just a question of walking into the site, 
but actually doing the preparatory work, assembling the right 
equipment, materials, the background. They need to get 
briefings from those who may have some insight to make their 
inspections worthwhile.
    There is a little bit of a danger than an unprepared 
inspection will not be a very effective inspection. We had 
asked for 2 weeks. It is going to take place in 3 weeks. 
Obviously, we would have preferred 2 weeks. But I think it is a 
short notice here. This is not an indefinite delay. It is 
within a matter of weeks of the disclosure. And I think the 
IAEA will be in a good position to determine what is going on 
there. It is our judgment that this is within the period of 
time that we will still get a good insight into what is going 
on.
    Senator Shelby. Mr. Secretary, did Iran enter into and then 
abandon a similar pledge to have Russia enhance its low-
enrichment uranium in 2007?
    Mr. Steinberg. To my knowledge, Mr. Shelby----
    Senator Shelby. I know you were not doing that then.
    Mr. Steinberg. I do not believe that the discussions were 
similar to this particular understanding, which is to have the 
fuel fabricated for this research reactor. I would have to 
check, and I will give you the answer for the record. But I 
think the specifics of this arrangement are somewhat different 
than the past discussions, and I think this is a more concrete 
set of proposals as to how this would be handled, including the 
involvement of the French as fabricators of the fuel.
    Senator Shelby. The State Department--you are the Deputy 
Secretary there--continues to identify Iran as ``the most 
active state sponsor of terrorism.'' Do you think that this 
raises the possibility that any nuclear weapon that Iran builds 
could find its way into the hands of terrorists?
    Mr. Steinberg. Mr. Shelby, I think these are all grave 
concerns. I think that there are so many different reasons why 
the potential possession of a nuclear weapon from Iran would 
pose a danger to us and to the region. We have the danger that 
it would be either deliberately or inadvertently transferred to 
a terrorist or a non-state actor. There is a very serious 
concern that it would be used to threaten its neighbors. There 
would be a concern that it would be used as a cover for it to 
engage in more aggressive behavior in the region.
    We can think of so many reasons why this is such a grave 
danger that that is why we put such a high priority on 
preventing them getting it.
    Senator Shelby. Mr. Steinberg, Secretary Steinberg, in the 
past 10 days we have learned of both the secret enrichment 
facility and the International Atomic Energy Agency report that 
concludes that Iran has acquired ``sufficient information to be 
able to design and produce a workable nuclear weapon.''
    Should these two revelations lead to a reevaluation of the 
2007 U.S. National Intelligence Estimate on Iran, which stated 
then that Iran had a weapons program prior to 2003 but stopped 
it--in other words, update the estimate.
    Mr. Steinberg. Mr. Shelby, as you know well from your past 
service here in the Senate, there are aspects of this that I 
can only go into in closed session, and we obviously are 
prepared to do that.
    This is something we constantly take a look at. It is 
constantly under review because of the urgency that it takes.
    Senator Shelby. In other words, you are saying you would 
not ignore the new revelations.
    Mr. Steinberg. Right. And the only thing I would say on 
that is that we have seen the reports, obviously; we have not 
seen the formal IAEA conclusions, so we will look forward to 
that. But we take this all very seriously. This is something 
that is not--you do not just kind of do the assessment once and 
then look again. This is something that we put a high priority 
on to keep under permanent review.
    Senator Shelby. Secretary Levey, you have been involved in 
this a long time, that is, dealing with terrorist financing. 
The United Nations blacklists three of the five Iranian banks 
explicitly sanctioned by the United States, and European Union 
only sanctions two of them that you are aware of. What would 
the effect be if the United Nations and the European Union 
worked with the United States in sanctioning all the Iranian 
banks? And because of the existing U.S. sanctions, banking 
within Iran is quickly, I understand, moving from government-
run banks to private banks and unofficial banks. What are the 
difficulties there? First with the U.N. and with the European 
Union.
    Mr. Levey. Well, Senator Shelby, as you indicate, even the 
unilateral designation of the Iranian banks by the United 
States has had a broad effect, not only because other 
governments take it seriously, but most importantly because 
banks around the world take it seriously. That effect is, no 
doubt about it, multiplied and is made much more effective to 
the extent it is done multilaterally.
    So, to the extent we have had designations at the EU of 
Bank Melli, that has been greatly enhancing of the effect of 
our designation of Bank Melli; to the extent that the U.N. 
designated Bank Sepah, that was devastating to Bank Sepah.
    So there is no doubt that the premise of your question is 
correct that the U.N. designation of these financial 
institutions that we have already designated would be extremely 
powerful.
    Senator Shelby. Secretary Hill, last week, Secretary Locke 
proposed to eliminate license requirements for dual-use exports 
to a large number of countries which are our allies and partner 
nations, so to speak. If original export license requirements 
are removed for items exported, for example, to the European 
Union, how will the United States be able to enforce its re-
export license requirements? In other words, once it goes into 
the Union, what tentacles do we have there?
    Mr. Hill. Thank you, Senator. As Secretary Locke clearly 
said in his address last week, any export control reform must 
be accompanied by a robust enforcement and compliance effort 
and ramping up our efforts there. I have met with the Secretary 
since his announcement, and he is very committed to that and 
has asked us to carefully consider the very question that you 
just raised as we craft our regulations to move that process 
forward.
    We currently have for Iran a total embargo on exports and 
re-exports that would stay in effect, would not have any--there 
would be no impact from our export control reform. For other 
items that might be included in the export control reform, we 
are looking at ways to control those, including requiring re-
export requirements out of those allied nations, including 
monitoring and notification.
    We are looking at a broad range of issues. We think it is a 
very important issue that you have raised, and we intend to get 
it right.
    Senator Shelby. How is the administration ensuring that any 
proposal to decrease controls, which comes under the State 
Department--I mean, the Commerce Department, on sensitive U.S. 
equipment will not find its hands--ultimately, the equipment 
will not find it being in the hands of Iranians?
    Mr. Hill. Thank you, Senator. Again, the answer remains the 
same. We need to be very diligent as we craft that regulation 
because we do not want that to happen, and a very robust 
enforcement and compliance effort to guarantee that going 
forward. We work today with allies. For example, we have had a 
team with the State Department that has visited the UAE once to 
twice a year over the past few years where we have helped them 
develop an export control system, and we are starting to see 
progress there. So we have that going on as well.
    But, again, we are going to be very careful as we move 
forward on export control reform to ensure that the bad guys do 
not get the stuff. And, frankly, sir, some of the stuff they 
get is not all that sensitive stuff. The electronics that go 
into IEDs that end up on the battlefield hurting our young men 
and women are not the highest-tech items. But we are very 
conscious of that. Our enforcement efforts have been on that. 
We were able to disrupt the international Mayrow ring and put 
75 entities on our Entity List.
    Senator Shelby. Mr. Chairman, I have one quick question, if 
I could, of Secretary Levey. In our July hearing, Mr. 
Secretary, reference was made to the notion that if one is 
doing business in Iran today, then they are probably doing 
business with the Islamic Revolutionary Guard Corps. In October 
of 2007, the Office of Foreign Assets Control that you are very 
familiar with listed the leading Iranian financial 
institutions, the IRGC, and other entities as specially 
designated global terrorist organizations.
    At that time, or anytime thereafter, was there ever a list 
with a complete financial footprint of who is trading with 
Iran? And if there is no such list, then why do you suppose one 
was never created?
    Mr. Levey. Well, as you indicate, Senator Shelby, we did do 
the very broad set of designations in 2007----
    Senator Shelby. But not specific, was it?
    Mr. Levey. Well, it was a little bit more specific than you 
have laid out because we also subsequently have designated a 
number of companies that are owned or controlled by the IRGC.
    As you indicate, that has an effect in the United States, 
of course. It freezes their assets and makes it a crime for 
anyone to do business with them. But it is a good signal to the 
rest of the world who really do not want to necessarily do 
business with the IRGC. If we can identify the companies for 
them that are IRGC owned and controlled, then they can take 
steps themselves to avoid doing business with them.
    So we have made an effort to continue to provide that 
guidance to the international business community and continue 
to take action ourselves to make sure that we are applying the 
appropriate sanctions.
    Senator Shelby. That is important, is it not?
    Mr. Levey. I think this is a very, very important matter, 
yes.
    Chairman Dodd. Thank you very much.
    Again, these are open hearings, and we invite people to 
come. The signs are blocking the view of some other people in 
the room from watching the witnesses, so I would ask them to 
lower them a bit if they would. Thank you very much.
    Senator Reed.
    Senator Reed. Thank you, Mr. Chairman, and thank you, 
gentlemen.
    Secretary Steinberg, you have just returned from China. We 
heard that the Russians were ready to stand with President 
Obama on the stage in Pittsburgh along with President Sarkozy 
and Prime Minister Brown, but the Chinese were reluctant. So it 
seems to me that they are the most critical element of pulling 
all the major powers together.
    Can you comment on their position or what we are doing to 
get them to pull together with the rest of the major countries?
    Mr. Steinberg. Well, thank you, Senator Reed. It obviously 
is critical because of the value that we get from having the 
Security Council act in these cases. It gives a much more 
powerful international message as well as legal tools.
    I think it is important to recognize that China did not 
stand in the way of the earlier Security Council resolution, so 
they have accepted in the past that these measures are 
necessary. And as you know, we have had some considerable 
success with China in connection with North Korea recently. And 
I think that is a very important step because the measures that 
we took most recently with North Korea are very powerful tools 
that are available to us and could be replicated in this 
context with Iran.
    I think it is very clear to me from my discussions with 
them that the fact of our engagement strengthens our hands with 
them. They obviously see this as the preferable course, and to 
the extent that they see us seriously working in an attempt to 
solve this diplomatically, it increases the chance that they 
are going to do it.
    They obviously have a number of economic interests there. 
That makes it more challenging to get their support. But the 
President has raised this at the very highest levels, and in 
his meeting just a few weeks ago with President Hu, he made 
clear that this is at the very top of our agenda in terms of 
our concerns. And I believe that that strong connection that 
the President has made will help us, should it become 
necessary, to seek additional measures through the Security 
Council.
    Senator Reed. One of the issues that concerns the Chinese 
is they have about 20 percent of their oil, I believe, comes 
from Iran. But do they understand that if this situation gets 
out of hand, one of the likely consequences is that oil prices 
boom up and that they would suffer probably more than anyone 
else--or as much as anyone else?
    Mr. Steinberg. Well, Senator, I certainly made that point 
to them when I met with them, and I also made clear that, more 
broadly, as they become increasingly dependent on imported oil, 
imported energy, they have a huge stake in stability in the 
Middle East. And an Iran with nuclear weapons or nuclear 
capability would create deep instabilities in that region.
    So I think in some ways, although their energy needs create 
ties with Iran and others, it also creates a recognition that 
they have a stake in this in ways that they may not have seen 
before. And I think this is one of the great challenges in our 
broader engagement with China, is to make clear that they now 
have a global stake in dealing with questions like this. They 
cannot simply stay on the side and say, ``This is not our 
problem.''
    Whether that has successfully made it into their thinking, 
we will only see in the event. But we have certainly been 
making that explicit with them.
    Senator Reed. Let me switch gears to the domestic situation 
in Iran: unprecedented turmoil after their election, seems to 
be continually below the surface, and occasionally breaking 
through. What effect does this have on their deliberations, 
their negotiations, their view of how they should proceed with 
their nuclear program?
    Mr. Steinberg. Senator, it is in some ways the $64,000 
question, and I think it really is ultimately somewhat a matter 
of speculation.
    There is no question that this is a major factor, but 
whether this is leading the Government of Iran to be more open 
to a solution because it faces internal pressures or whether it 
is making it more defensive I think is really hard to judge at 
this point. And I think the only way we are going to be able to 
tell is by testing the proposition by making clear, including 
very clearly to the Iranian public, where the opportunities are 
and how either the government can deepen its isolation 
further--which is one of the arguments that the opposition made 
during the campaigns, is pointing to the behavior the 
government, which deepened its isolation and the costs it 
imposed on the Iranian people. So I think we have to keep 
focused on that aspect.
    Senator Reed. Secretary Levey, you mentioned in response to 
Senator Shelby that the IRGC has a significant economic role. I 
heard that they have just bought a major position in the 
telecom company in Iran. Is that correct?
    Mr. Levey. Senator Reed, I have seen that report, and at 
this point we are trying to confirm it. But there are some 
indications to that effect, yes.
    Senator Reed. And I would presume it is not just that they 
have a good idea for a situation comedy, but they are looking 
to control actually access to the Internet, Twitter, and 
everything else.
    Mr. Levey. That is certainly a possibility, and one is 
seeing the IRGC injecting itself into so many different areas, 
as I laid out in my testimony and as you pointed out. And as 
Secretary Steinberg said, this may well be an area where we can 
focus some attention and have the ability to bring others along 
with us and make it more effective.
    Senator Reed. Is the IRGC becoming so powerful that they 
are a force unto themselves, that Ahmadinejad and the mullahs 
have less and less control of them? Or have they allied with 
Ahmadinejad as a front so that they can maintain their 
presence, their growing presence?
    Mr. Levey. I think that there are different indications 
that we have in both directions on that. But at this point, it 
looks like the IRGC is certainly well connected to the Supreme 
Leader, and that is the assumption that we are going forward 
on.
    Senator Reed. Just a final question. How does the nuclear 
program get their money? Do they go get bank loans? Or how 
directly can we affect the funding of these specific programs 
through sanctions?
    Mr. Levey. Well, Senator Reed, the issue here is this is a 
government-funded enterprise, obviously, so this is a regime--
this is, you know, a country that has a lot of income from its 
natural resources. So we have to deal with that situation as we 
find it.
    Just because they have the money, though, does not 
necessarily mean that they can easily engage in international 
business transactions. So by trying to raise the costs and make 
it more difficult and identify illicit transactions and get 
partners around the world to scrutinize it and be suspicious, 
we can slow them down and make it more difficult for them and 
that way even if it is a situation where we cannot stop Iran 
from having money that it gets from selling its oil.
    Senator Reed. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much, Senator.
    Senator Corker.
    Senator Corker. Mr. Chairman, thank you, and I thank each 
of you for your service and testimony, and we appreciate what 
you have said today.
    Secretary Steinberg, is there any question in anybody's 
mind that during this period of time between now and October 
25th that much of the facility that we are getting ready to 
inspect is being dismantled?
    Mr. Steinberg. Senator, as you can probably guess, what I 
could tell you about that I cannot tell you in open session. 
But I think that my broader point is that we are pretty 
confident that the period of time, the delay, is not going to 
have an impact, a significant impact on our ability to 
understand what was going on there. So I guess to get to what I 
think is underlying your question, which is, is this--they have 
acknowledged that this is an enrichment facility. This is not a 
case where we are accusing them of having a facility, they have 
denied it, and they are going to then go hide all the stuff to 
prove it was not. They have acknowledged that it is an 
enrichment facility, and so I think we believe that the period 
of time here is not likely to have an impact on our 
understanding.
    More important, in addition to inspecting what is there, 
what we will achieve from this is making sure that this is put 
under safeguard so that if they want to continue to go forward 
with this facility, it will be fully safeguarded with monitors 
and all the equipment that the IAEA has.
    So given the state of this--and it is at a very preliminary 
state--I think we feel confident that this delay is not one in 
which significant deception or activities will take place that 
would significantly impede our understanding of what was taking 
place.
    Senator Corker. And I have seen much of the classified--
probably not as much as you have on a daily basis, and I do not 
think there is any question about that. I guess sometimes one 
might wonder, you know, would it make sense to have somebody on 
the ground immediately there and then let the inspectors come 
in once they are prepared. But I guess that is too rational of 
a thing to occur and just does not make sense in international 
diplomacy.
    Mr. Steinberg. Again, Senator, we obviously would have 
liked to have had a somewhat earlier engagement, but given what 
our understanding of the state of play is there, the slight 
delay beyond the 2 weeks that we had suggested in our judgment 
is not going to make a significant impact on that.
    Senator Corker. And I appreciate the answer.
    Senator Dodd asked a good question about what might happen 
with the sanctions on refined product as far as the people go. 
As just a tool itself, do you think the keeping of refined 
product from actually coming in from other places to Iran is an 
effective sanction, period? I mean, is it an effective 
sanction? And the reason I ask, there have been a lot of people 
that say that they can easily get around it and they have 
subsidies in place that they could remove and that would 
contain, you know, the amount that would actually be utilized. 
There is a lot of smuggling that goes on to other countries 
which they could stop.
    I mean, is it or is it not an effective sanction?
    Mr. Steinberg. Senator, I think we still have not reached a 
firm judgment on whether that would be the best way to go, in 
part because we need a better understanding of what the 
efficacy would be, in part because it would depend on the 
degree to which others participated in this. Obviously, this is 
a hard thing to do unilaterally.
    Senator Corker. Sure. But if everybody participated--I know 
right now China is the major assistor, if you will. But if 
everybody participated and the companies that have just 
recently stopped continue to stop, would it be an effective 
sanction or not?
    Mr. Steinberg. Again, I think we have not reached a firm 
conclusion about whether the net benefits and the net cost 
would have the efficacy. The challenge is always to try to 
translate the economic impact into what the political impact 
would be, and our goal, as we think about what we might want to 
do going forward, is to think, as Secretary Levey said, about 
how does the government make its calculation. What would have 
the biggest impact on them, whether it is transmitting through 
its impact on the people or whether it is directly affecting 
their own activities?
    We found in many cases, for example, that the reason I 
think a lot of us are focused on the IRGC is if you can focus 
on kind of the cost/benefit calculation of the individuals who 
are making these decisions, sometimes that has a more targeted 
impact--sometimes called ``smart sanctions''--that things that 
have to work as a transmission belt through the pain they 
impose on the public.
    But I do not think we want to take it off the table. I 
think it is one of the things that we need to----
    Senator Corker. Let me ask you this: Have you asked for 
Congress to act? And the reason I ask that, my guess is with 
all the testosterone, if you will, that shows itself as it 
relates to Iran and other kinds of things, if you asked for 
sanctions, they would be passed out of here in about 24 hours, 
maybe more quickly. So the question is: Have you asked for us 
to take any actions in Congress as it relates to sanctions?
    Mr. Steinberg. I think, Senator, the key for us will in 
part be timing, which is----
    Senator Corker. No, no. But have you asked yet? Just yes or 
no.
    Mr. Steinberg. We have not asked for additional measures.
    Senator Corker. Would you like for Congress to prescribe 
what needs to be done? Or would you like for Congress to enable 
you if you make decisions as it relates to sanctions?
    Mr. Steinberg. Certainly, Senator, the President would like 
to have the maximum flexibility in part because of his ability 
to----
    Senator Corker. He would like to be enabled.
    Mr. Steinberg. He would like to be enabled.
    Senator Corker. Then, in essence, just to get to the 
legislation we have before us, you would oppose then the 
Lieberman-Kyl bill that says you shall--you shall keep refined 
product from coming into Iran?
    Mr. Steinberg. Again, Senator, I think what we would like 
to do is work with the Committee to give the President the 
appropriate flexibility, and I know the Chairman and others 
have indicated some willingness to look at actually how----
    Senator Corker. So the answer--I am just going to say it 
for you since you are being diplomatic, as a diplomat--is that 
you oppose this legislation. And I guess, you know, it does 
worry me that we might get in the middle of your work right 
now.
    But the counter to that--and this is my last question--some 
of my colleagues up here on the dais, you know, we whispered 
back and forth a little bit about, OK, what is different now? I 
mean, there have been talks that have been going on for some 
time. And, by the way, I am on the side of feeling that you 
guys do need some flexibility, that we do not need to be 
telling you guys what to do yet. OK? I mean, I think there is 
an opportunity for actions to take. I think, though, the world 
community is watching. I know many of us are watching. There 
has been a lot of talk going on by many administrations, and 
nothing has happened.
    My final question is: What is different, in your opinion, 
this time that would enable you, if you had the freedom and you 
were not prescribed by others, what is different this time that 
will allow you to be effective as it relates to Iran?
    Mr. Steinberg. I think the most important thing is I think 
we have a better chance of getting broad-based sanctions, 
broad-based economic and political pressure because we 
demonstrated that we have made every effort to solve this 
through diplomacy and that the burden is clearly on Iran, that 
they have clearly rejected any attempt to solve this 
peacefully.
    I think that is an enormous tool for us to get others to 
act, and at the end of the day--because not only are sanctions 
more effective when they are broad-based, but it also takes 
away the political argument that the Iranian government may try 
to make, which is that this is American hostility. This is 
clearly an international rejection of their unwillingness to be 
straightforward and open about their program, their 
unwillingness to prove that it is peaceful.
    And so I think that affects not only our ability to get 
others to join us, but the dynamic that we have all been 
discussing today about how this plays within Iran itself. It 
becomes harder for them to try to use that line with their own 
people about why these painful measures are now being employed.
    Senator Corker. I thank you for your service and your 
answers, and Mr. Chairman, for the hearing.
    Chairman Dodd. Thank you very much, Senator.
    Let me just point out, as I understand the legislation, by 
the way, there is waiver authority in the legislation for the 
administration. So it is not quite as prescriptive as my friend 
from Tennessee has suggested.
    And second, and I say this respectfully over the years, 
that as a coequal branch of government, and obviously we 
delegate to the administration and the executive branch to 
conduct foreign policy, and you can't have 535 Members of 
Congress conducting foreign policy, I understand that point, 
but also, I think it is important on issues like this that the 
world understand, particularly the Iranian government 
understand, that our patience has run out, that this has gone 
on too long and that we are running a great risk if they 
acquire these weapons and pose a great threat to us and to our 
allies.
    And so while we don't relish this choice, they are giving 
us no other choice at this point except for the one that we 
would all like to avoid, and that is the one that we are trying 
to avoid by what we are suggesting here. And so while it is 
painful and it may impose some difficulties, in the absence of 
doing so, there is the fear here collectively that the Iranian 
government is taking us to the cleaners on the issue and the 
end result would put us at great risk.
    So I just think it is important to note that. This is not 
something that we enjoy doing, and obviously working with you--
and I appreciate your response, Mr. Secretary--is exactly the 
mood that we intend to engage with you on.
    Let me turn to Senator Bayh.
    Senator Bayh. Thank you, Mr. Chairman.
    Just following up on that, to my friend from Tennessee and 
the Chairman and our guests here today, the legislation does 
use the word ``shall,'' but it also includes waiver authority, 
that the President on a finding that it is not in the national 
interest to impose the sanctions can waive the sanctions. So we 
are trying to strike the balance between creating a sense of 
urgency, clearly getting Congress on record as saying that this 
is something that we are interested in doing--I personally 
think it is the right thing to do--but maintaining the 
appropriate balance of powers between the legislative and the 
executive branch. We ultimately give discretion to the 
executive branch to exercise its judgment as it sees fit. So 
that is the balance that we were attempting to strike, between 
being advisory and prescriptive, maybe a little of both. So 
that is just for the record.
    Thank you all for being here today, and my first question, 
I guess, Mr. Steinberg--it is good to see you again--would be 
for you. We are now engaged in this accelerated diplomacy, but 
the clock is also running. And so my question for you would be, 
what should the deadlines for the diplomacy be and what should 
the consequences for failing to meet them be if the Iranians 
just are dragging this process out in an attempt to achieve a 
nuclear capability before the world can do anything about it?
    Mr. Steinberg. Well, thank you, Senator. I think there are 
some real opportunities here to test Iran's intentions and to 
get a sense of the accelerated time line. One of the reasons 
why we put such emphasis on this arrangement for shipping out 
most of the low enriched uranium to be reprocessed into fuel 
for the Tehran research reactor is that it has a real needed 
impact, which is it takes away from Iran LEU which could be 
fabricated into high enriched uranium, highly enriched uranium, 
and potentially into material for a nuclear weapon.
    So a prompt action by Iran on that would be a very 
significant step. That is why we have put a lot of emphasis on 
it. We will have an opportunity in a matter of days----
    Senator Bayh. How would you define prompt?
    Mr. Steinberg. We have a meeting on October 19 to discuss 
the details of this, and as I indicated earlier, we anticipate 
a meeting of the P5+1 with Iran by the end of the month. So we 
are really talking about a matter of days and weeks for the 
first two commitments that Iran made in the Geneva talks, as 
the inspection of the Qom facility and trying to reach an 
agreement on the shipping out of the LEU----
    Senator Bayh. Is there any way for us to verify whether 
they have actually shipped out all the enriched uranium that 
they have?
    Mr. Steinberg. Well, I think we have a fairly good idea--
not to the gram, but a fairly good idea--because the facility 
is under IAEA inspection, that within a reasonable tolerance, 
we have a pretty good idea of what their current LEU stockpile 
is----
    Senator Bayh. So you are for prompt deadlines----
    Mr. Steinberg. Yes.
    Senator Bayh. You are talking in terms of by the end of the 
month or----
    Mr. Steinberg. By the end of the month, I think we will 
have a clear indication of whether on the first two specific 
things that they apparently agreed to in Geneva, whether they 
are taking action to show they are serious.
    Senator Bayh. It was, I guess, typical that they apparently 
agreed to things and then pretty quickly denied having agreed 
to those very things. They don't seem to be speaking with a 
unified voice. So the second part of my question is, if they 
appear to be dissembling or delaying, what should the 
consequences for that be?
    Mr. Steinberg. I think the President and the Secretary and 
others have made clear that if we see that they are unwilling 
to take action on the things that they have said they are going 
to do, that we are prepared to move to stronger actions, 
ideally through the Security Council and multilaterally, but we 
reserve the right to take actions by ourselves. I think we have 
given them a good time horizon within which they have to do it, 
which is not years but has to be quite promptly.
    Senator Bayh. I think you are quite right in judging them 
not by what they say, but by what they do, and my observation 
is that the Iranians tend to respect the strength and that 
seriousness of purpose or credibility is important here and a 
willingness to actually take steps forward. Interestingly, it 
maximizes the chance that you don't have to take those steps, 
so----
    Mr. Steinberg. I strongly agree with that, Senator.
    Senator Bayh. My second question--and my clock must be on 
fast-forward, I am only going to have time for two here-- I 
would be interested in all three of you, it seems to me at the 
bottom of all this is an assessment of the character of the 
Iranian regime, and it may be--it is obviously opaque and it 
may be somewhat internally divided. I think two of you have 
indicated that. But ultimately, will they act as a nation 
state, assessing their interests and acting in pursuant 
thereof, or will they be motivated by religious fervor or 
hatred toward Israel or the United States or the West, making 
decisions that we would consider to be irrational?
    If it is the former, we can ratchet up economic, financial, 
diplomatic, cultural, all sorts of pressure, hopefully 
ultimately attaining a level that they determine it is just not 
in their interests to pursue nuclear weapons anymore. If, in 
fact, the ultimate arbiters are motivated by other factors, 
then perhaps not and that takes you down another line of 
analysis.
    So my question to all of you gentlemen is, ultimately, if 
this regime as currently constituted were to obtain a nuclear 
weapon, what are the chances that they would misuse that weapon 
in a way that we would consider to be irrational?
    Mr. Steinberg. Senator, it is obviously--it is hard to know 
the answer to that question, but I think that is why we are--
the dangers that it potentially poses is why we place such an 
urgency on preventing them from developing that capability in 
the first place. We have a variety of tools available to us. 
Nothing is off the table. We believe that there is a chance 
through diplomacy, but we recognize that that may not succeed 
and we may have to turn to other options. But we have made 
clear that we have a very clear goal, to prevent them to 
develop the capability to do that so that we can avoid the risk 
that you have identified.
    Senator Bayh. Mr. Levey? By the way, thank you for our 
previous meetings over the years. You have done great work in 
this area, one of the few things that actually has ratcheted up 
the cost to the Iranian regime for their misbehavior, so I am 
grateful to you for continuing on.
    Mr. Levey. Well, thank you, Senator, and I appreciate your 
interest in this and all the discussions that we have had about 
it over the years.
    I think the answer to your question about what is the 
nature of this leadership in Iran is that while we don't know 
for sure, what we are trying to do now is probe that. The 
process that Deputy Secretary Steinberg laid out will give us--
will put before the leadership in Iran a rational choice, 
either to engage and take the steps that they are being asked 
of, or face the consequences of not doing so. And so we put 
before them the rational choice and we will be able to learn by 
what happens rather than by a prediction.
    Senator Bayh. Mr. Hill, do you have an opinion about this?
    Mr. Hill. Sure, but I think I will defer to my 
distinguished colleagues. I would just say, at Commerce, we are 
focused on preventing bad guys from sending things to Iran that 
will hurt us on the battlefield.
    Senator Bayh. Well, if I could just make two final points, 
Mr. Chairman, my time has expired. It is possible that they are 
operating as if they were in a bazaar and there are ultimately 
rational decisionmakers at the end of the day, but we may not 
be able to raise the cost so high as to ultimately affect their 
decision about this, because even the reformers, as I 
understand it, are under agreement about the nuclear 
aspirations of the country. At least, they have been until 
recently. So there seems to be a broad consensus within Iran 
about this. That is number one.
    Number two, even if you think there is a 95-percent chance 
that they are rational decisionmakers and will behave like a 
normal nation state, if there is only a 5-percent chance that 
they will not, is that a risk that you are willing to run, and 
that is a very hard question to answer.
    So I encourage you in these efforts. We should ratchet up 
the cost as high as we can. Mr. Levey, as you say, perhaps we 
will then find out how they behave. Of course, then you always 
have the question of will they comply with that, but that is 
perhaps the subject for another hearing on another day. Thank 
you, gentlemen. Thank you.
    Senator Reed. [Presiding.] Thank you, Senator Bayh.
    Senator Merkley?
    Senator Merkley. Thank you very much, Mr. Chair, and I 
appreciate your testimony today.
    The question I want to ask you all to help us have insights 
on, to the degree you can do so in unclassified fashion, is 
certainly there is no long-term benefit to China and Russia to 
having a nuclear-armed Iran, and yet they have been somewhat 
reluctant to come to the table and join in the international 
effort, multilateral sanctions. Can you give us a little 
insight into how Russia and China have thought about this 
issue, weighing their short-term trade deals against the long-
term risk, and how their perspectives are changing and how we 
are working to continue to help them see the importance of this 
effort?
    Mr. Steinberg. Thank you, Senator. It is always a little 
bit perilous to try to peer into the internal decisionmaking of 
other countries, and particularly in these cases where it is 
not so transparent, perhaps, as in our own, where you can read 
about it in the newspapers.
    It seems to me that the biggest challenge that we have is 
that both Russia and especially China have a firm conviction 
that the best results are achieved through diplomacy and they 
are, frankly, more skeptical than we tend to be about the 
efficacy of economic sanctions and the like. They aren't 
opposed to them. As I said earlier, we have had the support of 
Russia and China on three Security Council resolutions that 
affect Iran, so they have recognized that at the end of the 
day, you may have to take these measures, and again, most 
recently with North Korea, we have opted to take some very 
strong measures.
    So I think they are slower to come to the conclusion. They 
are more likely to conclude that the threat is 
counterproductive than we often feel where the threat actually 
is incentivizing to a country to negotiate. But as I say, I 
think that it is not because there is a fundamental 
disagreement about the objective, nor, I think, increasingly, 
is there as much of a difference about how dangerous a nuclear 
Iran would be. I think there is a growing acceptance among all 
of the five that this is something that is of paramount 
importance.
    So that is why the engagement strategy has been so 
important, because it helps us convince countries like Russia 
and China, which are more inclined to put stock in diplomacy 
and negotiation, that we have seriously pursued that and we are 
not just kind of rushing over it to get to other kinds of 
actions.
    They obviously have economic interest there. Europeans have 
economic interest there. And those must have an impact on their 
overall calculation. But I think at the end of the day on these 
issues, they understand of what paramount importance this is.
    Again, you can never know for sure, but in my earlier 
service during the Clinton administration, we worked with China 
to end their direct support for Iran's nuclear program in the 
mid-1990s, and again, they had an involvement with the zero 
power reactor in Iran and the like, and they were reluctant to 
do it, but over time, they did end that involvement. So I think 
the record would suggest that if you work this hard enough, 
there is no guarantee, but there is at least some prospect that 
they will come around to the view that we share.
    Senator Merkley. Let me ask this question. When Iran's 
government looks around the world, they see Pakistan now as a 
nuclear power, despite sanctions that were applied at one 
point. They see certainly North Korea as a nuclear power and 
they see how reluctant foreign nations are to mess with nations 
that are nuclear powers. Is there a certain logic to their 
pursuit, especially if you throw in national prestige? Are 
these things so deeply rooted, their vision of kind of the 
protection that a nuclear weapon provides them, and their 
national prestige? Can sanctions be reasonably expected, even 
in a multilateral, serious format, be expected to counteract 
those two powerful forces?
    Mr. Steinberg. Senator, I think we have to disrupt that 
logic, if you take each of the elements. I think you have 
raised some good questions there.
    With respect to prestige, I think it is possible, and I 
think this gathering of international consensus is how we do 
it, is to actually reverse the calculation, that it isolates 
it, that it makes it more of a pariah state. That rather than 
gaining prestige and influence, it becomes less welcome in the 
international community, less able to achieve its objectives. 
So I think we have the ability to break that logic.
    In terms of security, I think we can also show that they 
are less secure, that they are uniting all of the countries in 
the region to be concerned about them, to strengthen their 
military ties with each other and cooperation with us.
    So each of these potential logics are what we have to work 
on and to demonstrate to them that if they think that is what 
they are achieving, they are actually not going to achieve it. 
They will achieve the opposite. They will be less secure, less 
prestigious, less able to achieve their objectives by going 
down this road. And here, the strong international consensus, I 
think, is a critical part of that effort.
    Senator Merkley. And to change that international 
environment, we really have to have full cooperation of major 
powers around the world, and I understand that that is the 
foundation of your efforts and we all hope that those are 
successful.
    Mr. Steinberg. I agree.
    Senator Merkley. Thank you.
    Senator Reed. Senator Bunning?
    Senator Bunning. Thank you, Mr. Chairman.
    Mr. Steinberg, since the enactment of the Iran Sanctions 
Act of 1996, approximately how much have foreign countries 
invested in Iran's energy sector?
    Mr. Steinberg. I would have to provide that for the record, 
Senator. I don't have that.
    Senator Bunning. I would appreciate that very much. Since 
you do not know that answer, I happen to be aware that the 
figure that you would give us does not include $70 billion in 
pending transactions that are known about, most of which are 
long-term contracts to purchase Iranian gas and oil, is that 
correct? Do you know about those?
    Mr. Steinberg. Senator, obviously, there are some long-term 
contracts and there are--I mean, there are legal issues with 
respect to investment and the coverage of the Iran Sanctions 
Act as opposed to purchases and long-term contracts.
    Let me just say, because I know of your interest in the 
Iran Sanctions Act, that you have to look at this not only from 
transactions that have taken place, but transactions that have 
not taken place. And one of the powerful tools and one of the 
ways that we work with the Iran Sanctions Act is to use this as 
leverage to discourage people from investing in Iran. Again, 
from my previous service, I know how powerful that can be, and 
I know that the previous administration also used it as a way 
to discourage actors, particularly Europeans, but others, as 
well, from making these investments. And I think there is no 
question----
    Senator Bunning. Well, in that regard, then, under the Iran 
Sanctions Act, how many of these countries that are in 
violation of our sanctions, how many more countries--in other 
words, does the State Department actually consider these 
countries in violation of our sanctions?
    Mr. Steinberg. We obviously look at each transaction that 
comes to our attention, Senator, and if we find a violation, we 
would obviously impose measures on this----
    Senator Bunning. Do you rule on it? Does the State 
Department then impose the ruling that is in the Iran Sanctions 
Act?
    Mr. Steinberg. We would impose sanctions if we found there 
was a violation of the Sanctions Act.
    Senator Bunning. You would? This is for the same gentleman. 
Recent excerpts from the International Atomic Energy Agency 
Annex confirms foreign intelligence reports that Iran has 
restarted work on a nuclear warhead design. Does it remain the 
position of the administration that Iran has not restarted this 
design?
    Mr. Steinberg. Senator, you are citing press reports. To my 
knowledge, that IAEA report has not been completed or sent to 
us, so I can't comment on the specifics of the IAEA report.
    With respect to Iran's nuclear program, that is something 
that we continue to keep under advisement and review. The 
details, obviously, we would be happy to review in a classified 
session.
    Senator Bunning. Thank you. Mr. Levey, are you aware of 
foreign banks that continue to conduct business with sanctioned 
Iranian entities? If so, why have these banks not been 
sanctioned?
    Mr. Levey. Well, Senator Bunning, the question is, whose 
sanctions are they violating?
    Senator Bunning. Yes.
    Mr. Levey. If they are violating----
    Senator Bunning. I am speaking about ours.
    Mr. Levey. Right. So we have acted against the Iranian 
banks that----
    Senator Bunning. What about the other foreign banks?
    Mr. Levey. They are not permitted to use our financial 
system----
    Senator Bunning. That is correct.
    Mr. Levey.----to do the business with any Iranian bank.
    Senator Bunning. So if you find them in violation of that, 
then you do sanction?
    Mr. Levey. There would be consequences for any foreign bank 
that was using our financial system to do business with an 
Iranian bank.
    Senator Bunning. Thank you. What role do large financial 
clearinghouses, such as Euroclear, EBA, and the Asian Clearing 
Union, play in allowing Iran to circumvent sanctions?
    Mr. Levey. Well, Senator, as you know, those are all major 
institutions that have to abide by not only U.N. Security 
Council resolutions that apply to Iran, but also kind of the 
financial rules of the road in terms of legitimate financial 
activity. That said, there is--and we have engaged with the 
institutions that you have mentioned to make sure that they are 
aware of the risks of doing business with Iran, as I laid out 
in my testimony--some of the institutions that you mention, we 
do engage with very closely to make sure that they are not 
being used as a way for Iran to obscure the underlying parties 
to a transaction, and that is a concern that we continue to 
have and engage on actively.
    Senator Bunning. Mr. Steinberg, outside of the Qom 
facility, how confident is the administration that there are no 
other secret Iranian facilities?
    Mr. Steinberg. Senator, this is obviously something that 
the very fact of the Qom facility has to raise questions about 
whether there are things that we don't know about. This is 
something we obviously put as among our highest priorities in 
terms of the intelligence community. I think this is something 
that, while we have no specific evidence of other facilities, 
it is not something that we take for granted, the fact that we 
don't----
    Senator Bunning. In other words, there could possibly be?
    Mr. Steinberg. By definition, there could be, and I think 
we have to take very seriously the possibility that there might 
be.
    Senator Bunning. OK. This will be my last question, since 
my time is running out. For Mr. Steinberg, the P5+1 talks have 
been described as slow and a constructive beginning. Will 
Russia and China agree to the next steps if the negotiations 
fail to show progress?
    Mr. Steinberg. Senator, I obviously will have to see in the 
event, but I think that certainly with respect to Russia, the 
comments of President Medvedev are encouraging in terms of his 
recognition, of explicitly recognizing the role of sanctions in 
this case, and I am hopeful that with the Chinese, as well, 
given their past practice, which is ultimately coming along 
with supporting Security Council resolutions, that we can 
persuade them, as well. But I can't obviously guarantee it at 
this point.
    Senator Bunning. Do you know if Russia will commit to 
stopping anti-aircraft system sales to Iran?
    Mr. Steinberg. It is certainly something we have raised 
repeatedly with them. They have indicated that they understand 
the concerns that we have, but we are not resting our laurels 
on this one.
    Senator Bunning. Thank you very much, gentlemen, for being 
here.
    Senator Reed. Thank you, Senator Bunning.
    Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman.
    Secretary Steinberg, in your opening statement, you 
basically said the Iranians can either negotiate in good faith 
or they can face increasing international isolation and 
pressure. And my question is, up to now, do you think the 
Iranians have negotiated in good faith?
    Mr. Steinberg. Senator, I think this is, frankly, the first 
concrete evidence that we have had during this administration 
of serious negotiation. I am an outsider with respect to the 
earlier negotiations and whether those who are involved felt 
that there was any progress made at that point. But I certainly 
think that during the first months we were in office, we were 
not seeing the signs of responsiveness at all from them, and I 
think it has been both a growing focus of the two tracks of our 
strategy that has brought the intense scrutiny on them and the 
possibility of additional pressure, so----
    Senator Menendez. Let me ask you this. Their first day of 
talks seemed to produce a potentially positive first step that 
Iran's agreement supposedly to ship most of its low enriched 
uranium out of the country. Now, I have read press reports that 
they are denying they made that commitment. Which one is it?
    Mr. Steinberg. Senator, as I mentioned before, we have a 
meeting with them on October 19 and I think we will see. I 
think that----
    Senator Menendez. But did they or did they not make that 
commitment on the first----
    Mr. Steinberg. They made a commitment to proceed with this 
program.
    Senator Menendez. All right. So they made a commitment. Now 
they said they don't, which is an example to me of what they 
have traditionally done as they have moved along in these 
negotiations, you know, give you one step forward and then two 
steps backward.
    Let me ask you this. We can only sustain a process with 
measurable, practical results, is your testimony. Well, my 
question is, then, what is that? That is rather amorphous to 
me. The President said by the end of the year, we should be 
able to assess whether the talks hold real promise. What is the 
time line you all have in mind? How will we know if the 
Iranians are serious? How will we be able to palpably have a 
sense of benchmarks in which we measure real progress versus 
illusory progress?
    Mr. Steinberg. I think the issue that we have just been 
talking about is an important first step. The agreement, if 
they implement it--and I agree we have to make sure they 
implement it, although I don't think we should draw a lot of 
conclusions from the press statements they make about it. I 
think we put a lot more emphasis on what they actually agree to 
when we come back together again.
    But if they, in fact, move forward, not just agreeing, but 
actually move forward, actually shipping out the LEU, that 
would be a tangible sign of progress. It doesn't end the 
problem. It is just the beginning of the process. But it would 
be a very tangible step because it would reduce dramatically in 
the near term their ability to move forward with enriching the 
LEU to a high enriched uranium. That is significant. It is a 
tangible, substantive step.
    Similarly, putting the Qom facility under full IAEA 
safeguards is important. We have a number of steps they need to 
take. They need to implement the additional protocol to the 
NPT. That is an important step that will give us significantly 
greater confidence about what is going on in the rest of the 
country. They need to suspend enrichment. That has been the 
requirement of the Security Council and remains the requirement 
of the Security Council.
    So we have a number of steps beyond these preliminary steps 
that they have to take and we have a very, I think, forced 
march to this process to make sure that they are doing it.
    Senator Menendez. You have listed about four significant 
items that need to be pursued. What is the timeframe that we 
need to see that happening?
    Mr. Steinberg. Again, I think the President has made clear 
that we need to continue to see tangible steps as we move 
forward through the fall.
    Senator Menendez. If, in fact, we come to December and 
those four items have not been achieved, is that satisfactory?
    Mr. Steinberg. I think we have to look at the state of play 
at that point to see what has been accomplished, what has not, 
and what the prospects are for moving it forward.
    Senator Menendez. How long do we continue with these talks 
before we see a verifiable suspension of Iran's enrichment 
program?
    Mr. Steinberg. That is the requirement of the Security 
Council and it is the priority in our negotiations.
    Senator Menendez. I know, but--I understand it is a 
priority, but it has been our priority for how long now?
    Mr. Steinberg. Again, Senator, what we are----
    Senator Menendez. Would you quantify for me, how long has 
it been the priority for?
    Mr. Steinberg. It has been a priority since the Security 
Council imposed these provisions, and I----
    Senator Menendez. And how long has that been?
    Mr. Steinberg. Again, I think we need to make sure----
    Senator Menendez. Mr. Secretary, how long has that been?
    Mr. Steinberg. When was----
    Senator Menendez. Roughly?
    Mr. Steinberg. Two-thousand-six.
    Senator Menendez. Two-thousand-and-six. We are near the end 
of 2009 and the clock is ticking. And so I am trying to get 
from this administration what is a sense of time. Is this open-
ended in our pursuit? I mean, I hope you are successful, 
believe me. I think we all hope you are successful. But, you 
know, we have to have some quantifiable timeframe. You don't 
want the Congress to pursue the legislation, but at the same 
time, you don't give us a timeframe. That makes many of us very 
uneasy.
    Mr. Steinberg. Senator, I share your concern about this not 
being either a cover for continuing the program or an unlimited 
process, and the President has been very clear publicly about 
the fact that he will not tolerate that. We set a timeframe of 
September for a comprehensive review at the G8 and what we got 
was the agreement to the October 1 meeting and some in 
principal commitments to some steps. So it shows that, at least 
in theory, we may be making some progress.
    We don't want to interrupt that progress because we don't 
know for a fact that sanctions will necessarily be effective if 
we can make progress through negotiations. But we also don't 
want to drag this out indefinitely. We will have some very 
clear indications that either the decision to send out the LEU 
or to not do it is a very powerful indication of what their 
intentions are. It is an important step because it has an 
impact on the ticking clock. That is to say, if they don't have 
these stores of LEU, then their ability to move quickly to 
break out to a nuclear capability is delayed.
    So we understand very strongly, and I think the countries 
in the region, as you know, understand as strongly as we do 
about the danger of the ticking clock. The clock needs to stop 
ticking. We have made it clear to the Iranians that that is 
what we are looking for right now, because we recognize that it 
may take some time to get a comprehensive settlement, but they 
need to stop the clock ticking so that the danger doesn't grow, 
and that is what we are focused on in the near term.
    Senator Menendez. Well, I certainly hope that you succeed, 
but I want you to know that I and I am sure others feel very 
passionately that this is not a chess game where each get to, 
after you make your move, you stop the clock. The clock is 
continuously ticking, and regardless of what is said, what we 
need is real action.
    Thank you, Mr. Chairman.
    Senator Reed. Thank you, Senator Menendez.
    Senator Schumer?
    Senator Schumer. Thank you, Mr. Chairman. Thank you to the 
witnesses.
    My first question is for Mr. Hill. Mr. Hill, as I mentioned 
in my opening statement, black markets around the world have 
been serving to circumvent our sanctions against Iran, and 
until we address the illegal funneling of goods, any new 
sanctions could be easily skirted, as well, at least some of 
them. The UAE in particular has been a major hub for illegal 
transshipments of goods to and from Iran. We have seen reports 
that Dubai has now been working to prevent these transshipments 
from going through, but those activities have merely shifted to 
other countries. Malaysia and Oman continue to be key 
intermediaries for Iran to illegally acquire U.S. technology.
    A 2007 GAO report found fault with our enforcement of 
illegal transshipments of goods to and from Iran. It cited that 
only one inspector from each Treasury and Commerce were 
stationed in the UAE. Would more inspectors on the ground in 
this region make a difference in our ability to enforce 
existing sanctions?
    Mr. Hill. Thank you for the question, Senator, and of 
course, more resources are always welcome as we work with the 
Congress and with the administration----
    Senator Schumer. That wasn't quite my question. They are 
always welcome, but would more inspectors make a difference 
here?
    Mr. Hill. I would have to say, yes, probably. We have----
    Senator Schumer. Thank you.
    Mr. Hill.----a focus on Iran and around the world we are 
trying to enhance our bootprint, our footprint for enforcement, 
and the Secretary is very focused--Secretary Locke is very 
focused on that.
    Senator Schumer. How many U.S. officials are currently 
working on the ground in these countries to investigate the 
diversion of U.S. goods?
    Mr. Hill. We have five agents stationed--we have five posts 
overseas. In my testimony, I reference those----
    Senator Schumer. How many agents?
    Mr. Hill. We have 100 agents here in the United States 
focused on this issue.
    Senator Schumer. How many overseas?
    Mr. Hill. There are five.
    Senator Schumer. Just five, one in each place?
    Mr. Hill. One in each.
    Senator Schumer. OK. Well, I certainly think you need more, 
and certainly, I guess, you agree we need more and we should 
try to get you those, OK. I hope we will.
    Could you describe the cooperation between Commerce, 
Customs, FBI, OFAC, the State Department, in stopping and 
prosecuting illegal export schemes?
    Mr. Hill. Thank you, Senator. It truly is a good story to 
tell. It has been a remarkable collaborative effort on the case 
that I described in my oral comments where we added 75 names to 
the Entity List, which interrupted an international smuggling 
chain that was eventually ending up in components being shipped 
to Iran to put in IEDs and ended up in Afghanistan. It was an 
effort led by Commerce, but we were strongly supported and 
worked closely with Justice, Customs, ICE, and all those.
    I think--you know, I remember back in the 1980s--I have 
been around for a while--where relations weren't so good. 
Relations are good today and we work well with our sister 
agencies.
    Senator Schumer. OK. Next, I think I will ask this to Mr. 
Levey, Mr. Steinberg, but any of you could answer it. I am 
always looking for places where the United States, we can act 
unilaterally and have some real economic effect on Iran, and it 
seems to me that the legislation that had been introduced by 
Senators Bayh and Kyl and Lieberman would do that, because 
gasoline was a weak pressure point. What is your view as to the 
effectiveness of that legislation, without commenting 
specifically? I don't know if in your testimony you support it 
or not. Does the administration support the legislation?
    Mr. Steinberg. Senator, as I said to the Chairman, I think 
we want to work with the Committee in terms of how we would 
craft an overall package coming out of the Congress----
    Senator Schumer. But the concept. I am not asking you for 
language. I am asking, would the administration support the 
concept of putting pressure on oil companies that sell gasoline 
to Iran and making it virtually untenable for them to do that 
by not selling here?
    Mr. Steinberg. Again, Senator, I think we have to--in terms 
of which of the potential measures of sanctions, whether they 
are more targeted on individual entities in Iran as opposed to 
a broad-based thing that would affect the Iranian economy like 
that, I think we have not reached a judgment as to which of 
those might be the most effective, in part because not only do 
we want to have the impact on the economy, we want to make sure 
that that is going to affect the decisionmaking in Iran and not 
target the wrong people in Iran, and similarly to make sure 
that we maximize the chance of getting international support 
for these things because there is obviously a risk in these 
things, that if we do not have international support, that 
there will be diversions, there will be work-arounds, and the 
efficacy of the sanctions will not nearly be as effective.
    Senator Schumer. But it seems to me with gasoline, where 
there are not that many large refiners and sellers, and most of 
the large ones need a U.S. market, as well, that that is a 
place that has real possibilities.
    Let me ask you about Central Bank. I was very active in 
preventing Iranian banks from being co-respondents--this is to 
Mr. Levey and now their Central Bank has taken over some of 
those roles. I do believe the one effective thing we have done 
economically unilaterally was when we put pressure on their 
banking industry. Would the administration support a move, 
which I have already urged the Chair to put in this 
legislation, to extend that in whatever way we could to the 
Central Bank of Iran, who is now, as I said, assuming the same 
functions that the commercial banks did?
    Mr. Levey. Well, Senator, without commenting on what action 
we might take in the future, let me just tell you what we have 
done already with respect to the Central Bank because we have 
publicly expressed some concerns about just what you have 
mentioned, which is that they have engaged in certain deceptive 
conduct and have assisted banks that are under unilateral 
sanctions by the United States.
    But what we did do is we cut off all Iranian financial 
institutions, their commercial banks, their state-owned banks, 
their private banks, and the Central Bank of Iran from all 
access to the United States financial system. And at this 
point, that is the state of affairs with respect to the Central 
Bank of Iran, as well as with all other Iranian financial 
institutions.
    So the question now is getting--trying to broaden that to 
what other countries can do----
    Senator Schumer. Correct.
    Mr. Levey.----and having the desired impact within Iran.
    Senator Schumer. I guess I share the frustration expressed 
by my colleague, Senator Menendez. I don't trust the Iranians 
one bit. If you look at past history, whenever they are 
squeezed a little bit, they feint, and then they back off. I am 
not saying we shouldn't pursue these negotiations, but I find 
it troubling that the administration is not looking at the same 
time to be supportive of the toughest sanctions possible. It is 
great that the Russians have finally said something, but again, 
seeing will be believing there.
    As you know, Mr. Steinberg, I worked really hard to try and 
persuade the previous administration to look at the Russians 
and the interconnection of the missiles in Eastern Europe and 
sanctions in Iran, got nowhere, and I am glad that this 
administration--I know the two are not related officially, but 
I am glad you are pursuing both separately.
    Tell us if you think there is a real chance that the 
Russians will--I mean, to me, Putin sees Iran as leverage over 
us and he doesn't want to give up that card very easily. Tell 
me, is there any reason that you have some optimism that this 
time it will be different?
    Mr. Steinberg. Senator, as I think you have said, I mean, I 
think we will see in the event--I mean, I think whether we are 
optimistic or not, we will see in the event. We are encouraged 
by the words of the public and the private words, but 
especially the public words, because I think President Medvedev 
has put himself out there in ways that I think creates some 
credibility issues there.
    But I also think that--I mean, for reasons that you 
understand, the specifics of some of the things we are looking 
at, we don't particularly want to bring up, but there is a very 
intensive internal effort to examine precisely the questions 
you are asking here. Would refined products be the right thing 
to do? Are there other measures?
    We are working very hard on this, because we recognize, as 
Senator Menendez and you have said, that we may have to move 
very promptly if we don't get a response in the next couple of 
weeks on these things to take measures. We will be ready and we 
will be coming back to you to tell you what we want to do, but 
I think at this stage, for us to sort of kind of go through 
publicly and precisely what we are doing----
    So you are raising the right questions. We are very, very 
focused and we welcome your thoughts about which of this whole 
suite--because we have a lot of tools and a lot of things that 
we might take as the next step as to what is going to be the 
most effective, because there is no science in this. It is a 
judgment call as to which of these various tools, what is the 
sequence, do you do them all at once, do you do them in a 
series, how do you sequence this with the international action, 
unilateral, Security Council, otherwise.
    But we recognize we need to be ready quickly, and the 
President has asked us to be in a position to take measures, 
strong measures, quickly if we don't see very prompt response 
to the kinds of things that the Iranians have said that they 
are prepared to do.
    Senator Schumer. Well, I would recommend, just in 
conclusion--and I thank the Chair--as tough of measures as 
possible that are efficacious. You don't want to do what the 
Bush administration did--this is my judgment, not yours--
sounded tough and did very little. You want to really be tough, 
but I wouldn't back off any longer.
    Thank you, Mr. Chairman.
    Senator Reed. Do any of my colleagues have additional 
questions? Senator Merkley?
    Senator Merkley. Thank you, Mr. Chair.
    I want to address this to Mr. Hill. In your testimony, you 
lay out the export controls on U.S.-origin devices and the 
efforts you go to enforce that. Have you done any sort of 
evaluation of the impact that this has in terms of the Iranian 
economy?
    Mr. Hill. I am not aware of any internal evaluation we have 
done. Again, our focus is to prevent the bad guys from getting 
stuff to Iran and we haven't evaluated what that means to the 
Iranian economy that I am aware of.
    Senator Merkley. OK. It strikes me as very strange that you 
wouldn't have such an evaluation. Could you get back to us on 
whether you think this has had any impact?
    Mr. Hill. I certainly would be happy to do that, sir.
    Senator Merkley. One of the things that has limited its 
impact is U.S. corporations have been allowed to set up foreign 
subsidiaries to do business with Iran. Doesn't that just create 
a huge loophole that almost makes the export controls 
irrelevant?
    Mr. Hill. Thank you, Senator. Under our regulations, any 
U.S. item that is exported or reexported by any entity in the 
world is under our regulations and has no effect if it is a 
foreign sub or not.
    Senator Merkley. No, but it does mean a U.S. company can 
set up a foreign subsidiary to engage in trade with Iran, and 
while the items can't be U.S. origin, isn't that basically the 
only limitation?
    Mr. Hill. Our regulations go to U.S.-origin items that 
contain U.S. parts, made with U.S. technology, or they are in 
their entirety U.S. origin.
    Senator Merkley. So getting back to us in terms of 
evaluating the effectiveness of the sanctions, if you could 
address this issue of whether the ability of U.S. corporations 
to set up foreign subsidiaries to do business with Iran has 
undermined the effectiveness of trade factors, that would be 
helpful.
    I noticed in your testimony, for example, you talked about 
three plans that--and you don't list what type of plane, or if 
you did, I missed it, but three planes that were not reshipped 
to Iran due to the efforts, and I think this was involving the 
Balli Group, three U.S.-origin aircraft to Iran in violation of 
the EAR, and I wondered, well, so Iran turns around and can buy 
them from a U.S. company that has a foreign subsidiary, not 
U.S.-origin planes but planes produced in some other nation.
    Mr. Hill. Well, again, just be clear, they cannot export or 
reexport any U.S.-manufactured planes. They cannot export or 
reexport any foreign-made planes that incorporate U.S. parts 
and components, and most of the major airlines and aircraft 
today incorporate significant U.S. parts. And so they would be 
prohibited from export or reexport to Iran under our current 
regulations.
    Senator Merkley. With anything with U.S. parts.
    I wanted to turn to the effort to address the actions of 
foreign companies, and particularly under the Iran Sanctions 
Act. How many companies have been assessed penalties under the 
Iran Sanctions Act?
    Mr. Steinberg. Senator, there has only been one finding 
under the Iran Sanctions Act. That was in 1998, but the 
sanctions were waived at that time.
    Senator Merkley. Is the answer zero?
    Mr. Steinberg. That is correct.
    Senator Merkley. OK. I believe that that Act, if you think 
of the three components, investment, trade, and sales of 
equipment, that of those three, the Act only addresses 
investments. It doesn't address trade purchases, if you will, 
or sales of equipment to Iran. And then, indeed, the investment 
portion, we have had reason to not implement sanctions when we 
found them, and so the kind of-- or penalties, so is 
essentially the ISA toothless and perceived as such around the 
world?
    Mr. Steinberg. Senator, I think, as I mentioned earlier in 
talking to Senator Bunning, I think one of the things that is 
hard to judge, although I think we can give some impressions 
about it, is the amount of investment that has been deterred as 
a result of the Iran Sanctions Act. There have been a number of 
companies which have indicated an intention, a number of 
European countries and East Asian countries that have made very 
explicit initial plans to make investments, and those 
investments did not go forward because of the result of our 
investigations.
    I recall some explicitly when I was last in office where we 
had conversations with the foreign governments, made clear that 
we were prepared to impose what was then the Iran-Libya 
Sanctions Act, and they desisted from those investments. So it 
is one of those things that it is not always the case that you 
can judge the efficacy of the legislation by the number of 
times the sanctions have been imposed. It has been a deterrent. 
It has been a substantial deterrent, and I will try to get the 
Committee more details about what we think may have been the 
impact in terms of other investments which at least were mooted 
about and didn't take place. But I am aware of several.
    And so I think that just the fact that it hasn't been 
imposed doesn't mean that it was toothless in terms of its 
impact. And as the sponsor said at the time, the goal was not 
to impose the sanctions. The goal was to get other countries to 
join with us in doing this, and what we tried to do was to try 
to develop an international consensus around trying to 
discourage investment.
    And, in fact, one of the biggest problems Iran has had is 
the difficulty that it has had in attracting investment. It is 
way behind in its technology. Its output is much less. Its 
technology is much less forward leaning and effective because 
of our concerted diplomacy backed by the ISA to stop those 
investments. So I think--I just don't want you to be drawing 
the conclusion--the fact that sanctions were not imposed 
doesn't mean that the Act in its deterrent value didn't have an 
effect.
    Senator Merkley. Can I follow up for a moment here, Mr. 
Chair? Am I correct in thinking that Total SA, the French 
company that was found in violation, proceeded with investments 
and is still proceeding with investments today?
    Mr. Steinberg. I would have to get back with you on the 
specifics on that, Senator. But clearly, we keep these all 
under review, and so in our judgment, there are no investments 
that we are aware of that are in violation of the Act.
    Senator Merkley. I will conclude with just this notion, and 
that is that the loopholes limited the impact of U.S. 
sanctions, but the biggest hole is the lack of multilateral 
action. I know the administration is pursuing that 
aggressively, because no matter what the United States does on 
their own, if the rest of the world isn't with us, as my 
colleague--my assistant said earlier today, it is like building 
a dam halfway across the river. You don't stop the water from 
flowing. And so we have to build that dam all the way across 
the river, and thank you for your efforts in that regard.
    Thank you, Senator.
    Senator Reed. If there are no further questions, thank you 
very much, gentlemen, for your testimony and your service.
    The hearing is adjourned.
    [Whereupon, at 11:50 a.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
follow:]

           PREPARED STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD

    Welcome.
    Today we confront a serious threat to our nation's security and 
global stability: the prospect of a nuclear-armed Iran.
    If Iran were to acquire a nuclear weapons capability, it would pose 
a serious threat to peace and security in the Middle East, especially 
to our close ally Israel.
    At our last Iran hearing in July, Senator Shelby and I agreed to 
hear from the Obama administration before moving forward on sanctions 
legislation. Much has happened in that time.
    Last week in Geneva, after revealing another covert uranium 
enrichment facility in Iran, the Administration held its first 
diplomatic meetings with Iran and the other permanent members of the 
U.N. Security Council and Germany.
    Under Secretary of State William Burns met one-on-one with Iran's 
chief nuclear negotiator.
    This dialogue demonstrated the United States' commitment to 
pursuing every avenue to push Iran to come clean on its nuclear program 
and abide by international non-proliferation commitments.
     President Obama described the talks as a ``constructive 
beginning'': participants agreed to follow-up talks later this month, 
the International Atomic Energy Agency is to be granted access to 
Iran's uranium enrichment site at Qom, and Iran has indicated a 
willingness, in principle, to export low-enriched uranium to Russia and 
France for processing for medical uses.
    Whether Tehran will keep these commitments--or if they will prove 
to be yet another stall tactic to avoid tougher sanctions--remains to 
be seen.
    And, the situation is increasingly urgent--over the weekend, the 
New York Times reported that IAEA scientists believe Iran has enough 
sensitive data to assemble a nuclear weapon.
    Ultimately, we will only succeed if Iran's leaders are persuaded to 
cooperate or face sustained, progressively intensifying multilateral 
economic and diplomatic pressure on their government--including tougher 
sanctions.
    They must make a clear choice: come clean on their nuclear program, 
suspend enrichment, and stop supporting terrorists around the world--or 
continue to deepen their international isolation.
    Increased international pressure and the specter of biting 
sanctions are clearly what have brought Iran to the table for 
substantive talks.
    Worldwide condemnation of Tehran's secret enrichment activities, 
its human rights abuses and post-election crackdown have unified the 
international community to intensify the pressure on Iran's leaders.
    We must not let up now.
    I intend to bring move forward in this Committee this month on 
comprehensive sanctions legislation. I am committed to ensuring that 
this Congress equips President Obama with all the tools he needs to 
confront the threats posed by Iran.
    Just as last year, we will incorporate the best of our Senate 
colleagues' contributions into one original Committee bill, including: 
penalties on companies that support Iran's import of refined petroleum 
products or bolstering its domestic capacity, advanced by Senators 
Bayh, Lieberman, and Kyl; and authorization for state and local 
governments to divest from companies involved in critical business with 
Iran, sponsored by Senators Brownback and Casey. In addition, our 
legislation will further tighten our trade embargo on Iran; enhance 
Treasury's mandate to freeze assets tied to Iran's terrorist and 
proliferation activities; and help cutoff Iran's access to the most 
sensitive and advanced technology available, through tougher export 
controls on these products sent to Iran through its blackmarket trading 
partners.
    I hope our legislation will complement and reinforce ongoing 
diplomatic efforts, and send a clear signal to Iran's leaders of what's 
in store if they continue to defy the will of the international 
community.
    We are fortunate to be joined today by some of the Administration's 
chief architects of Iran policy. Deputy Secretary of State James 
Steinberg will elaborate on ongoing diplomatic efforts to curb Iran's 
nuclear ambitions, assess our chances for success, and survey policy 
options.
    Under Secretary of the Treasury Stuart Levey joins us once again. A 
welcome hold-over from the Bush Administration, he will discuss the 
tough targeted financial measures employed against Iran and explore 
with us other pressure points in the global financial system that could 
be employed against Iran's government.
    And finally, we will hear from Acting Under Secretary of Commerce 
Dan Hill. It has been over 2 years since the Bush Administration 
proposed restricting export licenses to countries where sensitive 
technology flows to rogue nations such as Iran via third countries, 
combating blackmarket proliferation networks which flourish throughout 
Asia and the Middle East.
    But first, we will hear from two of our colleagues, Senator Casey 
and Senator Brownback, who will describe their legislation currently 
under review by the Committee on the role of divestment from firms 
doing business in Iran's energy sector. We welcome them to the hearing.

                                 ______
                                 
            PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY

    Thank you, Mr. Chairman.
    Recent developments in Iran underscore the importance of this 
morning's hearing.
    Last month, we learned that Iran has a secret uranium enrichment 
facility. Last week, the Iranians announced that they had reached a 
last minute deal to send their supplies of low-enriched uranium to 
France and Russia for further enrichment.
    Just yesterday, news reports revealed that senior staff at the 
International Atomic Energy Agency or IAEA have concluded that Iran has 
acquired ``sufficient information to be able to design and produce a 
workable'' nuclear weapon.
    Although Iran denies that it is trying to develop nuclear weapons, 
they have taken no credible steps to prove otherwise.
    Iran's troubling conduct is not limited to its pursuit of nuclear 
weapons.
    Iran has the dubious distinction of being ``the most active state 
sponsor of terrorism'' for ten years running according to our State 
Department.
    Because of its extensive financing of terrorism around the globe, 
the Treasury Department has referred to it as the ``Central Banker'' of 
international terrorism. There should be no doubt that Iran remains a 
serious and growing threat to the entire Middle East region, our 
European allies, and the interests of the United States.
    The issue is not whether we must take action to check Iran's 
hostile ambitions, but rather, how to maximize the effectiveness of the 
actions we take.
    Unfortunately, there is a long history of failed policies designed 
to reign in Iran. As Secretary Gates noted last October: ``Every 
administration since 1979 has reached out to the Iranians in one way or 
another and all have failed.''
    I hope this hearing will provide greater insight into the most 
effective way forward.

                                 ______
                                 
            PREPARED STATEMENT OF SENATOR CHARLES E. SCHUMER

    Thank you, Mr. Chairman and Ranking Member Shelby.
    And welcome to our esteemed witnesses who have agreed to testify at 
this important and timely hearing, including my colleagues Senator Bob 
Casey and Senator Sam Brownback. Mr. Chairman, I would like to thank 
you for calling this hearing, and I commend you for putting forth a 
comprehensive plan to arm the administration with the tools they need 
to put a stop to Iran's rogue nuclear program.
    I believe that when it comes to Iran, we should never take the 
military option off the table.
    But I have long argued that economic sanctions are the preferred 
and probably most effective way to choke Iran's nuclear ambitions.
    The Obama administration has recently begun direct diplomatic 
negotiations with Iran, and the first round of these talks did yield 
some important concessions from the Iranians last week. These 
negotiations should continue, but they do not supplant the need for 
action by this Congress. Iran, when it is caught red-handed, has a 
habit of promising just enough to avoid a strong response from the 
international community. Not this time.
    We should continue to talk to the Iranians, but we should not trust 
them. The threat of new sanctions will only serve to strengthen the 
President's hand as we pursue a diplomatic solution.
    By giving the administration the capability to impose crippling 
sanctions on Iran should they continue to pursue a nuclear weapons 
program, this Committee today is exploring a tough and smart plan to 
address the real threat Iran poses to the United States and our allies, 
particularly Israel.
    First, Mr. Chairman, I want to commend you for including in that 
plan key provisions of the Iran Sanctions Enhancement Act of 2009, a 
bill introduced by Senator Evan Bayh of which I am an original 
cosponsor.
    This bill sanctions companies that export gasoline to Iran. This is 
one of the few pressure points where we can act unilaterally and have a 
real effect. The world knows that Iran does not currently have the 
refining capacity to meets its domestic gasoline needs and is dependent 
on imported gasoline. So now is the time to reduce Iran's energy supply 
if they fail to suspend their nuclear enrichment program as called for 
in several U.N. Security Council resolutions.
    I am also glad that we will be strengthening export controls to 
stop the illegal export of sensitive technology to Iran. During the 
recent Iranian elections we witnessed the Iranian regime go as far as 
to block the Internet and mobile phone communications of their own 
citizens.
    That is why I and Senator Lindsey Graham introduced ``The Reduce 
Iranian Cyber Suppression Act'' or ``RICA'', a bipartisan bill that 
would bar companies that export sensitive communication technology to 
Iran from applying for or renewing procurement contracts with the U.S. 
Government. I look forward to working with you to make sure that the 
key provisions of this bill are also included in our plan.
    Our comprehensive plan will also address the role that global 
financial institutions play in enabling Iran to develop a nuclear 
program. Mr. Chairman, I have long argued that financial sanctions are 
one of the most effective way to crack down on the dangerous Iranian 
regime. But we have to make sure that they are designed effectively.
    Last year, 27 Democrats joined me and called for the Iranian 
central bank, known as Bank Markazi, to also be included in our 
economic sanctions, as they have been heavily involved in terrorism and 
helping finance acquisitions of nuclear and conventional weapons 
technology. The central bank has also played a role in helping other 
Iranian banks circumvent U.S. financial sanctions. We should also 
include the central bank in the sanctions plan we are developing in 
this Committee.
    All of these actions will go a long way to strengthen global 
security and reverse Iran's dangerous course. Yet unless we have a 
fool-proof enforcement regime in place, any new tools we deploy will be 
less than effective.
    Our existing sanctions are riddled with leaks in the form of 
trading partners who funnel our exports through a backdoor to Iran.
    We can help plug these leaks by increasing the amount of inspectors 
we have stationed in the United Arab Emirates and in other countries 
where black markets are serving to circumvent our sanctions.
    A 2007 GAO report found that enforcement is lacking, particularly 
for products that are sold to the UAE. At the time of that report, 
Treasury and Commerce Departments each only had one inspector stationed 
in the UAE.
    To increase the effectiveness of any new sanctions, we must 
authorize the Commerce and Treasury Departments to enhance their 
manpower on the ground in UAE and other black market areas to ensure 
that Iran is not skirting our sanctions. That is why today I am calling 
on the administration to deploy more inspectors to the UAE and other 
areas of vulnerability in our enforcement of sanctions.
    I hope these proposals are given serious consideration and I look 
forward to working with the Chairman to passing this important.

                                 ______
                                 
              PREPARED STATEMENT OF SENATOR SAM BROWNBACK
                A U.S. Senator from the State of Kansas
                            October 6, 2009

     Thank you, Senator Dodd, and Senator Shelby. I am grateful for the 
opportunity to testify today before this distinguished Committee 
regarding the grave threats we face from the regime in Tehran, and how 
Congress can, and must, confront these threats.
    This Committee plays a critical role in shaping our nation's Iran 
policy, and I thank the Chairman and Ranking Member for holding this 
hearing and for being willing to move forward with legislation that 
would impose meaningful sanctions on the Iranian regime.
    Iran is the leading state sponsor of terrorism worldwide, the 
foremost exporter of extremist ideology, and the primary source of 
instability in the Middle East. The regime's leaders have brutally 
oppressed their own citizens, and have threatened to commit genocide 
against the State of Israel, the region's only full-fledged liberal 
democracy. The regime's radicalism and brutality not only harms our 
interests and threatens our national security, but also challenges our 
moral obligations.
    It simply would be unconscionable to allow the mullahs to acquire 
nuclear weapons. Were they to achieve this goal, they would possess a 
trump card to ensure the continuation, and augmentation, of all of 
these dangerous and destabilizing actions.
    We must do everything in our legislative power to prevent this from 
occurring.
    This means crafting robust and effective sanctions that pull the 
plug on the regime's ability to pursue nuclear enrichment, support 
international terrorism, and oppress the Iranian people. Our goal must 
be to make it so that pursuing these hostile actions would be 
existentially threatening to the regime itself.
    To that end, divestment can play a key role in any sanctions 
proposal that this Committee will consider. Divestment is part of a 
broad political and economic strategy to force the Iranian regime to 
reevaluate its dangerous and oppressive policies.
    But the benefits of divestment extend beyond its effect on the 
targeted regime. Divestment also is a wise financial decision. As a 
major study last year indicated, companies with links to regimes that 
violate human rights make poor investments. Not only that, but 
divestment serves as a way of fulfilling our minimum moral obligation 
toward the victims of oppression from brutal regimes, like that in 
Tehran.
    Divestment is not the sharpest diplomatic tool, but nor is it 
ineffective. Indeed, as we know from the successful movement against 
apartheid in South Africa, divestment can play a key role in a 
government's decisionmaking, especially if that government depends on 
large amounts of foreign investment for economic stability.
    Less than 2 years ago, this Committee passed Sudan divestment 
legislation that was ultimately signed into law by President Bush. In 
that divestment model, the Federal Government authorized states and 
local governments to divest their pension funds from companies that 
were effectively subsidizing the genocide in Darfur.
    Following that lead, several states have already passed divestment 
laws targeting Iran. But in doing so without explicit Federal 
authority, these legislatures have opened up their divestment laws to 
potential constitutional challenges under the doctrine of Federal 
preemption on matters of foreign affairs. Moreover, the fund managers 
that seek to carry out divestment could be subject to legal action, 
reducing the incentive and efficacy of the measure.
    It is for these reasons that earlier this year Senator Casey and I 
introduced the Iran Sanctions Enabling Act, S. 1065, which authorizes 
states and local governments to divest from companies that invest in 
Iran's energy sector, and provides safe harbor for fund managers that 
divest according to the bill's guidelines. At this time, S. 1065 has 32 
bipartisan cosponsors, and a companion bill has already passed through 
committee in the House. And lest any of my colleagues worry about where 
our President stands on this, you can rest easy. In the last Congress, 
then-Senator Obama and I introduced almost this very same bill. At that 
time, Senator Obama said this:

        The Iranian government uses the billions of dollars it earns 
        from its oil and gas industry to build its nuclear program and 
        to fund terrorist groups that export its militaristic and 
        radical ideology to Iraq and throughout the Middle East. 
        Pressuring companies to cut their financial ties with Iran is 
        critical to ensuring that sanctions have their intended result. 
        All Americans can play a role in pressuring companies to cut 
        their ties with the Iranian regime, a state sponsor of terror 
        that is a threat to our allies in the region and international 
        security, as a means of convincing Iran to fundamentally change 
        its policies.
                                --Senator Barack Obama, May 15, 2007

    I could not have said it better than the President. In that spirit, 
and in the context of the Chairman and Ranking Member's intention to 
markup comprehensive Iran sanctions legislation, I urge this Committee 
to include the Brownback-Casey divestment bill in the final package.
    One final word on sanctions: enforcing sanctions is as important as 
legislating them. American products often end up in Iran in spite of 
our sanctions, often because we are not able to deter third parties 
from re-exporting U.S. origin items to Iranian companies.
    I hope that we can provide a small increase to the budget for 
export enforcement during this week's floor consideration of the FY10 
Commerce Justice Science appropriations bill. And, I look forward to 
working with the administration and my Senate colleagues to ensure that 
we have the means to enforce both existing sanctions and any additional 
sanctions that may emerge from this panel and ultimately be signed into 
law.
    I wish to make one other point today about our duty and ability to 
confront the threats from Iran, and that is that we must not view 
sanctions as the only tool at our disposal. We cannot ignore the power 
of promoting liberty and confronting the violation of human rights, 
wherever it occurs.
    When it comes to foreign policy in general, I believe that human 
rights should be the first of our concerns and the last of our 
concessions, not the other way around. My belief stems from a 
recognition of the inextricable link between a regime's domestic 
repression and its aggression abroad.
    We must make human rights the cornerstone of our Iran policy. For 
too many years, the suffering of the Iranian people--the executions, 
the arbitrary imprisonments, the religious repression, and the 
suffocating censorship--has taken a backseat to everything else. The 
Iranian people are our natural ally, and we have let them get crushed 
under the weight of the mullahs' theocracy.
    Instead of perpetuating this shortsighted policy, we should broaden 
our scope and raise the profile of Iranian human rights in every 
statement, every diplomatic meeting, and at every international forum, 
both public and private.
    The message should be simple and clear: We cannot continue to look 
the other way as the Iranian people are starved of their basic human 
rights and freedoms.
    This approach makes good policy sense. Leaders of oppressive 
regimes disdain criticism because it pushes back against the fiction of 
success they peddle to the masses. As the fiction crumbles, their grip 
on power dissolves. Like in the Polish Solidarity movement, the 
defiance of the people eventually cracked the defiance of the 
government.
    In previous sessions of Congress, I have introduced legislation 
requiring the President to appoint a special envoy for human rights in 
Iran, and I would hope that the members of this distinguished Committee 
would join me in introducing a similar measure in the near future.
    We must also focus our efforts on promoting the freedom of 
information, specifically Internet freedom.
    In the past few months, one of the key battles inside Iran has 
taken place on the Internet--on blogs, on Facebook, and on Twitter--as 
Iranians struggle to tell their story while the regime fights back with 
the instruments of censorship.
    One thing is clear: while physical brutality will always be the 
tool of oppressors, twenty-first century authoritarianism has already 
been defined by the lengths to which autocrats will go to limit online 
access to information.
    The Iranian dictatorship, like the Chinese Communist Party, the 
Burmese junta, and the Castro regime, derives a large share of its 
power through media suppression and rigorous Internet censorship.
    These dictators not only shield their populations from their own 
brutality, but also block information about the basic freedoms enjoyed 
by millions worldwide.
    As individual information exchanges become effortless through 
wireless communication, authoritarian regimes must devote ever more 
resources to maintain their electronic wall.
    We must ensure that Iranians, and all closed society residents for 
that matter, have free and open access to the Internet. This is the 
surest, and most costeffective, way to jumpstart liberty. To that end, 
I would urge the members of this panel to support funding in the State 
and Foreign Operations Appropriations bill that would go toward 
technology that allows residents of closed societies to break through 
the stifling firewalls and access open information.
    We must also ensure that Radio Farda remains a key source of 
information for the Iranian people by supporting additional reporters 
and transmission capacity, and providing Farda with the technical means 
to overcome the regime's jamming efforts. The surrogate broadcasts 
provided through Radio Farda worked very well even when the regime 
tried to block the free flow of information during the street 
demonstrations earlier this year.
    Indeed, the more Iranians understand the nature of their regime, 
the more effective will be the sanctions this Committee prepares, and 
the more power Iranians will have to determine their own future.
    And this, in turn, will transform Iran from one of the lead sources 
of global instability to a prosperous nation once more, in the great 
Persian tradition of innovation, justice and magnanimity.
    I thank you again for giving me the opportunity to testify at this 
important hearing.

                                 ______
                                 
           PREPARED STATEMENT OF SENATOR ROBERT P. CASEY JR.
             A U.S. Senator from the State of Pennsylvania
                            October 6, 2009

     Chairman Dodd, Senator Shelby, thank you for inviting me to speak 
on U.S. policy options toward Iran. This is a timely and important 
hearing and I appreciate your efforts to explore the options before us.
    As we all now know, Iran has agreed to inspections of its uranium 
enrichment facility in Fordu starting October 25th. The Iranians have 
agreed to talks on October 19th regarding the shipment of uranium 
abroad for enrichment and use for medical research purposes. The 
international community has responded with guarded optimism. I support 
the Administration's continued call for a freeze in Iran's nuclear 
enrichment and encourage my colleagues to back up these diplomatic 
efforts with sanctions.
    While the prospects for progress grew with last Thursday's meeting 
in Geneva, we should not be under any illusions about this regime. Let 
me be clear. This is a regime which refused to recognize the will of 
the Iranian people in last June's
    election. This is a regime that repeatedly disregarded U.N. 
resolutions on its nuclear program. And this is a regime that 
previously agreed to send uranium abroad for enrichment only to later 
renege on the deal. This regime continues to threaten our ally Israel. 
And finally, Mr. Chairman, this regime continues to directly threaten 
the national security interests of the United States.
    Iran has repeatedly claimed that its nuclear program is only for 
peaceful purposes, but the facts, especially in recent weeks, simply 
don't add up. The U.N. says Iran violated international law by not 
notifying the IAEA when construction on the Fordu site started more 
than 3 years ago. Why are international inspectors invited only after 
the regime is caught misleading the world again?
    So what are our concurrent/parallel tracks moving forward? I 
believe that we have three.
    First, the negotiations conducted by the Administration are 
important and should continue. At a minimum, this international effort 
will help to restore America's long held reputation of an honest 
broker, of a country that values diplomacy, and of a country that 
values relationships with allies and welcomes new ones. 
Internationally, the United States is on better footing than it has 
been in years. Ties with traditional allies in Europe have been 
strengthened. Those on the fence, like Russia and China, are showing 
signs of cooperation on issues that are critical to our national 
interests.
    It is clearly in Russia's security interests to prevent Iran from 
acquiring a nuclear weapon capability, but that has not stopped Russian 
leadership in the past from engaging in commercial and military trade 
with the regime. As we work to build confidence with the Russian 
government, however, I believe that cooperation on issues like Iran can 
continue to improve. President Medvedev's comments at the University of 
Pittsburgh during the G20 meeting indicated a willingness to consider 
sanctions and were an encouraging first step.
    While China relies on Iran for a substantial fuel imports, I trust 
that they are carefully weighing their need for energy against Iran's 
increasingly erratic and irresponsible behavior. The political and 
actual cost of doing business with Iran has risen considerably and may 
now be too high a price to pay. I hope that the Chinese will support 
international efforts to pressure this regime at this critical time 
with the understanding that these efforts could ultimately result in a 
more stable business and diplomatic partner in Tehran.
    In short, the Administration's diplomatic efforts have put us into 
a position where we have a strong coalition throughout these important 
negotiations.
    The onus will now be on the Administration to maintain and 
strengthen this coalition as we move forward. In the past, Iran has 
sought to drag out negotiations with the goal of weakening the resolve 
of the international community. The dynamics have changed somewhat as 
our French, German and British allies have been increasingly vigilant 
in their efforts to expose threats from Iran. The question now comes 
down to the Russians and Chinese, whom we hope will play an enhanced 
role in pressuring the regime in Iran.
    Second, I believe that the Senate should do its part in providing 
the Administration all the tools it needs to put pressure on the 
Iranian regime. Iran's leaders need to know that if they decide to 
renege on their commitments, as has been done in the past, the United 
States is prepared to impose a series of tough sanctions, including 
measures that would allow state pension funds to divest from Iran and 
restrict petroleum imports.
    The Iran Sanctions Enabling Act, which Senator Brownback and I 
introduced last May would allow state and local government pension 
funds to divest from companies that do more than $20 million in 
business with the Iranian energy sector. The measure is modeled on 
similar legislation passed in response to the genocide in Sudan. 
Eighteen state legislatures have passed individual Iran sanction 
measures and our legislation would bring these state efforts into line 
with Federal law. When President Obama was in the Senate, he introduced 
an earlier version of this legislation. It was right in 2007, and it is 
right now.
    Analysts have estimated that Iran requires $20 billion annually in 
investments for its oil and natural gas sector. That sector directly 
provides funding for Iran's nuclear program as well as its support for 
international terrorism. Iran will only cease its illicit nuclear 
program, end its support for Hamas and Hezbollah and stop arming 
militant groups in Iraq when it is compelled to pay an economic price.
    Third and finally, I believe that we need to be prepared to support 
democratic voices and human rights activists in Iran. This is not about 
regime change, but a genuine commitment to democratic values. In his 
speech before the U.N. General Assembly, President Obama said that:

        There are basic principles that are universal; there are 
        certain truths that are self-evident--and the United States 
        will never waver in our efforts to stand up for the right of 
        people everywhere to determine their own destiny.

    Our long held commitment to human rights should not fall off the 
table during these important deliberations on Iran's nuclear program. 
In fact, these should be fully addressed and our diplomats should raise 
specific concerns with regard to the human rights situation in the 
country. Ultimately, the political fate of Iran is up to its people to 
decide and we should take the lead from them. We should remain open to 
their calls for assistance.
    In closing Mr. Chairman, if history is any indication, Congress 
should be prepared to hand the President the leverage he needs to send 
a message to the Iranian regime that America cannot and will not accept 
an Iran with nuclear weapons. The Administration needs all the tools at 
its disposal to increase pressure on the regime, diplomatically, 
politically and through more stringent economic sanctions. I call on my 
colleagues to listen to legislatures in so many states across the 
country who have passed divestment measures. The American people do not 
want anything to do with investing in this regime. Let's send a strong 
message to this regime and the international community that a nuclear-
armed Iran is unacceptable.

                                 ______
                                 
                PREPARED STATEMENT OF JAMES B. STEINBERG
             Deputy Secretary of State, Department of State
                            October 6, 2009

    Mr. Chairman, Ranking Member Shelby, and Distinguished Members of 
the Committee:
    Thank you for the opportunity to appear before this Committee 
today. The challenge posed by Iran to U.S. interests, to our friends 
and allies in the greater Middle East, and to the wider international 
community is one of the Obama administration's central foreign policy 
concerns.
    First, let me be clear about our objective: our goal is to prevent 
Iran from achieving a nuclear weapons capability and we will work with 
our allies and partners toward that goal as well as to counter Iranian 
actions that threaten to destabilize the greater Middle East and the 
rest of the world.
    To that end, the Obama Administration has embarked on a dual-track 
strategy that presents a clear choice to Iran's leaders: they can 
negotiate in good faith, prove their willingness to address the 
concerns of the international community, and in turn improve Iran's 
standing in that community, or they can face increasing international 
isolation and pressure. We see these two tracks as complementary rather 
than contradictory, with the understanding that engagement and pressure 
used in coordination offer the best and most likely path to our 
objective. We also understand the Congress's interest in taking action, 
and look forward to consulting fully on any legislative effort, with 
the aim of maximizing our ability to pursue this two track strategy.
The goals of engagement
    Upon taking office, President Obama made clear that the United 
States was prepared to join our P5+1 partners as a full participant in 
future talks with the Islamic Republic of Iran. This marks a 
significant departure from previous approaches. We are engaging not 
because we believe in talking for talking's sake, but because the 
strategy of refusing to engage failed to achieve our vital goals. 
During the time when we refused direct engagement, Iran developed a 
growing mastery of the nuclear fuel cycle while flagrantly avoiding 
complying with its international obligations and responsibilities. The 
Iranian government failed to respect the rights of its citizens, and 
its support for terrorist organizations continued.
    We are realistic about the prospects from diplomacy, particularly 
given Iran's repeated intransigence and deception, most recently 
demonstrated by the previously undisclosed uranium-enrichment facility 
at Qom. We will state our concerns unequivocally and make clear to 
Iran's leaders the choice they have before them. Engagement not only 
opens up the prospect of better outcomes, but also strengthens our 
position in negotiations--or in forging a strong consensus with others 
if engagement does not produce the results we seek.
    More concretely, engagement serves three purposes:

  1.  By leading with diplomacy and communicating directly, Iran will 
        know precisely what we expect and what we are prepared to do if 
        they take the necessary acts: they cannot hide behind false or 
        misleading accusations about our positions or point to the lack 
        of engagement as an excuse for inaction on their part. We in 
        turn will be better placed to judge whether Iran is willing to 
        seriously address our concerns.

  2.  As Secretary Clinton has said, engagement also opens up the 
        possibility that dialogue will persuade Iran to alter its 
        policies. Given the gravity and urgency of the situation, it is 
        important that we employ all the tools available to us.

  3.  Engagement also allows us to mobilize international action if 
        Iran refuses to respond positively to our efforts. By 
        demonstrating our openness to a negotiated resolution of 
        differences, the United States is significantly bolstering the 
        willingness of other nations to stand with us if additional 
        pressure should be necessary.
Early returns
    Our dual-track strategy has led to some important steps in recent 
months.
    In last week's talks in Geneva, intensive multilateral and 
bilateral engagement with our partners in the P5+1 and others laid the 
groundwork for potential progress. After the talks, President Obama 
explained that the meeting allowed the international community to 
convey a clear and unified message to the Iranian government: ``Iran 
must demonstrate through concrete steps that it will live up to its 
responsibilities with regard to its nuclear program.'' He stated that 
the day's meeting ``was a constructive beginning, but it must be 
followed by constructive action by the Iranian government.'' As 
Secretary Clinton emphasized, ``We are not involved in a process just 
to say that we can check a box on process. We want to see concrete 
actions and positive results.''
    The test of Iran's seriousness in the coming weeks will be the 
practical steps it takes. Iran agreed in principle in Geneva last week 
to an international approach for supplying fuel for the Tehran Research 
Reactor by shipping out Iran's low enriched uranium (LEU) to other 
countries for further enrichment and fabrication. If implemented this 
would significantly reduce Iran's current LEU stockpile, a major source 
of anxiety in the region and beyond and demonstrate support for an 
exclusively peaceful nuclear program. This step, if implemented, would 
be a useful interim confidence building measure, allowing more time and 
diplomatic space for negotiations on a resolution of the more 
fundamental problems of Iran's nuclear program. Additional discussions 
regarding the technical details are needed and are scheduled to take 
place under IAEA leadership in Vienna on October 19. Iran also agreed 
to allow the IAEA access to the previously undisclosed enrichment 
facility near Qom on October 25, which must be the first step toward 
full cooperation with the IAEA's investigation.
    As we have always said, Iran's compliance with its international 
obligations will lead to more constructive relations with the 
international community and improved cooperation on security, economic, 
and other matters, as outlined in previous offers made by the P5+1. We 
anticipate another meeting between the P5+1 and Iranian officials 
before the end of October. This is bound to be a very difficult and 
uncertain process, and we will continue to build unity among our 
international partners consistent with our dual track strategy, which 
the P5+1 Ministers strongly reaffirmed in New York on September 23. We 
are prepared to give this process a chance, but we are not interested 
in engaging in talks for the sake of talking or an open-ended process. 
We can only sustain a process with measurable, practical results.
A united front
    In this regard, the importance of a broad and united international 
coalition cannot be understated. With wide international support, 
sanctions regimes can be enforced, pressure can be sustained, and 
Iran's leaders are less able to shift the blame from themselves to the 
United States for the pain caused by their behavior.
    Three years ago, the United States was virtually alone in imposing 
pressure on Iran. Now, a growing coalition shares our concerns about 
Iran's negative policies, and has made clear the necessity for Iran to 
change course. As the United States has shown its commitment to 
engaging in serious, good-faith talks, we are also working together to 
lay the groundwork for concerted and effective international action to 
pressure Iran to change its policies if negotiations do not produce the 
necessary results.
    Multilaterally, we have pursued a progressive tightening of United 
Nations Security Council sanctions on Iran through the adoption of 
resolutions 1737, 1747, and 1803. These resolutions have sent a 
powerful message to Iran that the international community will not 
allow Iran to break the rules that everyone else must live by. We have 
also worked with our colleagues at Treasury and with the international 
financial community through the Financial Action Task Force. As a 
result of sanctions and international efforts, the cost of doing 
business with Iran is going up.
    Consistent with the U.N. Security Council's call on member states, 
the European Union has also adopted measures to limit granting of 
export credits. As a result, a number of European countries have worked 
successfully to reduce their export credit exposure to Iran, making it 
more difficult for Iran to finance its international trade.
Iran's nuclear program
    The disturbing revelation of the previously undisclosed enrichment 
facility at Qom provides yet another example of why Iran's credibility 
is so low in the international community. For years, in contravention 
of its international obligations and responsibilities, Iran has 
frustrated IAEA efforts to address the international community's 
serious concerns with Iran's nuclear program, including Iranian efforts 
to develop a nuclear warhead. Tehran has defied U.N. Security Council 
resolutions and continued to enrich uranium.
    While the United States, along with the international community, 
has acknowledged Iran's right to pursue a peaceful nuclear program, 
with those rights comes a crucial responsibility to prove 
``convincingly,'' as President Medvedev put it last month, the 
exclusively peaceful purposes of Iran's program.
    President Obama stated this clearly last month at the United 
Nations: if the government of Iran chooses to

        ignore international standards; if they put the pursuit of 
        nuclear weapons ahead of regional stability and the security 
        and opportunity of their own people; if they are oblivious to 
        the dangers of escalating nuclear arms races in. the Middle 
        East--then they must be held accountable. The world must stand 
        together to demonstrate that international law is not an empty 
        promise, and that treaties will be enforced.
Beyond the nuclear issue
    There are other important areas of significant concern to the 
United States and the rest of the international community.
    The United States and the broader international community remain 
gravely concerned about the Iranian government's repression of its own 
people. The internal turmoil and terrible repression of peaceful 
protestors, opposition politicians, and journalists that followed the 
June 12 elections in Iran revealed much about the character of the 
government. Its use of unwarranted arrests, prolonged detentions, and 
violence against ordinary citizens was condemned by our government at 
the highest levels, including by the President, as well as by 
counterparts in the international community. As President Obama 
affirmed,

        The Iranian people have a universal right to assembly and free 
        speech. If the Iranian government seeks the respect of the 
        international community, it must respect those rights, and heed 
        the will of its own people. It must govern through consent, and 
        not coercion.

It is still too early to tell what lasting impact the government's 
focus on stamping out internal debate will have on Iran's internal 
dynamics, or on Iran's destabilizing international and regional 
behavior, but prospects for reform remain uncertain.
    The post-election repression is part of a broader international 
concern with Tehran's record of human-rights abuses, which has grown 
significantly worse in the past year. As documented in our annual human 
rights report on Iran, the government regularly uses torture and other 
forms of inhumane treatment against its own people. The government also 
severely restricts basic freedoms of expression, press, religion, and 
assembly to discourage political opposition, and manipulates Iran's 
electoral process, particularly through the mass disqualification of 
candidates.
    We are also deeply concerned for the fate of American citizens 
currently detained or missing in Iran. Following on the recent consular 
visit by the Swiss, we urge the Iranian government to promptly return 
Shane Bauer, Sarah Shourd, and Josh Fattal to their families. We also 
call on the Iranian authorities to release immediately American 
citizens Kian Tajbakhsh and Reza Taghavi, and we ask Iran to use all of 
its facilities to determine the whereabouts and ensure the safe return 
of Robert Levinson.
Regional stability
    Tehran's aggressive foreign policy also constitutes a threat to 
both regional stability and broader U.S. interests. Iran's claim to 
have its voice respected in the region depends on Iran's willingness to 
play a positive and constructive role. Today, Iran is the leading state 
sponsor of terrorism, providing financial and other support to 
Hizballah, Hamas, Palestinian Islamic Jihad, certain Iraqi militant 
groups, and the Taliban. The role of the Islamic Revolutionary Guard 
Corps-Qods Force in supporting foreign militants continues to pose a 
threat to regional stability.
    As the international community is engaged in efforts to promote 
dialogue between Israel and the Palestinian Authority, Iran is 
supporting those who deny Israel's right to exist, refuse to renounce 
violence, and work to sabotage efforts to re-launch negotiations that 
would establish an independent Palestinian state. President 
Ahmadinejad's inflammatory statements against Israel tarnish Iran's 
international standing and undermine the interests and aspirations of 
the Palestinian people.
    Many governments in the region have grave and legitimate fears 
about Iran's policies and aggressive posture. These concerns contribute 
to our sense of urgency in making clear to Iran the need to resolve 
tensions and reassure Iran's neighbors and the wider international 
community.
    In recent years, Iran has contributed to instability in Iraq, 
Afghanistan, Lebanon, and the Palestinian territories. The Obama 
administration's strategy in the greater Middle East has begun to 
significantly reduce Iran's ability to exploit conflict for its own 
gain.
    Our broad engagement with regional partners has strengthened our 
position relative to Iran. The President's June 4 speech in Cairo 
conveyed a clear message to Muslim communities in the Middle East and 
around the world: the United States is committed to a ``new beginning'' 
to our relations, based on the principles of mutual respect and mutual 
interest. We are also working actively and intensively to bring a 
comprehensive resolution to the conflict between Israel and its Arab 
neighbors.
    Regional governments threatened by Iran's activities are working 
more energetically to counter and diminish Iran's negative influence. 
As the Iraqi government continues to establish more capable and 
effective institutions, Iran's destabilizing activities have 
encountered new obstacles. Iraq and Iran share deep historic ties, but 
as the Iraqi government's capacity and confidence grows, it has chosen 
to assert its own sovereignty and speak out against Iranian influence. 
Iraq's increasing re-integration into the region and the greater 
international community reduces Iran's ability to manipulate and 
exacerbate differences among its neighbors.
    We are working with the Gulf nations to increase cooperation to 
address security issues of mutual concern. These states support the 
responsible and transparent development of civilian nuclear energy but 
have publicly declared their opposition to the pursuit of nuclear 
weapons and emphasized their grave concerns about Iran's nuclear 
intentions. They also protest Iran's meddling in the affairs of others. 
Some regional governments have signed arrangements with the United 
States on nuclear-energy cooperation that provide strong guarantees of 
peaceful intention by relying on the international market for nuclear 
fuel services without the development of an indigenous fuel cycle. The 
UAE-U.S. nuclear cooperation agreement, signed by both governments and 
currently in the congressional review process, contains a commitment on 
the part of the UAE not to pursue domestic enrichment or reprocessing 
activities. These efforts by other countries disprove Iran's assertions 
that the West seeks to block the pursuit of nuclear energy for peaceful 
purposes.
    We have been working with our regional partners to help them 
develop the kind of cooperation that will enable them to better manage 
the political, diplomatic, and security challenges Iran poses. Examples 
include the GCC+3 forum to address Iran; inter-Arab cooperation to help 
address the political crisis in Lebanon; security and military talks 
with the Gulf states; and the increasing efforts on the part of Arab 
governments in working with and supporting the Government of Iraq. We 
are also supporting Lebanon's legitimate state institutions, in part so 
that the Lebanese do not turn to Hizballah for the provision of 
services or for security.
    We continue to support military, law enforcement, and regulatory 
mechanisms and promote robust anti-terrorism cooperation with our Gulf 
partners to stem extremism and deny safe haven for terrorists 
throughout the broader region. With our important allies Egypt and 
Jordan, the only two Arab countries that currently have peace treaties 
with Israel, we are working on a broad range of shared initiatives, 
including promoting a comprehensive Middle East peace, countering 
terrorism, and promoting good governance, human rights, and economic 
prosperity. All these efforts work to constrain Iran's destabilizing 
policies in the region and build support for the United States in 
confronting and attempting to change those policies.
Conclusion
    With our international partners, the United States will continue 
with our dual-track strategy with Iran. We are sincere in our desire to 
see Iran live up to its international obligations and responsibilities 
and play a positive and constructive role in the international 
community. We and the international community very much hope that Iran 
will make the needed choices for itself, the region, and the world at 
large. Yet we will remain vigilant and judge whether Iran is willing to 
negotiate in good faith. If it is not, we will be prepared to move 
ahead swiftly and effectively with additional pressure and sanctions--
with the confidence that our engagement will make such measures broad-
based and effective. We appreciate Congress' interest in making sure 
that we have the tools we need to meet the challenge posed by Iran's 
nuclear program.
    We believe that we have the authorities necessary to take strong 
action--alone and together with our international partners, should that 
prove necessary. We look forward to consulting with Congress on how 
best to use these as events develop.
    Thank you. I look forward to answering any questions you have.

                                 ______
                                 
                   PREPARED STATEMENT OF STUART LEVEY
    Under Secretary, Office of Terrorism and Financial Intelligence
                    U.S. Department of the Treasury
                            October 6, 2009

    Chairman Dodd, Ranking Member Shelby and other distinguished 
members of the Committee, thank you for this opportunity to update you 
on our efforts involving Iran. I welcome the Committee's ongoing focus 
on this important issue, and, more broadly, your continued support for 
our efforts to protect the integrity of the international financial 
system.
    Less than a week ago, the five permanent members of the U.N. 
Security Council and Germany--the P5+1--met with Iran in Geneva. As the 
President said, that meeting was a constructive beginning to our 
dialogue, but much work remains to be done. He was clear that,

        [i]f Iran does not take steps in the near future to live up to 
        its obligations, then the United States will not continue to 
        negotiate indefinitely, and we are prepared to move toward 
        increased pressure.

Deputy Secretary of State James Steinberg has outlined to the Committee 
our overall two-track strategy toward Iran, focused on both engagement 
and clear consequences if Iran declines to take concrete steps.
    Even as the Administration focuses on diplomacy, we have also been 
working with our colleagues across the U.S. Government to develop a 
strategy for imposing substantial costs on the government of Iran if 
the President determines that is what is needed to affect Iranian 
policies.
    The plan we are developing is comprehensive. It takes into account 
that no single sanction is a ``silver bullet''--we will need to impose 
measures simultaneously in many different forms in order to be 
effective. It also takes into account Iran's potential vulnerabilities 
and those activities that have the greatest influence on Iran's 
decisionmakers. As we consider various measures, we are particularly 
mindful of potential unintended consequences on the people of Iran, and 
the internal dynamic now playing out in that country.
    Because financial measures are most effective when imposed as part 
of a broad-based effort with the support of the largest possible 
international coalition, we are working closely with our allies as we 
put together this strategy. We believe that by consulting with them 
closely and pursuing engagement genuinely we have a better chance to 
generate the coalition we will need if dialogue does not lead to 
demonstrated progress.
    We should be realistic about the ability of sanctions to achieve 
our political and security objectives with Iran. If, however, we 
accurately target the key vulnerabilities and fissures in Iran and then 
implement our plan with a broad coalition of governments and key 
private sector actors, we can at least demonstrate to the Iranian 
government that there are serious costs to any continued refusal to 
cooperate with the international community. Although we cannot describe 
the particulars of our planning in an open hearing, I would like to 
explain some of our thinking.
Financial Measures
    Beginning in 2006, we developed and implemented a strategy to 
target Iran's illicit conduct. We took formal action against many of 
the specific banks, government entities, companies, and people involved 
in Iran's support for terrorism and its proliferation activities. We 
did so using two powerful Executive Orders, E.O. 13382 and E.O. 13224, 
that allow us to designate proliferators of weapons of mass 
destruction, terrorists, and their supporters, freezing any assets they 
have under U.S. jurisdiction and preventing U.S. persons, wherever 
located, from doing business with them. We have designated more than 
100 entities and individuals supporting Iran's nuclear and missile 
enterprises, including the key organizations within Iran, scores of 
their front companies, Iran's major banks that finance their conduct, 
and Iran's major shipping line, the Islamic Republic of Iran Shipping 
Lines, that handles illicit shipments for these dangerous enterprises. 
We have also acted against the Islamic Revolutionary Guard Corps, or 
the IRGC, and several of its companies for proliferation, as well as 
the IRGC's Qods Force for its role in supporting terrorist 
organizations.
    As a result of the State Department's intensive diplomatic efforts, 
the U.N. Security Council resolutions on Iran contain many of the same 
designations we have implemented here in the United States. The 
European Union and Australia have gone beyond implementing the Security 
Council's list, joining us in other designations, such as that of 
Iran's Bank Melli. These actions are particularly powerful in that they 
give us an opportunity to explain publicly our reasons for acting, 
thereby exposing the illicit conduct of those we have designated.
    Importantly, we combined these government actions with 
unprecedented, high-level outreach to scores of banks, banking 
associations, and other private sector leaders around the world. We 
discussed the risks of doing business with Iran and shared information 
about Iran's illicit and deceptive practices. As a result, the 
international private sector has amplified the impact of government 
actions, as banks and companies around the world have come to 
understand that, if they are dealing with Iran, it is nearly impossible 
to protect themselves against becoming entangled in that country's 
illicit conduct.
    We have seen firsthand that the financial measures applied by the 
United States and the international community on Iran since 2006 have 
had an impact. At this point, most of the world's major banks have 
cutoff or significantly scaled back their business with Iran because of 
the reputational risks involved. Iran is increasingly dependent on an 
ever-shrinking number of trade and finance facilitators. Many foreign 
companies have pulled back from business deals with Iran, including 
investment in Iran's energy sector. Iranian businessmen face greater 
inefficiencies, higher operating costs, and increased difficulty 
finding business partners and banks to provide them with financing.
    Iran's foreign borrowing has sharply declined since 2006, a 
significant change from 2002 to 2005, when foreign credit growth to 
Iran outpaced that of the wider Middle East. External credit to Iran 
fell 18 percent between September 2006 and September 2008, in stark 
contrast to the 86 percent rise in external credit to the Middle East 
region during the same period. And, to the extent that Iranian firms 
have been able to replace lost credit with domestic credit, they are 
likely doing so at a much higher cost.
Iran's Economic Vulnerabilities
    The Iranian government's mismanagement of the Iranian economy, its 
increasingly corrupt business practices, its ongoing threatening and 
deceptive conduct, and its handling of the recent elections have 
fostered dissatisfaction, divisions, and discord within Iran and have 
made Iran an even less attractive business partner.
    Some experts estimate Iran's unemployment rate to be well over 20 
percent, with a lack of jobs disproportionately affecting the young--
three out of four unemployed Iranians are under 30. Inflation remains 
high at about 13 percent. The banking sector is unhealthy and reliant 
on government support. Iran is ranked 137th out of 183 countries on the 
World Bank's Doing Business report, in terms of ease of doing business, 
and 165th in terms of protecting investors. And, as a result of the 
Iranian government's economic mismanagement and its self-isolating 
conduct, foreign investment in Iran has declined. All of this results 
in decreased opportunities for the people of Iran.
    The Iranian government's reliance on corruption and nepotism in 
business further limits opportunities for all Iranians. The 
Transparency International Corruption Perceptions Index of 2008 ranked 
Iran 141st out of the 180 countries. The Iranian government has 
increasingly awarded no-bid government contracts to companies 
associated with the IRGC--a group that counts Iranian President 
Ahmadinejad and many senior government officials as former members. 
These companies, some of which have been designated by the United 
States and the U.N. Security Council for their role in Iran's illicit 
missile program, operate under names that obscure their IRGC 
affiliation, so many unwitting non-Iranians are in fact doing business 
with the IRGC.
    In the name of ``privatization,'' the IRGC has taken over broad 
swaths of the Iranian economy. Former IRGC members in Iranian 
ministries have directed millions of dollars in government contracts to 
the IRGC for myriad projects, including developing the South Pars gas 
field, managing the Imam Khomeini International Airport in Tehran, and 
expanding Tehran's metro system. Furthermore, the IRGC seeks to 
monopolize black-market trade of popular items, funneling the proceeds 
from these transactions through a patronage system and using them to 
help subsidize the government's support for terrorist groups.
    There is broad acknowledgment that the Iranian government engages 
in a range of deceptive financial and commercial conduct in order to 
obscure its development of nuclear and missile programs and facilitate 
its support for terrorism. International understanding of these 
practices--underscored by the U.N. Security Council resolutions on Iran 
and six warnings issued by the Financial Action Task Force about the 
risks Iran poses to the financial system--has been brought about in 
part by our efforts to share information about Iran's deception with 
governments and the private sector around the world.
    These deceptive practices taint all Iranian business because they 
make it difficult to determine whether any Iranian transaction is 
licit. Iranian banks request that their names be removed from 
transactions so that their involvement cannot be detected; the 
government uses front companies and intermediaries to engage in 
ostensibly innocent commercial business to obtain prohibited dual-use 
goods; and Iran's shipping line, the Islamic Republic of Iran Shipping 
Lines, or IRISL, repeatedly manipulates bills of lading to shield 
prohibited cargo from scrutiny.
    To a greater extent than ever, private companies across industries 
are now alert to these kinds of risks. Banks worldwide have been 
repeatedly warned by regulatory and standard-setting bodies to regard 
Iranian transactions with caution. Traders and shippers know that 
transactions with innocent-sounding Iranian counterparts can expose 
them to risk--both reputational and legal. Energy companies have put 
Iranian investments on indefinite hold, cautious of the political risk 
of investing too heavily in Iran. And exporters of sensitive and dual-
use technologies know that supplying Iran can lead to severe sanctions 
and even prosecution. Across the board, then, transactions with Iran 
are already handled differently than transactions with any other 
country--except perhaps for North Korea--engendering either heightened 
suspicion or outright refusal to engage in them.
    Finally, the vulnerabilities in Iran could be compounded by the 
internal fractures resulting from Iran's elections of 2009. As 
Secretary of Defense Gates recently stated:

        It's clear in the aftermath of the election that there are some 
        fairly deep fissures in Iranian society and politics and--and 
        probably even in the leadership . . . [T]his is one of the 
        reasons why I think additional and especially severe economic 
        sanctions could have some real impact . . . [W]e know that the 
        sanctions that have already been placed on the country have had 
        an impact.
United Coalition Necessary To Exploit Iran's Economic Vulnerabilities
    This Administration has demonstrated that it is committed to a 
diplomatic resolution of the international community's issues with 
Iran. The world is now united in looking to Iran for a response. If 
Iran does not live up to its obligations in this process, it alone will 
bear the responsibility for that outcome.
    Under these circumstances, the United States would be obliged to 
turn to strengthened sanctions. We are intensifying work with our 
allies and other partners to ensure that, if we must go down this path, 
we will do so with as much international support as possible. For the 
less united we are in applying pressure, the greater the risk our 
measures will not have the impact we seek. This challenge will be 
difficult, but not impossible. Over the past 3 years, the U.N. Security 
Council has adopted three unanimous Chapter VII resolutions against 
Iran. Those resolutions now represent the baseline. If Iran chooses to 
defy the international community yet again, and not live up to its 
obligations, these resolutions as well as other steps taken to date 
have laid the groundwork for a concerted and meaningful international 
response.
Conclusion
    The Administration remains committed to the dual-track strategy and 
views last week's developments as a step forward. We will now wait to 
see whether Iran follows its constructive words with concrete action. 
If it does not, and if the President determines that additional 
measures are necessary, we will be ready to take action, ideally with 
our international partners.
    I would be happy to answer your questions.

                                 ______
                                 
                  PREPARED STATEMENT OF DANIEL O. HILL
      Acting Under Secretary of Commerce for Industry and Security
                         Department of Commerce
                            October 6, 2009

    Mr. Chairman, Senator Shelby, Members of the Committee:
    I welcome the opportunity to appear before the Committee today to 
discuss the Department of Commerce's role in administering and 
enforcing U.S. dual-use export control policies toward Iran. We work 
closely with our colleagues at the Departments of State and the 
Treasury, as well as other agencies, to implement the long-standing 
U.S. embargo on Iran effectively. The United States has had a trade 
embargo on Iran since May 1995. The United States took these steps 
because of Iran's continued active support for terrorism and concerns 
that it is pursuing weapons of mass destruction.
    All exports to Iran are subject to both the Export Administration 
Regulations (EAR) and the Department of the Treasury's Iranian 
Transactions Regulations. Treasury is the lead agency for administering 
the embargo, which features not only a prohibition on exports and 
reexports of items under the Commerce Department's jurisdiction, but 
also comprehensive restrictions on financial transactions and 
investments under the jurisdiction of the Treasury Department.
    Commerce, however, is responsible for several aspects of the 
embargo of Iran. First, Commerce provides technical assistance to 
Treasury on the proper classification of items proposed for export or 
reexport to Iran under a Treasury license. The Iran Iraq Arms Non-
Proliferation Act of 1992 (Note to 50 U.S.C. 1701) generally requires 
BIS to deny licenses, absent a Presidential waiver, for the export or 
reexport of items on the Commerce Control List (CCL) to Iran. In 
considering an application to export an item to Iran, Treasury must 
know whether the item is on the CCL and thus prohibited for export to 
Iran without a waiver. Commerce determines whether the item is on the 
CCL and informs Treasury.
    Second, Commerce plays a vital role in enforcing the embargo by 
investigating transactions that may constitute exports or reexports to 
Iran in violation of the EAR. An export or reexport of an item subject 
to the EAR without Treasury authorization will generally constitute a 
violation of the EAR. The Bureau of Industry and Security (BIS) has 
approximately 100 Federal law enforcement agents in ten field offices 
throughout the United States. The field offices are located in Boston, 
New York, Washington, Miami, Chicago, Dallas, Los Angeles, San Jose, 
Houston; and the Washington, DC area. Additional BIS agents are based 
in main Commerce here in Washington. These agents are on the frontlines 
of the effort to prevent illicit transfers of items which would do us 
harm if they fell into the wrong hands.
    In addition, Commerce has export control officers (ECO) in five 
foreign locations--Abu Dhabi, United Arab Emirates; Beijing and Hong 
Kong; New Delhi; and Moscow. In Fiscal Year (FY) 2010, BIS has 
authorization to post an ECO in Singapore and a second ECO in Beijing. 
These ECOs are Bureau of Industry and Security enforcement agents 
temporarily assigned to the U.S. & Foreign Commercial Service. The ECOs 
conduct pre-license checks and post-shipment verification visits to 
verify that items will be, or are being, lawfully used and have not 
been diverted to prohibited users or uses within the country or 
illegally transshipped to another country such as Iran.
    The Commerce Department closely coordinates with the Department of 
State and other agencies to work with other countries, including states 
that may be involved in transshipments to Iran, to establish and 
strengthen those states' export and transshipment control systems. This 
enables those countries to cooperate with us on specific transactions 
as well as take actions against parties in their own territory who are 
illegally exporting items to countries such as Iran.
    Commerce also can bring to bear unique tools to enforce U.S. export 
controls on Iran. These tools include Temporary Denial Orders (TDO) and 
the Entity List. A TDO is a legal order that can be issued quickly, for 
180 days at a time, to prevent imminent violations of the EAR. For 
example, in 2008, we issued a TDO denying the export privileges of 
Balli Group PLC and related companies and individuals (``Balli 
Group''), Blue Airways, and Mahan Airways for 180 days. Evidence 
obtained by our agents showed that the parties knowingly reexported 
three U.S.-origin aircraft to Iran in violation of the EAR and were 
preparing to reexport three additional U.S.-origin aircraft to Iran in 
further violation of the EAR. The TDO effectively precluded United 
States or foreign parties from engaging in any activity related to the 
aircraft. Ultimately, the TDO prevented the illegal reexport of three 
commercial aircraft to Iran.
    The Entity List is a regulatory tool that can be used to prohibit 
the export, or reexport, of any item subject to the EAR, including 
items not on the CCL, to any listed entity. In 2008, the Bureau of 
Industry and Security added 75 foreign parties to the Entity List 
because of their involvement in a global procurement network that 
sought to illegally acquire U.S.-origin electronic components and 
devices capable of being used to construct Improvised Explosive Devices 
(IEDs). These commodities had been used in IEDs or other explosive 
devices against Coalition Forces in Iraq and Afghanistan. This network 
acquired U.S. origin commodities and illegally exported them to Iran. 
As a consequence of the addition of these entities to the Entity List, 
no United States or foreign party may export or reexport items subject 
to the EAR to them without a license. Exporting or reexporting an item 
to any of these entities without the required license would constitute 
a violation of the EAR.
    In addition, Commerce has led investigations of a number of 
significant cases involving Iran which have in turn led to successful 
enforcement actions. Commerce currently has 235 open investigations 
involving Iran which constitute about 29 percent of all open 
investigations of potential violations of the EAR. I have attached a 
summary of prosecutions concluded in 2008 for illegal exports to Iran.
    The Commerce Department's authority to enforce our dual-use export 
controls is based on the Export Administration Act of 1979 (EAA). This 
statute, however, has been in lapse since 2001. While the EAA is in 
lapse, the U.S. dual-use export control system has been maintained 
under the authority of the International Emergency Economic Powers Act 
(IEEPA). Most recently, the president renewed Commerce authority under 
IEEPA in August 2009.
    Cooperation with our sister law enforcement agencies has been 
paramount to the success of our efforts to prevent unauthorized exports 
to Iran and obtain sanctions against those making such exports. We work 
in concert with the Federal Bureau of Investigation, U.S. Immigration 
and Customs Enforcement, and several other agencies, including by 
participating in several FBI-led Joint Terrorism Task Forces, which 
focus on export control violations, including those involving Iran's 
support of international terrorism and violations of the Iran 
sanctions.
    Finally, the Commerce Department maintains a robust outreach 
program to educate the private sector on the embargo on Iran. We have 
detailed guidance on our website for exporters to follow. We also focus 
on key companies such as freight forwarders, integrators, air cargo 
carriers, and shipping lines with regard to the embargo of Iran. Our 
efforts are targeted toward educating exporters on vigilance in 
partnering with firms based in major transshipment hubs, not only in 
the Persian Gulf region but also in Southeast Asia, which might result 
in illegal transshipments of U.S.-origin goods to Iran.
    In conclusion, the Department of Commerce plays a key role in the 
administration and enforcement of the embargo on Iran. At this time I 
would be happy to answer any questions you may have.
Summaries of Recent Commerce Enforcement Cases involving Exports or 
        Reexports to Iran
    On January 30, 2009, James Gribbin, former sales manager 
        for Oyster Bay Pump Works, was sentenced to 3 years of 
        probation and a $100 special assessment in connection with an 
        attempted export of laboratory equipment, valued at 
        approximately $300,000, to Iran via the United Arab Emirates. 
        On May 1, 2008, Patrick Gaillard, President of Oyster Bay Pump 
        Works, was sentenced to 30 days in prison, a $25,000 criminal 
        fine, 3 years of probation, and a $300 special assessment for 
        his part in the attempted export.

    On June 11, 2009, Traian Bujduveanu, the owner and operator 
        of Orion Aviation, was sentenced to 35 months in prison 
        followed by 3 years of supervised release for his role in the 
        illegal export of civilian and military aircraft parts to Iran 
        Defense Industries Organizations.

    On December 10, 2008, Nicholas Groos was sentenced to 60 
        days in prison, 1 year supervised release, a $249,000 criminal 
        fine, and a $400 special assessment for his part in a scheme to 
        transship U.S.-origin fire fighting equipment to Iran using his 
        position as Director of the Viking Corporation subsidiary 
        located in Luxembourg.

    On August 28, 2008, Desmond Frank was sentenced to 23 
        months in prison, a $500 criminal fine, and a $600 special 
        assessment for his part in the export of defense articles to 
        Iran and China.

    On August 7, 2008, James Angehr and John Fowler, owners of 
        Engineering Dynamics Inc., were sentenced to 5 years of 
        probation for their part in an attempt to export software to 
        Iran via Brazil. Angehr was additionally sentenced to 6 months 
        of confinement in a halfway house, and Fowler was sentenced to 
        4 months of confinement in a halfway house. Each defendant was 
        fined $250,000, and ordered to forfeit $218,583. On May 22, 
        2008, Nelson Galgoul was sentenced to 13 months in prison, 3 
        years of supervised release, a $100,000 criminal fine, and a 
        $109,291 forfeiture for his part in the conspiracy.

    On February 8, 2008, Mojtada Maleki-Gomi was sentenced to 
        18 months in prison and a $200,000 criminal fine for exporting 
        textile goods to Iran without the required export licenses, and 
        Babek Maleki was sentenced to 12 months probation for making 
        false statements related to the same export.

RESPONSES TO WRITTEN QUESTIONS OF SENATOR VITTER FROM JAMES B. 
                           STEINBERG

Q.1. Are you confident that Iran is not buying time for 
continued enrichment of weapons-grade nuclear material by 
merely pretending to engage in serious negotiations on this 
issue? If so, why are you confident of this?

A.1. President Obama came into office willing to test whether 
dialogue would yield more positive results with Iran, with full 
awareness that dialogue might not achieve the results we seek. 
This is exactly why we are employing a range of tools for 
dealing with Iran including implementing existing UNSCR and 
U.S. sanctions, together at the same time we seek to achieve 
our goals through the engagement approach.
    The results of engaging in this dialogue are clear: the P5-
plus-l is united, and we have an international community that 
has reaffirmed its commitment to non-proliferation and 
disarmament. The Iranian government heard a clear and unified 
message from the international community in Geneva: Iran must 
demonstrate through concrete steps that it will live up to its 
responsibilities with regard to its nuclear program. This 
message was reinforced by the IAEA Board of Governors' adoption 
of a resolution on 27 November 2009 condemning Iran's 
construction of the Qom enrichment facility as inconsistent 
with Iran's safeguards agreement and demanding Iran's full 
compliance with its international obligations without further 
delay.
    Going forward, we've made clear the necessity for Iran to 
take swift action. If Iran does not take steps in the near 
future to live up to its obligations, then we are prepared to 
move toward increased pressure. If Iran takes concrete steps 
and lives up to its obligations, there is a path toward a 
better relationship with the United States, increased 
integration with the international community, and a better 
future for all Iranians.
    The burden of meeting these responsibilities lies with the 
Iranian government, and they are now the ones that need to make 
that choice.

Q.2. In your opinion, how likely is it that Iran's nuclear 
enrichment activities will result in weapons-grade material? If 
this comes to pass, when do you think it will happen?

A.2. Our goal is to prevent Iran from acquiring a nuclear 
weapons capability. The same technology that is used in 
centrifuge-based enrichment for reactor fuel is used for 
producing HEU and Iran has made significant advances in its 
enrichment program. Iran's refusal to comply with its 
international obligations over the past twenty years adds to 
the concern that Iran's intent is to--at a minimum--preserve 
the option to acquire nuclear weapons. Iran needs to take steps 
to address the questions raised by the international community, 
and suspend its proliferation-sensitive nuclear activities as 
required by the United Nations Security Council.
    We defer to the intelligence community for an update on 
Iran's nuclear program, a timeline of possible HEU-production 
scenarios, and any indication of a weapons program.

Q.3. Are the upcoming talks with Iran being conducted with a 
sense of urgency appropriate to the situation, given the wide 
evidence of Iran's enrichment activities in violation of UN 
Security Council resolutions, along with the very real 
possibility that Iran is ``running out the clock'' while it 
pursues its nuclear ambitions?

A.3. Our whole approach is predicated on an urgent need to 
prevent Iran from obtaining a nuclear weapons capacity. That is 
why a united P5+1 has presented Iran with a very plain choice: 
prove to our satisfaction that its program is, as they claim, 
for peaceful purposes and open up its facilities to 
inspections, freeze its uranium enrichment program, and follow 
through on the agreement to provide fuel for enrichment outside 
of the country or face real pressure and consequences.
    This message was reinforced by the IAEA Board of Governors' 
adoption of a resolution on 27 November 2009 condemning Iran's 
construction of the Qom enrichment facility as inconsistent 
with Iran's safeguards agreement and demanding Iran's full 
compliance with its international obligations without further 
delay. We--in coordination with our partners--will be taking 
stock of where things stand in the coming weeks, and we will 
make appropriate judgments about the next steps, including the 
option of imposing additional pressure.

Q.4. Can you provide some concrete examples of potential steps 
the Iranian regime could take that you would consider 
``progress'' as a result of the current negotiations?

A.4. The October 1 meeting in Geneva, as well as Iran's 
acceptance of an initial inspection in Qom, offered a 
cumulative set of options. We regret that Iran has not followed 
through. As a result, the IAEA Board of Governors' adopted a 
resolution on 27 November 2009 condemning Iran's construction 
of the Qom enrichment facility as inconsistent with Iran's 
safeguards agreement and demanding Iran's full compliance with 
its international obligations without further delay.
    The P5+1 has made clear that Tehran must agree to another 
P5+1 political director level meeting, focused on the nuclear 
issue. We have stressed the need for continued cooperation 
regarding the Qom enrichment facility, including access to 
personnel and documents. And we have called upon Iran to 
implement the IAEA's Tehran Research Reactor proposal to which 
it agreed in Geneva on October 1. Iran must demonstrate through 
these concrete steps that it will live up to its 
responsibilities with regard to its nuclear program.
    We have conveyed to Iran that, if it expects the world to 
believe in the exclusively peaceful nature of its nuclear 
program, then Iran must engage fully and immediately with the 
IAEA to address all outstanding issues surrounding its nuclear 
program. As set forth in numerous resolutions of the IAEA and 
the U.N. Security Council, Iran must fully implement its IAEA 
Safeguards Agreement and bring into force its Additional 
Protocol.
    Additional confidence building measures would include 
Iran's full implementation of its UN Security Council 
obligations as well as answering the IAEA's outstanding 
questions, particularly with regard to the possible military 
dimensions to Iran's nuclear program. These steps are clearly 
outlined in U.N. Security Council resolutions 1737, 1747 and 
1803 as well as in the plethora of IAEA Director General's 
reports from the past 7 years. Iran knows what it needs to do 
to restore international confidence in the exclusively peaceful 
nature of its nuclear program. Now is the time to take 
advantage of an historic opportunity to constructively engage 
and find a diplomatic resolution to the nuclear issue.

Q.5. How confident are you that United States intelligence-
gathering operations are providing an accurate picture of 
Iran's nuclear capabilities, given the recent failure to detect 
the scope of operations at the Qom facility?

A.5. Due to the sensitive nature of our intelligence programs, 
we will address this question in a separate, classified 
submission to the Committee.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR VITTER FROM STUART A. 
                             LEVEY

Q.1. What is your assessment of the current set of sanctions 
against Iran? In what ways are these sanctions succeeding and 
in what ways do they fall short of achieving our objectives in 
this situation?

A.1. In addition to the broad country sanctions the United 
States has in place against Iran, the Treasury and State 
Departments launched an effort in 2006 to target Iranian 
illicit conduct and, specifically, Iranian entities' and 
individuals' use of the international financial system to 
support proliferation and terrorism. This effort combined 
formal government measures against the specific Iranian banks, 
companies, and people involved in this conduct with 
unprecedented high-level outreach to scores of banks, banking 
associations, and companies around the world.
    Our strategy of targeting illicit conduct has resulted in 
broad international support. In terms of formal government 
actions, the U.N. Security Council resolutions on Iran contain 
many of the same designations we have implemented here in the 
United States. The European Union and Australia have gone 
beyond implementing the Security Council's list, joining us in 
other designations, such as that of Iran's Bank Melli. On the 
private sector side, banks and companies around the world have 
come to understand that, if they are dealing with Iran, it is 
nearly impossible to protect themselves against becoming 
entangled in that country's illicit conduct.
    Government and private sector actions have increased 
pressure on Iran. These mutually reinforcing actions have not 
only had an impact on Iran's ability to use the international 
financial system to support its illicit activities, but have 
also put Iran at a competitive disadvantage in the world 
marketplace due to its increasing financial and commercial 
isolation. Iran is increasingly dependent on an ever-shrinking 
number of trade and finance facilitators. Many foreign 
companies have pulled back from business deals with Iran, 
including investment in Iran's energy sector. Iranian 
businesses face greater inefficiencies, higher operating costs, 
and increased difficulty in finding business partners and banks 
to provide them with financing.
    We are working to build on this effort by developing a 
comprehensive plan aimed at imposing additional substantial 
costs on the government of Iran, and we are coordinating this 
plan with our international partners. As the President recently 
stated:

        [T]he dual-track approach requires Iran to get a clear message 
        that when it fails to take advantage of these opportunities 
        [offered by the P5+1], that in fact it is not making itself 
        more secure, it's making itself less secure.

Q.2. What steps are being taken to target the efforts of 
foreign financial institutions and foreign governments, such as 
Venezuela, which have assisted Iran in evading the full impact 
of the sanctions?

A.2. The United States takes very seriously its obligation to 
protect the international financial system from abuse. The 
Treasury and State Departments have taken domestic action 
against specific banks, entities and individuals complicit in 
Iranian illicit activity. We have also acted against the 
subsidiaries of the banks we have targeted. For example, on 
October 22, 2008, we designated Banco Internacional de 
Desarollo, a subsidiary of the Export Development Bank of Iran 
(EDBI) located in Venezuela, under Executive Order (E.O.) 13382 
for being owned or controlled by, or acting for or on behalf 
of, EDBI. More recently, on November 5, 2009, we designated 
First East Export Bank (FEEB), a Bank Mellat subsidiary located 
in Malaysia, under E.O. 13382 for being owned or controlled by 
Bank Mellat. Through the designation of over 100 entities and 
individuals supporting Iran's nuclear and missile enterprises, 
the United States has not only cutoff illicit actors from the 
U.S. financial and commercial systems, but has also highlighted 
publicly the risks of doing business with Iran and Iran's 
efforts to evade sanctions.
    In addition to the formal actions we have taken, the 
Treasury Department has also engaged bilaterally with its 
foreign government partners and the private sector around the 
world to share information about Iran's illicit and deceptive 
conduct. Where releasable information has been available on 
specific foreign financial institutions or entities supporting 
Iranian proliferation efforts, the United States has actively 
worked to inform the host government and request assistance in 
disrupting the activity.
    Finally, we have worked through the Financial Action Task 
Force (FATF) to build awareness of the risks stemming from 
Iran's deceptive practices and lack of an adequate anti-money 
laundering and counterterrorist financing (AML/CFT) regime. In 
October 2009, the FATF issued its seventh statement on Iran, 
reiterating its call for jurisdictions to apply effective 
countermeasures to protect their financial sectors from these 
risks.

Q.3. In what ways would sanctions targeting companies that 
assist Iran in importing refined petroleum help to discourage 
those companies from continuing those activities? Would these 
sanctions, in your estimation, succeed in increasing economic 
pressure on Iran?

A.3. Sanctions by their very nature create a disincentive to 
engage in the activities against which they are targeted. 
However, the effectiveness of any specific measure needs to be 
considered in the context of our overall package of sanctions 
and our broader policy and objectives. If desired, I would be 
pleased to provide a more detailed briefing in a closed 
setting.
