[Senate Hearing 111-1081]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 111-1081
 
                        IRAN SANCTIONS: WHY DOES
                  THE U.S. GOVERNMENT DO BUSINESS WITH
                   COMPANIES DOING BUSINESS IN IRAN?

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


                                HEARING

                               before the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 12, 2010

                               __________

         Available via the World Wide Web: http://www.fdsys.gov

       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs



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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri           JOHN ENSIGN, Nevada
JON TESTER, Montana                  LINDSEY GRAHAM, South Carolina
ROLAND W. BURRIS, Illinois
EDWARD E. KAUFMAN, Delaware

                  Michael L. Alexander, Staff Director
                         Troy H. Cribb, Counsel
 Vance F. Serchuk, Foreign Policy Advisor, Office of Senator Lieberman
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
              Molly A. Wilkinson, Minority General Counsel
                  Luke P. Bellocchi, Minority Counsel
                  Trina Driessnack Tyrer, Chief Clerk
         Patricia R. Hogan, Publications Clerk and GPO Detailee
                    Laura W. Kilbride, Hearing Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman............................................     1
    Senator Collins..............................................     3
    Senator Brown................................................    17
    Senator McCaskill............................................    18
    Senator Ensign...............................................    21
    Senator Gillibrand...........................................    23
Prepared statements:
    Senator Lieberman............................................    27
    Senator Collins..............................................    29
    Senator Burris...............................................    31

                               WITNESSES
                        Wednesday, May 12, 2010

Hon. Theodore E. Deutch, a Representative in Congress from the 
  State of Florida...............................................     5
Joseph A. Christoff, Director, International Affairs and Trade, 
  U.S. Government Accountability Office..........................     8
Danielle Pletka, Vice President, Foreign and Defense Policy 
  Studies, American Enterprise Institute for Public Policy 
  Research.......................................................    10

                     Alphabetical List of Witnesses

Christoff, Joseph A.:
    Testimony....................................................     8
    Prepared statement...........................................    63
Deutch, Hon. Theodore E.:
    Testimony....................................................     5
    Prepared statement with an attachment........................    32
Pletka, Danielle:
    Testimony....................................................    10
    Prepared statement...........................................    79

                                APPENDIX

GAO report sent to Senators Lieberman, Collins, and Kyl, dated 
  May 4, 2010....................................................    71


                        IRAN SANCTIONS: WHY DOES
                  THE U.S. GOVERNMENT DO BUSINESS WITH
                   COMPANIES DOING BUSINESS IN IRAN?

                              ----------                              


                        WEDNESDAY, MAY 12, 2010

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 11:02 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, McCaskill, Collins, Brown, 
McCain, and Ensign.
    Also Present: Senator Gillibrand.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. The hearing will come to order. We will 
begin with an apology to our witnesses for starting late, but, 
as my kids always say, ``It wasn't my fault.'' And it certainly 
was not Senator Collins'. Sorry, the Senate staged these votes 
at this time. This is an important hearing. We appreciate the 
witnesses being here. Congressman, I thank you for your 
patience.
    The title of our hearing today really says it all: ``Iran 
Sanctions: Why Does the U.S. Government Do Business with 
Companies Doing Business in Iran?''
    A prohibition on awarding Federal contracts to companies 
that violate the Iran Sanctions Act of 1996 is one of the 
actions authorized in that law. It was intended by Congress to 
be a tool, a powerful tool, and it could be if it was ever 
used. But it has not been up until this time, and that is now 
14 years.
    In the last fiscal year, the Federal Government spent $520 
billion to buy goods and services, everything from basic office 
supplies to parts for weapons systems to an extraordinary range 
of services that are acquired.
    Here is another example of the scope of Federal purchasing: 
The Federal Government is the single largest purchaser of 
energy in the world.
    The U.S. Government's market power gives us the capacity, I 
think, to influence the behavior of companies doing business 
with Iran and to give them a choice between doing business with 
us or doing business with Iran. We no longer should allow 
businesses to do both.
    But Presidents of both parties have failed to enforce the 
existing law. As a result, many companies that make money from 
the U.S. Government continue to do business with Iran and in 
Iran, helping to sustain--directly or indirectly--the 
fanatical, anti-American regime in Tehran that regularly 
promises to bring ``Death to America.''
    Today the Government Accountability Office (GAO) is 
releasing a report which illustrates America's failure to use 
the 1996 law as authorized.
    Based on publicly available information, GAO has identified 
41 foreign companies that have conducted commercial activity in 
support of Iran's energy sector. While GAO reaches no 
conclusion about whether these companies are in violation of 
the Iran Sanctions Act--because that is not its 
responsibility--the report does suggest strongly that many 
companies see no downside to doing business with Iran in 
violation of the law.
    At the request of Senators Kyl, Collins, and myself, GAO is 
releasing a follow-up report today on seven companies doing 
energy business with Iran that also held Federal contracts 
between fiscal years 2005 and 2009.\1\ These companies have 
received combined payments of nearly $880 million from the 
Department of Defense--including $319 million to Repsol of 
Spain and $312 million to Total of France for the purchase of 
fuel, and $111 million to Daelim Industrial Company of South 
Korea for the construction of military family housing in Korea.
---------------------------------------------------------------------------
    \1\ The GAO report referenced by Chairman Lieberman appears appears 
in the Appendix on page 71.
---------------------------------------------------------------------------
    The New York Times recently published its own analysis 
showing that the Federal Government has awarded more than $107 
billion in contracts, grants, and other benefits over the last 
decade to foreign companies, as well as to foreign subsidiaries 
of U.S. companies, that have engaged in commercial activity in 
Iran. This includes $15 billion to companies that certainly 
appear to me to have violated the Iran Sanctions Act.
    Companies identified in the New York Times report include 
Royal Dutch Shell, which has helped develop oil fields in Iran 
and has received over $11 billion from the U.S. Government, 
mostly through contracts for the purchase of fuel for the 
Department of Defense.
    I hope that this hearing this morning, the GAO report, and 
the testimony of the witnesses send a clear message to those 
companies: Either do business with Iran's $250 billion a year 
economy, or do business with America's $13 trillion economy, 
including our government, but you cannot do business with both. 
And it is simply unacceptable for the Federal Government to 
enrich foreign firms that are enriching the extremist, 
repressive, terrorist Government of Iran.
    Those companies should be put on notice--I hope they will 
be today--that Congress is on the verge of passing tough new 
sanctions legislation. The conference committee on which I am 
privileged to serve just held a meeting this morning. What 
cannot be sanctioned today can and will, I am confident, be 
sanctioned tomorrow.
    I note that both chambers have adopted provisions intended 
to tighten the prohibition on American Government contracts to 
companies that violate sanctions, which is based on legislation 
originally introduced in both chambers by Senator Chuck Schumer 
and in the House by Congressman Ron Klein.
    I really want to thank our panel today, which I know will 
help us better understand the scope of foreign commercial 
activity in Iran, with a focus on its energy sectors, and the 
nexus between these companies and U.S. Government contracting.
    I look forward to the testimony and our discussion 
afterwards.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman.
    We are at a critical juncture in our efforts to prevent 
Iran from obtaining nuclear weapons, a capability that 
threatens the stability of the region and, indeed, the world. 
The conference committee on the comprehensive Iran Sanctions 
Act is now underway, and I commend the Chairman for his 
leadership on that legislation and for holding this oversight 
hearing.
    Like the Chairman, I am deeply troubled by recent reports 
in the New York Times and by the GAO that the U.S. Government 
continues to do business with companies that are, at least 
indirectly, aiding and abetting Iran's nuclear program by 
investing in the Iranian economy. GAO's report that the U.S. 
Government entered into almost $880 million worth of contracts 
with seven foreign firms that had investments in Iran's energy 
sector is extremely troubling. Obviously, this practice goes 
against our own national security interests.
    The GAO report exposes evidence of potentially serious 
violations of our current sanctions regime. In light of this 
alarming information, we not only need to pursue rigorous 
enforcement of our current laws but also to strengthen our 
sanctions against Iran. Congress can assist by completing 
conference negotiations on the Iran Sanctions Act. But the 
State Department can take immediate action to improve our 
efforts simply by enforcing current law.
    Unfortunately, this lack of enforcement is not a new 
problem. As far back as 1996, when the Iran Sanctions Act first 
became law, Congress has attempted to extinguish investment in 
the energy sector. Yet, despite clear evidence of violations of 
that law, not a single company has ever been sanctioned. In 
fact, many of the corporations that have reportedly done 
business with Iran have continued to receive Federal contracts 
or other benefits from our government.
    This failure to enforce the law has sent a signal to the 
Iranian leadership that we may be less than determined to bring 
their nuclear program to a halt. Continuing lack of enforcement 
may undermine our credibility as we seek tougher international 
sanctions. And, most important, Iran has seized on our leniency 
by continuing to enhance its nuclear weapons capability.
    While the Federal Government continues to send mixed 
messages, many States have taken much more forceful action. In 
2007, Florida became the first State to divest its pension 
funds from companies doing business in Iran and the Sudan. Many 
other States have adopted similar divestment measures or have 
imposed procurement restrictions on companies doing business in 
Iran. For example, the State of Illinois requires State 
contractors to disclose in each bid whether or not they are 
engaged in operations in Iran's energy sector.
    The Federal Government requires contractors to certify that 
they do not conduct prohibited business operations with Sudan. 
Unfortunately, no similar requirement is in place for 
contractors doing business with Iran. At a minimum, it seems to 
me the Federal Government should impose this requirement on its 
contractors.
    I have repeatedly expressed my concern about the Federal 
Government's inconsistent actions to enforce and strengthen our 
sanctions against Iran. And as the Chairman has pointed out, 
this problem has gone across Administrations and involved both 
Democratic and Republican Presidents. Along with our allies, 
our Nation must be prepared to impose strong sanctions against 
Iran if the U.N. Security Council fails to implement tough and 
effective measures. But the fact is that the sanctions will 
lack teeth if they are not enforced. Mere threats will not 
prevent companies, including government contractors, from doing 
business with the Iranian regime.
    In light of the danger posed by the Iranian nuclear threat, 
we must take every possible economic, political, and diplomatic 
measure to demonstrate to Iran's leaders that the price for its 
nuclear program has simply become too high.
    As we consider broader sanctions to deter the nuclear 
threat posed by Iran, I am reminded of the suffering endured by 
the 66 American hostages seized by the Iranian Revolutionary 
Guard and other militants in November 1979. These Americans 
were held against their will for 444 days. To date, they have 
received absolutely no compensation from the Iranian Government 
for the brutality that they experienced. One of those hostages, 
Moorhead Kennedy, lives in Maine and is here today. I am very 
pleased that he is present for this hearing. His presence 
reminds us that these Americans continue to be denied justice 
from the Iranian regime, despite the intent of Congress.
    Mr. Chairman, again, thank you for holding this hearing, 
and I look forward to discussing these issues with our 
witnesses.
    Chairman Lieberman. Thanks very much, Senator Collins. I 
thank Senator McCain and Senator Brown for being here. We will 
go to the witnesses now who have been so patient in waiting.
    First, Congressman Ted Deutch was elected to Congress to 
fill an open seat last month by the voters of the 19th District 
of Florida in quite an impressive victory, all the more 
impressive to those who know because of the fact that he had 
earlier in his career supported various of my campaigns, and 
notwithstanding that, he went on to win a great victory.
    Congressman Deutch is seated as a member of the House 
Foreign Affairs Committee and the House Judiciary Committee, I 
think showing the confidence that the leadership has in him. 
But this morning we asked him to be here particularly to share 
with us lessons from the State Senate in Florida where he has 
served and where he led a successful effort to pass legislation 
requiring the State pension fund to divest from companies doing 
business in Iran. And I think the process followed there is 
instructive and encouraging for us at the Federal level.
    Congressman Deutch, congratulations again and welcome to 
our Committee this morning.

 TESTIMONY OF HON. THEODORE E. DEUTCH,\1\ A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Deutch. Thank you, Chairman Lieberman, Ranking Member 
Collins, and Members of the Committee. I appreciate the 
invitation to join you here today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Deutch with an attachment appears 
in the Appendix on page 32.
---------------------------------------------------------------------------
    The Iranian nuclear weapons program poses a grave and 
growing national security threat to our Nation, risks a nuclear 
arms race in the Middle East, threatens our allies in Europe 
and beyond, and poses an existential threat to our critical 
ally Israel.
    I am grateful that the House and Senate have now both 
passed new Iran sanctions legislation, and I firmly expect 
strong language to emerge from the conference committee before 
the end of this month.
    It is important to note that States and local governments 
have been at the forefront of the Iran sanctions movement for 
years, highlighted by dramatic successes such as those in my 
own State of Florida. I was elected to the Florida State Senate 
in 2006, and recognizing the threat of the Iranian nuclear 
program, I was determined to use every tool at my disposal to 
put pressure on the regime. I crafted legislation that would 
prevent the pension funds of Florida's workers from investing 
in companies that conduct business within the energy sector of 
Iran, consistent with the framework established by the Iran 
Sanctions Act.
    As the author of the Protecting Florida's Investments Act, 
I laid out a procedure for identifying and engaging those 
``violating'' companies who currently invest in the energy 
sector of Iran above the thresholds in both the State and 
Federal statutes. The Florida State Board of Administration 
(SBA), subsequently worked with experts from across the country 
to develop an effective course of action for divesting the 
Nation's fourth largest pension fund.
    Three years later, it is clear that this effort has been a 
dramatic success. The State of Florida has divested nearly $1.5 
billion from 24 companies that do or did business in the 
Iranian energy sector, including Royal Dutch Shell, Total, Eni, 
and others. This is $1.5 billion from Florida alone. But no 
public worker, no retiree from any State or local government or 
from any police force, fire department, or school district 
should see his or her retirement savings invested in Iran's 
nuclear program. Divestment must be expanded, and most 
significantly for our collective efforts here today, the 
companies must be identified.
    While 19 other States and the District of Columbia have 
passed similar divestment policies, Florida is the only State 
to have successfully identified, named, and published on a 
quarterly basis a list of violating companies, followed by a 
full and successful divestment from them. Therefore, I would 
urge Congress to look to Florida as one model for how to 
identify those companies who are presently doing business in 
Iran in contravention of international security. Once those 
companies are identified, immediate economic pressure can be 
brought to bear at the Federal level.
    Now, SBA identifies potentially violating companies through 
a thorough and multi-source research effort which relies on 
their own analysis along with independent external research 
providers. The SBA then sends written notification to any 
company found to have active business operations with Iran 
informing the company that it is now subject to divestment and 
that it has 90 days to cease such activity.
    In only a matter of months, Florida published a verifiable 
and comprehensive list of companies and did so with a small 
budget and minimal staffing levels. The Federal Government can 
easily match and replicate the actions of Florida to create and 
maintain its own list of violating companies that are presently 
doing business in Iran.
    The legislation that emerges from the House-Senate 
conference must include a requirement that the Administration 
provide a list of all companies that are in current violation 
of the Iran Sanctions Act.
    But in advance of these new legislative requirements, the 
Administration should waste no time in creating its own 
definitive list so that the American people can know 
immediately which companies are choosing to risk international 
security by investing in Iran. It would be highly imprudent to 
waste time by waiting until after the new sanctions law takes 
effect to compile this important list when, in fact, it can be 
created quickly and easily today. In Florida, this research is 
done by the pension fund administrators and their outside 
consultants. I am aware that the State Department currently has 
jurisdiction over this area, but it is worth noting that the 
Energy Department is well positioned to publish such a list, as 
these are ultimately factual findings, and the Department of 
Energy has a long track record of publishing similar data 
within their detailed reports that document energy activity in 
specified countries, including Iran.
    If the United States is serious about shining a light on 
the companies that continually defy U.S. law, we must do 
everything that we can to simplify this process. The easiest 
way to gather information is to mandate that companies divulge 
their business activities in Iran. I would like to commend the 
Securities and Exchange Commission (SEC) Chairman Mary Schapiro 
for her recent comments in support of strengthening the 
disclosure requirements for companies engaged in such dealings 
with Iran. It is apparent to a growing number of observers 
that, under U.S. securities law, doing business in Iran should 
properly be considered a material event that triggers mandated 
disclosure on SEC filings. Stricter SEC disclosure requirements 
have also been promoted by Florida's SBA and the not-for-profit 
group United Against Nuclear Iran--whose president, Ambassador 
Mark Wallace--circulated a letter recently favoring this new 
understanding of materiality in the securities law context. I 
would respectfully ask the Members of this Committee to join in 
the call for more complete disclosure requirements. A company's 
decision to do business in Iran at a time when the United 
Nations, the European Union, and this Congress are all debating 
various forms of economic sanctions certainly makes any such 
Iranian investment material and worthy of full notice to the 
company's shareholders and to the public.
    The list of violating companies serves another role. We 
must cease awarding any government contracts to companies that 
invest in Iran. My colleague, Congressman Klein, has written 
tough and important legislation in the House that is included 
in this comprehensive Iran sanctions package currently in 
conference committee.
    As the Chairman referred to earlier, the New York Times 
article confirmed over $107 billion of Federal Government money 
has been awarded to companies appearing to be in violation of 
the Iran Sanctions Act since its enactment. Further, as the 
most recent GAO report states, the Federal Government spent 
almost $880 million just in the last 5 years contracting with 
companies currently doing business in the Iranian energy 
sector.
    This is unacceptable, and I am gratified that we are on the 
verge of passing legislation to ban this practice going 
forward.
    Through both Democratic and Republican Administrations, the 
sanctions regime under the Iran Sanctions Act has essentially 
lay dormant. I am certain that Congress did not repeatedly 
enact thoughtful and complex Iran sanctions for them never to 
be used. This practice must end, and it is long past time for 
these sanctions to be utilized as designed.
    I am aware that in the world of international diplomacy it 
is not polite to name names. I understand that foreign nations 
do not want us telling their companies when and where to 
invest, but the stakes are now too high for diplomatic niceties 
to trump international security. It is time for our government 
to name and publish the companies that are investing in Iran. I 
am aware that many of those companies are based in countries 
that are our allies. Nevertheless, there is no greater threat 
to global security than the Iranian regime's quest for nuclear 
weapons, and it is time we put proper pressure on our friends, 
allies, and international competitors alike to end their 
investments in Iran.
    The government should be using every power at our disposal 
to encourage, badger, demand, entice, and sanction companies to 
remove their business interests from Iran.
    We are at a crucial moment in history, and time is not on 
our side. For many years, we waited for diplomacy to take hold 
and for Iran to forgo its nuclear weapons program. Instead, 
Iran is spinning more centrifuges and announcing the opening of 
new nuclear facilities, while their president declares his 
intent to wipe Israel off the map and publicly envisions a 
world without America. We will have failed if our discussion 
shifts toward containment and how to deter Iran from using 
nuclear weapons. Our mission is clear: We must prevent Iran 
from acquiring nuclear weapons. We must act now before it is 
too late for economic sanctions to deliver genuine results. 
Florida has shown that it is possible to identify violating 
companies and to exert real economic pressure. Congress and the 
Administration must now do the same. We can prepare that list 
today and immediately move ahead with sanctions. We need not 
and we cannot wait a moment longer.
    Thank you, Mr. Chairman, for your dedication and commitment 
to this vital national security interest, and thank you for 
giving me this opportunity.
    Chairman Lieberman. Congressman Deutch, thank you for a 
very thoughtful, very strong, and ultimately very hopeful 
statement about what the Federal Government can and should do. 
Obviously we would love for you to stay for questions, but we 
will understand if in light of the delay you have to return to 
the House.
    Mr. Deutch. Thank you.
    Chairman Lieberman. Mr. Christoff of GAO, thanks for being 
here. Thanks for the work that you have overseen. We now look 
forward to a presentation on the findings of GAO on this 
subject, and particularly the list of foreign firms engaged in 
Iran's energy sector who also hold U.S. Government contracts. 
Thank you.

 TESTIMONY OF JOSEPH A. CHRISTOFF,\1\ DIRECTOR, INTERNATIONAL 
    AFFAIRS AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Christoff. Thank you, Mr. Chairman, Members of the 
Committee. Thanks for inviting GAO to this important hearing. I 
am here today to discuss our work on foreign firms that have 
commercial interests in Iran's energy sector. The issue is 
important because Iran needs foreign investments to develop its 
energy sector, and the United States seeks to deter these 
investments through additional sanctions.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Christoff appears in the Appendix 
on page 63.
---------------------------------------------------------------------------
    Iran seeks investments from foreign firms to increase oil 
and natural gas production and meet domestic energy needs. 
According to the International Monetary Fund (IMF), Iran's oil 
production has remained virtually flat in recent years and will 
likely stagnate without more investment. In addition, Iran must 
import about 130,000 barrels of gasoline each day to meet 
domestic demand. Currently, oil revenues account for as much as 
three-quarters of the Iranian government's revenues and one-
quarter of the country's gross domestic product (GDP).
    The Iran Sanctions Act seeks to limit Iran's ability to 
produce more oil and thereby deny it the financial resources it 
needs to fund international terrorism and develop its nuclear 
sector. Under the Act, foreign firms may lose U.S. Government 
contracts if they invest more than $20 million in Iran's energy 
sector within a 12-month period.
    The only time the United States invoked the Iran Sanctions 
Act was in 1998 when it determined that the investments of 
three foreign energy firms were sanctionable. However, at that 
time the Secretary of State waived the sanctions citing U.S. 
national interests.
    My statement today is based on two reports that we 
completed for this Committee, one in March and one that is 
being released today. In the March report, we found that 41 
foreign firms had commercial activity in Iran's energy sector 
between 2005 and 2009. These firms are located in 22 countries 
throughout Europe, Asia, and South America. We defined 
commercial activity as having either signed an agreement to 
conduct business, invested capital, or received payment for 
providing goods or services in Iran's energy sector.
    To identify these 41 firms, we examined over 200 industry 
publications, U.S. Government and trade associations reports, 
and corporate statements. We also interviewed officials from 
the Departments of Energy and State, and U.S. intelligence 
agencies. We excluded sources that we deemed insufficiently 
reliable because GAO's evidentiary standards require accurate 
and credible information. Therefore, we excluded newspaper 
reports and statements from the Iranian Government.
    We included a firm only if its activities in Iran were 
documented in at least three reputable industry publications or 
in at least one industry publication plus a corporate 
statement. Accordingly, the 41 firms represent a minimum number 
of firms with commercial activity in Iran's energy sector.
    We provided the firms an opportunity to comment on our 
report. Thirteen of the 41 firms responded and confirmed our 
findings. Since the report was released, four more firms have 
responded, including one firm that stated that it had not yet 
made an investment decision.
    Mr. Chairman, it is important to note that we did not 
determine whether the activities of these 41 firms meet the 
legal criteria for an investment under the Iran Sanctions Act. 
The Secretary of State is responsible for making such 
determinations.
    In the report released today, we found that seven of the 41 
firms had contracts with U.S. Government agencies, and over the 
past 5 years, U.S. agencies have obligated almost $880 million 
to fund these contracts. About 90 percent of these funds 
purchased fuel and petroleum products for U.S. military 
operations overseas. Two firms--Repsol of Spain and Total of 
France--accounted for nearly three-quarters of the $880 
million.
    To identify which of the 41 firms had U.S. Government 
contracts, we took three steps. First, we obtained each firm's 
unique registration number. Second, we used the registration 
numbers to search the General Services Administration's Federal 
Procurement Data System and identified the seven firms with 
U.S. Government contracts. And, third, we searched a second 
database, the Department of Defense's Electronic Document 
Access System, to obtain copies of the documents and thereby 
corroborate our findings.
    In closing, let me note that our work for this Committee 
continues. At your request we are developing a third report 
where we identify firms selling gasoline, diesel, and other 
refined petroleum products to Iran.
    Mr. Chairman, Ranking Member Collins, that concludes my 
statement. I look forward to your questions.
    Chairman Lieberman. Thanks, Mr. Christoff. That is very 
important, revealing work, and I look forward to the question 
period.
    Finally, we are delighted to have with us Danielle Pletka, 
who is Vice President for Foreign and Defense Studies at the 
American Enterprise Institute (AEI). I think Ms. Pletka will 
offer some opinions about why the Iran Sanctions Act (ISA) has 
not been enforced and hopefully suggest ways to strengthen our 
sanctions policy. It is a pleasure to have you here this 
morning.

 TESTIMONY OF DANIELLE PLETKA,\1\ VICE PRESIDENT, FOREIGN AND 
   DEFENSE POLICY STUDIES, AMERICAN ENTERPRISE INSTITUTE FOR 
                     PUBLIC POLICY RESEARCH

    Ms. Pletka. Thank you, Mr. Chairman and Senator Collins, 
Senator Brown, Senator McCaskill. I have to apologize in 
advance, I am sick and so----
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Pletka appears in the Appendix on 
page 79.
---------------------------------------------------------------------------
    Chairman Lieberman. You are making me feel right at home 
because whatever the ailment is, my wife has had it for the 
past few days.
    Ms. Pletka. Well, stay away from her, is all I can tell 
you. [Laughter.]
    Chairman Lieberman. You are asking a lot, really.
    Ms. Pletka. I know her and I agree, but, boy, this is 
horrible. In any case, thank you very much for including me in 
this most important hearing.
    The question that you posed in the title of the hearing, 
``Why does the U.S. Government do business with companies doing 
business in Iran?''--has a pretty simple answer: Because it 
can.
    As the Department of Defense (DOD) rightly noted in its 
commentary on the GAO report released today, the companies in 
question are qualified to bid on Federal contracts and are not 
excluded by any U.S. law or by any regulations.
    The New York Times, as we have mentioned repeatedly, 
reported earlier this year that 74 companies have done business 
with both the Islamic Republic of Iran and with the U.S. 
Government over the past decade. Of those, 49 continue to do 
business there, according to the New York Times, and have no 
reported plans whatsoever to stop their business with Iran. The 
GAO report does make clear that some of this business seems 
necessary for either logistical or financial reasons; fuel 
supplies, base building and similar endeavors can, though may 
not necessarily, limit the choices available to DOD. But among 
the benefits that some of these companies receive have also 
been $4.5 billion in loan guarantees and loans from the Export-
Import Bank--loans which the bank leadership insisted were 
fully vetted with the Department of State and other 
Administration players.
    The larger problem, as I think all of the witnesses and 
you, the Members, have suggested, is that the U.S. Government 
is for the most part indifferent as to whether beneficiaries of 
U.S. taxpayer dollars are indeed doing business in Iran. And 
that is entirely in keeping with the underlying trouble: For 
the last decade and a half, the U.S. Government has not taken 
the Iran sanctions legislation passed by the Congress 
seriously.
    Under the Iran Sanctions Act, there is a full menu of 
measures available to sanction entities found to be doing 
business with Iran, which range from a slap on the wrist to 
punitive or crippling sanctions for a designated company. 
Section 6 of the act targets two of the focuses of recent 
articles and some of the things that we have actually been 
talking about here today: The sanction in paragraph (1) offers 
``denial of Export-Import Bank loans, credits, or credit 
guarantees,'' and paragraph (5) offers a ``prohibition on U.S. 
Government procurement from the entity.'' Had there been 
designations in accordance with the Act by the Department of 
State, it would not have been necessary for the taxpayer to 
subsidize any of these Iranian business partners.
    But since the passage of the Iran Libya Sanctions Act 
(ILSA) back in 1996, as we have said, only three companies 
taking part in one particular project have actually been 
sanctioned. Those sanctions were immediately waived. And no 
project bar that example has merited more than an inconclusive 
and half-hearted investigation by the Department of State.
    Several years ago, an amendment to the underlying law would 
have required the President to make a determination within a 
time certain about a particular case, but that was opposed by 
the White House and was ultimately excluded from revisions to 
ILSA. Indeed, this is the history of what we now call the Iran 
Sanctions Act. Congress acts to force the Executive Branch to 
seriously pursue a stringent sanctions regime against Iran, and 
the Executive Branch--whether led by Democrat or Republican 
Administrations--resists.
    Congress' previous efforts to encourage Administration 
implementation of the Iran Sanctions Act were really for 
naught. And the Bush Administration was no more aggressive 
against firms investing in Iran than was the Clinton 
Administration--the intervention of September 11, 2001, Iran's 
own progress toward a nuclear weapon, the election of Mahmoud 
Ahmadinejad, and Iran's complicity in attacks on our troops in 
Iraq notwithstanding.
    By 2006, it had become clear to many in Congress that the 
loopholes in the Iran sanctions legislation sufficed to 
accommodate a State Department convoy driving through. And the 
Iran Freedom and Support Act tried to close those loopholes, 
also funding democracy activities in Iran and sanctioning 
companies transferring weapons of mass destruction (WMD) and 
conventional weaponry. In other words, it expanded beyond the 
energy focus. It also set a 90-day time limit on a sanctions 
determination--a clear congressional response to State's 
failure to comply in good faith with the Iran Libya Sanctions 
Act. The House version of the bill was even tougher still, with 
a ban on foreign aid to countries whose nationals violated the 
terms of the bill and an amendment closing the loophole which 
allowed subsidiaries of U.S. companies to operate in Iran.
    But the Bush Administration opposed the stronger language 
with the stock claim that the bill failed to afford the 
President sufficient flexibility. And as a result, a watered-
down version was ultimately passed--one that did not require a 
determination about violators, but notably did provide support 
for promotion of democracy in Iran, an activity largely 
discontinued by the Obama Administration. The bill also 
suggested that the Administration not conclude nuclear 
agreements with countries known to have provided nuclear 
technology to Iran. This last was a swipe at Russia, and yet 
another ignored signal from the Congress. The Bush 
Administration transmitted a so-called 123 Agreement for 
nuclear cooperation with Russia to the Congress in May 2008, 
rescinding it in the wake of the Russian attack on Georgia 3 
months later. The Obama Administration reportedly retransmitted 
that 123 Agreement to Congress yesterday.
    As Members of this Committee are aware, Congress is once 
again considering legislation intended to strengthen and expand 
the Iran Sanctions Act. And once again, the administration in 
power is seeking to weaken the provisions of the legislation.
    I understand that the State Department is playing an active 
role behind the scenes in conference seeking to weaken key 
provisions of the legislation, including demands to create an 
exemption for so-called cooperating countries. This, by the 
way, has been something that they have been trying to get in 
there throughout all of these years.
    There is no question that there is no silver bullet to 
address Iran's nuclear program. No single bill and no single 
set of sanctions is going to deliver the government of the 
Islamic Republic. But in light of this rather pathetic history 
of Executive Branch evasion, one may legitimately wonder what 
would have happened had the White House had less latitude to 
ignore decades of investment in Iran's energy sector.
    Successive administrations will argue that the track record 
for discouraging investment in Iran is a good one. Indeed, by 
the count at our own AEI IranTracker project, 18 companies have 
pulled out of Iran in the last couple of years, including some 
that are key to Iran's refining and energy production sectors. 
But I would suggest that many of those decisions have been 
prompted by aggressive divestment legislation now passing in 
U.S. States--Congressman Ted Deutch being behind the first and 
leading one of those--the terror-free investment movement, 
Iran's own mafia-like business environment, growing fear of an 
Israeli military strike, and changing perceptions in European 
countries of the threat posed by Iran.
    Looking at the list of companies that have reportedly 
ceased business in Iran, it is striking that the vast 
majority--13 of the 18--are located in the United States or 
Europe.
    Moreover, as the pattern of overall investment in Iran 
shifts away from our European allies toward less responsible 
stakeholders in the international system such as China, there 
will be continuing opportunities to implement the Iran 
Sanctions Act--and a growing imperative to do so.
    The GAO has cautioned that its standards do not equate to a 
determination by the Department of State. And that is fair 
enough. Determinations by State will need to be careful; 
companies themselves should absolutely be required to certify 
that they are not engaged in sanctionable transactions with 
Iran under the ISA. But if they are not asked, they are 
certainly never going to tell.
    Your efforts, Mr. Chairman, and those of your colleagues 
who have pursued the question of U.S. indirect subsidies to 
Iran and more effective sanctions legislation, are the 
beginning of a very important process. We can no longer rely on 
the good faith of a well-intentioned Executive Branch to ensure 
that Iran is isolated using all means available. Rather, it 
must be the Congress that sets the agenda, identifies the 
problems, closes the loopholes and guarantees enforcement of 
the law of the land.
    Thank you very much.
    Chairman Lieberman. Thank you very much, Ms. Pletka. That 
was an excellent statement.
    Each of the Members of the Committee will have 7 minutes on 
this first round.
    I want to begin with you, Ms. Pletka, and ask if you would 
venture an opinion, and speak a little bit more than you have 
already about how you explain the reluctance of the Executive 
Branch, regardless of whether there have been Democratic or 
Republican Presidents, to enforce the sanctions legislation. 
What is going on? What is behind all this?
    Ms. Pletka. I do not think there is a single answer. 
Clearly, in the department of a very fair and just answer, it 
is difficult to identify companies without a shadow of a 
double. GAO identifies 40-plus companies. Our own IranTracker 
list lists more than 200 companies. So clearly there is----
    Chairman Lieberman. Two hundred companies that are doing 
business----
    Ms. Pletka. Companies worldwide that are doing business in 
Iran.
    Chairman Lieberman. Right.
    Ms. Pletka. Florida listed a number of countries. I think 
that the Executive Branch has always been very leery about 
putting out false information. That being said, there is an 
opportunity for them to investigate. They have always claimed 
over the years that this complicates our diplomacy, that it 
affords an ability by Iran to drive a wedge between us and our 
European allies, between potential Security Council members who 
will stand with us--Russia, China, and others--and that is 
fine. Even the investigations, however, provide a chilling 
atmosphere that could close off options for Iran, and they have 
not done that.
    The other problem is what my late boss, Senator Jesse 
Helms, used to call the problem of the Foreign Service, and 
that was about making the world safe for cocktail parties. What 
will they say when I go and sit down and ask the Chinese why 
their businesses are facilitating the Islamic Republic if I 
also have to sit down and have some cheese with them and talk 
about sanctions?
    This is a big part of the problem from my perspective, and 
I think that is why the Congress needs to be behind this.
    Chairman Lieberman. Thanks. Let me go to the first possible 
explanation, which is the possibility that it is difficult to 
bring these lists together.
    Mr. Christoff, let me ask you first, how long did it take 
the GAO to compile the list of companies involved in commercial 
activity in Iran?
    Mr. Christoff. Well, we spent about 6 months with three 
full-time people, first trying to develop a good methodology, 
and then 2 solid months of searching the 200 industry 
publications and coming up with a preliminary list.
    Chairman Lieberman. And, likewise, Congressman Deutch, can 
you tell us how long it took the State of Florida to generate a 
similar list of firms doing business in Iran?
    Mr. Deutch. Sure. The State Board of Administration reached 
out to a number of organizations and research firms, first to 
gather an initial list. They then ran that list through their 
own risk management firms that they typically use, and then 
ultimately scrubbed that list internally. The whole process 
took them only months to compile.
    I would, if I may, Mr. Chairman, point out that while there 
is some discussion about whether a company belongs on the list 
or not, certainly for those companies that the SBA in Florida 
reached out to who confirmed that indeed they are doing 
business in Iran, or for the 13 of the 41 companies that the 
GAO has reached out to, who, in fact, have confirmed that they 
are doing business in Iran, there is no reason for further 
analysis, it seems to me. Those should be the initial countries 
placed on that list.
    Chairman Lieberman. Well said. I will come back to the 
first point, which is that hearing the relative ease with which 
GAO and the State of Florida assembled this list, leads me to 
say that it requires a kind of willing suspension of disbelief 
to think that the State Department has been investigating this 
question for 12 years without making a single determination--
well, there were three during the Clinton years, but then those 
three were immediately waived. And, look, a lot of good work 
has been done in different administrations, particularly the 
last two, by the Treasury Department to essentially put 
pressure on firms and to stop them from doing business in Iran. 
But overall the reality is that nothing we have done has, in my 
opinion, affected at all the onward movement of the Iranian 
nuclear weapons program. And perhaps this sorry record of 
enforcement explains best of all why that is the case.
    Congressman Deutch, let me ask you again, what has been the 
reaction of companies that have been identified by the State of 
Florida? And, particularly, have any of them tried to contest 
Florida's actions in court?
    Mr. Deutch. They have not. The response to the State Board 
of Administration sounds comparable to the response that the 
GAO received. There are some companies who defended their 
actions and were very clear to point out that they do not 
belong on a list, they are not doing business, and they wanted 
to explain why. There are a number of companies who have 
confirmed indeed they are doing business, and they understand 
that the result is, according to the letters that the SBA 
provided to them, that the State would then divest holdings in 
those firms. And there are a significant number who have simply 
ignored the SBA throughout the process. But there have been no 
threats, there have been no lawsuits, and there is a growing 
recognition, at least by some of these companies, that this is 
something to which they need to pay attention.
    Chairman Lieberman. Mr. Christoff, I think by my count you 
said that 17 of the 41 firms responded in one way or another. 
Give us a sense of what the response was.
    Mr. Christoff. All 17 affirmed the information that we had 
provided in our draft report.
    Chairman Lieberman. They did. Right.
    Mr. Christoff. I think it was interesting that some of the 
firms corrected our understanding of what their agreements were 
with the Iranian Government. Reports indicted that Royal Dutch 
Shell, for example, had signed an agreement in which they had a 
25-percent stake in developing a natural gas field. They wrote 
back and said, no, it is 50 percent, it is not 25 percent, but 
we are still deciding whether or not we want to pursue that 
investment.
    Chairman Lieberman. Was that the one that you referred to? 
I believe you said in your testimony that one of the firms 
contested what you said or denied that they were--or did I 
misunderstand?
    Mr. Christoff. No, none of the firms disputed what we had 
found among those 17.
    Chairman Lieberman. OK. I thank the three of you. My time 
is up. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Mr. Christoff, I want to follow up on the questions that 
the Chairman was asking you about the State Department's 
efforts over the past 12 years. I assume that during the course 
of your study you contacted the State Department. Did you get a 
sense of how far the Department has progressed in researching 
which companies may be in violation of the Iran Sanctions Act?
    Mr. Christoff. I think we have seen additional resources 
that State is now dedicating to this effort vis-a-vis prior 
Administrations. When we did our report in 2007, there was one 
individual over at the State Department that was responsible 
for trying to develop some information.
    Senator Collins. Just one?
    Mr. Christoff. Yes. There appear to be more individuals 
that are trying to develop a list, but I am not certain when 
that list will be offered to the Congress. I know you all have 
sent letters to the State Department transmitting our list, and 
the Congressional Research Service's list, and asking them to 
comment. And I believe you are still waiting to hear back from 
the State Department as well.
    Senator Collins. What do you think is a reasonable time 
frame for the State Department to compile a list similar to the 
list that GAO compiled?
    Mr. Christoff. If you assert a credible methodology, which 
I believe GAO did--we spent 2 to 3 months using what we 
believed to be a high threshold, a gold standard in terms of 
identifying companies. One can develop a credible list in that 
time.
    Senator Collins. Congressman, you mentioned in your 
testimony the efforts of the SEC to strengthen disclosure 
requirements for companies engaged in business in Iran so that 
potential shareholders are aware of whether or not a company is 
doing business with Iran. I have pushed the Chairman, Mary 
Schapiro, on this issue and did so in a recent Appropriations 
Subcommittee hearing just a couple of weeks ago. And the fact 
is the SEC has made very little progress in carrying out the 
mandate that this information be disclosed to investors.
    I wondered if you could comment on what steps you think the 
SEC should take to strengthen the disclosure requirements.
    Mr. Deutch. Sure. Thank you. If our goal is to have the 
benefit of full information--and the party best able to provide 
that information obviously is the company that is doing 
business in Iran--for the SEC to determine that investments in 
Iran are material, meet the materiality test and, therefore, 
must be disclosed on their SEC filings, that disclosure would 
then be made available to shareholders. It would be made 
available to the general public. And as I said earlier, at a 
time when sanctions are being discussed here and at the United 
Nations, it seems certainly to me, and I think to most 
observers, that the decision of a company to invest in Iran is 
material and that its shareholders deserve to know that. That 
would be the best way to make that information available 
rapidly and almost immediately.
    Senator Collins. Ms. Pletka, you talked about the 
difficulty that the Federal Government has had over 
administrations in this area. If the U.S. Government were to 
deny Federal contracts to companies doing business in Iran, do 
you believe that most of those corporations would cease their 
activity? Is that a sufficient incentive, if you will, for them 
to stop doing business with Iran?
    Ms. Pletka. I think that many of them would think twice. 
Part of the problem is that they have really never been forced 
to make that choice. It has not been presented to them as an 
either/or proposition.
    Certainly there are some that would continue, and we have a 
choice to make at that point. That is why there is a waiver in 
the last. If, in fact, we are required to buy fuel for 
Afghanistan, for example, from a particular company and we have 
to do it for national security reasons, there is a waiver in 
law. But companies could also be afforded the opportunity to 
make the choice between the two governments.
    I also want to add something, by the way, that has not come 
up that is important. At the time of the 1998 decision on the 
Gazprom-Total-Petronas investment in Iran, when the Secretary 
of State at that time, Madeleine Albright, did a determination 
and a waiver, foreign countries did threaten the United States 
to take us to the World Trade Organization (WTO). And that is 
another factor that I do want to highlight. It is not fair to 
give a serious reason and a flippant reason and leave 
everything out in between. That is an issue. Secondary 
sanctions are opposed by many countries, and these are 
perceived as secondary sanctions. So I just want to put that on 
your radar screen as something worth understanding.
    Senator Collins. Congressman, when Florida enacted its law, 
did it have an impact on the decisions made by the corporations 
that were no longer receiving investments from Florida's 
pension funds, to your knowledge?
    Mr. Deutch. Florida's decision alone to enact tough 
divestment legislation was not sufficient to move any company 
to withdraw from Iran. However, as a result of Florida's 
efforts and those in 19 other States, there have been decisions 
made not to proceed on contracts that had been signed, and 
there were further statements that have been made about the 
decision to withhold the decision to go forward to see how 
these divestment laws continue to play out.
    The point is--and I think this is a point that has been 
made previously by other members of the panel--one of these 
items alone, one layer of sanctions may not suffice to move 
companies, but when you shine the light on these companies and 
risk the various sanctions that we are discussing, then that 
type of pressure might well move those companies to make 
decisions which will ultimately impact the regime in Tehran.
    Senator Collins. Thank you. Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks very much, Senator Collins.
    Just for the information of Members, next is Senator Brown, 
then Senator McCaskill, Senator Ensign, and we are honored to 
have a guest appearance today by Senator Gillibrand.

               OPENING STATEMENT OF SENATOR BROWN

    Senator Brown. Thank you, Mr. Chairman, and thank you for 
holding this very important hearing. Being new here, I am 
flabbergasted, quite frankly, at the failure by the 
administrations, without casting stones, to enforce our laws. 
And I have always felt that we need to use draconian sanctions 
immediately against Iran to ensure that they do not become 
nuclear-capable and start exporting weapons and terrorism 
throughout the region. I think it is critical, and I am shocked 
that the present Administration is not devising a plan to 
handle that or enforcing and really putting its foot down to 
say, OK, it is time, we really need to get cracking here and 
enforce our laws, and to send a very strong message that we are 
not going to tolerate anymore people circumventing our laws or 
just ignoring the fact that we need to get serious.
    In the New York Times article, that came out is deeply 
troubling. I know that triggered, obviously, us having a 
hearing, Mr. Chairman. I was wondering if I could direct a 
question to Ms. Pletka. As you know, over the past decade the 
Federal Government has awarded $107 billion plus to companies 
doing business in Iran, including $15 billion paid to companies 
that defied American sanctions law, and the current law, as you 
know, requires the U.S. Government to deny entry to aliens who 
we reasonably believe will commit unlawful acts. Do you think 
that non-American chief executive officers (CEOs) of companies 
that do business in Iran and contravene our sanctions regime 
should be denied entry on those grounds? And would this be an 
effective sanctions tool if enforced? And the reason I ask that 
is because we are exploring, hopefully in a bipartisan measure, 
to propose legislation, and I am interested in working with my 
colleagues on this that would, in fact, do that, to basically 
deny visas to CEOs and their families as another tool in the 
toolbox.
    Ms. Pletka. Thank you, sir. I think that visa restrictions 
are always a useful tool. They are personal, and they tend to 
get people's attention very quickly.
    I do think that offering that opportunity to the President 
and whoever he delegates to carry out the law gives him an 
opportunity to do that. I do not think that it is something 
that would be effective were it applied in blanket fashion. But 
I do think that it would enable companies to make a very sharp 
choice between the opportunities that they see in Iran and the 
desire to come to the United States for whatever purposes. 
Visiting the United States is not a right. It is a privilege. 
And I think that anytime that you can use that in a way that is 
effective for our national security, you are moving in a good 
direction.
    Senator Brown. It seems to me that you have to follow the 
money, as usual, and the fact that we could certainly involve 
the United Nations to do certain things, but we really need to 
get European involvement and make sure a lot of the European 
Union countries that are actually doing very serious business 
in Iran, ultimately recognize and have to determine whether 
they want a nuclear Iran and whether that outweighs the 
financial gains.
    Do we need a new law, or should we just enforce the ones 
that we have now? Or is it a combination of the above? What 
type of solutions can any of you offer? And, Congressman, I 
appreciate that is a great idea. That is certainly something we 
can do.
    Ms. Pletka. Successive presidents have enormous authorities 
under the International Emergency Economic Powers Act (IEEPA), 
to do all sorts of things to restrict. I think that when we 
think about these things we do need to recognize that we live 
in a world in which most of us believe in free trade and in 
globalization. And I think that we need to understand that when 
we go after companies and we go after company leaders, we do 
invite retaliation by foreign governments against our own 
company directors. And so we need to be careful and thoughtful 
when we think about this.
    One of the things that strikes me is that we have an 
opportunity with companies that are engaged in some of the most 
egregious activities--in other words, companies that are 
helping Iran's nuclear program, helping Iran's missile program, 
helping the Iranian Revolution Guard Corps to promote 
terrorism--these companies should be a special carveout in my 
estimation. There I think that you should feel very 
enthusiastic about the notion of slapping visa sanctions on the 
directors of those companies because those are the people that 
are responsible for not just endangering American lives but for 
the deaths of Americans over the years.
    Senator Brown. Thank you. Mr. Chairman, thank you.
    Chairman Lieberman. Thanks very much, Senator Brown. I 
agree with you. Senator McCaskill.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Thank you, Mr. Chairman.
    Common sense tells me that what we ought to do is tell 
every American President that they cannot stand in front of a 
microphone and talk about sanctions against Iran ever again if 
they do not begin to take the sanction laws that are on the 
books more seriously than what this hearing has demonstrated. 
And this is not the first time we have covered this subject 
matter. I know that I had the opportunity to talk to General 
David Petraeus about it at a hearing in the Armed Services 
Committee. I know there was a hearing in the Armed Services 
Committee about this. It is no wonder Iran is so disrespectful 
if we cannot get our act together to enforce the laws that are 
on the books. Passing more laws is not going to do any good if 
we do not have the political will to do what we need to do.
    I understand the issue of diplomacy and that part of the 
problem is that, our friends do not want us to enforce, and, 
therefore, if we do not enforce against them, then our not so 
friendly nations say, wait a minute, you did not enforce 
against them, so why are you now picking on us? And that is a 
problem.
    Mr. Christoff, in the GAO report, do you get a sense of the 
deliberations that are going on in terms of this subject 
matter? I am trying to get a handle on where is it in 
government that people are sitting around a table and saying, 
well, we got that law on the books, should we ignore it? Should 
we try to enforce it? Is that conversation even going on 
somewhere? And if so, where?
    Mr. Christoff. I think it is starting at the State 
Department. Some of the brief discussions that we had with the 
new Administration and the office working these issues at the 
State Department indicate that discussion is beginning. We did 
not see any of these discussions when we issued a report in 
2007 and looked at the State Department's enforcement of the 
Iran Sanctions Act.
    I would also note that the State Department is capable of 
enforcing other aspects of sanctions against Iran. It has, as 
we said in our 2007 report, issued sanctions against 111 firms 
or entities that violated the nonproliferation portion of the 
collective sanctions against Iran. Many of those companies were 
Chinese companies. But it has not moved forward on that portion 
of our collective sanctions that deal with the energy sector.
    Senator McCaskill. So they are selectively picking out some 
parts of the law they like and ignoring the parts of the law 
they do not like, in essence?
    Mr. Christoff. Well, I do not want to put those words in 
their mouths, but by their actions, it appears that it is more 
difficult for them to impose sanctions on energy companies 
through ISA.
    Senator McCaskill. What about the issue of changing names 
of companies? I am a big believer that you have to have 
accountability. Who is in charge of investigating whether or 
not companies are changing their names in order to evade 
sanctions? Where would the responsibility for that lie?
    Mr. Christoff. That I do not know.
    Senator McCaskill. Would you like to take a stab at it, Ms. 
Pletka? You have been around this subject matter for probably--
--
    Ms. Pletka. Too long.
    Senator McCaskill [continuing]. More years than you want to 
admit.
    Ms. Pletka. Yes, that is probably true.
    Senator McCaskill. Who in the grand labyrinth of government 
is supposed to be in charge of even tracking what companies 
fall under these sanctions much less enforcing them?
    Ms. Pletka. That is an excellent question. In a quarter of 
a century, I have never been able to figure out who actually 
wears the chief's hat on this issue. Theoretically, the 
intelligence community is tracking companies that change their 
names. Lots of companies do not change their names and are 
serial violators of our proliferation law and various Iran 
sanctions, particularly Chinese companies.
    It is absolutely remarkable that we together have been able 
to generate an enormous amount of information that is 
apparently entirely mysterious. And on the energy side, I think 
that where you have seen a change for the good at the 
Department of State, in this Administration we have seen a 
change for the bad on the energy side. The Energy Information 
Agency no longer provides significant amounts of information 
about companies doing energy business in Iran. And so rather 
than getting more information, we are getting less.
    Senator McCaskill. Mr. Chairman, it seems like maybe what 
we need to do is start with figuring out who is in charge. I 
think maybe we have avoided accountability on this because we 
have not flown down long enough to figure out who is the person 
in government that is not doing their job, and as long as we do 
not identify who that person is, they are not going to do their 
job. It is mind-boggling to me that we do not know who to yell 
at.
    Yes, Congressman Deutch.
    Mr. Deutch. Senator McCaskill, I worry that at least with 
respect to identifying the companies, whether or not to impose 
sanctions is the next step, but in terms of identifying the 
companies, I think we have determined here that we have made 
this a harder task than, in fact, it may be.
    In Florida, on a quarterly basis, the Pension Board 
publishes a list of companies who are doing business within the 
energy sector in Iran, and part of that time is spent reviewing 
exactly this issue of company name changes and subsidiaries, 
and efforts sometimes to shield, sometimes just corporate 
restructurings to ensure that the correct names remain on that 
list. I am not sure ultimately who should have responsibility, 
but the Department of Energy, again, as Ms. Pletka points out, 
has published these reports on a regular basis, factual 
reports. That might be a place to identify companies.
    Senator McCaskill. Well, welcome to Congress. I think you 
are going to be a great addition to the intellectual heft of 
the body in which you serve, and clearly you have a great work 
ethic, and we welcome you here.
    Let me briefly talk about companies that claim to do 
business with Iran on their Web sites. There is a company that 
we have been trying to make accountable. Senator Collins is a 
cosponsor of the Rocky Baragona law. Kuwait and Gulf Link 
Transport (KGL) killed a soldier of ours in Iraq through their 
negligence and have evaded responsibility for that by avoiding 
personal jurisdiction in the United States, and we are trying 
to fix that law by requiring companies that do business with us 
to accept jurisdiction as part of their contractual obligation 
to do government business with the United States.
    KGL brags on its Web site that it does business with an 
Iranian shipping company. And I am wondering, in Florida, 
Congressman Deutch, would somebody bragging on their Web site 
that they do business in Iran, would that be sufficient for the 
officials in Florida to consider them a company that would not 
be included?
    Mr. Deutch. If, Senator McCaskill, they fall within the 
requirements of the Florida act, which is titled the same as 
the Iran Sanctions Act, then certainly as the Pension Board and 
its outside research firms conduct their research, self-
disclosure by a computer would certainly warrant inclusion on 
the list and would trigger the correspondence with that company 
going forward.
    Senator McCaskill. It seems like self-disclosure would be 
the easiest way to nail them.
    Mr. Deutch. It does.
    Senator McCaskill. Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator McCaskill.
    Senator Collins and I have been talking about what is an 
appropriate follow-up, and one thing we are thinking about is 
that we should direct a letter to, particularly, the Secretary 
of State, also the Secretary of Defense, presenting the GAO 
report and asking for a response. What are you going to do 
about it? Why is this happening? But it strikes me that we 
should start with a clear identification of who at the State 
Department is responsible, so we will put that together, and we 
will ask Members of the Committee to sign. Thank you.
    Senator Ensign.

              OPENING STATEMENT OF SENATOR ENSIGN

    Senator Ensign. Thank you, Mr. Chairman. It is amazing how 
much there is agreement going around the table today.
    Senator McCaskill. Look out, it might catch on.
    Senator Ensign. Yes, be careful. [Laughter.]
    And I think it is because there is a lot of frustration. 
There has been a lot of frustration over the years with 
sanctions that have not been enforced, and I think that no 
matter whether you are a Republican or Democrat, when you see 
something that is wrong out there, it is very frustrating to a 
lot of us.
    One of the questions that I would like to get to is under 
the Iran-North Korea-Syria Nonproliferation Act, the 
Administration is supposed to submit a report every 6 months. 
Do we know the last time that a report was submitted to the 
Congress?
    Ms. Pletka. It was 2 years ago, I think, they submitted a 
report.
    Senator Ensign. I think it was 2008, and from what I 
understand, they have no plans to submit their next report. 
This gets back to who at the State Department is responsible. 
We pass these laws saying you must do this, but then there is 
no penalty when they do not do it. And that is something that, 
the Congress, really the only thing we have is basically the 
purse strings if they do not do something like that, and that 
is something that we should start considering when we 
actually--do we really mean what we say when we want these 
reports every 6 months?
    This gets to my next question. You know, we have been 
exploring how these entities have done business in Iran, how 
they are still able to do business with the U.S. Government to 
get contracts. In the course of the GAO study of this matter, 
did the GAO make an assessment of why the State Department has 
not sanctioned anyone under this act?
    Mr. Christoff. No. You would have to go back to the 1998 
decision when the State Department waived sanctions against 
several foreign firms. Some of the reasons that the State 
Department cited were: Concerns about maintaining solidarity 
with the European Union; concerns about Strategic Arms 
Reduction Treaty (START) negotiations with the Russians; and 
the Asian financial crisis with the Malaysian firm. That is the 
only evidence out there as to why the State Department has not 
enforced the Iran Sanctions Act.
    Senator Ensign. Ms. Pletka, you have been around this for a 
long time. Do you have any idea of why the State Department has 
not sanctioned anyone under this Act? Because they have 
loopholes that they can--we used to say drive a truck through, 
but maybe more of a freight train or an oil tanker would be 
more appropriate.
    Ms. Pletka. In fact, yes, the Chairman asked a similar 
question, and I think that, frankly speaking, that is a 
question best directed to State. There is always an excuse. 
There is always something going on in diplomacy. Part of the 
difficulty of the structure of our government is that when the 
Department of State is responsible for the conduct of diplomacy 
and the conduct of the imposition of sanctions and decisions, 
they tend to weigh one against the other.
    An interesting question was asked a moment ago, which is, 
why are we so much more serious about the nonproliferation 
violations than we are about the energy sanctions? And a lot of 
that has to do, again, with the structure of the Department of 
State. The Under Secretary for International Security and 
Nonproliferation and that Bureau traditionally has been far 
more serious about violations of the missile technology control 
regime and our various Arms Export Control Act violations and 
nuclear proliferation, then the Bureau of Near East Affairs has 
been serious about problems with Iran.
    It is a major challenge, and oversight is the answer.
    Senator Ensign. This feeds right into my next question 
about the current bill that is in conference, the Iran 
Sanctions Act, to expand the authority of the President to 
impose sanctions upon entities providing refined petroleum 
products. There are reports out there to put into the bill a 
cooperating country exemption, and so a couple of questions go 
along that line. If there was a cooperation country exemption 
put in the bill, could China be considered a cooperating 
country under current law--or under a law like that?
    Ms. Pletka. Well, it depends who you ask. If you ask me, 
the answer is no. But there is a cooperating country exemption 
in this bill, because if you cooperate, then you are not 
committing a sanctionable act and you will not be sanctioned. 
It is really pretty straightforward. If you do not do it, then 
you are cooperating, and you are not going to be sanctionable.
    So the notion that you have to provide a blanket exemption 
to countries that in the judgment of somebody--I think we still 
cannot figure out who--is a really big mistake, and I think 
that this really goes to the bona fides of the Administration 
in negotiating on this bill and their intention to enforce 
whatever ends up coming out of conference.
    Senator Ensign. What if, say, the Russians decide to give 
certain missiles, the SA-20 or SA-21, would that be considered 
cooperating?
    Ms. Pletka. I think the Administration has suggested that 
they are getting good cooperation from the Russians and that 
they are getting good cooperation from the Chinese. And what 
they characterize as good cooperation is a willingness to sit 
down in New York at the United Nations and discuss the 
imposition of sanctions. And our standard apparently is that 
they are willing to come and discuss them, not that they are 
willing to agree to a stringent set of sanctions but that they 
are merely willing to sit down with us, because apparently good 
behavior is constituted by just sitting down. And, yes, the 
Russians have reiterated as recently as last month that they 
were going to be transferring a S-300 air defense system to the 
Iranians that would enable them to withstand a serious attack 
from outside.
    Senator Ensign. Thank you.
    Mr. Chairman, I think that some of the answers to the 
questions illustrate the problems that everybody has been 
asking here, and why I think there is so much frustration in 
the Congress with what is going on with diplomacy when it comes 
to Iran, because it is making our country look weak, it is 
making these sanctions completely ineffective. And if we really 
want to stop some of the proliferation issues and have some 
teeth behind it, we actually have to enforce the current laws. 
As Senator McCaskill said, what is the use of having new laws 
if our current laws are not even being enforced?
    So we need to get much tougher, and I am glad to hear in a 
bipartisan way that people are talking about getting tougher.
    Chairman Lieberman. Thanks, Senator Ensign. Thanks for that 
statement. Thanks for your excellent questions.
    Senator Gillibrand has a real interest in this subject and 
this legislation. She asked if she could come by and ask some 
questions, and we are happy to give you that opportunity now.
    Senator Gillibrand, it is a pleasure to have you here.

OPENING STATEMENT OF HON. KIRSTEN E. GILLIBRAND, A U.S. SENATOR 
                   FROM THE STATE OF NEW YORK

    Senator Gillibrand. Well, thank you, Mr. Chairman. I am 
extremely grateful for your leadership on this issue and 
holding this hearing. Thank you, Madam Ranking Member, as well 
for your leadership.
    I was most alarmed when I read a New York Times article in 
March that said the Federal Government has awarded more than 
$107 billion in contract payments, grants, and other benefits 
over the past decade to foreign and international American 
companies while they were doing business with Iran, and did an 
internal analysis and found that $15 billion was paid to 
companies that defied our sanctions law. So, obviously, this is 
something that we have all been discussing about how so much of 
American contracts could be going to companies doing business 
with Iran.
    I do not know if you would know this question, but if we 
are doing business with them and Iran is doing business with 
them, relatively who is doing more business? Is it worth more 
to them to maintain our business or do they do more with Iran?
    Mr. Christoff. Well, those are some good questions that we 
might be able to research for you and submit for the record.
    Senator Gillibrand. That would be helpful because, 
obviously, as legislators we want to solve this problem and we 
want to know how we can influence behavior, and not only 
enforce the sanctions laws but figure out how we could perhaps 
work behind the scenes.
    And to that point, the Treasury Department has been very 
effective in getting 80 banks to pull out of Iran when 
sanctions on the strategy sector have not been implemented. And 
so we have worked well through the Treasury Department to 
influence behavior. Are there any ways that we should be doing 
that in the energy sector, working behind the scenes perhaps 
more effectively than we have done overtly?
    Ms. Pletka. There is no question that there are a lot of 
opportunities in the energy sector, and those can also be 
undertaken by the Treasury if other branches of the government 
are unwilling. I think the problem for the Treasury Department 
and for this new office under Stuart Levey that was created in 
2004 is a limitation on resources. There are additional 
resources in this bill for Under Secretary Levey's office to do 
more designations, to do more investigations, but information 
is key and they need more of it. They need to move forward more 
quickly. The problem is that, we are now looking at 14 years 
since the Iran Libya Sanctions Act was passed, and if we are 
going to take another 14 years to get to this point, we are 
going to be beyond Iran having a nuclear weapon.
    So the Congress needs to encourage them not just to move 
into different areas, but to move a little bit more quickly.
    Senator Gillibrand. Right. Now, you mentioned the Treasury 
Department doing other responsibilities. The Treasury 
Department is responsible for Iran export sanctions, but the 
Commerce Department oversees Syrian sanctions and other export 
licenses. But one of the fundamental challenges for the 
Treasury Department is they do not have an electronic tracking 
system and they have an inability to inspect shipments or hold 
exporters accountable. So how could you address that 
shortcoming in the Treasury Department's ability? And is it 
justifiable that they still then maintain the responsibility of 
Iran sanctions if they do not have those capabilities?
    Ms. Pletka. I think it is a little bit of a question of 
apples and oranges. You are talking about export controls in 
this case, and I do not think that the challenge that we are 
facing is one in which we are worried about things getting 
through the cracks and being exported from the United States to 
Iran. Rather, we are worried that we are, because money is 
fungible, enriching companies that are doing business in Iran 
with taxpayer dollars at the same time.
    Defense Secretary Robert Gates has talked about revisions 
to our export control laws and rationalization of the export 
administration of this country so that we do a better job and, 
the right arm knows what the left arm is doing. But the 
licensing process is not one that has directly affected the 
ability of the Treasury Department to enforce.
    I think that the ability of the Treasury Department to 
enforce is most severely impacted by a limitation on resources, 
and if I may put it in the vernacular, a really bad attitude on 
the part of some parts of the government in moving forward.
    Senator Gillibrand. Right. But I am worried with exports 
because of dual-use issues. There is obviously a concern that 
if we are exporting airplane parts that are then being used for 
military use and similar types of transferable technology, that 
we have some measure to investigate whether what we are sending 
over there is being appropriately used and not going to 
strengthen Iran's military intentions.
    Ms. Pletka. End-use requirements are very important, and 
certainly it is a very important area for oversight. At this 
point, however, we are looking at Iran moving to a third-
generation centrifuge. We are looking to them working very 
closely with China, possibly with North Korea and with other 
countries, trying through illegal front companies mostly, 
Iranian Revolutionary Guard Corps (IRGC) front companies, to 
get stuff from Europe. They are not looking to us as much. So 
that last step I would say is not going to be in getting dual-
use equipment from the United States. It is highly sensitive--
--
    Senator Gillibrand. They will get it from somewhere else.
    Ms. Pletka [continuing]. Equipment from other countries.
    Senator Gillibrand. Can I just shift gears to a separate 
issue that I want to address? One of the concerns is that our 
sanctions do not touch upon natural gas. Why do you think our 
current sanctions or the bills in conference address the goods, 
services, and technologies that aid in production and export of 
liquified natural gas?
    Ms. Pletka. The truth is that you should be asking the 
author of the legislation before me. I think it is important--
--
    Senator Gillibrand. Do you think it should, though? Or do 
you think it----
    Ms. Pletka. I think it is very important to be consistent. 
I think it is very important to be specified. I also think that 
it is very important not to afford the Administration, the 
Executive Branch, the opportunity to say that Congress has 
written such overbroad legislation that it is impossible to 
enforce. So if we are going to move forward with not just oil 
but gas, liquified natural gas, etc., and we are going to go to 
all parts of a supply chain and the technology, then the key is 
for the legislation to be extraordinarily targeted and 
extraordinarily specific. After all, we are really not 
interested in expending our taxpayer dollars and resources 
going after folks who are shipping pencils to the National 
Iranian Oil Company. We are interested in things that are 
actually key to their advancement and the production of refined 
products, gas, etc.
    So it is necessary to be specific, not just in legislation 
but in report language, and I agree with you it is important 
not to create new loopholes, because goodness knows they will 
be found and they will be driven through.
    Senator Gillibrand. The last issue in my few seconds 
remaining, I have read a lot of reports that the Revolutionary 
Guard has begun to take up the slack in areas where sanctions 
have actually worked. Do you have any thoughts or comments on 
that to inform our panel?
    Ms. Pletka. That is absolutely true. Over the last few 
years, beginning for the most part in the Ahmadinejad 
presidency, the Iranian Revolutionary Guard has begun to play a 
dominant role in the Iranian economic sector. And while I think 
that the Administration is doing exactly the right thing--as 
Secretary of State Hillary Clinton said, that Iran is really 
becoming a military dictatorship. In targeting the IRGC, 
unfortunately, I do not think that we have caught up in terms 
of identifying the companies that are now owned by the IRGC or 
the role that they play in the government.
    If you look at--and we are about to produce a long list of 
the companies that have been taken over. Iran has been engaged 
in a 2-year-long process of privatization, which has, in fact, 
not involved the devolution from government ownership to 
private ownership, but government ownership to IRGC ownership.
    Senator Gillibrand. Right.
    Ms. Pletka. And so the IRGC is absolutely involved in every 
part of the Iranian economy, including, by the way, in the 
financial sector, yet we have yet to sanction IRGC-owned 
banks--something that should be fairly easy under our own laws, 
certainly, but even under relevant U.N. Security Council 
resolutions that have already been passed. So it is a great 
opportunity.
    Senator Gillibrand. Thank you.
    Thank you, Mr. Chairman. Thank you, Madam Ranking Member.
    Chairman Lieberman. Thanks very much, Senator Gillibrand. 
That last matter of sanctioning the IRGC, which really is now 
dominating increasingly large sections of the Iranian economy--
and, of course, also funding terrorism and directing their most 
critical parts of the Iranian military--is a focus now of the 
conferees on the current bill.
    So really on Senator Collins' behalf and mine, I thank the 
three of you for the time you gave. This has been a very 
informative, important, and I would say energizing hearing, no 
pun intended. But the facts here are very compelling, and it is 
why in addition to our concern that Iran has continued to go 
forward headlong toward a nuclear capability without any regard 
to what we have done, the facts cry out for us to adopt new 
legislation, but also to begin to put pressure--and we will try 
to start to do this with the letter we are talking about--on 
the State Department to enforce the existing legislation.
    You joked a bit about making the world safe for cocktail 
parties, but there is a way in which--it is easy for us to say, 
but I believe it so I will say it--that diplomacy occurs within 
the confines of the relationships. Sometimes negotiators to a 
private disagreement will in the end try to satisfy each other 
in the conference room negotiating, sometimes forgetting what 
is happening outside. Sometimes members of conference 
committees do that as well. And so there is an actual human 
tendency to do that, but it forgets what is at work here.
    As you all know--and I will not hold you to a political 
opinion, Mr. Christoff, but the other two, I will--the experts 
on Iran all say that the only prayer of a chance we have to 
stop their nuclear program is if they have no doubts about our 
will, our strength, and our steadfastness. And right now we are 
sending a very uncertain signal to them.
    Senator Collins, do you want to add anything?
    Senator Collins. Thank you, Mr. Chairman. I just want to 
thank you for holding this hearing. All of us are aware of the 
problem. It has been going on for a long time, and I think all 
of us are determined to bring about enforcement of current laws 
as well as to strengthen those laws. But as we have all said, 
sanctions have no impact if they are not enforced.
    Chairman Lieberman. Hear, hear. Thank you all. We are going 
to keep the record of the hearing open for 15 days for any 
additional statements or questions from the Members or the 
witnesses.
    With that, the hearing is adjourned.
    [Whereupon, at 12:25 p.m., the Committee was adjourned.]


                            A P P E N D I X

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