[Senate Hearing 112-332]
[From the U.S. Government Publishing Office]
S. Hrg. 112-332
ADDRESSING POTENTIAL THREATS FROM IRAN: ADMINISTRATION PERSPECTIVES ON
IMPLEMENTING NEW ECONOMIC SANCTIONS ONE YEAR LATER
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HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
EXAMINING THE GLOBAL IMPACT OF THE IRAN REGIME SANCTIONS AND EVALUATE
THE EFFECTIVENESS OF THE COMPREHENSIVE IRAN SANCTIONS, ACCOUNTABILITY,
AND DIVESTMENT ACT
__________
OCTOBER 13, 2011
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
Available at: http: //www.fdsys.gov /
_____
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73-564 PDF WASHINGTON : 2012
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Charles Yi, Chief Counsel
Patrick Grant, Counsel
Colin McGinnis, Professional Staff Member
John O'Hara, Republican Senior Investigative Counsel
Andrew Olmem, Republican Chief Counsel
Dawn Ratliff, Chief Clerk
Riker Vermilye, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
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THURSDAY, OCTOBER 13, 2011
Page
Opening statement of Chairman Johnson............................ 1
Opening statements, comments, or prepared statements of:
Senator Shelby............................................... 2
Senator Menendez............................................. 4
Senator Kirk................................................. 5
Prepared statement....................................... 33
Senator Brown................................................ 6
Senator Moran................................................ 7
Senator Tester............................................... 9
Senator Bennet
Prepared statement....................................... 33
WITNESSES
Wendy Sherman, Under Secretary for Political Affairs, Department
of State....................................................... 9
Prepared statement........................................... 34
Response to written questions of:
Chairman Johnson......................................... 47
Senator Schumer.......................................... 48
Senator Menendez......................................... 50
Senator Toomey........................................... 53
Senator Moran............................................ 54
David S. Cohen, Under Secretary for Terrorism and Financial
Intelligence, Department of the Treasury....................... 12
Prepared statement........................................... 38
Response to written questions of:
Chairman Johnson......................................... 57
Senator Schumer.......................................... 58
Senator Menendez......................................... 61
Senator Vitter........................................... 63
Senator Toomey........................................... 66
Senator Moran............................................ 67
David W. Mills, Assistant Secretary for Export Enforcement,
Department of Commerce......................................... 13
Prepared statement........................................... 43
Response to written questions of:
Chairman Johnson......................................... 70
Additional Material Supplied for the Record
2011 IMF Article IV Consultation Report Comparisons: U.S. and
Iran, submitted by Senator Kirk................................ 73
Cumulative LEU Production at Natanz Chart, submitted by Senator
Kirk........................................................... 74
International Monetary Fund Iran Economy Chart, submitted by
Senator Kirk................................................... 74
(iii)
ADDRESSING POTENTIAL THREATS FROM IRAN: ADMINISTRATION PERSPECTIVES ON
IMPLEMENTING NEW ECONOMIC SANCTIONS ONE YEAR LATER
----------
THURSDAY, OCTOBER 13, 2011
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:03 a.m. in room 538, Dirksen Senate
Office Building, Hon. Tim Johnson, Chairman of the Committee,
presiding.
OPENING STATEMENT OF CHAIRMAN TIM JOHNSON
Chairman Johnson. Good morning. I call this hearing to
order, and I welcome my colleagues and our witnesses.
In the wake of the alarming announcement this week of an
Iranian Government-linked plot to assassinate the Ambassador of
Saudi Arabia to the United States and U.S. announcements of
criminal prosecutions coupled with the Treasury sanctions
against key plotters, we are reminded once again of Iran's
continuing support for terrorism, which has now reached our own
shores.
Today, we will hear from key Administration officials
implementing U.S. policy to minimize potential threats from
Iran, including through vigorous enforcement of the
Comprehensive Iran Sanctions, Accountability, and Divestment
Act, or CISADA, developed by this Committee and enacted last
year. That bill broadened and strengthened current U.S.
sanctions law with respect to Iran, provided for voluntary
divestment from firms active in Iran's energy sector, and
strengthened limitations and penalties on illegal diversion of
sensitive technologies to Iran.
When he took office, President Obama took an aggressive
dual-track approach to Iran, offering high-level engagement
coupled with sustained pressure through economic sanctions.
Since then, Iran has continued to defy the demands of the
international community to halt its illegitimate nuclear
activities or even to answer questions about them. And, it has
continued to support terrorist activity throughout the world.
In response, the President has refocused U.S. policy to
intensify pressure on Iran's Government through new U.S.
sanctions, and multilateral sanctions adopted by the U.N.
Security Council.
Iran's leaders confront the same choice today that they
have faced for some time. They can agree to end Iran's
illegitimate nuclear program and stop supporting terrorists
around the world, or they can continue on their present course,
ignoring the legitimate demands of the international community
on their nuclear program, repressing their people, and
supporting terrorists, deepening Iran's isolation and further
threatening their economy.
Today, we are fortunate to have before the Committee Under
Secretary of State for Political Affairs Wendy Sherman, Under
Secretary of Treasury for Terrorism and Financial Intelligence
David Cohen, and Assistant Secretary of Commerce for Export
Enforcement David Mills. Under Secretary Sherman will elaborate
on ongoing diplomatic efforts, assess our chances for success,
and survey policy options. Under Secretary Cohen will discuss
the targeted financial measures employed against Iran and
explore with us other pressure points in the global financial
system that could be employed against Iran. Assistant Secretary
Mills will update us on progress in efforts to combat black
market networks throughout Asia and the Middle East which help
to illegally supply Iran with sensitive technologies.
With enactment of new Iran sanctions last year, Congress
equipped the Administration with new tools to confront the
threats posed by Iran. It is clear that U.S. sanctions, as well
as those imposed by the United Nations, European Union, and
others have further isolated Iran and had some impact on its
economy, though that has been mitigated by continuing high oil
prices. But it is also clear that the sanctions imposed so far
have not deterred Iran from pursuing its nuclear ambitions.
I am eager to hear a description of the full range of U.S.
efforts to pressure Iran. I hope our witnesses will also
discuss any challenges in implementing the new law, the status
of ongoing consultations with allies on these issues, and any
additional legislative tools they believe will help to increase
the pressure on the Government of Iran.
Our approach must continue to be targeted and strategic,
maximizing the economic leverage of the United States and our
allies, and U.S. and international investors. But make no
mistake. If Iran were to acquire nuclear weapons capability, it
would pose a significant threat to peace and security in the
Middle East and especially to our close ally, Israel. We must
continue to do all we can to avoid that result. If new tools
are needed, and I think they are, then we will provide them.
We must not let up until the Government of Iran comes clean
on its nuclear program and stops its support for terrorism.
Finally, I want to thank all of our Committee Members for
their interest and commitment on this issue, and especially
Senators Menendez, Brown, Moran, Schumer, and my Appropriations
Subcommittee partner, Senator Kirk. I look forward to working
with all Members of the Committee on a way forward.
Chairman Johnson. I recognize Senator Shelby for an opening
statement.
STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. Thank you, Mr. Chairman.
Two days ago, the Department of Justice disclosed that Iran
has been plotting to carry out an assassination, an embassy
bombing against Saudi Arabian and Israeli targets on American
soil. This plot, which is the latest in a long series of
violent actions attempted by Iran around the globe, underscores
Iran's role as the leading state sponsor of terrorism.
It is against this backdrop that the Committee will examine
this morning the global impact of the Iran sanctions regime and
evaluate the effectiveness of the Comprehensive Iran Sanctions,
Accountability, and Divestment Act enacted by Congress last
year.
Despite 30 years of progressively more stringent economic
sanctions, Iran remains one of the more serious threats to the
national security of the United States and our allies. Iran
continues to support authoritarian regimes, terrorist
organizations, and radical militias in Iran and in Afghanistan.
For allies such as Israel, this week's revelation shows why
Iran's threat to its very existence is real, continues
unabated, and, I believe, cannot be ignored.
More than 1 year has passed since Congress, the United
Nations, and many of our allies levied the most recent round of
sanctions against Iran in an attempt to derail Iran's efforts
to obtain nuclear weapons. Unfortunately, the heightened
sanctions have not yet produced any significant change in
Iran's behavior regarding its nuclear program, international
terror, or its record on human rights.
One problem is that the White House and the State
Department have carefully, I believe, managed to avoid labeling
any major Russian, Chinese, or other U.S. trading partner's
companies as violators of U.S. mandated sanctions. China,
Russia, and others are expanding trade with Iran, continue to
provide it with banking assistance, and invest in its energy
sector. Additionally, China and Russia have further undermined
U.S. sanctions by supporting Iran's military programs. For
sanctions against Iran to be as effective as possible, I
believe the Administration needs to do a better job at securing
the cooperation of the global community.
Another growing problem is the Islamic Revolutionary Guard
Corps, which has developed a global financial and terror
network. The Islamic Revolutionary Guard is not just an elite
military unit within Iran. As we have seen this week, it can
operate even here in the United States. It has hundreds of
companies, front companies and affiliates spread throughout
Iran and the world to facilitate general trade and its oil
export. It can finance operations anywhere in the world while
adding to the coffers of the Iranian treasury. Accordingly, the
Islamic Revolutionary Guard has become the primary means by
which Iran can avoid the global sanctions regime. The question
now, I believe, is what else can be done to further enhance the
effectiveness of the Iran sanctions regime, especially with
regard to the Islamic Revolutionary Guard and its nuclear
aspirations.
Although sanctions have helped to limit Iran's military
capabilities, the events of this week demonstrate, I believe,
that Iran remains determined to find new avenues to carry out
actions of terrorism. Moreover, because Iran continues its
efforts to develop nuclear weapons, failure to effectively
enforce sanctions against Iran could have catastrophic results
in just a few years. I believe we cannot afford to be one step
behind Iran.
Thank you, Mr. Chairman.
Chairman Johnson. Thank you, Senator Shelby.
Are there any other Members who wish to make an opening
statement? Senator Menendez.
STATEMENT OF SENATOR ROBERT MENENDEZ
Senator Menendez. Thank you, Mr. Chairman. Mr. Chairman,
first of all, I want to thank you personally. I had asked you
to consider a hearing on the effect of our sanctions policy and
you told me you would and I appreciate you calling this hearing
today, so thank you very much. And you called this hearing well
before the incidents of the last few days, so this was
obviously in response to a broader issue of our sanctions
policy, but certainly ends up being far more timely.
We meet on the heels of a foiled plot to assassinate the
Saudi Ambassador to the United States and to attack the Embassy
of Israel in Washington, DC, a plot believed to be traced back
to the highest levels of the Iranian regime. The revelation of
the foiled attacks, one which reportedly was to take place at a
popular restaurant less than 5 miles from this very building,
points to the impact and importance of this hearing to ensure
that the United States is doing all it can to enforce existing
legislation, to fill the loopholes that exist in current
legislation, to work with our European allies and others to
ensure that they step up and aggressively enforce their own
sanctions, and to use all possible mechanisms to put pressure
on those countries and companies which are providing revenue,
directly or indirectly, to the Iranian regime and its Islamic
Revolutionary Guard Corps, or for that fact, refined petroleum
products.
I applaud the White House for its quick action this week in
imposing new sanctions against Iranian elements responsible for
the planned assassination, including Iran's Mahan Air, which
reportedly carried members of the military force accused of
plotting to kill the Saudi Ambassador. And while I believe
there is more that we can and must do, we should also recognize
that this Administration has done more to isolate Iran than any
prior Administration, Republican or Democratic alike.
Iran has a history of exporting terrorism against coalition
forces in Iraq, in Afghanistan, in Lebanon, and this week in
Washington. This week's events underscore that Iran will not
hesitate to advance its interests regardless of the political
costs. Iran's drive to advance its nuclear weapons program has
been slowed by U.S. and international sanctions, but remains
undeterred. The IAEA recently confirmed that Iranian program is
moving ahead and that they are loading P-2 centrifuges at Qom.
These centrifuges will allow Iran to significantly enhance its
uranium enrichment capacity.
It is time to take the next step, to further isolate Iran
politically and financially. I look forward to working with the
Administration to achieve this goal and to advance the
legislation that I, along with others in a bipartisan effort,
introduced earlier this year, the Iran, North Korea, and Syria
Sanctions Consolidation Act, which has 76 bipartisan
cosponsors.
Our efforts to date have been transformative, but as Iran
has adapted to the sanctions, unanticipated loopholes have
allowed the regime to adjust and circumvent the sanctions and
drive forward its effort to achieve a robust nuclear program.
We have to be just as prepared to adjust and adapt by closing
each loophole that arises. That is why I believe the Iran,
North Korea, and Syria Sanctions Consolidation Act is a
perfecting legislation of CISADA, not simply an additional set
of sanctions, and that is why I am looking forward to asking
the witness about both China and an oil-free Iranian zone that
I think is crucial to our national interests and national
security goals.
Thank you again, Mr. Chairman, for holding this hearing.
Chairman Johnson. Are there any other Members who wish to
be recognized? Senator Kirk.
STATEMENT OF SENATOR MARK KIRK
Senator Kirk. Thank you, Mr. Chairman. I really want to
applaud the leadership of Senator Menendez on his legislation
because it is well timed, I think, as is this hearing. When we
look at Iran, we see an accelerating nuclear program, an
expanding ballistic missile program, Iran being the first
space-faring nation of the 21st century, and wholesale
disregard for human rights.
I read with interest Attorney General Holder's announcement
on this plot and would note page 12 of the complaint from the
Justice Department, which reads, ``If not, restaurant, hit it,
it's OK,'' by which I understand Arbabsiar meant that if
Confidential Source 1 could not assess the Ambassador outside
the restaurant, he should hit or bomb the restaurant. In
response, Confidential Source 1 then noted that there were from
100 to 150 people in the restaurant and buildings on the side
and Senators, U.S. Senators, dined there, all of which
Arbabsiar dismissed as no problem and no big deal, meaning the
potential for such casualties should not dissuade Confidential
Source 1 from killing the Ambassador.
I note David Cohen, who I respect very much, has worked
designated Suliman, the head of the Iranian Revolutionary Guard
Corps. It does not almost get any higher than that, for the
Government of Iran seeking to kill American citizens on top of
foreign targets that we see.
Earlier this summer, Senator Schumer and I bonded together
92 Senators. It does not even get more unified than that on
bipartisan cooperation in this chamber, to call for the United
States to collapse the Central Bank of Iran, the paymaster and
financial source of funding for the Iranian Revolutionary Guard
Corps and for the MOIS, the Intelligence Service of Iran. And
since you have now publicly identified the leaders of those
organizations as sanctionable activity, I think it is necessary
now to cutoff their funding source. It should be the policy, as
this letter outlines in overwhelming bipartisan terms, to
collapse the currency of Iran.
I am worried that there is some talk inside the
Administration--not David, but others--who said that we should
have a multilateral limit on our policy. But this was not a
multilateral attack on the United States. It was an attack by
the Government of Iran on the people of the United States, and
so the United States should act unilaterally when necessary and
multilaterally when possible. But this was in no means a
multilateral attack on the United States.
We should accelerate the current designations under the
law, and specifically we should reference the August 3
Government Accountability Office report which designated 14
companies as continuing to conduct activities in Iran in
potential violation of U.S. law, including the China National
Offshore Oil Corporation, the China National Petroleum
Corporation, Sinopec of China, Daelim of South Korea, Edison of
Italy, Hyundai Heavy Industries of South Korea, INA of Croatia,
the Indian Oil Corporation Limited, the Natural Gas Corporation
of India, Oil India Limited, OMV Austria, ONGC Videsh Limited
from India, Sasol of South Africa, and Sonangol of Angola. I
would hope that you would make the commitment to investigate
these entities as clearly identified by the Government
Accountability Office.
Also, I think we need to accelerate sanctions with regard
to individuals who are systemic abusers of human rights,
including, first and foremost, the President of Iran,
Ahmadinejad, and especially his Chief of Staff, Esfandier Rahim
Mashaei. Under Executive Order 13553, the Obama administration
has so far designated only 11 Iranian officials for human
rights violations since September 2010. In comparison, the
European Union has designated 61 such individuals as systemic
violators of human rights, including 29 additional ones on
October 5. There are over 100 members of the Baha'i community
now imprisoned in Iran, including seven Baha'i members called
the Yaran, imprisoned since 2008. And just this week, Iranian
actress Marzieh Vafamehr was sentenced to not just a year in
jail, but 90 lashes because of her appearance in an Australian
film without the covering of headgear.
I think as we see the struggle of the Iranian people for
their human rights, we need to remember that there were many
people, especially in the State Department, that wanted to pull
back on fundamental U.S. values with regard to the
``refuseniks'' of the Soviet Union. Luckily, President Reagan
did not. In fact, he reached out to them. And it was one of our
proudest moments where the refuseniks survived the Soviet Union
and it collapsed. It should be our objective here.
So I commend you, Mr. Chairman, for holding the hearing and
look forward to the questions.
Senator Brown. Mr. Chairman?
Chairman Johnson. Senator Brown.
STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman, and I echo Senator
Menendez's words in thanking you for responding to his request
and others to hold this hearing.
The Government of Iran, as we know and as has been said,
must not be permitted to obtain weapons of mass destruction,
period. Recent allegations about Iran's efforts to assassinate
the Saudi Ambassador only underscore the threat that Iran poses
to not only our security, not only the security of Israel, but
also the security of Iran's neighbors. We have heard from many
of the Members of this Committee about the dangers a nuclear-
armed Iran would pose to the United States, to Israel, and to
the global community.
Preventing this threat requires an all hands on deck
approach. We have worked on pressuring. We have worked on
persuading Iran. We have approached the issue politically,
diplomatically, and through sanctions and other ways
economically. I have agreed with this pressure and persuade
approach first because it is a responsible way to carry out
diplomacy. In short, there are no good options if our efforts
to pressure and persuade fail. That is why it is so important
we speak with one voice in the U.S. Senate when it comes to
Iran.
For years, this Committee has been at the forefront of
sanctions. Last year, we passed the Comprehensive Iran
Sanctions, Accountability, and Divestment Act. This Act
requires that sanctions be imposed on companies that are
determined to have made certain investments in Iran's energy
sector. Its repressive government relies on the energy sector
for more than half of its revenue, as we know. That was last
year. Today, we know Iran's march toward nuclear weapon
production capability continues.
That is why this hearing is so important, Mr. Chairman. We
need to hear from the Administration, and thank you for joining
us, what you are doing to implement the sanctions, how
effective they have been, what additional tools, resources, and
support you need from us. We only have the opportunity to get
this right once. Thanks.
Chairman Johnson. Senator Moran.
STATEMENT OF SENATOR JERRY MORAN
Senator Moran. Chairman Johnson, thank you for leading this
important hearing to review the Administration's implementation
of sanctions on Iran.
In July, I and others requested this opportunity to
exercise this Committee's oversight responsibilities and I
thank you for giving us the chance to review U.S. policy toward
Iran. I know that you and the Ranking Member recognize the
gravity of this issue and understand what is at stake.
More than a year ago, Congress passed and President Obama
signed into law the Comprehensive Iran Sanctions,
Accountability, and Divestment Act of 2010. I certainly
welcomed this legislation as I believe Iran's pursuit of
nuclear weapons is one of the greatest dangers to global
stability and the security of our country that we face today.
However, when President Obama signed the bill, I stated clearly
and have continued to say that its success will depend upon
enforcement.
Since the enactment of CISADA almost 15 months ago, 10
firms have been sanctioned under the Iran Sanctions Act. These
sanctions and the threat of others have yet to achieve the
fundamental goal, which is to compel Iran to change its
behavior and abandon its pursuit of nuclear weapons.
On September 2, the International Atomic Energy Agency
released its latest report on Iran's nuclear program. Like
similar reports before it, the September report shows that Iran
is continuing to buildup a stockpile of low enriched uranium.
Since the May IAEA report, Iran has produced additional low
enriched uranium, bringing its total stockpile to more than
4,500 kilograms. On top of that, Iran continues to increase the
amount of uranium enriched to a level of 20 percent. Enriching
uranium to a level of 20 percent represents 85 to 90 percent of
the work needed to reach weapons-grade fuel. All told, Iran
possesses enough enriched uranium that upon further processing
could fuel three nuclear bombs.
Last month, IAEA's report also indicates that Iran is
moving production of uranium enriched to a level of 20 percent
to a military facility buried underneath a mountain. And in
June, Iran said it would triple its production of higher
enriched uranium. If all of this was not alarming enough,
concerns about the possibility of military dimensions of a
nuclear program, including activities related to the
development of a nuclear payload for a missile remain
unresolved according to IAEA. Clearly, more must be done to
pressure Iran to change course and we cannot afford further
delay.
On September 30 of 2010, the United States made its first
sanction determination under the Iran Sanctions Act. While one
firm was sanctioned that day, four energy companies were deemed
eligible by the Administration to avoid sanctions by pledging
to end their business in Iran. In total, the Administration has
used the special rule to waive sanctions against five
companies. I would expect the witnesses to present evidence
that those firms have, indeed, done what they said they were
going to do, ended all business in Iran.
I also remain concerned about the activity of Indian and
Chinese firms in Iran. I have expressed my concern about
specific Indian and Chinese firms to Secretary Clinton in
letters in November 2010 and March 2011. If Indian and Chinese
firms are violating U.S. law, the Administration must penalize
them.
As important as it is for the Administration to fully
enforce U.S. law to keep foreign companies from doing illegal
business with Iran, we could greatly impair Iran's ability to
do business with these and other companies by tightening
financial sanctions on Tehran. In August, I joined many of my
colleagues in this room, 91 of us, in asking the President to
impose sanctions on the Central Bank of Iran, and I would like
to hear what steps the Administration is taking in regard to
that bank.
I would also like for Under Secretary Cohen to address the
final rule, the Financial Crimes Enforcement Network, delivered
to the Federal Register last week to implement Section 104(e).
I am hopeful that Under Secretary Cohen will explain how this
provision will work in practice and inform the Committee about
the number of foreign banks he believes may be engaged in
sanctionable activity.
This Administration has said the United States will not
allow Iran to acquire nuclear capability. Saying we will
prevent Iran from acquiring a nuclear weapon is good, but it is
not enough. Only our actions can stop Iran. Sanctions have been
the primary tool that the United States has used to try to
convince Iran to change its behavior. Any assessment of our
success or failure must be judged against that goal. When held
to this metric, it is most certain that we have not yet
succeeded.
I look forward to hearing from the witnesses. I thank them
for their work and endeavors in regard to making our country
safe and working with them and my colleagues to see that this
Administration has every tool it needs to stop Iran from all
the tools that Congress has given it from being implemented
fully, and I thank the Chairman.
Chairman Johnson. Senator Tester.
STATEMENT OF SENATOR JON TESTER
Senator Tester. Yes, thank you, Chairman Johnson. I will be
as brief as I possibly can. I want to thank you and Senator
Shelby for convening the hearing. I want to thank the witnesses
for being here.
Simply put, the regime in Iran represents an incredible
threat to American interests and not in a good way, and to the
stability in an already volatile part of the world. There are
state-sponsored terrorists who, by thumbing their nose at the
international community, inch closer and closer to nuclear
weapons capabilities. They supply weapons to our enemies in
Iraq and Afghanistan and they are directly responsible for
attacks on our troops. They incite violence in Israel and
Lebanon through their support of Hamas and Hezbollah and they
help prop up murderous dictators like Assad in Syria. They are
a flagrant violator of international law and human rights and
religious freedom and now they are trying to kill foreign
diplomats on our soil.
Now, we have taken a number of steps to crack down on this
regime, but it is clear we need to tighten the screws. It
boggles the mind that we continue to see businesses, American
businesses, supporting Iran's economy by actively circumventing
imposed sanctions. It is outrageous and we need to put a stop
to it immediately. Business as usual is not going to cut it.
There has to be a greater sense of urgency here and I hope you
all agree, and I think you do.
I look forward to the hearing, your recommendations, and
how we move forward most effectively. Thank you, Mr. Chairman.
Chairman Johnson. Thank you all.
I want to remind my colleagues that the record will be open
for the next 7 days for opening statements and any other
materials you would like to submit.
Now, I would like to welcome the witnesses for our panel
today. Our first witness is Wendy Sherman, the Under Secretary
for Political Affairs at the State Department. Our next witness
is David Cohen, the Under Secretary for Terrorism and Financial
Intelligence at the Department of Treasury. Our final witness
is David Mills, Assistant Secretary for Export Enforcement at
the U.S. Department of Commerce's Bureau of Industry and
Security.
I thank all of you again for being here today and I look
forward to your testimony. I will ask the witnesses to limit
your remarks to five to 7 minutes. Your written statements will
be submitted for the record.
Under Secretary Sherman, please proceed.
STATEMENT OF WENDY SHERMAN, UNDER SECRETARY FOR POLITICAL
AFFAIRS, DEPARTMENT OF STATE
Ms. Sherman. Thank you very much, Mr. Chairman. Chairman
Johnson, Ranking Member Senator Shelby, distinguished Members
of the Committee, thank you very much for inviting me to appear
before you today to discuss the Obama administration's strategy
to address the continued threat posed by the Iranian regime,
its support for international terrorism, its nuclear weapons
and ambitions, its destabilizing activities in the region, and
its human rights abuses at home.
This hearing could not be more timely. But before I address
this week's news and the broader sanctions discussion, I would
like to say a word about a dear colleague. I want to dedicate
this testimony to Philo Dibble, Deputy Assistant Secretary for
Near East Affairs, who passed away unexpectedly 2 weeks ago.
Philo was an exceptionally well respected career member of the
Foreign Service who devoted most of his career to the Middle
East. For the past year, he has dedicated his deep regional
expertise and knowledge to advancing our policy on Iran. The
loss of his wisdom and leadership is a profound one for the
Department and for our country.
Before I get to the substance of this hearing, prior to the
events of the last couple of days, I would like to address the
conspiracy to assassinate the Saudi Ambassador in Washington
that was directed by elements of the Iranian Government. As the
Secretary of State and the President of the United States have
said, this plot was a flagrant violation of international law
and a dangerous escalation of the Iranian Government's
longstanding use of political violence and sponsorship of
terrorism. This conspiracy also violates the Convention on
Internationally Protected Persons, including diplomatic agents,
which Iran has agreed to, as well as U.N. Security Council
resolutions. Iran must be held accountable for its actions.
Under Secretary Cohen will discuss Treasury's swift actions
with you. We are taking robust diplomatic action to hold Iran
accountable for this plot, isolate them internationally, and
increase pressure on the regime. The law enforcement and
intelligence professionals who worked on this case deserve our
highest praise. Their dedication and professionalism likely
saved not only the life of a foreign diplomat, but as Senator
Kirk has said, but scores of bystanders who would have been
killed or injured if the plot was successful.
With the case now public, there is much work to be done.
Within the last less than 48 hours, we have instructed every
one of our Ambassadors to demarche the highest levels of their
host governments to inform them about the facts behind this
plot. In contrast with the Iranian regime's rapid and
unsurprising denials, we are meticulously and rationally laying
out the facts of this plot. The 21-page-long charging document
is remarkably comprehensive and I have encouraged my foreign
counterparts, many of whom I have talked to on the phone, to
read it for themselves. Where appropriate, we are following up
with additional face-to-face briefings to lay out the facts of
this case. Ambassador Rice in New York is hard at work engaging
her colleagues.
This plot, though focused on one diplomat, was, in fact, a
plot against all diplomats and we will be asking all countries
to consider appropriate actions, including denying Qods Force
officers any platform to operate within their countries.
Working closely with both domestic and international partners
is fundamental to addressing all of the challenges we face with
the Iranian regime.
I am grateful that I am seated today beside my colleague
from the Department of Treasury, David Cohen, and from the
Department of Commerce, David Mills. State, Treasury, and
Commerce, along with other executive branch agencies, work hand
in hand to formulate and implement a whole of Government
approach to address continued threats from the Iranian regime.
The world today is unified to an unprecedented degree in
its concern that a nuclear armed Iran would undermine the
stability of the Gulf Region, the broader Middle East, and the
global economy. In defiance of U.N. Security Council and IAEA
Board of Governors resolutions, Iran has continued to expand
its sensitive nuclear activities and refuses to cooperate with
the IAEA, raising strong legitimate concerns about the purpose
of the nuclear program. And as I already discussed, Iran
continues its longstanding support of terrorism through the
IRGC Qods Force and terrorist organizations such as Hezbollah,
Hamas, and Palestinian Islamic Jihad, as well as by its support
to newer proxy militia groups in Iraq.
American policy regarding Iran remains unambiguous. First
and foremost, we must prevent Iran from acquiring nuclear
weapons. Its illicit nuclear activity is one of the greatest
global concerns we face, and we will continue to increase the
pressure until the Iran regime engages the international
community with seriousness and sincerity and resolves its
concerns.
Let me talk very briefly about the toughest sanctions
package in three decades and what it looks like. Since the
passage of CISADA, we have imposed sanctions on a growing list
of individuals and entities responsible for Iran's expanding
scope of unauthorized activities. These sanctions have raised
the cost, time, and energy required for Iran to pursue its
current course and provided a platform upon which the European
Union, Norway, Australia, Canada, South Korea, Switzerland, and
Japan implemented strict bilateral measures of their own.
CISADA's special rule has worked exactly as intended. It
gave us the flexibility and leverage to persuade multinational
energy firms Shell, State Oil, ENI, Total, and INPEX to
withdraw from all significant activity in Iran. Under CISADA
and other measures, Iran is increasingly isolated from the
international financial system, as Under Secretary of Treasury
Cohen will detail.
Sanctions are doing more than raising the cost of
continuing illicit nuclear activity. They are finally shining a
spotlight on some of the individuals and entities perpetrating
egregious human rights abuses against Iranian citizens. Using
CISADA, we have designated 11 individuals and 3 entities for
human rights violations, and we continue to compile more
information and evidence that will allow us to identify more
murderers, torturers, and religious persecutors. We have taken
a firm stand on the Iranian regime's violation of human rights,
including the repression of religious minorities, as
exemplified by the horrific death sentence handed down by the
Iranian courts against Pastor Youcef Nadarkhani, simply for
following his own religious beliefs. And had it not been for
the immediate condemnation from world leaders, from the U.S.
Senate, religious groups, and NGO's, there would not be any
hesitation on the part of Iran.
In my very new role as Under Secretary for Political
Affairs, I look forward to working closely and as transparently
as possible with Members of Congress to prevent Iran from
acquiring nuclear weapons, curtail its support for terrorism,
make it more difficult for Iran to interfere in the region, and
deter the regime from committing human rights abuses against
its own people. I have included a long written detailed
testimony. I look forward to your questions and thank you for
this opportunity.
Chairman Johnson. Thank you.
Mr. Cohen, please proceed.
STATEMENT OF DAVID S. COHEN, UNDER SECRETARY FOR TERRORISM AND
FINANCIAL INTELLIGENCE, DEPARTMENT OF THE TREASURY
Mr. Cohen. Thank you, Chairman Johnson, Ranking Member
Shelby, and distinguished Members of the Committee. Thank you
for the opportunity to appear before you today to discuss the
Treasury Department's contribution to the Obama
administration's strategy to address the threat posed by Iran's
nuclear program and its support for terrorism.
The focus of my testimony today will be the progress we are
making in our financial strategy to pressure and isolate Iran,
and in particular the steps we are taking to implement the
financial provisions of CISADA. But first, I would like to say
a few words about this week's revelation that we disrupted an
Iran Qods Force plot to assassinate the Saudi Ambassador here
in Washington.
This is a dramatic reminder that the urgent and serious
threat we face from Iran is not limited to Iran's nuclear
ambitions. We have been working for several years to address
the full spectrum of Iranian illicit conduct, including nuclear
and missile proliferation, human rights abuses, misuse of the
international financial system, and support for terrorist
groups worldwide. This week is no different.
On Tuesday, Treasury imposed financial sanctions against
five individuals, including the commander of the Qods Force and
three other senior Qods Force officers connected to the
assassination plot. In taking this action, Treasury exposed the
Iranian Government's involvement in the plot through the Qods
Force, Iran's primary arm for exporting terror.
And just yesterday, we took another action targeting Qods
Force involvement in terrorist activities, this time by
imposing sanctions on Mahan Air, Iran's second largest airline,
which was secretly ferrying operatives, weapons, and funds on
its flights for the Qods Force.
This week's actions follow on a series of recent steps
taken by the Treasury Department to expose Iranian illicit
behavior and ratchet up the pressure on Tehran. In the last few
months, we have imposed sanctions on Tidewater, a major Iranian
port operator owned by the IRGC; Iran Air, Iran's national
airline, for supporting the IRGC; and al Qaeda network
operating in Iran under an agreement with the Iranian
Government; and individuals and entities involved in human
rights abuses both within Iran and supporting the Syrian
Government's repression of the Syrian people.
Actions like these, along with international sanctions,
have put increasing financial pressure on Iran, and CISADA has
markedly amplified this effect. CISADA has helped us deepen and
broaden Iran's isolation from the international financial
system. Since President Obama signed CISADA into law last July,
my colleagues in the Treasury Department and I have worked
aggressively to implement it. We have met with foreign banks,
regulators, and government officials in nearly 50 countries. We
explained to these banks and government officials that CISADA
offers a clear choice. A foreign bank can have access to the
largest and most important financial sector in the world, the
United States, or it can do business with sanctioned Iranian
banks, but it cannot do both. For the overwhelming majority of
foreign banks, the choice has been a simple one. Those with
potentially sanctionable relationships quickly elected to stop
that business, and where we learned of potentially sanctionable
activity under CISADA, we have actively investigated it,
engaging in particular with foreign banks' regulators and their
home government.
Our efforts are paying off. Iran is now facing
unprecedented levels of financial and commercial isolation. The
number and quality of foreign banks willing to transact with
designated Iranian financial institutions has dropped
precipitously over the last year. Iran's shrinking access to
financial services and trade finance has made it extremely
difficult for Iran to pay for imports and receive payment for
exports. Iran's Central Bank has been unable to halt the steady
erosion in the value of its currency. And Iran has been
increasingly unable to attract foreign investments, especially
in its oil fields, leading to a projected loss of $14 billion a
year in oil revenues through 2016.
We are making progress, but there is still much to be done
to prevent Iran from evading sanctions already in place and to
apply sufficient additional pressure on Iran. In this regard,
we continue to focus on the Central Bank of Iran, the CBI.
Although U.S. financial institutions are already generally
prohibited from doing business with any bank in Iran, including
the CBI, further U.S. action against the CBI, if it attained
multilateral support, could further isolate the CBI with a
potentially powerful impact on Iran.
I can assure the Committee, as Secretary Geithner said in
his letter to Congress of August 29, that all options to
increase the financial pressure on Iran are on the table,
including the possibility of imposing additional sanctions
against the CBI. If Iran continues to choose its path of
defiance, we will continue to develop new and innovative ways
to impose additional costs on Iran.
I look forward to continuing to work with Congress and this
Committee to advance our national interests. Thank you.
Chairman Johnson. Thank you.
Mr. Mills, please proceed.
STATEMENT OF DAVID W. MILLS, ASSISTANT SECRETARY FOR EXPORT
ENFORCEMENT, DEPARTMENT OF COMMERCE
Mr. Mills. Thank you, Mr. Chairman, Senator Shelby,
distinguished Members of the Committee. I welcome the
opportunity to appear before the Committee today and to discuss
the Department of Commerce's role in implementing the
Comprehensive Iran Sanctions, Accountability, and Divestment
Act, CISADA, as well as the wider issue of enforcing sanctions
on Iran.
My Department has a key role in administering and enforcing
U.S. dual-use export control policies toward Iran, and under
the leadership of Under Secretary Eric L. Hirschhorn, the
Bureau of Industry and Security has aggressively pursued this
objective. We also work closely with our colleagues at the
Departments of State, Homeland Security, and the Treasury, as
well as other agencies, to implement and enforce our sanctions
effectively.
I wish to extend my heartfelt thanks to Congress for
conferring permanent law enforcement authority on our agents
last year as part of CISADA. The Office of Export Enforcement
in our Bureau of Industry and Security, or BIS, is the only
Federal law enforcement agency solely constituted to conduct
dual-use export investigations.
Over the course of the last year, our agents have been
utilizing this authority to investigate a variety of export
violations, but Iranian violations continue to be a primary
area of focus, accounting for about 37 percent of our
investigations, and the number of cases we have open now
against Iran is approximately about 300. Iran continues to
engage in widespread efforts to illegally acquire U.S.-origin
commodities and technology. In fact, the majority of our
criminal investigations now involve Iran, as I said, as the
ultimate recipient of diverted items. Much of our enforcement
activity and analysis is focused on stopping the diversion of
such items to Iran through transportation hubs in the Middle
East, South, and East Asia.
BIS also employs a variety of criminal and administrative
tools against these illicit Iranian procurement activities. I
want to share with you some illustrative examples of these
enforcement efforts.
Just last month, we imposed a civil penalty totaling $2.5
million against Flowserve Corporation of Irving, Texas, and 10
of its foreign affiliates to settle 288 charges related to
unlicensed exports and re-exports of pumps, valves, and related
components to Iran, Syria, and other countries. BIS pursued
these administrative charges in concert with the Department of
Treasury's Office of Foreign Assets Control, OFAC. Cooperation
between BIS and OFAC on Iranian cases has been critical to
maximizing the impact of U.S. laws against violators.
In recent years, export enforcement at BIS has also made
extensive use of the BIS Entity List to disrupt a range of
overseas procurement networks, most importantly involving
investigations of the procurement of components for improvised
explosive devices, or IEDs, by Mayrow General Trading and
related entities, resulting in the addition of over 190 new
foreign entities to the Entity List. Four of our agents
received the Attorney General's Award for Excellence in
Furthering the Interests of U.S. National Security for this
investigation.
The use of the Entity List highlights our focus not only on
sanctions directed at listed enterprises, but also the
prevention of violations and the public naming of individuals
and entities that are involved in or that pose a significant
risk of engaging in illicit export activity. Given my 18-year
tenure at OFAC and the Department of Treasury working with the
SDN list, I feel very at home with this approach to
enforcement. It discourages resellers and other parties here
and abroad from doing business with targeted entities and the
procurement networks they represent and prevents resellers and
other parties in the United States and overseas from doing
business with them.
BIS has also made effective use of its authority to issue
Temporary Denial Orders, TDOs, to prevent imminent violations
of the Export Administration regulations. On August 21, 2011,
BIS renewed a TDO against Mahan Air of Iran and related
parties. The TDO issued against Iran Air originally included
the Balli Group in the United Kingdom. That TDO was critical in
preventing additional violations of the regulations and
furthering our investigation into Balli Group's involvement in
obtaining Boeing 747 aircraft for Mahan Air. On May 11, 2010,
Balli was sentenced to a $2 million criminal fine and corporate
probation of 5 years. On February 4, 2010, Balli Group PLC and
Balli Aviation entered into a civil settlement with BIS and
OFAC pursuant to which Balli ultimately paid a $15 million
civil penalty, the largest civil penalty imposed under the
regulations to date.
Iran is a top enforcement priority and we fully intend to
press forward with our efforts to combat illegal diversion of
sensitive products and technology to that country. We stand
ready to work with the Committee and the Congress to maintain
an aggressive and effective export enforcement program. Thank
you very much.
Chairman Johnson. Thank you for your testimony.
As we begin the questions, I will ask the Clerk to put 5
minutes on the clock for each Member.
Under Secretary Sherman, while new U.S. and U.N. sanctions
and other efforts to isolate Iran have had real impact and
slowed Iran's progress on their nuclear program, they have not
yet forced Iran to suspend it. Similarly, Iran seems to be
trying to outlast the West's appetite for sanctions and weaken
the international community's resolve to maintain sanctions
pressure. What is your current assessment of Iran's nuclear
program, including their time line, and does it jibe with those
of our major allies? How is the United States working with our
international partners to ensure that the commitment to
sanctioning Iran is strengthened rather than weakened over
time?
Ms. Sherman. Thank you very much, Mr. Chairman. You have
raised the fundamental question which has been laid out by some
of your colleagues, as well, which is how do we move forward
both to pressure and persuade Iran to give up its nuclear
ambition and its nuclear weapons program? How do we get them to
stop their terrorism, their state-sponsored terrorism? How do
we get them to recognize human rights, and how do we get them
to stop destabilizing regions throughout the world? That is a
very tall order.
One prong of that two-prong approach are the sanctions that
we are discussing today, and those sanctions must be thought
about in three dimensions: The severity of the sanctions, the
enforcement of the sanctions, and the internationalization of
the sanctions, because sanctions are most effective and they
are strongest when they are internationalized and people
throughout the world and governments throughout the world are
enforcing those sanctions. We saw that in the change in
apartheid in South Africa. When they finally became
internationalized, we got effective action and we got change
within the Government of South Africa.
It is the same with Iran, and I must say, since coming back
into Government, I have been incredibly impressed by the whole
of Government approach, by the very close cooperation that we
have within the Government to not only work with the terrific
legislation that you have placed before us and the President
signed, but to enforce that and to work throughout the world
with all of our interlocutors to increase that enforcement.
Over the last 48 hours, both at the United Nations, in
every single capital in the world, and by many, many phone
calls made by the President, the Secretary of State, the
National Security Advisor, the Deputy Secretary of State,
myself, every assistant secretary in every one of our
departments here, we have talked to every capital and we have
encouraged them to enforce the sanctions that are on the books,
to look at their own bilateral sanctions, to look at the
designations that Treasury has made and make them themselves.
We have encouraged them to make sure that the Qods Force stops
doing business in their countries, to look at high-level visits
that might be coming from Iranians to their country, and to
consider, let us say, postponing if not canceling outright
those visits.
So we have worked very hard and will continue to work very
hard to internationalize this so that it is most effective, and
as David can detail, it has had a real impact on the financial
well-being of Iran and created some of the splintering that we
are seeing within the Iranian regime.
The second prong is our ability to work with our partners
in the P5+1 to increase the pressure on Iran and to say to
Iran, if you are, in fact, sincere in discussing your nuclear
weapons program, which we have not seen to date, we would be
open to having a discussion with you so that you, in fact,
fulfill the U.N. Security Council resolutions that you stop
your nuclear weapons program, that you, in fact, submit to all
the IAEA has put on the table. Iran to date has not agreed to
do that.
Recently in New York, on the margins of the U.N. General
Assembly, I participated in a meeting of the P5+1. EU High
Representative, Katherine Ashton, put out a statement after
that meeting, and what was notable about that meeting was the
very, very strong consensus among the P5+1, including China and
Russia, to stay, as I quote from the statement:
We discussed the recent developments of the Iranian nuclear
program as reflected in the latest IAEA report. In particular,
we noted with grave concern Iran's installation of centrifuges
in its facility near Qom as part of plans to increase the
capacity to enrich uranium to near 20 percent and the IAEA's
increasing concern about the possible military dimensions to
Iran's nuclear program.
We have very strong P5 consensus--plus one--that is very
crucial for maintaining the most robust sanctions regime we
have ever had. It has not yet deterred Iran's nuclear program,
but we believe that it is making progress to do exactly that.
Chairman Johnson. Thank you.
Mr. Cohen, you and I have discussed that the threat of U.S.
sanctions has led many financial institutions to cease doing
business with Iran. Can you give the Committee a better sense
of how this process works, the scale of Treasury's efforts, and
the role of new 104(e) regulations required by CISADA--and
roughly how many major banks have held off activity in Iran or
have withdrawn in the past couple years? Can you also explain
how Treasury will pursue investigations using 104(e) tools and
how you verify that banks that have voluntarily withdrawn from
Iran do not reverse course?
Mr. Cohen. Thank you, Mr. Chairman. Let me begin by
describing the effort that we have been undertaking and how
that has resulted in what we have seen as a dramatic reduction
in Iran's access to the international financial system. Dating
back before CISADA, the Treasury Department was very active in
going out to the international financial community, the private
sector, as well as government officials around the world and
explaining the case for why they should voluntarily withdraw
from the Iranian financial sector broadly, but in particular
the designated Iranian banks, those banks that had been
sanctioned for involvement in Iran's proliferation activities
or its support for terrorism.
We were making good progress in isolating Iran and limiting
the number of banks around the world that were willing to do
business, particularly with designated Iranian banks. The
numbers of banks, particularly in Europe, that were willing to
continue to do business with Iran were reducing Iran's overall
ability to access the international financial system was being
impaired.
With the enactment of CISADA last July, that provided us a
powerful new tool to go back to those countries, back to those
financial institutions, in particular to the ones that had not
been yet persuade and to say to them, as I said in my
testimony, you have a choice to make. You can continue to do
business with the United States or you can continue to do
business with designated Iranian banks, but you cannot do both.
It has been tremendously effective. Where we had seen the
steady decline in the access of these designated Iranian banks
to the international financial sector before CISADA, after
CISADA, the line dropped straight down.
We have continued to go around the world--I was in China
just 2 weeks ago meeting in Hong Kong with major banks,
including major Chinese banks, in Beijing meeting with
government officials to continue the conversation about CISADA,
continue to make the points that we have been making, and it
has been, as I said, remarkably effective. We are going to
continue to pursue this issue, and the newly issued 104(e)
issue will help us. That rule became effective early this week
and immediately upon the effectiveness date of that rule--the
effect of that rule--we issued a series of information requests
to U.S. financial institutions asking about behavior of some of
their correspondents.
This rule, and this follows up on a question that Senator
Moran asked, or an issue that he raised in his opening
statement, this rule allows us to go out to U.S. financial
institutions where we have reason to believe that there may be
a potential CISADA violation. It is a very low threshold. It is
not a conclusion that there is a violation, but a very low
threshold where we have some reason to believe that there might
be a CISADA issue and to seek this information.
So we have begun that process immediately upon the effect
of that rule. That will complement other sources of information
that we have and we will continue to pursue those
investigations.
Chairman Johnson. Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
Secretary Cohen, just tell us, who is doing business with
Iran? Who are they selling their oil to and who are they buying
from in the world, basically, just for the record.
Mr. Cohen. Well, Iran sells its oil to a number of
different jurisdictions around the world. They sell into the
European Union. Spain is a major purchaser----
Senator Shelby. Spain is a major purchaser. OK.
Mr. Cohen. Turkey buys oil from Iran.
Senator Shelby. OK.
Mr. Cohen. Some of our closest allies----
Senator Shelby. Is Japan a major purchaser?
Mr. Cohen. Japan, South Korea are major purchasers.
Senator Shelby. Who are the largest purchasers, Japan?
Mr. Cohen. Uh, if you will allow me to look at my----
Senator Shelby. Yes, you go ahead.
Mr. Cohen. I actually have a--well, I do not know where my
cheat sheet is on this, but China is a major purchaser, South
Korea, Japan major purchasers, as I said, the European Union,
Turkey, India are all major purchasers of Iran. They are not--
none of them are wholly dependent on Iran. They all purchase
oil from a variety of producers. But each of those
jurisdictions that I just listed buy between sort of 7 and 15
percent of their oil, give or take, from Iran in a given year.
Senator Shelby. Are the Chinese investing in exploration of
more oil and gas in Iran, directly or indirectly?
Mr. Cohen. I will give you an answer to that question, but
I think Under Secretary Sherman also has information on that. I
think the basic dynamic that we see in China is that, clearly,
before the most recent round of sanctions, including the
Security Council Resolution 1929 from last June, China was
involved in exploration in Iran's oil fields, was certainly
helping them to develop their oil fields. We across the
Administration have made very clear to the Chinese that we
expect restraint, not just the United States but the
international community as a whole, and the response has been,
by and large, that China has exercised restraint. I would
invite Secretary Sherman----
Senator Shelby. Go ahead.
Mr. Cohen.----to elaborate on that, but that has been the
basic dynamic.
Senator Shelby. Go ahead.
Ms. Sherman. Senator, we share your concern. President
Obama has raised this personally with President Hu. Vice
President Biden raised these issues on his trip. Secretary
Clinton has raised the issue that you have raised. We have
stressed with the Chinese the need for restraint in Iran's
energy sector by not only slowing down but stopping their
activities, not concluding any new deals, and, to your point,
not backfilling the business of other firms that have
responsibly departed Iran. We all know that sometimes China
goes looking for those opportunities when others leave the
field.
We recently have seen reports that that has had an effect.
It is our belief from what we know that, in fact, Chinese
companies have not finalized any new upstream investments or
refinery construction projects since the enactment of CISADA.
We will continue to monitor this as closely as we can in as
many ways as we can because we quite agree with you that there
is concern in this regard.
I will add one thing about the Chinese, which is that they
have been, certainly in the P5+1, much more closely lashed up
with us, the European Union, and even Russia in this regard
over the last several months, understanding the increased
threat that Iran places. And, in fact, as you know, there was a
January 19 U.S.-China joint statement that called for full
implementation of all U.N. sanctions.
So we share your concern. We are staying in top of and in
front of this at the very highest levels. We do think there has
been a slow-down. We do not think there have been new refinery
projects, but we will not stop our vigilance nor our pressure
on China in this regard.
Senator Shelby. Mr. Cohen, it is obvious to most people,
especially to a lot of us that have followed this for a long
time, that China and Russia are obstructing through their
various ways of really pushing the sanctions regime like we
wanted to do it. Explain to the Committee Russia's relationship
with Iran as best you can here in open forum and our uphill
fight to bring them along on real sanctions against Iran, and
China, too.
Mr. Cohen. Well, Senator Shelby, let me focus in particular
on the Russian-Iranian financial relationship----
Senator Shelby. OK.
Mr. Cohen.----and again, I will invite Secretary Sherman to
talk more broadly about Russia's role, particularly in the
Security Council and in bilateral relations.
The reality is that Russia does not have a particularly
deep or extensive relationship with Iranian financial
institutions. We do not see Russia providing a significant
access point for Iranian financial institutions.
That being said, Iran is under increasing pressure. The
isolation that it is facing is unprecedented. They have never
been under the pressure they feel today and with their
financial channels narrowed to the extent that they are today.
And so we are being very watchful to see where Iran may try to
go to develop additional financial connections. Russia is a
potential point for Iran to look and we are going to stay on
top of that very aggressively. But as we sit here today, I
cannot say that Russia is a significant problem with respect to
Iran's financial access.
Senator Shelby. But you are not saying that they are not a
significant problem overall politically, though, in this area,
are you? You are not weighing in on that, are you?
Mr. Cohen. I am focusing on the financial relationship
between Iran----
Senator Shelby. You are tiptoeing around the political
ramifications, which is probably----
Mr. Cohen. I am mindful that to my immediate right is
Secretary Sherman, who I think has the responsibility for that
issue.
Senator Shelby. Secretary Sherman, why has the State
Department declined so far to designate the Islamic
Revolutionary Guard as a terrorist organization?
Ms. Sherman. Senator, we have considerable sanctions on the
Islamic Revolution Guard Corps, as you know, through Treasury's
designation of IRGC and also designation for their part in
human rights abuses, which are quite egregious. Generally,
foreign terrorist organization designations are used for non-
state actors, and I cannot think of any state actor for which
an FTO designation has been used.
Senator Shelby. That does not mean it should not be
though----
Ms. Sherman. I appreciate that, and we will----
Senator Shelby. I mean, you have got to follow the facts--
--
Ms. Sherman. Absolutely, and we will certainly, as we go
forward and as we ratchet up the pressure, consider any option
that we have to deal with Iran's ambitions and its terrorist
activity. So, I think, however, if you look at the full array
of the sanctions that we have in place, the IRGC is quite
prominent in many of them, and as David outlined in his
testimony, we have already cut off some of their economic
wherewithal, both financially and in terms of some of the
companies that they operate since they are becoming a greater
and greater economic force in Iran.
Senator Shelby. Do you believe that you will reach the
point--are you moving down the road to designate them as a
terrorist organization, which they are?
Ms. Sherman. Well, I never really speak to specific
designations until they occur. And as I said, we have never
used the FTO option for state organizations.
Senator Shelby. You are not going to look the other way on
this, though, are you?
Ms. Sherman. There is no way we are looking the other way.
Senator Shelby. I hope not.
Ms. Sherman. With your help, Senator, we have the toughest
sanctions of any Administration on Iran.
Senator Shelby. Thank you. Thank you, Mr. Chairman.
Chairman Johnson. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman, and I am going
to ask both Secretary Cohen and Sherman to work with me, and
hopefully the Chairman will be a little lenient since I am one
of the prime sponsors of the legislation here, but in terms of
the conciseness of your answers, because there is a lot of
ground I want to cover.
Secretary Cohen, let me ask you this. Is it fair to say,
and maybe you can give me just a yes or a no, that, in fact,
CISADA, i.e., sanctions, have worked to diminish dramatically
commercial banking transactions for Iran?
Mr. Cohen. Yes.
Senator Menendez. And, therefore, has also hurt them
significantly financially, as well?
Mr. Cohen. Yes, it has.
Senator Menendez. All right. So, then, sanctions work?
Mr. Cohen. No question.
Senator Menendez. And that is the point that I want to
first drive here, that sanctions work. And the reality is that
we have never seen an Administration, Republican or Democrat,
that has said, please give me a sanctions law. They have always
said, ``No, no, no, we would rather have the flexibility.'' So
I hope my colleagues, as they consider the legislation that we
have been advocating that has 76 cosponsors, understand that no
Administration, Republican or Democrat, has ever appealed to
the Congress to give them a sanctions law. But the fact is that
sanctions work.
In that regard, Madam Secretary, I listened to your
statement and read it very carefully, and I must say, when you
say American policy regarding Iran remains unambiguous, first
and foremost, we must prevent Iran from acquiring nuclear
weapons, its illicit nuclear activity is one of the greatest
global concerns we face, that is a pretty significant
statement, which means to me that we must do everything that we
can to ensure that its illicit nuclear activity, one of the
greatest global concerns we face, does not take place.
If that is the case, can you explain to me why the
Administration has been reluctant to sanction China's state-run
energy firm Zhuhai Zhenrong, which has been reportedly shipping
refined petroleum products to Iran monthly for the last year.
Despite abundant information about this trade, the United
States has not sanctioned Zhuhai Zhenrong, and why has the
Administration been reluctant to sanction this type of a
Chinese company for energy violations when there is ample
evidence that they are violating our laws and there is
precedent for us sanctioning them, particularly Chinese
companies for nuclear and weapons proliferation concerns? That
is my first question.
My second question is, in response to Senator Shelby, you
talked a lot about the energy sector in Iran. Investing in
Iran's energy sector is a CISADA violation. Selling refined
petroleum products to Iran is also a violation. But buying
crude oil is not a prohibited activity, which goes to my second
question.
The United States passed all of these sanctions laws to put
pressure on investments in Iran's energy sector, which have
reduced Iran's oil and natural gas production. The Iranian
regime, however, continues to sell 2.3 million barrels per day
of crude oil, which generates over $80 billion annually for the
Iranian treasury. The sale of Iranian crude represents between
50 to 75 percent of the Iranian regime's budget, literally
fueling the regime's ability to export terrorism, build a
nuclear weapons program, and repress its own population.
It is clear to me that if this is one of the greatest
global concerns we face, it is clear that we must find a way to
target this lifeblood of the Iranian regime. One major loophole
in our law permits Iran to sell oil to Europe, where it is
refined and sold to the United States. Today, when Americans
fill up their cars with gasoline, it is possible and legal for
this gasoline to be derived from Iranian crude oil. I think
most Americans would be appalled to learn that they are putting
Iranian gasoline in their vehicles.
Now, I have been working with industry experts on closing
this loophole to ensure that the United States is an Iranian
oil-free zone. We can do this without imposing an oil embargo
on the sale of Iranian crude, which would drive up the price of
oil and inadvertently enrich the Iranian regime. The solution
is simple. European refiners that are interested in selling to
the United States would have to replace their purchases of
Iranian crude with supplies from elsewhere. This would redirect
sales of Iranian crude to a small group of buyers who, with
less competition for the price of Iranian oil, would be able to
negotiate significant price discounts from Iran on the sale of
every barrel of oil. These discounts would deny the Iranian
regime billions of dollars in hard currency.
Can you tell me whether you are open to closing this
loophole, establishing the United States as an Iranian oil-free
zone and ending the practice of Americans buying gasoline from
Iran and in doing so effectively paying an Iranian regime which
commits violence against Americans and our allies, against our
troops in Iraq, and--and--for which you yourself have said is
our greatest global concern?
Ms. Sherman. Thank you very much, Senator. First, regarding
your question about Chinese entities, the Administration is not
reluctant to sanction and to designate companies when we have
gone through the data, the investigation, meet the evidentiary
standards, and, indeed, designate and sanction. In fact, under
INKSA, the Iran-North Korea-Syria Act, we have designated
guidelines on the industries of China. So this is not about us
never designating or never sanctioning a Chinese entity or any
other entity from any country. It is really a matter of doing
the thorough investigation, making sure we have met the
evidentiary standard.
And I can assure you, Senator, whether it is the company of
which you spoke or the list from the GAO, we look at all of the
data that is incoming and really look through everything that
is in front of us to decide along the lines of the standards
that have been set out by the law to meet the standards of
those laws. So you have my assurance that we look at each one
of these situations with tremendous care because we quite agree
with you. Nothing should be off limits. We should look at every
single situation, and those that meet the standards should be
designated and sanctioned.
Senator Menendez. On that point, but a year later--a year
later of public reports--this is not even intelligence reports,
you can imagine what intelligence would tell us--a year later
of public reports of this company selling refined petroleum
products clearly within the definition of an illicit activity
under CISADA, we have not sanctioned them.
Ms. Sherman. I hear----
Senator Menendez. How long do we have to wait before that
happens?
Ms. Sherman. I hear your concern and I will take it back
with me, Senator.
Regarding your legislation and buying crude oil, I
certainly understand your concern. This is one where I am sure
Secretary Cohen will have much to add on it. You have raised
the issue that has been the concern of some, but does not mean
we should not take a close look at what you are suggesting, and
that is that Iran is the fourth largest producer of crude oil.
There has been much debate and discussion, and obviously you
have done incredibly careful study about the impact of such an
even targeted embargo on the world's economy, the price of oil,
what that would mean for American consumers and so forth.
I am going to let Secretary Cohen take up the financial
implications and the world global implications of this, but I
completely appreciate your desire to close this loophole and we
look forward to seeing if we can find a way forward.
Senator Menendez. Well, let me just, very quickly--I thank
the Chairman for his leniency here--I am not suggesting an oil
embargo on Iran. That would drive up prices and give them
greater assistance. I am saying that we should not permit
refined petroleum products made from Iranian crude to come to
the United States. That would make the Europeans have to figure
out in the world market to buy from some other places. A
fundamental, big difference, and I do not want to get them
confused for the record.
Mr. Cohen. Senator Menendez, that proposal, to create the
Iranian oil-free zone and in particular to implement that by
having European refiners, if they want to sell into the United
States, to certify that they are not using any Iranian crude in
the refined gasoline that they are selling, is something that
we have--we have seen that proposal. We are looking at that
proposal. The economics that you described are complicated, and
one of the things that I think we certainly share is the desire
to reduce the revenue that Iran is able to earn on its sale of
crude without causing collateral ill effects to the U.S. or
global economy.
One of the attractive features of this proposal is that it
promises to do that, which is to reduce Iran's ability to earn
revenue without having sort of the knock-on effects on the U.S.
and global economy by increasing the price of refined
petroleum. We are looking at that. We have, as I am sure you
know, we have economists at the Treasury Department who are a
heck of a lot smarter than I am on this sort of thing, and so
we are studying that and I look forward to working with you on
this proposal because it does hold promise to achieve that
objective.
Senator Menendez. Thank you, Mr. Chairman.
Chairman Johnson. I allowed Senator Menendez some leniency
in time because he has legislation pending, but to others on
the Committee, I urge you to restrain yourself within the
roughly 5 minutes' time.
Senator Kirk.
Senator Kirk. Thank you, Mr. Chairman, and Secretary
Sherman, welcome. I know you are very new to this. You came out
of the private sector just 3 weeks ago, so I will mainly direct
my comments to David Cohen, who has been in this much longer.
I think it is very important that here at this hearing we
not hear your concerns, we hear your consequences for what has
happened. I think it is very important for us not to look at
this from Washington's view looking at Tehran, in which one of
your staffers gives long reports about how we have cutoff
cupcake sales from Luxembourg to Iran and bicycle deliveries
from the UAE to Iran. It is important to look at what is
happening in Tehran and whether this is having an effect.
And maybe one of you would put up the other chart that you
have got there. This is Iranian enrichment activities, and you
can see here that the program is accelerating fairly
impressively. And so while we have long briefings of a lot of
banking activity, we see the principal objective of the policy
is not yielding a result. As, I think, Senator Corker has been
very eloquent on, once we get over the 20 percent enrichment,
the scientific community says, we are on our way to a bomb.
I would say that you probably have no assurance--I would be
worried if you felt that there was any doubt that the Iranians
would transfer nuclear weapons to terrorist organizations once
they had them, and I think that should be a fundamental
assumption of our policy, that they will.
I am also worried, when we look at Tehran, if we compare
IMF statistics of U.S. economic growth to Iranian economic
growth, the IMF says that the United States economy grew by 2.5
percent last year and the Iranian economy grew by 3.2 percent,
22 percent faster. We have got another chart that shows--maybe
you could put it up--this is Iranian economic growth, and the
point of this policy is also to cripple their economy. But
their economic growth rate has also expanded by four times.
When you look at debt held by the public, according to the
IMF, and I know some people would say we should not believe the
IMF, but it is absolutely the best data set, and almost every
other Administration decision with regard to international
economics is based on IMF data, the United States has 70
percent of its GDP in debt to the public, whereas Iran has 5.4
percent.
Now, the IMF said with regard to the U.S. economy, it
continues to recover at a modest pace but remains vulnerable.
However, there was a significant growth slowdown in the first
half of 2011. With regard to Iran, they said growth recovered
on the strength of international oil prices, a strong rebound
in agricultural sector, and rapid credit expansion, and
inflation was contained while fiscal and external positions
improved. This is the IMF.
I am worried that the Iranians seem to be accelerating in
their aggression toward you. In the very week that Marzieh is
convicted of 90 lashes for appearing uncovered, that we have
now learned that the 330,000 Baha'is have been excluded from
all public contracting, all of their kids have been kicked out
of university, and their houses have been registered, I would
simply suggest that this is a movie we have seen in a different
decade wearing different uniforms but has all the markings of
Kristallnacht in Farsi.
And now we hear from Under Secretary Cohen--he said in May,
we remain concerned that the CBI, the Central Bank of Iran, may
be facilitating transactions for sanctioned Iranian banks. And
92 Senators wrote to you saying, let us take this action. On
top of that, you have not even designated the Iranian
Revolutionary Guard Corps under the law, as you should have.
Here is my question to David, because you have been--and I
very much respect the work and all you have done, but press
reports indicate you have known about this plot since June. You
have known about this hearing for a month. And yet we have no
significant action on designating the IRGC or on the Central
Bank of Iran. And you have known about this plot well now on 5
months.
Mr. Cohen. Well, let me take up with the last point about
the designation of the IRGC. We have designated the IRGC. It is
a designated global terrorist under Executive Order 13224 and
has been for several years now. And we have also designated a
number of IRGC affiliates and individuals. So the----
Senator Kirk. But, for example, the President of Iran, you
have not designated as a systemic abuser of human rights, which
is fairly obvious. His chief of staff, you have not designated.
There are dozens of people that the European Union, no paragon
of strong backbone on almost anything, and yet they are way
ahead of you. And you knew about the plot in June.
Mr. Cohen. Well, with respect to the plot and when the
United States became aware of it, I am going to--I am not going
to comment on that. I am not going to comment on what we were
doing between when we learned about the plot and when it was
revealed in unsealing the indictment--the complaint, rather--
two days ago.
But as you know, we did respond the same day that the
Justice Department unsealed the complaint with a series of
designations of individuals who were associated with the plot,
including----
Senator Kirk. Right. The head of the IRGC Qods Force--you
cannot get closer to Ahmadinejad than that.
Mr. Cohen. Qasem Soleimani, the head of the Qods Force, is
a very senior official in Iran, no question about it, and he
was designated on Tuesday for his involvement in terrorist
activity, and he had previously been designated twice before by
the Treasury Department, once about 2 months ago for providing
material support to the Syrian GID, which was involved in
repression in Syria. So under an authority that allows us to
designate individuals who are involved in human rights
violations in Syria or provide support, individuals who are
abusing human rights----
Senator Kirk. With 92 Senators----
Chairman Johnson. Could the Senator begin to wrap it up?
Senator Kirk. Yes. With 92 Senators writing you on the
Iranian Central Bank, is it impossible for you in response to a
plot to kill 100 Americans to not say anyone who does business
with the Central Bank of Iran cannot do any business with the
United States and cripple their--you look at their economic
growth. You look at the acceleration of their nuclear program.
You look at a prominent actress with 90 lashes. Can you get
moving?
Mr. Cohen. Well, Senator, we are moving and we are looking
very actively at the possibility of designating the Central
Bank of Iran as well as taking other actions in response to
this plot, and more generally in response to Iran's continued
defiance of the international community with respect to its
nuclear program. There is a lot of work underway and we are
looking quite intensively at how to ratchet up the pressure.
If I--with the Chairman's indulgence, I would like to take
a second to address the point about GDP growth, if I could.
Chairman Johnson. Yes, go ahead.
Mr. Cohen. It is, I think, actually quite difficult to
compare Iranian GDP growth with U.S. GDP growth. The Iranian
economy is about $800 billion in GDP. The United States is
$14.6 trillion. So Iran is about 5 percent the size of the
United States. It is heavily dependent, as you noted, Senator,
on the oil sector. So when oil prices increase, as they have in
the last year or so, that has a disproportionate effect on the
GDP growth in Iran.
The IMF, and so----
Senator Kirk. I will just correct you. The Iranian GDP was
$338 billion in 2008 and $357 billion in 2010, so it is about a
5.5 percent growth over that time.
Mr. Cohen. The IMF, and without quibbling about whether the
IMF's numbers are accurate or not, but the IMF projects GDP
growth not just for Iran and the United States, but for other
countries in the Middle East who are oil producers. Looking at
just the countries in the Middle East that are oil producers,
Iran is the lowest of all of those countries in projected GDP
growth. Its projected GDP growth by the IMF is less than half
of the average projected GDP growth of other Middle Eastern oil
exporting countries.
So I think that is the apt comparison. It is Iran versus
other Middle Eastern countries that are dependent on the
exportation of oil for their GDP, and if you look at that, Iran
is doing quite badly compared to its peers, which I think is a
reflection, in part, of the effectiveness of sanctions.
Chairman Johnson. Senator Bennet.
Senator Bennet. Thank you, Mr. Chairman, and thank you to
the panelists for your testimony today.
I want to pick up on what Senator Kirk's line of
questioning. You know, this week, as you have testified and as
we have read in the paper, we learned that there was a plot to
assassinate the Saudi Ambassador in Washington, DC, on American
soil, and if 100 or 150 Americans were killed as a result of
it, that that was OK. And I guess the question that I have is,
sitting here, I am wondering what the testimony would be had
that plot succeeded, you know, had law enforcement failed--and
I am very glad, obviously, that our law enforcement did not--
had that plot succeeded, and the Iranians had every intention
that it would succeed, what your testimony would be today about
what our response would be.
And the reason I ask it that way is that for months--years,
really--this Committee has been saying, we need to do
absolutely everything that we can do to make sure that Iran
does not support terrorist organizations and that Iran never
develops a nuclear weapon. So what if this plot had succeeded
and what would the implication be for the internationalization
of the sanctions, Madam Secretary, as you describe? What more
can we ask of the rest of the world to protect the United
States and our allies from Iran?
Ms. Sherman. Senator, I actually, without knowing it, stole
your talking point in my telephone conversations with my
counterparts around the world, one very long one with one of
the countries that we were discussing this morning, just this
morning, and I basically said to him, think about what your
country needs to do and think about it in terms of what you
would have done and what the international community would have
done if, indeed, this had been successful. It would have been
catastrophic in so many ways that I think we cannot even begin
to imagine.
So I quite agree with you about the seriousness of what
occurred here, and I, too, agree with you that our law
enforcement officials just did a truly superb job. And if I may
say, Senator, as did the Government of Mexico, which cooperated
very closely with the U.S. Government in a really excellent law
enforcement effort between our two countries, which I think is
quite important going forward.
So I agree with you, and it is why we are saying to those
who have hesitated in enforcing the sanctions that are on the
table, there are many tools on the table--many tools on the
table--and all countries have to do is pick them up and make
them real. And that is our effort. We showed by example with
Treasury's actions that one can move speedily to designate. We
are encouraging every country to do likewise, to look at those
designations and see if they are appropriate under the laws of
their own country and clearly under the multilateral sanctions
that exist from the U.N. And I think we have to do everything
we can to follow through on those enforcement actions to look
at additional sanctions and additional opportunities, which
David and I have discussed this morning, including legislation
that has been suggested by Members of this Committee and
further designations, all of which are on the table.
Senator Bennet. Mr. Cohen, do you----
Mr. Cohen. I think Secretary Sherman put it exactly right.
The right way to look at this plot is that it was a plot that
was intended to assassinate the Saudi Ambassador here in
Washington with, if there was--if others were killed in the
execution of the plot, the IRGC Qods Force was obviously fine
with that, as well. And so the right response to this is to
look at this plot as further confirmation, really, of what we
already know about the Qods Force, the Qods Force obviously
being a very significant component of the Iranian Government,
and that is that the Qods Force is involved in the exportation
of terrorist activity around the world. They are active in the
region. The fact that they are active here has crossed a red
line, as the Secretary of State has said. But we have known
that the Qods Force is a terrorist organization and we have
acted against it with that knowledge in the past.
Senator Bennet. It would seem to me, Mr. Chairman, and my
time has expired, but it would seem to me that there is no need
for any other evidence than what we saw this week to inspire
those who have hesitated from joining us in the work that you
have been trying to do in getting off the fence and making sure
that an action like this actually cannot be carried out and
even more horrific things cannot be carried out. So I hope you
are doing absolutely everything you can do and we will do
everything we can do to push the international community in the
direction it needs to move.
Chairman Johnson. Senator Corker.
Senator Corker. Thank you, Mr. Chairman, and thank you for
the secure hearing we had yesterday. I know we had a lot more
time, actually, to ask a lot of questions at a whole different
level and I appreciate the responses and the work that you are
doing.
I think it is interesting, following Senator Bennet and
Senator Kirk, I mean, if you look at American previous
responses to things like this, I mean, if you really boil it
down, they were willing to do something here in our country
that likely would have created a war, and that has been our
response to these kind of things in the past. So if you really
just take A to B to C, it is very evident that the Iranian
Government was willing to conduct an act of terrorism on our
soil, knowing the history of the way Americans have responded
to that, they were willing, it appears to me, to provoke war,
which is, I think, what this most recent incident points out to
us.
So let me--you gave us some great statistics yesterday, and
I know all of this is hard work and I really do appreciate what
you have been able to accomplish as far as the effects on the
banking system. I know that, again, most of that was
classified, but let me ask this question. So Iran is on a
trajectory as far as enrichment. We know that where they are
today, and I do not know how much of this is classified and how
much is not, so I will not--but we know that where they are
today, very quickly, they could get to a point where they have
bomb-grade material.
So as I listen to you, I mean, all these things that you
are doing have had the effect of freezing various activities,
but I guess what I would like to ask you is the trajectory that
we are on, a trajectory that will alter their behavior prior to
the time they are able to produce a bomb, I mean, that is the
only reason we are doing this. All these other things are nice,
and economic growth compared to other countries, that is nice,
but that is really not our point. Our point is to keep them
from producing a bomb, and I would like for you to tell me
whether we, in fact, are on a trajectory that is going to keep
that from happening.
Mr. Cohen. Senator, I do not know the answer to that
question. What I know is that we are doing everything we can to
increase the pressure as extensively as we possibly can so that
we are able to persuade the Iranians as part of the dual-track
strategy that Secretary Sherman described in her testimony,
persuade the Iranians to engage meaningfully and seriously with
the international community before we get to that point that
you describe.
What we are doing on our part, and it is part of a broader
Government effort, is to develop the pressure on Iran to try
and induce them as soon as possible to engage meaningfully.
That means continuing to take the steps we have taken to
isolate Iranian financial institutions from the international
financial sector, particularly the institutions that are
involved in Iran's proliferation activity. It serves a dual
purpose. It builds the overall pressure on Iran in service of
the desire to have them engage meaningfully. It also impedes
Iranians' ability to--Iran's ability to develop its nuclear
program. The more difficult we make it----
Senator Corker. So, and just for what it is worth, we went
into great depth with this yesterday and all of this was
shared. What I think we never got to was whether we think we
are on a trajectory that is going to be the appropriate
trajectory, and again, you have shared all this with me and I
think you all are doing some great work. I just want your
judgment as to whether our trajectory is steep enough.
Mr. Cohen. What I can say is that we remain persuaded
ourselves that this is the right course, that we, by applying
pressure across the board on Iran, that this can be an
effective approach. So----
Senator Corker. So----
Mr. Cohen. I do not have a crystal ball. I cannot tell you
for sure, but----
Senator Corker. And again, thank you, and we welcome you
and Wendy and thank you for your call.
Let me just close with this question. I know the Chairman
is wanting to stay on time. Let me reiterate, I guess, the
question. Senators Menendez and Kirk have developed some
legislation that gives you additional tools, and you all
basically are saying to us, please do not give us these
additional tools. So we are on a trajectory, and I think all of
us want to make sure that we have done everything we can to
enhance your ability, and I know we have met directly with the
State Department to understand the reason the State Department
does not want these tools, but just one more time, I think you
are saying to us today, all of us who want to help you get on a
steeper trajectory, you are saying you do not really want the
help we are trying to provide.
Mr. Cohen. I would not say that, and I do not think the
Administration, broadly, feels that way. I think our view is
the tools that have been provided are enormously effective and
we are making good use of them. As Senator Menendez described
it earlier, legislation to perfect CISADA, I think we would
welcome. I think the question is, as always, will this enhance
our ability to pursue the objectives we are pursuing, and I
think we are very much willing to work with Congress to perfect
CISADA and perfect the overall sanctions regime.
Senator Corker. Thank you, and I thank all of you for your
efforts. I appreciate it.
Chairman Johnson. Senator Tester.
Senator Tester. Thank you, Mr. Chairman, and I want to echo
the statements by many of the folks here thanking you all for
your work. We very much appreciate it. You have got a very
difficult job, but thank you for what you do.
We have heard folks talk about investments in oil fields
from foreign companies. We have heard Wendy talk about the fact
that you have had conversations, with all of you, with foreign
governments, about making sure that whatever sanctions are out
there are real.
I want to talk about a little bit closer to home, and just
tell me if I have got good or bad information here, but
recently, I heard one of America's largest companies, Koch
Industries, was in the business of supporting Iran through
energy development. If they are doing it, there are probably
others that are doing it. I have got some concerns with this.
Number one, I think that any time you can manipulate
loopholes and be able to do this, that is a concern. So what
they did might be, in fact, legal.
The second one is the concern that American companies would
exploit loopholes and give Iran the tools they need to be a
more powerful player in the world. I think that is all we do
not want to see happen, more of a security threat, more of a
threat to everybody in the world.
So the real question is, since obviously with some
companies you cannot enforce common sense or the sense of
patriotism, should we be allowing subsidiaries of American
companies to be able to do business in Iran, or should we be,
as I said in my opening, putting the screws to these companies,
because, quite frankly, it is one thing for a Chinese company
to do it. That is unacceptable. It is really unacceptable for
an American subsidiary to be able to do it. Could I get your
comments on that.
Mr. Cohen. Senator Tester, I think I saw the same article
about Koch Industries that you saw, and I will not speak
specifically about Koch Industries, but I will address the
issue broadly of subsidiaries of U.S. companies----
Senator Tester. Yes.
Mr. Cohen.----doing business in Iran. It is a violation of
U.S. law for a U.S. company to do business in Iran via a
subsidiary.
Senator Tester. OK.
Mr. Cohen. What that means is if the U.S. parent is acting
through its subsidiary, directing its activity, that violates
U.S. law. If the subsidiary is acting wholly independently of
the parent, U.S. law does not reach that subsidiary, with the
exception of, and I think Secretary Mills can elaborate on
this, the reexportation of controlled items from the United
States.
Senator Tester. Yes.
Mr. Cohen. The balance that has been struck in the law thus
far is that we direct our law to U.S. companies and what U.S.
companies do. Subsidiaries are not, by definition, U.S.
persons. They are foreign persons. And so the basic theory is,
we will look at what U.S. persons do and U.S. companies do. If
they are acting through a foreign person, then the law
prohibits that. But if the foreign person is acting
independently----
Senator Tester. Should it be changed?
Mr. Cohen. Well, I think there is--for subsidiaries of U.S.
companies, I think it is fair to look at that very carefully.
Senator Tester. Should we be doing things like requiring
American companies to disclose to their investors their
subsidiaries and what kind of business they are into?
Mr. Cohen. I think that is an interesting idea. I think we
are--we are working on some other ideas in the Treasury
Department on how to more effectively limit what subsidiaries
can do and the benefit of the subsidiaries to their parent. I
think there are ways to go about this without crossing that
line of saying, look, we are going to try to directly regulate
a foreign person. There are ways, I think, to focus on the U.S.
parent that will have an effect on whether a foreign subsidiary
would be willing to do business with Iran.
Senator Tester. I agree. David Mills, would you like to
comment on the whole point about American companies'
subsidiaries and if there is anything we could or should do, if
you need any more flexibility from a Commerce perspective.
Mr. Mills. I would defer on the overall policy issue to my
colleagues here, but I will say that there was one additional
nuance, that if there is a U.S. national working at a foreign
company, whether it is a U.S. subsidiary or not, that national
remains subject to U.S. jurisdiction and may not participate in
any transactions with a proscribed party.
But we did just put the screws to a company, Flowserve
Corporation, for illegally--the subsidiaries of which illegally
sourced goods from the United States, where the U.S. exporter
had no knowledge or reason to know that these goods were going
to be transshipped to Iran, and so we did hold them accountable
in that regard to the fullest extent that we can under the
current law.
Senator Tester. Just real quickly, in closing, I would just
say this. I think Senator Corker was right in some of his
potential crystal ball stuff he was doing, as if that attack
would have been successful. I have got to tell you, I think any
company that has a subsidiary that is doing business with Iran,
we need to shine some sunlight on that because, quite frankly,
I do not think the American people would accept that very well,
and quite frankly, I think that would take care of the problem.
So thank you.
Chairman Johnson. Senator Merkley.
Senator Merkley. Thank you very much, Mr. Chair.
Secretary Sherman, Libya gave up its nuclear ambitions,
nuclear weapon ambitions when it reached out to the world some
time ago. Did our choice of supporting the invasion of Libya
undermine our core foreign policy interests in Iran?
Ms. Sherman. I missed the first part of your question. I am
sorry, Senator. I missed the first part of your question.
Senator Merkley. Libya was one of the few nations in the
world that gave up its nuclear weapons program to rejoin the
international community. Did our support of basically the
dislocation or removal of the government there undermine our
foreign policy objectives in Iran?
Ms. Sherman. Actually, I think quite the opposite, Senator.
I think that our support for the people of Libya to wage the
battle that they have won with the support of NATO, with
America having provided some support to that effort but having
it be a NATO-led effort in support of the opposition in Libya,
says that people in a given country can, at obviously great
cost to many of the Libyan people, get a government and a
future that will better support their rights to existence, to
dignity, to prosperity and hope that we all take for granted.
And I think to that extent, if you are suggesting that Iran
might look at that and say, we had better not give up our
nuclear weapons because we will end up like Libya, the regime
will be gone, that may be some thinking on behalf of leaders of
Libya, just as it may be of other states like North Korea, that
they had better hold on to their nuclear weapons as a
deterrence to the rest of the world. But at the end of the day,
as we saw in the beginnings of the Green Movement in Iran, it
is not sustainable over time. We live in a 24/7 Internet and
media-connected world and the Iranian people understand that
there are better and different ways to live their lives.
So I think the real question here, which goes to what
Senator Corker raised, is the time line, and that is our
strategy of both intense pressure internationalized and
persuasion, will it achieve the deterrence that we all seek,
the ultimate elimination of Iran's nuclear weapons ambitions,
in time----
Senator Merkley. I am going to cut you off here because you
are taking my whole 5 minutes.
Ms. Sherman. Oh, I apologize, sir.
Senator Merkley. I must say, your answer is exactly the
answer I have heard every time, but I think you would find, if
you really pondered it, that many leaders around the world have
looked at North Korea and Pakistan and said, we would rather be
in their shoes than in Libya's shoes. And so I think it is a
nice, tight argument, but I would say the world is more
complicated than that when you are looking to the psychology of
foreign leaders.
One of the concerns in terms of the ability of resistance
to organized--to the Iranian Government that has been raised by
various groups is whether we are in a position to, if you will,
assist with the cell phone and Internet technology access in
ways that might help resistance organize in Iran and that
occasionally--well, just in that term, and again, succinct,
because I only have a short time, is there more we can do to
assist in the communications that have proved so effective for
groups around the world, for grassroots groups?
Ms. Sherman. We, in fact, have a fairly robust program to
train people how to use technologies and how to reach through
to the media in the way that you suggest, and given the
repression that exists in Iran, this is probably not the best
forum in which to discuss some of what we are able to do.
Senator Merkley. Very good. Thank you.
And finally, it is quite likely that very high Iranian
leaders approved or were involved in approving the plan to put
a bomb off on U.S. territory. Is it time to try something far
more aggressive, and I realize there are huge downsides, but I
just pose it as a question, such as saying, you want to export
oil tankers out of the Persian Gulf? You can do that when you
end your nuclear program.
Ms. Sherman. Senator, I certainly understand, we all have
the same impulse, which is what can we do to really make Iran
understand how grievous such an action was, and had it
occurred, how horrific it would have been for them and for the
entire international community. I think that one of the things
we have tried to do, as the Secretary would say, is use smart
power and be very careful about the responses we make to any
individual circumstance so we do not escalate it beyond the
point at which it is. But I understand the concern, and we are
certainly looking at all of the options that might be available
to us.
Senator Merkley. Thank you.
Chairman Johnson. I want to thank the witnesses for the
testimony on this important issue. I think that today's hearing
provided us useful information as we consider this issue going
forward.
Thanks again to my colleagues and our panelists for being
here today.
This hearing is adjourned.
[Whereupon, at 11:57 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF SENATOR MICHAEL F. BENNET
Thank you, Chairman Johnson and Ranking Member Shelby, for holding
this important hearing. I'd also like to acknowledge Senator Menendez
and Senator Kirk for the tremendous work they've done in this area.
We meet here today--roughly 2 years after the Banking Committee
first passed the Comprehensive Iran Sanctions, Accountability, and
Divestment Act (CISADA) and over a year after it became law--to discuss
progress made toward successfully sanctioning illicit activities in
Iran and stopping Iran's march toward obtaining a nuclear weapon.
Our goal in passing CISADA was clear: to change Iran's cost-benefit
analysis and compel the country to alter behavior regarding its nuclear
weapons program.
Since its passage, CISADA has empowered the Administration to
sanction more firms doing business with Iran than any previous one and
to crack down on the Ahmadinejad regime; the Islamic Revolutionary
Guard Corps (IRGC); its external arm, the Qods Force; and the Iran
Shipping Lines.
CISADA's targeted sanctions on Iran's energy sector have compelled
several energy firms to exit the Iranian market, even before sanctions
had been levied. As a partial result, Iran oil production has fallen
from 4.1 million barrels per day several years ago to about 3.9 million
barrels per day. These sanctions have put the squeeze on the Iranian
regime and made it nearly impossible for Iran work through any
internationally recognized banking entity. We've pushed the Iranians to
the margins of the financial sector, and we must push them out of
business.
At the same time, our current sanctions framework has not fully
achieved the core goal of preventing Iran from continuing to pursue a
nuclear weapon. A recent International Atomic Energy Agency (IAEA)
report indicates that Iran continues to increase its holdings of 20
percent enriched uranium and expresses concern about the military
applications of its nuclear program.
Even more troubling, however, were revelations this week that
Iranian officials and members of the Qods Force were involved in an
audacious scheme to assassinate Saudi Arabia's Ambassador to the United
States, right here in Washington, DC. In the face of these
unprecedented events, I can't help but think, what would have happened
if they had succeeded? Where would the United States be today, if the
Iranian regime had perpetrated such a brazen attack on U.S. soil?
This week that possibility crystallized, and it is in that context
that we should be discussing future sanctions on Iran. It is in that
context that we should be engaging the international community to
prevent Iran-supported terrorism and the country's progress toward a
nuclear weapon.
I look forward to the testimony here today and to answering these
important questions.
Thank you.
______
PREPARED STATEMENT OF SENATOR MARK KIRK
I would like to thank Chairman Johnson and Ranking Member Shelby
for holding this important hearing today.
When we look at Iran today, we see an accelerating nuclear program,
an expanding ballistic missile program, and a wholesale disregard for
human rights.
The Iranian regime continues to sponsor terror around the world,
including now on U.S. soil. On Tuesday, October 11, Attorney General
Holder announced that the Department of Justice charged two members of
Iran's elite Qods Force, a special operations unit of the Iranian
Islamic Revolutionary Guard Corps (IRGC), in connection with a plot to
conduct bombings in Washington, DC, which included targeting U.S.
Senators at a popular DC restaurant.
In response, I call on the Administration to move quickly to
implement the most effective nonmilitary response currently pending on
our docket--cutting off the Central Bank of Iran and collapsing the
Iranian currency. On August 9, 92 Senators signed a letter to President
Obama, asking to impose crippling sanctions on the CBI.
President Obama signed the Comprehensive Iran Sanctions,
Accountability, and Divestment Act (CISADA) into law on July 1, 2010,
or over 15 months ago.
Yet, as evidenced by the latest report from the International
Atomic Energy Agency (IAEA), Iran has accelerated nuclear enrichment.
According to the International Monetary Fund (IMF), Iran's economic
growth more than quadrupled between 2009 and 2011. Last year, the
Iranian economy actually grew faster than the U.S. economy. Iran's GDP
grew from $338.1 billion in 2008 to $357.2 billion in 2010, or a 5.6
percent increase.
We must accelerate the pace of designations under current U.S. law.
I remain perplexed as to why the Administration has failed to sanction
a single bank or a financial institution under Section 104 of CISADA.
On August 3, 2011, the Government Accountability Office (GAO) also
identified 14 non-designated companies as continuing to conduct
activities in Iran potentially in violation of U.S. law, including:
China National Offshore Oil Corporation,
China National Petroleum Corporation,
Sinopec (China),
Daelim (South Korea),
Edison (Italy),
Hyundai Heavy Industries (South Korea),
INA (Croatia),
Indian Oil Corporation Ltd., Oil
Natural Gas Corporation (India),
Oil India Ltd.,
OMV (Austria),
ONGC Videsh Ltd. (India),
Sasol (South Africa), and
Sonangol (Angola).
I ask the Administration to immediately investigate these entities and
report back to Congress on whether they should be sanctioned under
CISADA.
We also know the Government of Iran continues a systematic campaign
of violence, intimidation, and repression against its own people.
In response, we must accelerate the pace of sanctions against
individuals that commit human rights gross violations against Iranians,
including first and foremost, President Ahmadinejad and his Chief of
Staff, Esfandiar Rahim Mashaei.
Under Executive Order 13553, the Obama administration has so far
designed 11 Iranian officials for human rights violations since
September 2010. That is far too few. During the same timeframe, the
European Union has designated 61 individuals under EU laws, including
29 on October 5, 2011.
Today, there are over 100 members of the Baha'i community
imprisoned in Iran, including the seven Baha'i leaders (``the Yaran''),
imprisoned since 2008.
This week, Iranian actress Marzieh Vafamehr was sentenced to 1 year
in jail and 90 lashes after starring in an Australian film with a
shaved head and no hijab.
As the Iranian people struggle under Ahmadinejad's repressive
regime, America cannot stay silent.
During the cold war, President Reagan made Soviet human rights
abuses a key tenet of our foreign policy. In this spirit, I launched
the Iranian Dissident Awareness Program (IDAP) to champion Iranians who
have been arrested by the regime because of their work to bring a free
and democratic Iran. Every Member of Congress now has the ability to
show support for the men and women on the front lines of the struggle
for human rights and democracy in Iran--just as we did for the
``refuseniks'' facing persecution in the Soviet Union.
By standing in solidarity, we can give hope to the dissidents and
put pressure on the Iranian regime.
In closing, I look forward to working with the Administration to
bring the full weight of economic sanctions to bear on the Iranian
regime to stem the growing threat we face from Tehran.
______
PREPARED STATEMENT OF WENDY SHERMAN
Under Secretary of State for Political Affairs, Department of State
October 13, 2011
Chairman Johnson, Ranking Member Senator Shelby, Distinguished
Members of the Committee: thank you for inviting me to appear before
you today to discuss the Obama administration's strategy to address the
continued threat posed by the Iranian regime's nuclear ambitions, its
support for international terrorism, its destabilizing activities in
the region, and its human rights abuses at home.
I would like to begin by dedicating this testimony to Philo Dibble,
Deputy Assistant Secretary for Near East Affairs, who passed away
unexpectedly 2 weeks ago. Philo was an exceptionally well-respected
career member of the Foreign Service who devoted most of his career to
the Middle East. For the past year, he dedicated his deep regional
expertise and knowledge to advancing our policy on Iran. The loss of
his wisdom and leadership is a profound one for the Department and for
our country.
The world today is unified to an unprecedented degree in its
concern that a nuclear-armed Iran would undermine the stability of the
Gulf region, the broader Middle East, and the global economy. In
defiance of U.N. Security Council and IAEA Board of Governors
resolutions, Iran has continued to expand its sensitive nuclear
activities, and refuses to cooperate with the IAEA, raising strong,
legitimate concerns about the purpose of the nuclear program. Beyond
the nuclear issue, Iran continues its longstanding support to terrorist
organizations such as Hizballah, Hamas, and Palestine Islamic Jihad
(PIJ), as well as by its support to newer proxy militia groups in Iraq.
But, these efforts belie a regime that is actually far more
vulnerable and weakened than it would like to project. 2011 has been a
harsh wake-up for the Islamic Republic of Iran. Iran's Government has
failed in its efforts to co-opt uprisings in the Arab world and claim
its 1979 revolution as inspiration. No popular movement in the region
has looked to Iran as a model for change; the only entity that turned
to Iran was another autocratic regime in Syria trying desperately to
hang on to power. Iran has further undermined its standing among
Muslims and further strained its bilateral relations in the region by
helping the failing regime of Bashar al-Asad to brutally crack down
against Syrian citizens. Misreading the stark warning message from the
Arab Awakening, Iran's Government continues to arrest, imprison, and
persecute Iranians who dare to ask for accountability and transparency
from their government, as well as just and fair treatment for ethnic
and religious minorities.
To address the multifaceted challenges posed by Iran's regime--its
flouting of its nuclear obligations, its nuclear weapons ambitions, its
support for terrorism, its destabilizing activities in the region, and
its human rights abuses at home--the United States has led a sustained
and broad international campaign to exact steep costs for the regime
and to complicate its ability to pursue these policies. Iran today
faces tough economic sanctions and broad diplomatic pressure, and
though it aspires to regional and even global leadership, its current
policies have made it an outcast among nations.
American policy regarding Iran remains unambiguous. First and
foremost, we must prevent Iran from acquiring nuclear weapons. Its
illicit nuclear activity is one of the greatest global concerns we
face, and we will continue to increase the pressure until the Iranian
regime engages the international community with seriousness and
sincerity and resolves its concerns. But pressure is not an end unto
itself. It may provide the impetus to Iranian action, but does not
prescribe the measures that are necessary to build international
confidence in Iranian nuclear intent. To that end, we have offered to
meet with Iran and have proposed confidence-building and transparency
arrangements that offered practical incentives. Unfortunately, Iran has
failed time and again to reciprocate and to take advantage of these
opportunities. As a consequence, more than ever, world pressure is
mounting on Iran. Last year, the United States led a successful effort
in the U.N. Security Council to adopt Resolution 1929, which led to the
toughest multilateral sanctions regime Iran has ever faced. The
resolution strengthened previous U.N. resolutions and provided a
platform upon which the European Union, Norway, Australia, Canada,
South Korea, Switzerland, and Japan implemented strict domestic
measures to bolster the measures of UNSCR 1929.
The efforts made by the Congress, by all of you, have also
effectively sharpened American sanctions, particularly against Iran's
energy sector and the regime's human rights abuses. When President
Obama signed into law the Comprehensive Iran Sanctions, Accountability,
and Divestment Act (CISADA, which amended the Iran Sanctions Act of
1996) in early July, 2010, the Administration and the Congress sent an
unmistakable signal of American resolve and purpose, expanding
significantly the scope of our domestic sanctions and maximizing the
impact of new multilateral measures. Since then, the Administration has
imposed sanctions on a growing list of individuals and entities
responsible for Iran's expanding scope of unauthorized activities, and
these sanctions are raising the cost, time, and energy required for
Iran to pursue its current policies.
In September 2010, Secretary Clinton imposed the first sanctions
any Administration had ever imposed under the Iran Sanctions Act. To
date, the State Department has sanctioned 10 foreign companies for
doing business with Iran's energy sector. Further, CISADA's ``special
rule'' has worked exactly as intended: it gave us the flexibility and
leverage to persuade multinational energy firms Shell, Statoil, ENI,
Total and INPEX to withdraw from all significant activity in Iran. The
companies also provided clear assurances that they would not undertake
any sanctionable activities in Iran's energy sector in the future, and
in doing so, forfeited billions of dollars of investments. In addition,
Repsol abandoned negotiations over several phases of the South Pars gas
field.
Other successes under CISADA include the fact that major energy
traders like Russia's Lukoil, India's Reliance, Switzerland's Vitol,
Glencore, and Trafigura, Kuwait's Independent Petroleum Group (IPG),
Turkey's Tupras, France's Total, and Royal Dutch Shell have stopped
sales of refined petroleum products to Iran. Iran has had to redirect
production facilities from valuable petrochemical export production in
order to manufacture refined petroleum for domestic sale. Furthermore,
Reliance, India's largest private refiner, announced in 2010 it would
not import Iranian crude.
Investment in Iran's upstream oil and gas sector has dropped
dramatically, forcing Iran to abandon liquefied natural gas projects
for lack of foreign investment and technical expertise, after Germany's
Linde, the only supplier of gas liquefaction technology to Iran,
stopped all business with it. South Korea's GS Engineering and
Construction canceled a $1.2 billion gas processing project in Iran.
Outside of Iran, British Petroleum chose to shut down production from a
North Sea platform co-owned with the Iranian Oil Company, to ensure
compliance with EU sanctions. Trans-Adriatic Pipeline (TAP) partners
announced that the pipeline, once constructed, would not be used to
transport gas from Iran.
Iran's national airline, Iran Air, is also paying the price for
having its aircraft misused for proliferation purposes, and providing
services to the IRGC. Most major fuel providers have terminated some or
all of their Iran Air contracts, including British Petroleum, Royal
Dutch Shell, Total, OMV, and Q8. Iran Air is finding it difficult to
find sources to replace these suppliers, not to mention places to land.
Iran is increasingly isolated from the international financial
system, as Under Secretary of Treasury Cohen's testimony describes in
detail. Virtually all of the world's first-tier banks have concluded
that the Iranian market is not worth the reputational risk posed by
deceptive Iranian practices. They understand the consequences of both
willfully and inadvertently facilitating an illicit transaction, and
have severely curtailed their interactions with Iranian banks. The
Administration is looking very closely at further measures that will
drive home the message that any bank doing business with banks that do
business with terrorists puts its own reputation at risk of
international sanction and condemnation.
Iran's shipping is also under international pressure. Large
shipping companies such as Hong Kong-based NYK are withdrawing from the
Iranian market, and reputable insurers and reinsurers such as Lloyd's
of London, no longer insure Iranian shipping. Iran's shipping line
IRISL, has been exposed for its complicity in the shipment of goods in
violation of Security Council resolutions, as noted by the U.N.'s Iran
Sanctions Committee. IRISL has been sanctioned by the United States,
the EU, Japan, South Korea, and others. Difficulty in repaying loans
and maintaining insurance coverage has led to the detention of at least
seven IRISL ships. Major shipbuilding companies are refusing to build
ships for IRISL. As a direct result of the international pressure we
helped build, IRISL ships have a harder time finding ports of call,
particularly in Europe.
Other major companies have voluntarily opted out of the Iranian
market, including automotive firms Daimler (German), Toyota (Japanese),
and Kia (South Korea), as well as Germany's ThyssenKrupp. Caterpillar
prohibited its non-U.S. subsidiaries from exporting to Iran.
Switzerland's ABB Ltd., Ingersoll-Rand Plc, and Huntsman Corp. have
ended business with Iran.
The result of our strategy is an Iran that is isolated economically
and finding dwindling options for doing business internationally. But,
importantly, Iran is facing these problems because of targeted
sanctions and the voluntary decision by international firms to exit the
Iranian market. Our sanctions approach continues to seek to undermine
Iran's ability to engage in illicit conduct, with measures against
Iran's energy sector removing an invaluable source of funding that Iran
could apply to that conduct. In spite of the high price of Iranian
crude on world markets, Iran's aggregate economy also seems to be
weakening. These effects will increase as sanctions implementation
continues to improve, especially if the recent decline in the price of
crude oil continues.
These efforts are directed toward achieving our goals of persuading
Iran to comply with its international obligations to prove the
exclusively peaceful nature of its nuclear program and to engage
constructively with the P5+1. On September 21, I participated in a
meeting of the P5+1 countries in New York, where we and our partners,
including Russia and China, reiterated longstanding and grave concerns
about Iran's installation of centrifuges at the formerly covert
enrichment plant at Qom, about its stepped up production of 20 percent
enriched uranium, and about the possible military dimension of Iran's
program (a concern notably shared by the IAEA). We also reconfirmed the
dual-track strategy of engagement and pressure. It was a strong and
unified statement. It concluded that the P5+1 would be willing to hold
another meeting with Iran, but only ``if Iran is prepared to engage
more seriously in concrete discussions aimed at resolving international
concerns about its nuclear program.'' If, however, Iran simply seeks to
buy time to make further progress in its nuclear program, it will face
ever-stronger pressures and ever-increasing international isolation.
We will continue to work with Congress as we implement both tracks
of the dual-track policy. We believe that, in the short term, further
improvements in international implementation, based on our current
authorities, offer the best way to increase pressure on Iran. As
Congress considers additional authorities, we would like to work with
you to ensure that any additional steps we take will strengthen the
international consensus and global pressure against Iran's nuclear
program. The most effective sanctions are those taken by a large
portion of the international community, which requires close
coordination with friends and allies, as well as a targeted approach.
Convincing them to take action will require us to carefully calibrate
our outreach to the individual circumstances of specific countries and
sectors. It will also require flexibility to find creative and
proactive tools to convince Iran that it cannot continue to pursue its
nuclear ambitions.
Sanctions are doing more than raising the cost of continuing
illicit nuclear activity; they are finally shining a spotlight on some
of the individuals and entities perpetrating egregious human rights
abuses against Iranian citizens. Using CISADA, we have designated 11
individuals and 3 entities for human rights violations, and we continue
to compile more information and evidence that will allow us to identify
more murderers, torturers, and religious persecutors. We have taken a
firm stand on the Iranian regime's violations of human rights,
including the repression of religious minorities as exemplified by the
death sentence that might have been imposed on Pastor Youcef Nadarkhani
simply for following his own chosen religion had it not been for the
immediate condemnation from world leaders, religious groups, and NGO's.
At the same time, we are offering capacity-building training programs,
media access, and exchanges to help Iranian civil society strengthen
their calls for accountability, transparency, and rule of law. The
Iranian opposition's desire to operate without financial or other
support from the United States is clear. We are committed to using
available and effective diplomatic tools to assist those who want our
assistance in speaking out and defending fundamental rights and
freedoms. The United States will always support the Iranian people's
efforts to stop government-sanctioned harassment, detention, torture,
imprisonment, and execution of anyone who dares express ideological,
religious, or political differences from the regime's repressive,
totalitarian vision.
We engage regularly with like-minded countries to develop shared
approaches to increase the pressure for a change in the Iranian
Government's behavior. In July, the United States and United Kingdom,
with the support of Canada, imposed visa restrictions on Iranian
Government officials and other individuals who were responsible for or
participated in human rights abuses, including government ministers,
military and law enforcement officers, and judiciary and prison
officials. We welcome the European Union's announcement this week of
more than two dozen additional travel bans. There is absolutely no
cause for allowing petty tyrants to trot around the globe while
suffering and repression continues unabated inside Iran. International
pressure and condemnation on this point is growing: We worked with
Canada to pass a U.N. General Assembly resolution last year condemning
Iran's human rights abuses. This condemnation attracted a larger margin
than any similar resolution in the past 8 years. It may seem small, but
every pro-regime vote we strip away on resolutions like this is one
fewer fig leaf for the Iranian regime to hide behind as they murder and
torture their own people, and we will continue to press measures large
and small at every opportunity.
We were leaders in an effort in the U.N. Human Rights Council in
March to create a Special Rapporteur on Iran, the first country-
specific human rights rapporteur since the Council's creation. Special
Rapporteur Ahmed Shaheed, a former foreign minister of the Maldives and
respected human rights advocate, will serve as an independent and
credible voice to highlight human rights violations by the Government
of Iran. All of these multilateral efforts reinforce our strong
domestic actions that prove that Iran's attempts to undermine universal
rights and deceive the world only further isolate it from the global
community.
In my new role as Under Secretary for Political Affairs, I look
forward to working closely and transparently with Members of Congress
to prevent Iran from acquiring nuclear weapons, curtail its support for
terrorism, make it more difficult for Iran to interfere in the region,
and deter the regime from committing human rights abuses against its
own people.
______
PREPARED STATEMENT OF DAVID S. COHEN
Under Secretary for Terrorism and Financial Intelligence
Department of the Treasury
October 13, 2011
INTRODUCTION
Chairman Johnson, Ranking Member Shelby, and distinguished Members
of the Committee:
Thank you for the opportunity to appear before you today to discuss
the Department of the Treasury's contribution to the Obama
administration's integrated strategy to address the threat posed by
Iran's nuclear program and its extensive support for terrorism. I am
pleased to be here with Under Secretary Sherman and Assistant Secretary
Mills, as the approach the Administration has taken, and the progress
we have achieved, have been marked by a robust, interagency
collaboration to confront the threat we face from Iran.
I will focus my remarks today on our sanctions strategy, paying
particular attention to the Treasury Department's vigorous
implementation of the Comprehensive Iran Sanctions, Accountability, and
Divestment Act (CISADA), the impact CISADA and other sanctions are
having on Iran, and our plans to increase the pressure on Iran going
forward.
Iran Sanctions Strategy
The Treasury Department's sanctions efforts are embedded in the
dual-track strategy that the United States and our allies are pursuing
to address Iran's continued failure to meet its international
obligations regarding its nuclear program.
Notwithstanding the sincere offer of engagement extended to the
Iranian Government by the United States since the outset of this
Administration, Iran has refused to respond meaningfully. In order to
compel Iran to change its approach and to make clear to Iran the
consequences of its existing approach, the United States is
implementing a broad-based pressure strategy. One of the most important
elements of which are targeted financial measures designed both to
disrupt Iran's illicit activity and to protect the international
financial sector from Iran's abuse. Our actions have focused on key
government entities involved in Iran's illicit conduct, including
nearly two dozen Iranian state-owned banks; the Islamic Revolutionary
Guard Corps (IRGC) and its external arm, the IRGC-Qods Force; and,
Iran's national maritime carrier, the Islamic Republic of Iran Shipping
Lines (IRISL), its affiliates.
This strategy has yielded significant results. We have imposed
costs directly on the entities we sanctioned, and by focusing our
efforts on exposing Iranian entities' illicit and deceptive activities,
we have built support among foreign governments to take similar
actions. The global private sector also has amplified our actions--
often taking voluntary steps beyond their legal requirements--because
our actions have highlighted the pervasive nature of Iran's illicit and
deceptive conduct and the reputational risks associated with any Iran-
related business.
Our ability to isolate and disrupt the IRGC and designated Iranian
financial institutions was strengthened considerably last year when
President Obama signed CISADA into law. CISADA has helped us make the
case to foreign governments and foreign financial institutions that the
IRGC and Iran's designated banks should not be allowed access to the
international financial system. As I will describe in more detail, our
implementation of CISADA has significantly impaired designated Iranian
banks' access to the international financial system, impeding their
ability to facilitate Iran's illicit activities, and creating
unprecedented financial and commercial isolation for Iran.
Although we are making progress, there is, of course, still much to
be done. Iran is feeling the impact of the pressure, but we have yet to
achieve the objective of our dual-track strategy: concrete action by
Iran to comply with its international obligations and to address the
international community's concerns regarding its nuclear program.
Recent Actions and Progress
Since last May, when I last appeared before this Committee,
Treasury has taken a number of significant actions that have increased
markedly the pressure on Iran.
Tidewater Middle East Co. and Iran Air
The IRGC continues to be a primary focus of U.S. and international
sanctions against Iran because of the central role it plays in all
forms of Iran's illicit conduct, including Iran's nuclear and ballistic
missiles programs, its support for terrorism, and its involvement in
serious human rights abuses. As Iran's isolation has increased, the
IRGC has expanded its reach into critical sectors of Iran's economy,
displacing ordinary Iranians, generating revenue for the IRGC and
conducting business in support of Iran's illicit activities. We
previously imposed sanctions on several IRGC-related entities, and in
June we continued the effort to expose the IRGC's expansive economic
reach--this time, into Iran's maritime and transportation sectors.
Using our nonproliferation authorities, in June, we designated
Tidewater Middle East Co. (Tidewater), an IRGC-owned port operating
company that manages the main container terminal at Bandar Abbas and
has operations at six other Iranian ports. The Bandar Abbas port
handles approximately 90 percent of Iran's containerized shipping
traffic and has been used by Iran to export arms and related materiel
in violation of several United Nations Security Council Resolutions
(UNSCRs). That same day, we also imposed sanctions against Iran Air,
the Iranian national airline carrier, because it has been used by the
IRGC and Iran's Ministry of Defense for Armed Forces Logistics (MODAFL)
to transport military-related equipment.
The international private sector responded swiftly to these
actions, taking steps to ensure that they have no part in dealing with
these proliferators. For example, several of the world's largest
shipping container firms, Maersk, Hapag Lloyd, and NYK Lines, have
stopped calling at Bandar Abbas' Shahid Rejaie terminal and have
stopped or will stop all shipments of Iran-bound cargo.
IRISL
Since IRISL was designated by the United States in 2008, the United
Kingdom in 2009, and the EU in 2010 for supporting Iran's WMD
proliferation activities, it has sought to evade sanctions by changing
ships' names and nominal owners--often multiples times--and altering
shipping documents to disguise its activities. Treasury, in turn,
continues to expose IRISL's use of these and other deceptive practices
and has imposed sanctions on more than 150 IRISL-related vessels,
companies, entities and persons over the last 3 years.
In June, we added to this list by designating 10 IRISL front
companies, as well as three individuals who each play a key role in
aiding IRISL's sanctions evasion activities worldwide.
Our actions, coupled with similar sanctions imposed by many of our
partners around the world, have substantially hindered IRISL's
operations, causing it real financial distress. Because of sanctions
imposed by the EU, IRISL today is largely shut out of European ports.
It is also unable to obtain maritime insurance from any of the world's
recognized insurers, including the Lloyd's market. Instead, IRISL is
now insured, if at all, by a sanctioned Iranian insurance company with
no history of writing maritime insurance and no track record of paying
maritime claims. Along with this change in insurance, which in some
cases has run contrary to the terms of IRISL's vessel mortgages, IRISL
has had difficulty making payments on its mortgages. This has led to
about a half-dozen IRISL ships being arrested in ports around the world
by creditors seeking payment.
Iranian Human Rights Abuses
In response to the Iranian regime's serious human rights abuses,
CISADA required that the President impose sanctions upon Iranian
officials, or persons acting on behalf of the Iranian Government, who
are responsible for or complicit in the commission of serious human
rights abuses against Iranians. In September 2010, President Obama
signed E.O. 13553, which authorizes Treasury, in consultation with the
State Department, to expose serious human rights abuses by the Iranian
regime, both inside and outside of Iran. As the regime's abuse of its
citizens' human rights has continued, together we have imposed
sanctions under E.O. 13553 against 11 senior Iranian officials and
three Iranian entities--the IRGC, the Basij Resistance Force, and
Iran's Law Enforcement Forces (LEF)--including the IRGC's commander,
the LEF chief, and Iran's Intelligence Minister.
Treasury actions with State have also exposed Iran's support of the
Syrian Government's ongoing violence and repression of the Syrian
people. Under E.O. 13572, which targets those responsible for,
complicit in, or providing material support to those engaged in human
rights abuses in Syria, Treasury designated the LEF's Chief and Deputy
Chief, and two senior IRGC-Qods Force officers--all for supporting the
brutal suppression of the Syrian people orchestrated by Syrian General
Intelligence Directorate.
Iranian Support for Terrorism
We have not lost--and must not lose sight of the fact that Iran is
the world's most active state sponsor of terrorism. Iran has used its
state apparatus--including especially the IRGC-Qods Force--to support a
wide range of terrorist organizations, including Hizballah, Hamas,
Palestinian Islamic Jihad (PIJ), the Popular Front for the Liberation
of Palestine-General Command (PFLP-GC) and the Taliban. In addition to
providing financial support to these terrorist groups, Iran has allowed
al-Qai'da to use its territory for the movement of money, facilitators,
and al-Qa'ida operatives. Al-Qa'ida's core financial pipeline--which
runs from Kuwait and Qatar, through Iran, to Pakistan--depends upon an
agreement between al-Qa'ida and the Iranian Government to allow this
network to operate within its borders. In July, Treasury designated six
members of this network headed by an Iran-based individual to further
degrade al-Qa'ida and expose Iran's continued support to terrorist
groups worldwide.
Financial Sanctions and Implementation of CISADA
The key focus of our efforts remains Iranian banks that either
directly facilitate Iran's WMD and missile proliferation activity, or
that provide material support to banks that have been designated for
engaging in that activity. These sanctions, coupled with the power of
CISADA, have continued to erode designated Iranian banks' access to
financial services, protect the international financial system from
risks posed by designated Iranian banks, and impede Iran's ability to
acquire material for its nuclear program. Moreover, because many of
Iran's largest state-owned banks have been sanctioned for engaging in,
or supporting other banks engaged in illicit activity, our sanctions--
along with complementary actions by many of our allies--have imposed
substantial economic pressure on Iran.
In May, we continued these efforts by designating Iran's Bank of
Industry and Mine (BIM) under E.O. 13382 for providing financial
services to other designated Iranian banks. After the EU acted to
implement UNSCR 1929 by prohibiting 18 Iranian banks from conducting
transactions in Europe, BIM used one of its accounts as a conduit for
transactions into Europe by designated banks, including Bank Mellat and
Bank Saderat. That is, BIM, like Post Bank before it, engaged in a
scheme to front for designated banks in an effort to evade U.S.
sanctions. BIM is the 22nd Iranian state-owned financial institution to
be designated by Treasury.
CISADA's powerful new financial authorities have amplified the
impact of our designations of Iranian banks. Under CISADA, the
Secretary of the Treasury is empowered to cutoff from the U.S.
financial system any foreign bank that facilitates the activity of
individuals and entities sanctioned by the U.N. Security Council in its
recent Iran resolutions, as well as any foreign financial institution
that facilitates a significant transaction, or provides significant
financial services, for any Iranian bank designated by the United
States or for the IRGC and any of its designated agents or affiliates.
Since President Obama signed CISADA into law, my colleagues in the
Treasury Department and I have aggressively implemented it in close
coordination with the State Department. We issued the Iran Financial
Transaction Regulations just over a month after the law was passed,
describing in detail the activity that could lead to action by the
Treasury Department against a foreign financial institution. And we
have embarked on a worldwide tour to spread the word of the serious
consequences that could befall a financial institution that engages in
CISADA-sanctionable activity. This has involved outreach to foreign
financial institutions, regulators, and government agencies in nearly
50 countries across five continents. Just 2 weeks ago, for instance, I
traveled to China to speak with government officials in Beijing and
Hong Kong, and with the private sector in Hong Kong, about CISADA.
As we explain in these engagements, CISADA offers a clear choice: a
foreign financial institution can have access the largest and most
important financial sector in the world--the United States--or it can
do business with the IRGC or Iranian banks sanctioned for facilitating
Iran's illicit activity, but it cannot do both. For the
overwhelming majority of foreign banks, the choice has been a simple
one, and those that had potentially sanctionable relationships
discontinued that business. The result is exactly what Congress
intended: CISADA has helped us deepen and broaden Iran's isolation from
the international financial system.
We continue to be vigilant to uncover and investigate activity that
may lead to action under CISADA. And we remain ready and willing to
utilize the tools provided by CISADA whenever and wherever necessary.
The Impact of Sanctions on Iran
Last December, in testimony to the House of Representatives
Committee on Foreign Affairs, my predecessor described the impact of
sanctions on Iran this way: ``Iran has become increasingly isolated
from the international financial system, with limited access to
financial services . . . Iran has been relegated to the margins of the
international financial system, and is finding it increasingly
difficult to access the large-scale, sophisticated financial services
necessary to run a modern economy efficiently.'' I can report that
Iran's financial isolation, and the economic impact of that isolation,
have both continued to grow.
Due to a combination of factors--including UNSCR 1929, financial
sanctions imposed by the United States, EU, and other like-minded
countries, and foreign banks' interest in avoiding CISADA actions or
the reputational risk of doing business with Iran--the number and
quality of foreign banks willing to transact with designated Iranian
financial institutions has dropped precipitously over the last year.
Iran's shrinking access to financial services and trade finance has
made it extremely difficult for Iran to attract foreign investment, pay
for imports, or receive payment for exports. This has led to a number
of significant macroeconomic effects in Iran, exacerbating persistent
economic weakness due to the Iranian Government's mismanagement of its
economy.
Sanctions have increased the cost and difficulty of accessing
adequate foreign exchange, including the dollar, which has contributed
to major instabilities in Iran's currency. (See chart 1) Last fall,
following the adoption of UNSCR 1929 and various member states' actions
to implement the Resolution, the spread between the official and the
private-market exchange rates for the Iranian rial widened
dramatically. In September 2010, the rial depreciated by up to 20
percent in 1 week alone. It recovered, but earlier this year, the
spread between the official and the market exchange rate again began to
widen. Iran's Central Bank intervened in early June, devaluing the rial
by 11 percent in an effort to close the gap, but it has only grown
wider since.
The Central Bank of Iran has so far been unable to contain
volatility in the rial market exchange rate. There are a number of
theories to explain this phenomenon, but it is surely driven by
Iranians seeking to convert their rial into foreign currency,
underscoring the extent to which Iranians lack confidence in their
economy.
Dwindling direct foreign investment in Iran also reflects, in part,
the impact of our targeted sanctions. At a time when Iran could badly
use an infusion of international capital, foreign investment in Iran
remains low in comparison to other developing economies. (See chart 2)
The International Monetary Fund has attributed this trend to
international sanctions and Iran's difficult business environment. Iran
continues to struggle to attract investment in key sectors,
particularly oil and gas. Many international and national oil companies
have effectively withdrawn from Iran, depriving the country of large-
scale foreign investments and technology. As a result, the
International Energy Agency projects that Iranian oil production will
decline by about 800,000 barrels per day (bpd) by 2016, a roughly 20
percent decline in production capacity. At current oil prices, such a
decline will cost Iran on average about $14 billion (about 3 percent of
Iran's GDP) in annual oil revenues through 2016.
Sanctions have also led to the IRGC taking over key aspects of
Iran's economy, exacerbating the cronyism and corruption that pervades
the Iranian regime. We have seen this in a number of areas. Khatam al-
Anbiya, the U.S.-, EU-, and UNSC-designated engineering arm of the
IRGC, has been recruited to develop key energy resources. The IRGC,
through its sanctioned affiliates Bonyad Tavon Sepah and Mehr Bank,
took over Tidewater, a port operator that until a few years ago had
been privately owned. And President Ahmadinejad recently appointed
Rostam Ghasemi, a U.S.- and EU-designated IRGC commander and former
leader of Khatam al-Anbiya, as Minister of Oil. This appointment was
applauded by the IRGC, which characterized Ghasemi's new role as a
``meaningful and critical response to the attacks against the guards
from the west's media empire.'' However, even members of Iran's
Government have publicly questioned the wisdom of this decision. One
member of Iran's parliament observed that ``the integration of the
guard, as a military force, in political and economic power is not in
the interests of the system . . . In neighboring countries, military
officials are distancing themselves from politics and power, while it's
the opposite in Iran.''\1\ Furthermore, the inclusion of the IRGC
throughout the Iranian economy has opened up Iran to greater pressure
through sanctions.
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\1\ http://www.businessweek.com/ap/financialnews/D9OSLUI80.htm.
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Altogether, there is little doubt that our sanctions strategy has
markedly reduced Iran's access to the international financial system
and, consequently, has contributed to a noticeable weakening in the
Iranian economy.
The Continuing Threat and the Way Forward
The Governor of the Central Bank of Iran, Mahmoud Bahmani,
commenting on the financial sanctions, said recently that Iran should
``fight back, and that's for sure,'' asking, ``But how?''\2\ It is
clear that Iran has chosen to ``fight back'' against sanctions by using
increasingly deceptive tactics in an effort to evade the scrutiny of
governments, regulators, and banks around the world. As Iran has lost
access to global banking and financial services, and suffered
disruptions in its ability to conduct trade worldwide, Iran is trying
to preserve the limited access its designated banks have to the
international financial system while simultaneously seeking to secretly
establish new footholds. To do so, Iran is targeting vulnerable
jurisdictions and financial institutions that may willingly or
unwittingly allow designated Iranian banks to operate.
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\2\ http://af.reuters.com/article/idAFTRE67716B20100808.
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For example, some branches and subsidiaries of designated Iranian
banks continue to operate in jurisdictions outside of Iran. Although
many foreign banks would prefer not to do business with these branches
and subsidiaries, Iranian bank branches exploit legal systems that
allow them to continue to operate, jeopardizing the integrity of their
host countries' financial sectors. We have been working with these host
countries to shut down the operations of overseas affiliates of
designated Iranian banks. We have achieved some success, but there is
more work to do.
We also know that Iran has attempted to purchase banks in other
countries, relying upon third-party associates or firms to facilitate
these purchases in order to mask Iranian involvement and ownership.
Preventing these attempts to circumvent multilateral sanctions remains
a key focus of our strategy. Where we have information about these
potential purchases, we work to alert our foreign partners and urge
them to prevent Iran from gaining access to their financial sector in
this manner.
We are also continuing our intense efforts to implement CISADA.
Last week, we issued a final rule to implement Section 104(e) of
CISADA, establishing a reporting requirement for U.S. banks that will
complement our efforts to identify CISADA-sanctionable activity by
foreign banks. We have already begun to utilize this regulation by
issuing this week information requests to a number of U.S. banks
regarding several foreign banks that we have reason to believe may be
involved in activity sanctionable under CISADA. If we become aware of
possible CISADA violations--through this or other investigative efforts
under way--we will seek prompt resolution, either by insisting on
confirmation from the foreign bank that it has ended its relationship
with designated Iranian banks or by imposing CISADA sanctions.
As more and more countries and foreign banks refuse to deal with
designated Iranian banks, we also remain keenly focused on the
possibility that non-designated Iranian financial institutions may
become involved in proliferation activity or terrorist financing, or
may begin to provide material support to banks that are designated for
doing so. And we continue to consider the case of the Central Bank of
Iran (CBI). At this time, because of our country-wide sanctions
program, U.S. financial institutions are already generally prohibited,
with only limited exceptions, from doing business with any bank in
Iran, including the CBI. Treasury has also consistently communicated to
our foreign partners the risks of doing business with the CBI, as
highlighted in UNSCR 1929. Further U.S. action against CBI, if it
engenders multilateral support, could further isolate the CBI. I can
assure the Committee that the Administration will continue to carefully
weigh the legal bases and policy ramifications of further action
against the CBI, and we are committed to continuing to work with the
Congress on this crucially important issue.
Conclusion
As Iran continues to choose the path of defiance, Treasury, working
with our colleagues across the Administration and in Congress, will
continue to develop new and innovative ways to impose additional costs
on Iran to create crucial leverage for our diplomacy. I look forward to
continuing our work with this Committee as Treasury continues to pursue
this important strategic objective.
______
PREPARED STATEMENT OF DAVID W. MILLS
Assistant Secretary of Commerce for Export Enforcement
Department of Commerce
October 13, 2011
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 implementing the
Comprehensive Iran Sanctions, Accountability, and Divestment Act
(CISADA), as well as the wider issue of enforcing United States'
sanctions on Iran. My Department has a key role in administering and
enforcing U.S. dual-use export control policies toward Iran. We also
work closely with our colleagues at the Departments of State, Homeland
Security, and the Treasury, as well as other agencies, to implement and
enforce our sanctions regime effectively.
I wish to extend my thanks to the Congress for conferring permanent
law enforcement authority on our agents last year as part of CISADA.
The Office of Export Enforcement in our Bureau of Industry and Security
(BIS) is the only Federal law enforcement agency solely constituted to
conduct dual-use export investigations. Permanent authority allows our
agents to focus on their law enforcement mission without the necessity
of annual renewal of their authority as Special Deputies of the U.S.
Marshals Service, and removes the potential that their authority may be
questioned in a courtroom. It was one of many steps we are taking to
strengthen our export control system as part of the Administration's
export control reform initiative.
Over the course of the last year, our agents have been utilizing
this authority to investigate a variety of export violations, but
Iranian violations continue to be a primary area of focus. Iran
continues to engage in widespread efforts to illegally acquire U.S.-
origin commodities and technology. In fact, the majority of our
criminal investigations now involve Iran as the ultimate recipient of
diverted items. Much of our enforcement activity and analysis is
focused on stopping the diversion of such items to Iran via
transshipment hubs in the Middle East, South and East Asia.
The Bureau of Industry and Security employs a variety of criminal
and administrative tools against these illicit Iranian procurement
activities. I want to share with you some illustrative examples of
these enforcement efforts.
BIS aggressively investigates U.S. companies doing business with
Iran directly and through their foreign subsidiaries, as demonstrated
by the following recent case. Just last month, we imposed a civil
penalty totaling $2.5 million against Flowserve Corporation and 10 of
its foreign affiliates to settle 288 charges related to unlicensed
exports and reexports of pumps, valves and related components subject
to the Export Administration Regulations (EAR) to Iran, Syria and other
countries. Flowserve is headquartered in Irving, Texas, and is a
supplier of goods and services to the oil, gas, chemical, and other
industries. Six of Flowserve's foreign affiliates caused the
transshipment of items to Iran and/or the reexport of items to Syria
without the required U.S. Government authorization. Flowserve and a
number of its foreign affiliates also exported or reexported items
controlled for reasons of chemical and biological weapons proliferation
to China, Malaysia, Singapore, Venezuela and other countries. In
addition to the civil penalty, Flowserve and a number of the Flowserve
affiliates will be required to conduct external audits of their
compliance programs and submit the results to BIS. BIS pursued these
administrative charges in concert with the Department of the Treasury's
Office of Foreign Assets Control (OFAC). Flowserve also agreed to pay a
$502,408 civil penalty to resolve related OFAC charges. Cooperation
between BIS and OFAC on Iranian cases has been critical to maximizing
the impact of U.S. laws against violators.
In recent years, export enforcement at BIS has also made extensive
use of the BIS Entity List to disrupt a range of overseas procurement
networks, most importantly involving investigations of the procurement
of components for improvised explosive devices by Mayrow General
Trading and related entities, resulting in the addition of over 190 new
foreign entities to the Entity List. Most recently, on August 15, 2011,
BIS added 15 persons, including aircraft leasing operations in Ukraine
and Greece, to the Entity List for involvement in the lease, transfer,
and operation of commercial aircraft subject to the EAR, without
requisite licenses, for use in Syria and Iran.
The use of the Entity List highlights our focus not only on
sanctions directed at the listed enterprises, but also the prevention
of violations, and the public naming of individuals and entities that
are involved in or that pose a significant risk of engaging in illicit
export activity. This widely used list of parties of concern takes
advantage of the automated name screening infrastructure that exists in
banks, trading companies and manufacturing enterprises worldwide. This
approach discourages resellers and other parties here and abroad from
doing business with targeted entities and the procurement networks they
represent, and prevents resellers and other parties in the United
States and overseas from doing business with them.
BIS has also made effective use of its authority to issue Temporary
Denial Orders, or TDOs, to prevent imminent violations of the Export
Administration Regulations. A significant recent case involved Anvik
Technologies of Malaysia and Hong Kong. Anvik used a worldwide network
of ``virtual offices'' to procure items for ultimate shipment to Iran.
``Virtual Offices'' are organizations that provide a variety of
services to clients which create the impression that the entity is
operating from a particular facility when in fact it is somewhere else.
In this case, one of the ``virtual offices'' was in Chicago, which
provided the impression to U.S. vendors that they were shipping to a
U.S. entity, when in fact the items would be forwarded outside the
country, and ultimately to Iran.
This case demonstrates an important trend in international trade:
the development of a global order management, payment, and delivery
infrastructure that can be easily accessed and used for a very wide
range of items. The problem is that it can be exploited by bad actors
to divert items in violation of the law. We continue to seek creative
ways to attack this sort of illicit activity.
On August 21, 2011, IBIS renewed a TDO against Mahan Air of Iran
and related parties. This TDO, originally issued in March 2008, has
been used to successfully block several attempts by Mahan to acquire or
use U.S.-origin commercial aircraft. In its efforts to obtain access to
additional capacity, Mahan has employed a variety of front companies,
complex lease arrangements and proxies. BIS special agents continue to
identify and unravel these transactions, denying Iran unauthorized
access to U.S.-origin goods and technology. In the most recent renewal
and modification of this order, BIS named two European companies that
Mahan was using to register Airbus aircraft with U.S.-origin engines or
other components and fly them into and out of Iran using European tail
numbers.
Administrative tools such as the TDO have been critical in
furthering our criminal investigations into Iranian procurement
activities. The TDO issued against Mahan Air originally included Bali
Group in the United Kingdom. That TDO was critical in preventing
additional violations of the EAR and furthering our investigation into
Balli Group's involvement in obtaining Boeing 747 aircraft for Mahan
Air. On May 11, 2010, Balli Aviation was sentenced to a $2 million
criminal fine and corporate probation for 5 years. On February 4, 2010,
Balli Group PLC and Balli Aviation entered a civil settlement with BIS
and OFAC, under which Balli agreed to pay a $13 million civil penalty
over the course of approximately 2 years, coupled with an additional $2
million suspended civil penalty designed to deter future violations by
Balli and to encourage its timely payment of the underlying $13
million. BIS takes the conditions of these suspensions very seriously,
and when Balli did not make a timely penalty payment, we revoked the
suspension of the $2 million civil penalty. This total civil penalty of
$15 million--the largest civil penalty imposed under the EAR to date--
has been collected in full.
I would now like to say a few words about the Administration's
efforts on Export Control Reform, and how that will affect enforcement
activity. Last November, the President signed an Executive Order
creating a central element of reform as it applies to export
enforcement, the Export Enforcement Coordination Center (EECC).
The EECC will be a permanent center with dedicated staff intended
to ensure that BIS, the State Department, the Federal Bureau of
Investigation, U.S. Immigration and Customs Enforcement and other
relevant agencies more efficiently coordinate their activities. It will
enable U.S. agencies to better leverage their resources without
duplicating or undermining each other's efforts in the field, and will
allow all relevant agencies to approach investigations as full
partners.
No element of the export control reform initiative is intended to
impede or weaken strict enforcement of the U.S. embargo on Iran. The
exact opposite is true. I have already spoken about the Entity List.
This is but one list administered by the three departments represented
here today against which exporters are required to screen transactions.
Most of these lists include Iranian entities or entities involved with
Iran. The U.S. Government has created a single, consolidated electronic
list that exporters can download and easily search. It includes almost
24,000 entries. This enhances the effectiveness of the various lists
and facilitates compliance, especially for small- and medium-sized
companies who may not have the resources to stay current with all the
various lists.
As part of CISADA, the Administration and Congress also harmonized
our criminal export control penalties to a standardized maximum of up
to $1 million per violation and up to 20 years in prison, or both. In
one of the statutes used by my colleagues at the Treasury, the criminal
penalty for convictions for Iran was only up to $10,000 and no jail
time. No longer are criminal export control violations merely the cost
of doing business.
The licensing mechanisms we are putting in place for close U.S.
allies and our multilateral export control partners will improve the
interoperability with these allies by liberalizing some licensing
requirements but at the same time adding more robust compliance and
enforcement provisions that will help ensure that products and
technology are not diverted to Iran or elsewhere.
As an example, the notification and certification requirements of
the new license exception, the Strategic Trade Authorization, not only
ensures that information on the control status of U.S.-origin items is
passed along to resellers and customers, but that an auditable chain of
custody is established.
In the final or Phase III of Export Control Reform, we envision the
creation of a single licensing agency that would include the
administrative enforcement functions of BIS and the Department of
State. The Administration also plans to seek legislation to consolidate
BIS's criminal enforcement functions into U.S. Immigration and Customs
Enforcement, which has a separate unit dedicated to enforcement of the
export control and embargo laws. This consolidation plan will ensure
that the fully synchronized export control system stays that way, and
it is good government.
As Iran is a top enforcement priority, we fully intend to press
forward with our efforts to combat illegal diversion of sensitive
products and technology there. Likewise, our success at filling more
than 50 enforcement positions, as well as our initiative to prosecute
culpable individuals as well as companies, while not restricted to
Iran, will greatly assist in our enforcement efforts involving Iran.
We stand ready to work with the Committee and the Senate to
maintain an aggressive and effective export enforcement program.
______
Summaries of Recent Commerce Enforcement Cases involving Exports or
Reexports to Iran
On August 12, 2011, Davoud Baniameri, an Iranian national
who maintained a residence and business in California, was
sentenced to 51 months in Federal prison after pleading guilty
in May to two felony charges stemming from his efforts to
illegally export missile components and radio test sets from
the United States to Iran, via the United Arab Emirates.
Codefendant Andro Telemi, a naturalized U.S. citizen from Iran,
is awaiting trial in Chicago. A third defendant, Majid Mousavi,
an Iranian citizen living in Iran, remains a fugitive and is
believed to be in Iran.
On July 20, 2011, six overseas companies were added to the
BIS Entity List. Biznest Ltd. and Yeraz Ltd. in Hong Kong, and
Micro Power Engineering Group, Narinco Micro Sarl, Serop
Elmayan and Sons Lebanon, and Serpico Offshore Sarl, all
located in Lebanon, were placed on the Entity List based on
evidence that they have engaged in actions that are contrary to
the national security or foreign policy interests of the United
States. The companies purchased electronic components from
foreign subsidiaries of U.S. firms and then resold the
components to persons in Iran and Iraq. The same components
were later found in Iraq in unexploded improvised explosive
devices and related materials.
On June 24, 2011, Hamid Seifi was sentenced to nearly 5
years in prison for his role in a conspiracy to illegally
export military components for fighter jets and attack
helicopters from the United States to Iran, via the United Arab
Emirates and France. Another defendant and his company have
admitted their illegal conduct and also pleaded guilty in the
investigation. A total of seven individuals and five corporate
entities based in the United States, France, the United Arab
Emirates, and Iran have been indicted for their alleged roles
in the conspiracy. On June 23, 2011, based on evidence that
they have engaged in actions that could enhance the military
capability of Iran, eight of the defendants were added to the
BIS Entity List.
On April 21, 2011, Jeng Shih and his company Sunrise
Technologies and Trading Corporation, as well as Massoud
Habibion and Mohsen Motamedian and their company Online Micro
LLC, were indicted on charges of illegally exporting computer-
related equipment worth millions of dollars from the United
States to Iran via the United Arab Emirates. The indictment
charges Shih and his company with one count of conspiracy; 13
counts of violating the International Emergency Economic Powers
Act (IEEPA); and 13 counts of making or causing to be made
false statements to the United States. If convicted, Shih faces
a maximum sentence of 20 years in prison and a $1 million fine
for each of the IEEPA counts and 5 years for each false
statement count.
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN JOHNSON FROM WENDY
SHERMAN
Q.1. Under CISADA, countries should be designated Destinations
of Diversion Concern if they allow ``substantial diversion'' of
certain goods, services, or technologies through the country to
Iranian end users or Iranian intermediaries. No country has yet
been designated a Destination of Diversion Concern, even though
it's clear that some of this activity continues. Why haven't
any countries been designated, and where are you generally in
the process of assessing the major diversion countries--their
export control laws, ports and other transportation hubs, and
control regimes--in Asia and the Middle East?
A.1. I defer specific questions on country assessments to the
Intelligence Community. The Director of National Intelligence
submitted to Congress a report pursuant to CISADA Section 302,
entitled ``Identification of Countries of Concern with Respect
to the Diversion of Certain Goods, Services, and Technologies
to or through Iran'' in December 2010. CISADA Section 302
requires the President to designate a country as a Destination
of Diversion Concern if he determines that the government of
the country allows substantial diversion to Iranian end users
or intermediaries of certain goods, services, or technology. I
would be happy to offer a classified briefing on the State
Department role in this process; however, I defer any questions
on the specifics of the 2010 Section 302 report to the
Intelligence Community.
Q.1. Can you describe the current level of U.S. international
cooperation, or lack thereof, with the international community
in working to ensure that sensitive materials do not end up in
Iran?
A.1. Iranian efforts to procure sensitive materials and
technology for their proscribed programs through a variety of
means are well documented. We continually work with foreign
governments bilaterally and in multilateral fora to ensure that
proliferation-sensitive materials, equipment, and technology do
not end up in Iran.
We regularly engage with states that have uranium resources
and other sensitive items to eliminate the proliferation risk
of these materials. U.S. collaboration with other countries has
made Iran's illicit procurement of sensitive materials more
difficult, costly, and time-consuming. While we have had some
successes in working to ensure that sensitive materials do not
end up in Iran, we remain vigilant on this risk and maintain
attention to this issue in engagement with other states.
We seek to lead by example and have worked to fully
implement our U.N. obligations. Our efforts highlight that
states must meet their obligations under binding U.N. Security
Council Resolutions that prohibit the transfer of specific
sensitive items as well as any other items a state determines
would contribute to Iran's proliferation-sensitive activities.
We also engage with partners to ensure that they robustly
enforce their export controls, encourage the extensive use of
end-user checks to confirm proper export, work with private
enterprise to ``know their customer'', and remain vigilant to
the risk of doing business with Iran. In addition to
implementing our U.N. and domestic measures, we encourage all
states to take similar steps and routinely discuss with them,
as well as with industry, the risks of transferring sensitive
items to Iran.
Q.3. As you work to ensure that goods services or other
technologies do not end up in Iran, what do you see as the
greatest areas of concern? What additional tools or resources
do you think would be most useful for the Commerce Department
as it seeks to enforce CISADA and other laws in this area?
A.3. I defer to the Intelligence Community to address our
principal concerns with respect to the diversion of sensitive
items. I also defer to the Commerce Department regarding U.S.
export and re-export controls. The State Department continues
to work closely with other countries to prevent the transfer of
proliferation-sensitive technology and equipment as called for
under relevant U.N. Security Council Resolutions (UNSCRs) and
consistent with international nonproliferation commitments.
UNSCR 1540 makes clear that all parties associated to a
transaction share the responsibility for stopping
proliferation, and we work with both supplier and transshipment
countries to ensure that proscribed goods, services and
technologies do not end up in Iran. Through the Proliferation
Security Initiative, the United States works to enhance
international tools to interdict and prevent trade in sensitive
technologies.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SCHUMER FROM WENDY
SHERMAN
Q.1. A major component of CISADA was the new sanction on
foreign companies that provide refined petroleum products to
Iran. The provision was initially successful in that it
dramatically reduced Iran's ability to import gasoline.
However, despite Iran's claims to be fully self-sufficient in
gasoline production, the volume of gasoline imports to Iran has
gone back up. In fact, Reuters reported on September 7 that,
``Iran has been importing four to five cargoes of gasoline per
month, with most of it supplied by China as the Islamic
Republic finds ways to get around the U.S.-led sanctions, three
industry sources familiar with the matter said.''
This represents a clear violation of U.S. law, yet no
action has been taken against any Chinese companies. Why?
A.1. We are aware of and looking carefully into these reports.
We have repeatedly and regularly engaged with China in our
determined efforts to impede Iran's ability to procure refined
petroleum products. In fact, earlier this year, we sanctioned
two of Iran's largest suppliers of refined products, Royal
Oyster Group and SPD. We made note of these sanctions to China
and have urged that Chinese companies not engage in the supply
of refined petroleum to Iran. We have pressed China at the
highest levels not to ``backfill'' the business of other firms
that have taken the responsible course and departed Iran's
energy sector. We urge Chinese companies to discontinue
activities in Iran's energy sector.
We have seen progress in some areas. Based on all available
information, we assess that Chinese companies have not
finalized any agreements on new upstream investments or new
refinery construction projects since the passage of the
Comprehensive Iran Sanctions, Accountability, and Divestment
Act (CISADA). Recent press and industry reports indicate that
Chinese firms have taken a ``go slow'' approach to their
existing projects in Iran. In fact, Iran publicly threatened to
hand over the rights to develop some fields to ``other'' (i.e.,
presumably non-Chinese) companies if Chinese entities did not
progress more rapidly. We note as well that Iranian Foreign
Minister Ali Akbar Salehi has acknowledged in his public
statements that some Chinese projects have slowed down.
Q.2. Has the State Department investigated Chinese companies
including SINOPEC and the China National Petroleum Corporation
for violations of ISA?
A.2. We would be happy to brief you or your staff on this issue
in a classified setting.
Q.3. What is the United States doing to respond to this latest
action by Iran against the United States?
A.3. As soon as the United States made public the Iranian plot,
we briefed our international partners and asked them to join us
in condemning Iran's flagrant violation of international law
and in increasing Iran's isolation. In addition, we sent
interagency teams to New York to brief U.N. Security Council
members and key governments and to respond to questions
regarding the plot. We also briefed the Washington Diplomatic
Corps.
In light of the gravity of the charges, the United States
also reached out directly through diplomatic channels to the
Iranian Government to condemn its actions.
On October 11, the Treasury Department designated the five
individuals involved in the plot--four members of the IRGC-Qods
Force and the plot's main suspect, a U.S.-Iranian citizen who
had acted as an agent for the Qods Force. The European Union,
the United Kingdom, and Canada immediately followed with their
own designations.
In addition, dozens of countries and many regional
organizations stood by the United States and issued their own
statements condemning the regime.
The Administration will continue to pursue a variety of
diplomatic, law enforcement, and economic measures in response
to this unacceptable act.
Q.4. How will we make clear to Iran that we will not stand by
and allow them to act against our interests, kill Americans or
acquire a nuclear weapons capability?
A.4. The Administration is committed to preventing Iran from
developing a nuclear weapon capability. Our dual-track policy
of pressure to encourage engagement is aimed at convincing Iran
to comply with the demands of the U.N. Security Council and to
engage with the P5+1 on its nuclear program. The Administration
will increase economic pressure on Iran. Options under
consideration include new sanctions, new designations under the
existing sanctions regime, and improved implementation of
existing sanctions.
Iran continues to aid terrorist organizations like
Hezbollah and Hamas, and it supports terrorism throughout the
region and beyond. The United States will not permit Iran to
endanger U.S. troops from Iran-sponsored attacks in Iraq. We
will continue to shut off Iran's support to terrorist groups
through diplomatic, economic and law enforcement measures.
Q.5. How will we get the Iranian Government to understand that
there will be serious consequences for this latest act?
A.5. The Administration is reviewing diplomatic, law
enforcement and economic options to hold Iran accountable. As
soon as the United States made public the assassination plot,
we immediately informed the international community and called
on countries around the world to join us in condemnation. The
U.S. Government also reached out directly through diplomatic
channels to the Iranian Government to condemn its actions.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM WENDY
SHERMAN
Q.1. China continues to be a major Iranian trading partner and
has agreements with Iran for nearly $40 billion in investments
to develop Iranian oil fields. China has reportedly directed
the China National Offshore Oil Company and the National
Petroleum Company to slow their work in Iran, presumably so
that it can make the argument to Washington to hold off on
sanctions. Can you comment on China's continued engagement with
Iran and what level of confidence you have that the Chinese
will slow-walk these deals? What would you consider to be a
trigger for sanctions against these entities?
Why has the Administration been reluctant to sanction
Chinese companies for energy sanctions when there is ample
evidence that they are violating our laws and there is
precedent for us sanctioning Chinese companies for nuclear and
weapons proliferation concerns?
A.1. Based on all available information, we assess that Chinese
companies have not finalized any agreements on new upstream
investments or new refinery construction projects since the
passage of the Comprehensive Iran Sanctions, Accountability,
and Divestment Act (CISADA). The State Department continues to
monitor closely China's activities in Iran's energy sector. We
have pressed China at the highest levels not to ``backfill''
the business of other firms that have taken the responsible
course and departed Iran's energy sector. We urge Chinese
companies to discontinue activities in Iran's energy sector.
Recent press and industry reports indicate that Chinese
companies have adopted a ``go slow'' approach to their projects
in Iran. In fact, Iran has publicly threatened to hand over the
rights to develop some fields to ``other'' (i.e., presumably
non-Chinese) companies if Chinese entities do not progress more
rapidly. We note as well that Iranian Foreign Minister Ali
Akbar Salehi acknowledged in his public statements that some
Chinese projects have slowed down.
Q.2. China's state-run energy firm, Zhuhai Zhenrong has
reportedly been shipping refined petroleum to Iran monthly for
the last year. Despite abundant information about this trade,
the United States has not sanctioned Zhuhai Zhenrong. Is the
Department of State investigating these sales?
A.2. We have seen these reports of shipments of refined
petroleum by Zhuhai Zhenrong. We are concerned about these
reports and have raised the issue as we regularly voice our
concerns to China as part of our substantial efforts to impede
Iran's ability to procure refined petroleum. In fact, earlier
this year, we sanctioned two of Iran's largest suppliers of
refined products, Royal Oyster Group and SPD. We made note of
these sanctions to China and have urged that Chinese companies
not engage in the supply of refined petroleum to Iran. We have
engaged China at the highest levels to urge its companies to
discontinue their activities in Iran's energy sector, and we
have seen positive signs in some areas. Nonetheless, we are
carefully evaluating these reports.
Q.3. Do you consider sanctions on the sale of refined petroleum
to be a focus of your efforts? While I appreciate the steps the
Administration has taken to sanction several front companies,
such the Royal Oyster Group in the UAE, it would seem that we
are missing the big targets--the major energy traders that are
playing a shell game using front-companies to make sales of
refined petroleum to Iran. Trafigura, for example, claims that
it has ceased selling refined petroleum to Iran, yet there are
reports that it merely changed front companies and continues to
sell to Iran? Can you comment on your efforts to verify that
major energy traders, like Trafigura, have in fact exited the
market and ceased sales of refined petroleum to Iran?
A.3. The Administration has focused intently on Iran's energy
sector and has vigorously enforced sanctions on suppliers of
Iran's refined petroleum products. To date, this
Administration, the first to impose sanctions under the Iran
Sanctions Act, has sanctioned 10 companies under the Act, eight
of them for the supply of refined petroleum products or related
goods or services. Two of the latter, Royal Oyster Group and
SPD, were Iran's largest suppliers of refined petroleum.
We have seen the reports that major energy traders are
using front companies to supply refined petroleum. We are
looking into these reports, but to date have been unable to
corroborate many of them. Further, we have found that the major
energy traders of the world have discontinued their activities
with Iran altogether. We continue to monitor activities in
Iran's energy sector and will ensure the law is implemented
fully.
Q.4. Iran's Revolutionary Guard Corps has its fingers in all of
the revenue pies and is known to play a key role in the crude
oil export supply chain. Do you believe that designating more
IRGC persons and entities and eliminating the IRGC's ability to
profit from Iran's energy exports by prohibiting any person
from knowingly exporting, refining and shipping Iran's energy
resources if the IRGC or its affiliates are involved in the
development, extraction, production, transportation, or sale of
such resources would be an effective way to limit the IRGC's
revenue stream?
A.4. The IRGC is a primary focus of U.S. sanctions against Iran
because of its central role in Iran's nuclear and ballistic
missile programs, its support for terrorism, and its
involvement in serious human rights abuses. As Iran's isolation
has increased, the IRGC has expanded its reach into critical
sectors of Iran's economic infrastructure--at the expense of
the Iranian private sector--to generate revenue and conduct
business in support of Iran's illicit activities.
The Administration uses all the tools at its disposal to
uncover and spotlight this illicit conduct. In the last few
months, the Administration designated Tidewater Middle East
Co., an Iranian port operator owned by the IRGC, and sanctioned
two Iranian airlines, Iran Air and Mahan Air, for supporting
the IRGC.
We continue to research, update and expand the U.S.
designation list based on developments in Iran and as
additional information and evidence become available. Together
with our international partners, the United States is working
to identify and close gaps where Iran is trying to circumvent
sanctions, including sanctions and designations targeting the
Iranian Revolutionary Guard Corps (IRGC).
Q.5. One of the barriers to the imposition of sanctions seems
to be the narrow definition of ``credible information'' that
the Department uses when determining whether to issue
sanctions. My legislation, S. 1048, would expand that
definition to provide greater latitude to the Department to
find actionable activity. It would expand the definition to
include public announcements by the person that the person has
engaged in a sanctionable activity; announcements by the
Government of Iran that the person has engaged in such an
activity; as well as other credible information, such as report
to stockholders of the person and reports by GAO, the Energy
Information Administration, and the Congressional Research
Service. What sources of credible information does the
Department rely on presently when making sanction
determinations? Does the Administration support broadening the
definition of credible information?
A.5. The current definition of ``credible information'' enables
us to investigate thoroughly and effectively all reports of
possible sanctionable behavior and to make sanctions
determinations. This Administration reviews every report of
potentially sanctionable activity, regardless of whether an
investigation is open or required to be opened, and the
Secretary can impose sanctions whenever she makes a
determination that a company has engaged in the activities
described in the Iran Sanctions Act. We draw upon a range of
sources to validate information we receive, including
intelligence, the media, industry and other non-government
sources, and foreign governments. We also reach out to firms
directly to express our concerns about their reported
activities, to inquire about the accuracy of such reports, and
to discourage sanctionable activities. Broadening the
definition of ``credible information'' would not improve our
ability to render accurate judgments about sanctionable
activity. However, such a broader definition could impute
credibility to information of questionable veracity. Press
reports sourced from Iranian public statements, for instance,
are often inaccurate.
Q.6. Is the Department continuing to investigate whether
defense contractor, Kuwait and Gulf Link Transport (KGL), may
be secretly doing business with Iranian front companies,
including IRISL? If not, have you cleared KGL as a potential
violator of U.S. sanctions?
A.6. Unfortunately, this matter is not within the Department of
State's purview. Questions on this matter should be referred to
the Department of the Treasury.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR TOOMEY FROM WENDY
SHERMAN
Q.1. With regard to energy investments, in June 2010 your
predecessor and current Deputy Secretary of State William
Burns, told the Senate Foreign Relations Committee, `` . . .
there are a number of cases, less than 10, in which it appears
that there may have been violations of the [Iran Sanctions Act]
ISA.'' We have now sanctioned two companies and used the
special rule to waive sanctions against five other companies.
LHow many investigations for violations of the Iran
Sanctions Act (ISA) are currently open?
LDue to the State Department's failure to complete
investigations under ISA, Congress in CISADA enacted a
statutory 180-day period in which investigations of
sanctions violations must be completed. Has the State
Department complied with this statutory deadline? If
not, why not?
A.1. This Administration, the first to impose sanctions under
the ISA, has to date sanctioned 10 companies for their
activities supporting Iran's energy sector, including 8 for
activities related to the sale or provision of refined
petroleum products to Iran. The State Department constantly and
closely monitors all activities in Iran's energy sector. There
are currently numerous cases under review for which we have
information of varying levels of credibility regarding
potentially sanctionable activities. We have enforced U.S. law
and will continue to do so aggressively. The Department is in
full compliance with its obligations under the Iran Sanctions
Act, including the requirement to complete investigations into
investments in Iran's energy sector within 180 days.
Q.2. Has the State Department investigated Chinese companies,
including SINOPEC and the China National Petroleum Corporation,
for violations of ISA?
A.2. We would be happy to brief you or your staff on this issue
in a classified setting.
Q.3. If so, why has the State Department delayed issuing
sanctions on Chinese companies?
A.3. Based on the available information, we assess that Chinese
companies have not finalized any agreements on new upstream
investments or new refinery construction projects since the
passage of the Comprehensive Iran Sanctions, Accountability,
and Divestment Act (CISADA). The State Department continues to
monitor closely China's activities in Iran's energy sector. We
have pressed China at the highest levels not to ``backfill''
the business of other firms that have taken the responsible
course and departed Iran's energy sector. We urge Chinese
companies to discontinue their activities in Iran's energy
sector.
Recent press and industry reports indicate that Chinese
companies have adopted a ``go slow'' approach to their projects
in Iran. In fact, Iran publicly threatened to hand over the
rights to develop some fields to ``other'' (i.e., presumably
non-Chinese) companies if Chinese entities did not progress
more rapidly. We note as well that Iranian Foreign Minister Ali
Akbar Salehi has acknowledged in his public statements that
some Chinese projects have slowed down.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MORAN FROM WENDY
SHERMAN
Q.1. Ten companies have been sanctioned under the Iran
Sanctions Act. Five companies have been exempted from sanctions
by the Administration through use of the ``special rule.'' In
your written testimony, you said the Administration persuaded
these five companies to ``withdraw from all significant
activity in Iran.'' Do any of these companies continue to
engage in some activity in Iran? If these companies, who
promised to stop doing business with Iran, still do business
with Iran, when do you expect them to stop?
A.1. The ``special rule'' has given the State Department
significant leverage to convince major international firms to
withdraw from their activities in Iran. We have used this
provision on five occasions to convince Total, Royal Dutch
Shell, ENI, Statoil, and INPEX to exit Iran. All of the firms
that received consideration under the ``special rule''
committed to the Secretary of State that they are no longer
engaging in sanctionable activity in Iran or have taken
significant verifiable steps toward stopping such activity and
will not engage in any energy-related sanctionable activity in
Iran in the future. We continue to monitor them very closely to
ensure that they are living up to this commitment. All five
firms have discontinued development activities within Iran's
energy sector and handed over their respective projects to the
Iranians. In some cases, the companies are still owed
significant sums of money from Iran and we support their
efforts to have Iran pay its debts. In the case of ENI, the
company was obligated under its contract to provide certain
technical services after the handover of the field. ENI has
minimal staff in Iran to carry out these functions. Should ENI
breach these contractual obligations, it could result in a
windfall payment to Iran, possibly exceeding $1 billion.
The impact of these withdrawals on Iran's energy sector has
been significant. For example, as part of our engagement with
Royal Dutch Shell, we convinced them to discontinue
negotiations over a $10 billion gas development project.
Similarly, in order to receive consideration under the Special
Rule, ENI opted not to develop a $1.5 billion phase of an
oilfield project. Iran has yet to find foreign investors
willing to take on these projects.
Q.2. What is the Administration doing to ensure that those
companies for which it waives sanctions keep their word and end
their illegal business in Iran?
A.2. To date, the Secretary of State has not waived sanctions
on any entity under the amended Iran Sanctions Act. The State
Department has utilized the Special Rule as intended under the
law, in cases where firms have shown that they are withdrawing
from Iran and have committed not to engage in energy-related
sanctionable activity in the future. The Department is closely
monitoring the activities of the firms that have received
consideration under the ``special rule'' to ensure that they
are living up to their commitments. To date, we have no reason
to believe any of these companies has acted inconsistently with
those commitments.
Q.3. In November 2010 and March 2011, I wrote Secretary of
State Clinton about Indian and Chinese companies that may be
doing business in Iran in violation of U.S. sanctions. In both
letters I identified specific companies and asked Secretary
Clinton to investigate these companies and sanction those that
are in violation of U.S. law. Yet, no Indian or Chinese
companies have been sanctioned. Are there Indian and/or Chinese
firms that are doing business in Iran in violation of U.S. law?
A.3. We share your concerns regarding reported activities of
Indian and Chinese firms in Iran's energy sector and of the
potential consequences under the amended Iran Sanctions Act. We
have raised these concerns with both governments at the highest
levels and urged them to exercise restraint in their energy-
related cooperation with Iran.
Both the Indian and Chinese governments have made clear to
us that they share our goal of ensuring that Iran does not
develop a nuclear weapon. We have seen the reports of Indian
companies participating in investments in Iran's energy sector,
however, the available information suggests that these deals
have not been finalized. Similarly, based on the available
information, we assess that Chinese companies have not
finalized any agreements on new upstream investments or new
refinery construction projects since the passage of the
Comprehensive Iran Sanctions, Accountability, and Divestment
Act (CISADA). We have pressed China at the highest levels not
to ``backfill'' the business of other firms that have taken the
responsible course and departed Iran's energy sector. We urge
Chinese companies to discontinue activities in Iran's energy
sector.
Recent press and industry reports indicate that Chinese
firms have taken a ``go slow'' approach to their existing
projects in Iran. In fact, Iran publicly threatened to hand
over the rights to develop some fields to ``other'' (i.e.,
presumably non-Chinese) companies if Chinese entities did not
progress more rapidly. We note as well that Iranian Foreign
Minister Ali Akbar Salehi has acknowledged in his public
statements that some Chinese projects have slowed down.
Q.4. What diplomatic efforts is the Administration pursuing
with India and China to get them to cooperate with U.S.
sanctions?
A.4. We have engaged regularly with China at the highest levels
regarding the importance of implementing sanctions in order to
achieve our shared goal of preventing Iran from developing
nuclear weapons. As a member of the P5+1 process with Iran,
China has supported that goal. China joined the P5+1 consensus
in New York in September calling on Iran to resolve the
international community's concerns over the Iranian nuclear
program. A U.S.-China joint statement in January called for the
full implementation of all relevant U.N. Security Council
resolutions on Iran.
We engage with the Indian Government, as we do with
governments around the world, to encourage them to sever ties
with Iran. India has taken steps to conform its payments to
Iran for crude oil with the requirements of U.S. sanctions.
During President Obama's November 2010 visit to India, the
United States and India in their joint statement called on Iran
to take immediate steps to meet its obligations to the IAEA and
the U.N. Security Council.
We continue to consult with all levels of the Chinese and
Indian governments on the need to fully enforce sanctions on
Iran.
Q.5. Reuters reported on September 7 that ``Iran has been
importing four to five cargoes of gasoline per month, with most
of it supplied by China.'' This appears to be a clear violation
of U.S. law. Why has action not been taken against these
Chinese companies?
A.5. We are aware of and carefully evaluating these reports. We
have also expressed our concerns about them to China.
We regularly voice our concerns to China as part of our
determined efforts to impede Iran's ability to procure refined
petroleum. In fact, earlier this year, we sanctioned two of
Iran's largest suppliers of refined products, Royal Oyster
Group and SPD. We made note of these sanctions to China and
have urged that Chinese companies not engage in the supply of
refined petroleum to Iran. We have engaged China at the highest
levels to urge its companies to discontinue their activities in
Iran's energy sector, and we have seen positive signs in some
areas.
Q.6. Despite U.S. and international sanctions, Iran continues
to enrich uranium. It now possesses enough enriched uranium
that upon further processing, it could build three nuclear
bombs. In your view, why have sanctions not stopped Iran from
advancing its nuclear program?
A.6. Sanctions have not only slowed Iran's ability to procure
equipment and technology for its nuclear program, but they have
made what procurement Iran is able to undertake more expensive,
more difficult, and more time-consuming.
Sanctions have also had a negative impact on Iran's
economy. Shipping, air transport, energy, and finance are all
sectors of the Iranian economy targeted and damaged by
sanctions. It comes as no surprise that President Ahmadi-Nejad
recently lamented that Iran's ``banks cannot make international
transactions anymore'' because of U.S. sanctions. In a recent
speech, Ahmadi-Nejad said that the sanctions against Iran are
``the heaviest economic onslaught on a nation in history.''
We will continue to increase the pressure on Iran to
respond to the international community's substantial concerns
over its nuclear program.
Q.7. What additional steps can the United States and our allies
take to convince Iran to verifiably end its nuclear program?
A.7. We can continue to increase the pressure on Iran until we
accomplish what we and our P5+1 partners seek to achieve: a
resolution to the international community's concerns about the
Iranian nuclear program. There is ample room for continuing to
pressure Iran--through national, multilateral, and
international actions.
This Administration has put in place the toughest sanctions
package on Iran in three decades. We have imposed sanctions on
critical sectors of the Iranian economy--from shipping to
finance--and we have succeeded in building a strong
international sanctions coalition, with many states
implementing national measures of their own to increase the
pressure on Iran. We are approaching like-minded governments
following the issuance of the IAEA Director General's report on
Iran to request that they take additional steps on the pressure
track.
At the same time, however, when Iran is prepared to engage
seriously in discussions about its nuclear program, we will
join Iran at the negotiating table. This dual-track approach is
the best way to persuade Iran to resolve the international
community's concerns about its nuclear program because it
ensures that we will have the strong international coalition to
pressure Iran when we need to do so.
------
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN JOHNSON FROM DAVID S.
COHEN
Q.1. Even though many banks have voluntarily ceased operations
with Iranian financial institutions, it seems clear that some
financial institutions continue to violate U.S. sanctions laws.
You said at your confirmation hearing that you were pursuing
banks suspected of being violators, and expected to act on them
soon. Can you give us an estimate of how many financial
institutions and banks continue to work with Iran in violation
of U.S. laws, and where you are in the process of assessing
their activity and, as appropriate, imposing sanctions?
A.1. Consistent with Treasury policy, I cannot comment on
possible or pending investigations under CISADA. I will note,
however, that the number of banks anywhere in the world that
continue to do business of any kind with designated Iranian
banks has dropped precipitously; to the extent that any bank
continues to work with sanctioned Iranian banks, or begins to
do so, we investigate aggressively and are more than willing to
apply the sanctions available under CISADA if necessary.
Q.2. I heard you discuss you recent trip to China, where you
focused on the banking and shipping sectors' activity in Iran.
I have seen the press clips on your trip in which you made
clear that while the Chinese were observing the letter of U.N.
sanctions, certain Chinese banks active in Iran's insurance and
shipping sectors could be violating U.S. sanctions laws. What
steps are you taking to investigate these banks and, if
necessary, to sanction them? What diplomatic constraints, if
any, are you working under on this front?
A.2. Consistent with Treasury policy, I cannot comment on
possible or pending investigations.
During my September 24-28 visit to China and Hong Kong, I
discussed the provisions of CISADA with both the government and
private sector. China is one of more than 45 countries on five
continents that Treasury has engaged as part of our outreach to
regulators and financial institutions regarding CISADA's
authorities, as well as the risks associated with doing
business with Iran more generally. It is important that
governments and financial institutions around the world
understand CISADA and its potential implications for their
business with the United States.
Treasury works closely with the State Department to
implement CISADA as part of our dual-track policy of addressing
Iran's efforts to expand its nuclear program, and does not face
diplomatic constraints in fully implementing our authorities.
Q.3. I understand that Iran has been working hard to try to
circumvent international sanctions by developing ``work-
arounds'' to enable them to continue sanctionable activity.
Briefly, what are the most significant examples of such ``work-
arounds,'' and how are we responding to combat them? Are there
new statutory tools you need to do this--for example, to
further limit barter transactions in which Iran's oil is traded
for finished goods?
A.3. One of the most significant ``work-arounds'' involves the
continued operation in jurisdictions outside of Iran by
branches of subsidiaries of designated Iranian banks. Although
many foreign banks would prefer not to do business with these
branches and subsidiaries, Iranian bank branches exploit third
country legal systems that allow them to continue to operate,
jeopardizing the integrity of their host countries' financial
sectors. We have been working with these host countries to
restrict the foreign operations of designated Iranian banks. We
have achieved some success, but there is more work to do.
We also know that Iran has attempted to purchase banks in
other countries, relying upon third-party associates or firms
to facilitate these purchases in order to mask Iranian
involvement and ownership. Preventing such attempts to
circumvent multilateral sanctions remains a key focus of our
strategy. When we have information about potential Iranian
efforts to evade sanctions, we strive to alert our foreign
partners so that they can take appropriate action to prevent
Iran from gaining access to their financial sector through
deceptive means. Treasury has a robust set of tools at our
disposal that allows us to impose additional measures and
enforce implementation of existing sanctions as necessary.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SCHUMER FROM DAVID S.
COHEN
Central Bank of Iran
Q.1. This past August, Senator Kirk and I led a bipartisan
letter to President Obama cosigned by 92 Senators urging the
Administration to sanction the Central Bank of Iran (CBI). The
Bank has been heavily involved in the funding of terrorism and
proliferation and has assisted numerous sanctioned entities to
illegally bypass sanctions. Secretary Cohen, in response to our
letter, you wrote: ``All options to increase the financial
pressure on Iran are on the table, including the possibility of
imposing additional sanctions against the CBI''.
I appreciate your response, but I am hoping you could
provide some clarification. Specifically: Is there a timetable
for making a decision regarding the CBI?
A.1. The Treasury Department remains committed to addressing
the full range of Iran's misconduct and increasing the pressure
on the Iranian leadership and on the CBI. Recent events--
including the disruption of an Islamic Republic of Iran-Qods
Force plot to assassinate the Saudi Arabian ambassador to the
United States and the IAEA's November 2011 report on Iran's
nuclear program--coupled with Iran's continued refusal to meet
its international obligations or engage meaningfully and
substantively with the United States and the broader
international community, have only reinforced our conviction
that the pressure track of the dual-track policy must continue
to be emphasized. We will work with our allies and partners to
isolate and freeze the assets of the CBI, and to reduce our
partners' imports of Iranian oil. These actions, taken on a
coordinated basis, will constrict Iran's access to the hard
currency and revenue that it needs to fuel its illicit
activities. We will also implement the new law that, in certain
circumstances, imposes financial sanctions on foreign financial
institutions that transact with the CBI.
Regarding recent action Treasury has taken to expose the
CBI's role in illicit activity, on November 21, 2011 Treasury
identified Iran as a jurisdiction of ``primary money laundering
concern'' pursuant to Section 311 of the USA PATRIOT Act. This
finding identifies the entire Iranian financial sector for
posing an illicit finance risk to the global financial system,
and includes not only already designated banks and their
branches operating outside of Iran, but also non-designated
banks, their foreign affiliates, and the CBI. Unlike past
jurisdictional 311 actions whereby Treasury explicitly exempted
central banks from the reach of this regulation, the CBI was
included in the Section 311 finding on Iran because of the
support it provides Iran's designated banks and entities
involved in Iran's proliferation activities.
Q.2. If indeed the CBI is engaged in terrorist funding and
proliferation, do you not have an obligation to designate them?
A.2. As our track-record over the past several years amply
demonstrates, Treasury will not hesitate to hold accountable
those found to be engaged in any identified sanctionable
activities, including terrorist funding and proliferation. With
respect to the CBI, we remain concerned that the CBI may be
facilitating transactions for sanctioned Iranian banks. For
example, we have seen the CBI and Iranian commercial banks
request that their names be removed from international payment
messages to make it more difficult for intermediary financial
institutions to determine the true parties to the transactions,
as well as other forms of evasive behavior detailed in the
recent finding under Section 311 of the USA PATRIOT Act to
identify the jurisdiction of Iran a primary money laundering
concern. We are keenly focused on applying additional sanctions
on the CBI and will work with our partners to isolate and
freeze the assets of the CBI, and to reduce our partners'
imports of Iranian oil. These actions, taken on a coordinated
basis, will constrict Iran's access to the hard currency and
revenue that it needs to fuel its illicit activities. We will
also implement the new law that, in certain circumstances,
imposes financial sanctions on foreign financial institutions
that transact with the CBI.
Q.3. Have you discussed this possibility with our international
partners that have joined us in imposing meaningful sanctions?
If so, what have been the responses?
A.3. We believe that any effort to escalate pressure on Iran
going forward will have the maximum effect if the United States
is able to act in concert with our partners in the
international community. My colleagues in the Administration
and I have spoken extensively with foreign counterparts on this
topic. Our partners take seriously Iran's continued failure to
meet its international obligations. There is a growing
awareness around the world regarding the risks that the CBI
poses to the international financial system. In response to
UNSCR 1929, many of our closest partners now require enhanced
due diligence and scrutiny over transactions with Iran,
including dealings with the CBI, and some are calling for bold
action, including a multilateral asset freeze on the CBI. We
will continue to work closely with allies to take meaningful
and coordinated action against CBI.
Q.4. What particular advice would you give to foreign banks
that continue to work with the CBI?
A.4. I would remind those foreign banks and their governments
that the international community has expressed concern about
Iran's abuse of the financial sector and its use of deceptive
financial practices to evade sanctions in UNSCR 1929, which
highlights the need to exercise vigilance over transactions
involving Iranian banks and noted specifically the Central Bank
of Iran. Particularly in light of the new legislation
addressing transactions with the CBI, I would strongly
encourage foreign governments and banks, especially those
processing oil payments through the CBI, to cease transactional
activity with the CBI and be alert to any attempts by Iran and
its Central Bank to evade sanctions or facilitate illicit
financial activity. And I would urge foreign banks and their
regulators to study carefully the information set forth in the
recently released finding under Section 311 of the USA PATRIOT
Act identifying the jurisdiction of Iran a primary money
laundering concern.
Iran's U.S. Terror Plot
Q.5. What is the United States doing to respond to this latest
action by Iran against the United States?
A.5. The Department of the Treasury on Tuesday, October 11,
imposed sanctions against five individuals, including four
senior Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF)
officers, connected to a plot to assassinate the Saudi Arabian
ambassador to the United States, Adel Al-Jubeir, while he was
in the United States, and carry out follow-on attacks against
other countries' interests inside the United States and in
another country. Included in this action was Manssor Arbabsiar,
the individual responsible for carrying out the assassination
plot on behalf of the IRGC-QF, who had been arrested by Federal
agents in late September. Also on October 11, the Justice
Department announced the unsealing of a complaint in the U.S.
District Court for the Southern District of New York charging
Mr. Arbabsiar and one of the sanctioned IRGC-QF officers with a
number of criminal offenses in connection with the plot.
We continue to work with our partners, domestically and
abroad, to explore additional measures that the international
community can take to increase pressure on, and further isolate
Iran, in response to this plot.
Q.6. How will we make clear to Iran that we will not stand by
and allow them to act against our interests, kill Americans or
acquire a nuclear weapons capability?
A.6. Following the Iranian-backed plot to assassinate the Saudi
Ambassador to the United States, the U.S. Government has worked
with key allies to secure assistance in targeting those
identified as being involved, directly or indirectly, in the
plot. To date, the U.K., EU, Canada, Australia, and South Korea
have taken measures to freeze the assets of individuals
involved in the plot, building on sanctions against the IRGC
and Qods Force that have been in place for some time. We also
continue to work with international allies to formulate a
coordinated response to Iran's violations of its international
obligations and continued abuse of the international financial
system. For example, on November 18, the United Nations General
Assembly overwhelmingly adopted a resolution that deplored the
plot, further isolating Iran and demonstrating international
resolve to stand against its illicit behavior.
Q.7. How can we get the Iranian Government to understand that
there will be serious consequences for this latest act?
A.7. We have already seen the Iranian Government, including
President Ahmadinejad, acknowledge that financial sanctions
imposed by the United States are causing serious problems for
Iran's banking sector. We believe financial sanctions are
having an impact, and Treasury will continue to vigorously
employ all of its tools and authorities to pressure Iran as
part of our broader dual-track approach.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM DAVID S.
COHEN
Q.1. The United States has passed sanctions laws that put
pressure on investments in Iran's energy sector and which have
reduced Iran's oil and natural gas production. Our Government
has also passed laws prohibiting companies from helping Iran
produce and import refined petroleum.
The Iranian regime, however, continues to sell 2.3 million
barrels per day of crude oil which generates over $80 billion
annually for the Iranian treasury. The sale of Iranian crude
literally fuels the regime's ability to export terrorism, build
a nuclear weapons program and repress its own population. One
major loophole in our laws permits Iran to sell crude oil to
Europe where it is refined and sold to the United States. What
effect do you believe prohibiting imports of gasoline and
diesel with Iranian content would have on world oil prices and
what effect on the sales price of Iranian crude?
A.1. We are currently looking carefully at the proposal to
prohibit the importation of gasoline and diesel with Iranian
content. I defer to my colleagues at the Energy Department who
model global oil prices to assess the potential impact that
such an action would have on world oil prices and the sale
price of Iranian crude.
At the same time, the Administration is currently pursuing
a multilateral path to affect Iranian exports of crude and
thereby the revenue it generates as a result. We understand
that the EU and other partners are considering carefully
proposals to ban the import of Iranian crude which would likely
address the concern expressed in this question.
Q.2. Secretary Cohen, I want to thank you for your recent
effort to uncover the web of Hong Kong-based shell companies
being used to obscure the Iranian ownership of at least 19
ships. A number of these ships have made their way,
undiscovered, into the Mexican Port of Lazaro Cardenas, which
has strong ties to U.S. Port of San Antonio--in theory, the
Iranians could be shipping anything almost directly to the
United States.
IRISIL has close ties to Iran's Revolutionary Guard Corps
and has used Iranian ships to import weapons and components for
its nuclear program. What efforts are you undertaking to ensure
uncover this web of ownership leading back to Iran? Would the
mandatory inclusion of hull numbers on shipping documents help
to clarify ownership for unsuspecting shippers?
A.2. Treasury closely monitors IRISL activity and stands ready
to notify the public of techniques used by IRISL to conceal
Iranian ownership. For example, the Office of Foreign Assets
Control (OFAC) issued an advisory in March alerting shippers,
importers/exporters and freight forwarders to practices used by
IRISL and companies acting on its behalf to evade U.S. and
international economic sanctions. OFAC advised that all persons
should be alert to the presentation of fabricated vessel names
in trade documents and check the bona fides of unfamiliar
entities issuing shipping documents. OFAC also advised that all
persons exercise enhanced due diligence to ensure that they do
not unwittingly process fraudulent shipping documents or
facilitate prohibited activities. In addition, over the past 12
months, we have designated more than 100 IRISL vessels,
companies, entities, and individuals. On October 27, 2011, we
designated 6 front companies in Panama and highlighted how
IRISL moved to Panama earlier this year after we uncovered its
operations last autumn on the Isle of Man.
The fact that a single IMO number (hull number) is assigned
to each vessel for its entire life, and actually etched into
the vessel itself at the shipbuilding yard, makes it an
extremely useful way to track ships. We include IMO numbers on
the OFAC sanctions list and try to encourage others to use and
publicize IMO numbers as much as possible to combat IRISL's
attempts to obscure its fleet by frequently changing vessel
names and flags. Treasury will continue its ongoing efforts to
uncover deceptive practices used by IRISL, or other entities
acting on its behalf.
Q.3. While our focus has been largely on isolating Iran, there
is a vibrant opposition in Iran, that rejects Iran's export of
terrorism and the iron-fisted rule of its clerics and leaders
and that is seeking our support. U.S. groups that are
interested in supporting indigenous Iranian efforts to
cultivate democracy and civil society have not been able to do
so in a timely manner, to the detriment of our foreign policy
goals and to the disadvantage of pro-democracy advocates in
Iran, because of long waits to get an OFAC license. What is the
reason for such delays? My legislation would mandate an
expedited licensing process for the consideration of requests
for human rights and democracy-related activities with regard
to the Islamic Republic of Iran. Would you support an expedited
processing procedure to ensure that these important programs
are not hung up in the bureaucracy?
A.3. The Administration's policy is to encourage positive
change and promote democracy, human rights, and humanitarian
activities in Iran, while maintaining pressure on Iran for its
development of nuclear weapons and support of terrorism. In
2006, OFAC published a ``Statement of Licensing Policy on
Support of Democracy and Human Rights in Iran and Academic and
Cultural Exchange Programs'' on its Web site, which sets forth
a favorable licensing policy under which U.S. persons can
request OFAC approval of participation in projects in support
of the Iranian people that are otherwise prohibited by OFAC's
Iranian Transactions Regulations.
OFAC gives careful consideration to license applications
submitted pursuant to this policy to make sure that they
qualify for the favorable licensing policy. In all such cases,
OFAC seeks foreign policy guidance from the State Department
before making a final licensing determination. This interagency
process is a critical part of our licensing activities and
ensures that regulatory decisions support our foreign policy
objectives. As such, while OFAC is amenable to an expedited
process for reviewing and granting licenses relating to human
rights or democracy-related activities for Iran, the agency is
concerned that a proposed hard deadline of 30-days could be
problematic in some instances, as it would not allow sufficient
time for interagency consultations. The agency proposes that a
goal, rather than mandate, of 60 days for such licenses would
ensure that decisions be rendered quickly and in line with U.S.
foreign policy.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR VITTER FROM DAVID S.
COHEN
Q.1. The United States has been focused on Iran's nuclear
program for a long time. When Congress passed the 1996 Iran-
Libya Sanctions Act, it did so with the aim to compel foreign
companies to diverge from trading with Iran. Yet, over the past
15 years despite additional international sanctions and the
CISADA being signed last year, a failure to enact sanctions has
produced an unmistakable message and precedent of allowing
foreign companies to do business as usual with Iran. Allowing
Iran to circumvent current laws and become alarming closer to
nuclear weapons capability. They (Iran) now have much more
efficient centrifuges, are enriching more uranium to 20
percent, and continuing work on militarizing their program.
LWhat is your agencies assessment of Iran's current
nuclear program?
LAdditionally, I have seen reports that Iran
circumvents current laws by altering the material grade
of its gasoline, and continues to use foreign countries
that regularly do business with the United States. What
can be done to better halt this flow?
A.1. I respectfully defer to the State Department and other
agencies that are better positioned than Treasury's Office of
Terrorism and Financial Intelligence to provide an assessment
of Iran's nuclear program and to best assess what can be done
to halt the flow of altered gasoline.
Q.2.a. Last week, the Financial Crimes Enforcement Network
(FinCEN) issued a final rule to fulfill Section 104(e) of
CISADA. I am deeply disappointed in the rule. The rule requires
U.S. banks, only when asked by Treasury, to inquire of their
foreign correspondent banks whether they conduct certain
prohibited activities related to Iran. Several Senators
(Senators Crapo, Vitter, Johanns, Moran, Wicker, and Kirk) on
this Committee sent FinCEN a letter in May after the rule was
first proposed and expressed concerns that it did not go far
enough to implement the letter and spirit of law.
Unfortunately, FinCEN choose not to take our advice. As we
stated on our letter, it is ``inexplicable'' that Treasury has
interpreted the law to be discretionary.
Under Secretary Cohen, why shouldn't U.S. financial
institutions have to certify on a regular basis that to the
best of their knowledge their correspondent banking partners do
not conduct business with sanctioned Iranian banks or IRGC?
A.2.a. Treasury does not interpret section 104(e) to be
discretionary. To the contrary, we interpret section 104(e) as
requiring the Secretary of the Treasury to prescribe
regulations mandating that domestic financial institutions take
one or more actions, one of which is to provide requested
reports to Treasury, and we believe that the final rule
reflects this obligation. We have focused this reporting
requirement on those foreign banks that Treasury has some basis
to suspect may be engaged in activities that may be
sanctionable under section 104(c) of CISADA. We considered
requiring every U.S. bank to provide periodic reports from
every foreign bank for which they maintain correspondent
accounts, but concluded that we would be better served by a
rule that focused on those foreign banks that are of interest
for purposes of CISADA. By requiring reports from those U.S.
banks that maintain correspondent accounts that are of interest
to Treasury for purposes of CISADA implementation, we believe
that Treasury will receive the information needed without
generating a multitude of unnecessary and uninformative
reports.
Moreover, the reporting requirement in the final rule is
scalable. Based on the circumstances, it permits Treasury to
expand the number of U.S. banks that would be required to file
reports, as well as the number of foreign banks from whom
information would be sought. Therefore, Treasury may ask any
number of U.S. banks about any number of foreign banks, based
on the number of foreign banks we determine there is some basis
to suspect may be engaged in activities that may be
sanctionable under section 104(c) of CISADA.
FinCEN's final rule has provided Treasury with another tool
to implement and enforce CISADA effectively. In addition to the
other resources available to Treasury, section 104(e) provides
an alternative method of conducting outreach to obtain
information from foreign financial institutions and
jurisdictions. For example, subsequent to FinCEN's final rule,
Treasury issued a number of 104(e) requests to foreign
financial institutions through their U.S. correspondent banks.
We expect that the responses will provide us with information
about these specific banks and Iranian sanctioned banks'
activity in those jurisdictions. Furthermore, the 104(e)
requests will provide us with an opportunity to engage these
foreign financial institutions in the future in the event we
become concerned about their activity with Iranian sanctioned
banks or the IRGC.
Q.2.b. Under Secretary Cohen, in response to questions for the
record at your confirmation hearing, you expressed concern that
a limited number of banks may be continuing to engage in
activity that could result in findings under CISADA.
Under Secretary Cohen, do you still believe this to be
true?
A.2.b. CISADA has been enormously effective in curtailing
Iran's access to the international financial system. While
Treasury cannot comment on pending investigations, where
activity of concern exists Treasury vigorously engages relevant
governments and financial institutions about such activity. The
overwhelming majority of foreign banks has been responsive to
Treasury's outreach and have elected to discontinue their
business relationships with sanctioned Iranian banks rather
than risk losing their relationships with U.S. financial
institutions. While it may yet be necessary to make a finding
against an institution under CISADA, an outcome where foreign
banks voluntarily sever their ties with U.S.-designated,
Iranian-linked financial institutions is equally effective, if
not preferable. Nevertheless, Treasury remains ready and
willing to utilize the tools provided by CISADA whenever and
wherever necessary.
Q.2.c. Under Secretary Cohen, can you or someone from your
office please update the Committee or my office (a classified
briefing if necessary) on the status of these investigations?
Specifically, the number of investigations that are ongoing,
and whether there are banks that are facilitating Iranian
financial transactions?
A.2.c. Treasury cannot comment on possible or pending
investigations under CISADA. We are implementing the financial
provisions of CISADA in a fair and robust manner and will
continue to engage jurisdictions where financial institutions
may be engaged in activity that is sanctionable under CISADA.
We would be happy to provide a briefing on our implementation
of CISADA.
Q.3. Earlier this year, following a report from the
International Atomic Energy Agency on Iran's nuclear program
and recent Iranian missile tests, I along with 91 fellow
Senators signed a letter to President Obama urging him to
sanction the Central Bank of Iran (CBI). The Bank appears to
have been heavily involved in the funding of terrorism and
proliferation and has assisted numerous sanctioned entities to
bypass sanctions. Secretary Geithner, in response to our
letter, wrote, ``all options to increase the financial pressure
on Iran are on the table, including the possibility of imposing
additional sanctions against the CBI.'' We remain seriously
concerned that Iran continues to accelerate its uranium
enrichment and ballistic missile programs and that the CBI may
be facilitating transactions for sanctioned Iranian banks for
illicit activities.
Under Secretary Cohen, Has there been any progress in
determining the financial institutions complicitness in the
illicit activities? If so, and it is as appears that the CBI is
engaged in terrorist funding and proliferation, does your
agency plan to designate them as such?
A.3. The Treasury Department remains committed to addressing
the full range of Iran's misconduct and increasing the pressure
on the Iranian leadership and on the CBI. Recent events--
including the disruption of an Islamic Republic of Iran-Qods
Force plot to assassinate the Saudi Arabian ambassador to the
United States and the IAEA's November 2011 report on Iran's
nuclear program--coupled with Iran's continued refusal to meet
its international obligations or engage meaningfully and
substantively with the United States and the broader
international community, have only reinforced our conviction
that the pressure track of the dual-track policy must continue
to be emphasized. We will work with our partners to isolate and
freeze the assets of the CBI, and to reduce our partners'
imports of Iranian oil. These actions, taken on a coordinated
basis, will constrict Iran's access to the hard currency and
revenue that it needs to fuel its illicit activities. We will
also implement the new law that, in certain circumstances,
imposes financial sanctions on foreign financial institutions
that transact with the CBI.
Regarding recent action Treasury has taken to expose the
CBI's role in illicit activity, on November 21, 2011 Treasury
identified Iran as a jurisdiction of ``primary money laundering
concern'' pursuant to Section 311 of the USA PATRIOT Act. This
finding identifies the entire Iranian financial sector for
posing an illicit finance risk to the global financial system,
and includes not only already designated banks and their
branches operating outside of Iran, but also non-designated
banks, their foreign affiliates, and the CBI. Unlike past
jurisdictional 311 actions whereby Treasury explicitly exempted
central banks from the reach of this regulation, the CBI was
included in the Section 311 finding on Iran because of the
support it provides Iran's designated banks and entities
involved in Iran's proliferation activities.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR TOOMEY FROM DAVID S.
COHEN
Q.1.a. Last month, you travelled to China where you reportedly
warned Chinese financial institutions that they could face
sanctions if they do not end certain business with Iran. You
were quoted as saying that Chinese financial firms were ``as
much in jeopardy as a bank anywhere else of being the subject
of a Comprehensive Iran Sanctions, Accountability and
Divestment Act (CISADA) action.''
Is there evidence that Chinese financial institutions have
carried out transactions in violation of CISADA?
A.1.a. Consistent with Treasury policy, I cannot comment on
possible or pending investigations or enforcement actions.
During my September 24-28 visit to China and Hong Kong, I
discussed the provisions of CISADA with both the government and
private sector. China is one of more than 45 countries on five
continents that Treasury has engaged as part of our outreach to
regulators and financial institutions regarding CISADA's
authorities, as well as the risks associated with doing
business with Iran more generally. It is important that
governments and financial institutions around the world
understand CISADA and its potential implications for their
business with the United States.
Q.1.b. If so, why have the banks not been sanctioned?
A.1.b. Consistent with Treasury policy, I cannot comment on
possible or pending investigations or enforcement actions.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MORAN FROM DAVID S.
COHEN
Q.1. In response to questioning about the success of sanctions,
you said ``no question'' sanctions work. While I acknowledge
that the sanctions have impacted Iran, they have yet to achieve
the fundamental goal, which is to compel Iran to change its
behavior and abandon its pursuit of nuclear weapons. Against
what metric do you judge the success or failure of sanctions?
A.1. Many in the international private sector have responded to
the risks of doing business not only with sanctioned entities
and individuals, but also with Iran in general, by severing
ties or restricting their Iranian business relationships.
Iran's access to much needed foreign investment, financing, and
technology to modernize its aging energy infrastructure is
declining, which threatens its oil and gas production and
export capacity. Because of the sanctions, particularly the
energy-related provisions of CISADA, which amended the Iran
Sanctions Act, Iran is having difficulty importing refined
petroleum from previous suppliers. And Iran's shipping
industry, a major conduit for its international trade, has
found that international insurance companies are refusing to
cover its ships and shipments.
The contrast between Iran's situation in 2005 and today is
stark. Prior to Treasury's first action against an Iranian
state-owned bank in 2006, Iran had access to financial services
from the world's largest and most prestigious financial
institutions, allowing it to conduct business in all corners of
the globe.
Today, Iran's access to international financial
institutions is greatly limited. We know that the Iranian
Government is very concerned about the sanctions that are being
implemented. Indeed, we have already seen the Iranian
Government, including President Ahmadinejad, acknowledge that
financial sanctions imposed by the United States are causing
serious problems for Iran's banking sector.
Q.2. In August, 91 senators and I wrote a letter to President
Obama urging him to sanction the Central Bank of Iran. The Bank
has been heavily involved in the funding of terrorism and
proliferation and has assisted numerous sanctioned entities to
bypass sanctions. Secretary Geithner, in response to that
August letter, said, ``all options to increase the financial
pressure on Iran are on the table, including the possibility of
imposing additional sanctions against the Central Bank of
Iran''. Before this Committee you said Administration officials
were ``looking very actively'' at sanctioning the Central Bank
of Iran. Is there a timetable for making a decision regarding
the Central Bank of Iran?
A.2. The Treasury Department remains committed to addressing
the full range of Iran's misconduct and increasing the pressure
on the Iranian leadership and on the CBI. Recent events--
including the disruption of an Islamic Republic of Iran-Qods
Force plot to assassinate the Saudi Arabian ambassador to the
United States and the November 2011 IAEA's report on Iran's
nuclear program--coupled with Iran's continued refusal to meet
its international obligations or engage meaningfully and
substantively with the United States and the broader
international community, have only reinforced our conviction
that the pressure track of the dual-track policy must continue
to be emphasized. We will work with our partners to isolate and
freeze the assets of the CBI, and to reduce our partners'
imports of Iranian oil. These actions, taken on a coordinated
basis, will constrict Iran's access to the hard currency and
revenue that it needs to fuel its illicit activities. We will
also implement the new law that, in certain circumstances,
imposes financial sanctions on foreign financial institutions
that transact with the CBI.
Regarding recent action Treasury has taken to expose the
CBI's role in illicit activity, on November 21, 2011 Treasury
identified Iran as a jurisdiction of ``primary money laundering
concern'' pursuant to Section 311 of the USA PATRIOT Act. This
finding identifies the entire Iranian financial sector for
posing an illicit finance risk to the global financial system,
and includes not only already designated banks and their
branches operating outside of Iran, but also non-designated
banks, their foreign affiliates, and the CBI. Unlike past
jurisdictional 311 actions whereby Treasury explicitly exempted
central banks from the reach of this regulation, the CBI was
included in the Section 311 finding on Iran because of the
support it provides Iran's designated banks and entities
involved in Iran's proliferation activities.
Q.3. Last week, the Financial Crimes Enforcement Network
(FinCEN) issued a final rule to fulfill Section 104(e) of the
Comprehensive Iran Sanctions, Accountability, and Divestment
Act of 2010. Several Members of the Senate Banking Committee
and I had questions about Treasury's draft rule to implement
section 104(e), including concerns that not all U.S. financial
institutions would have to certify that their correspondent
banking partners were not conducting business with sanctioned
Iranian entities. How will the rules Treasury issued last week
in regard to Section 104(e) of CISADA work in practice? How
many foreign banks do you believe are engaged in sanctionable
activity? How many information requests to U.S. banks will
Treasury issue to get more information on the foreign banks it
has reason to believe are engaged in sanctionable activity?
A.3. The frequency of information requests issued under 104(e)
authorities is informed by the availability of information
relevant for targeting what to request. The application of the
final rule is scalable, so Treasury can ask any number of U.S.
banks about any number of foreign banks as is necessary, based
on the number of foreign banks there is some basis to suspect
may be engaged in activities that may be sanctionable under
section 104(c) of CISADA. Treasury made its first round of
inquiries regarding certain foreign banks on the date the rule
became effective.
For most foreign banks, the choice compelled by CISADA has
been a simple one: the clear majority of foreign financial
institutions have been extremely responsive to Treasury
outreach, and have elected to discontinue their business
relationships with sanctioned Iranian banks rather than risk
losing their relationships with U.S. financial institutions.
While I cannot comment on specific cases, where activity of
concern may still exist, Treasury will continue to vigorously
engage jurisdictions where financial institutions may be
engaged in activity that is sanctionable under CISADA. Treasury
remains ready and willing to utilize the tools provided by
CISADA whenever and wherever necessary.
Q.4. On October 3, Bloomberg Markets magazine ran a story
titled, ``Koch Brother Flout Law Getting Richer with Secret
Iran Sales.'' The story unfairly singles out Koch Industries
for the business a foreign-based, independent subsidiary of
Koch Industries legally engaged in with Iran. Although not
required by U.S. law, Koch Industries voluntarily put into
place a more stringent policy for business with Iran more than
4 years ago, prohibiting all trade with Iran by any of its
subsidiaries. Can you tell me how many other U.S. companies
have instituted a similar policy? How many U.S. companies have
foreign-based, independent subsidiaries that currently do
business with Iran?
A.4. We do not have information about the specific number of
foreign subsidiaries of U.S. firms that continue to do business
with Iran, but we believe that they are the exception rather
than the rule. In recent years, many major American
corporations have instituted similar policies prohibiting any
business with Iran.
Q.5. Despite U.S. and international sanctions, Iran continues
to enrich uranium. It now possesses enough enriched uranium
that upon further processing, it could build three nuclear
bombs. In your view, why have sanctions not stopped Iran from
advancing its nuclear program?
A.5. This Administration has attempted to address Iran's
continued pursuit of a nuclear program through a dual-track
strategy that includes both the offer of a diplomatic solution
through negotiations and pressure through sanctions. We believe
that this dual-track strategy is necessary to ensure that any
future negotiations are constructive and enhance the chance of
success.
One of the most important elements of this approach is a
broad-based pressure strategy, which includes targeted
financial measures designed both to disrupt Iran's illicit
activity and to protect the international financial sector from
Iran's abuse. Our actions have focused on key government
entities involved in Iran's illicit conduct, including the
Atomic Energy Organization of Iran (which oversees Iran's
nuclear program) and Aerospace Industries Organization (which
oversees Iran's missile industries); nearly two dozen Iranian
state-owned banks; the Islamic Revolutionary Guard Corps (IRGC)
and its external arm, the IRGC-Qods Force; and, Iran's national
maritime carrier, the Islamic Republic of Iran Shipping Lines
(IRISL), and its affiliates.
Q.6. What additional steps can the United States and our allies
take to convince Iran to verifiably end its nuclear program?
A.6. My colleagues in the Treasury Department and I have
aggressively exercised our authorities and worked in close
coordination with the State Department to implement CISADA as
part of our dual-track policy of addressing Iran's efforts to
expand its nuclear program. All options remain on the table as
we continue to explore and consider ways to implement the
pressure track of our policy.
------
RESPONSE TO WRITTEN QUESTIONS OF DAVID W. MILLS FROM CHAIRMAN
JOHNSON
Q.1. Why haven't any countries been designated, and where are
you generally in the process of assessing the major diversion
countries--their export control laws, ports and other
transportation hubs, and control regimes--in Asia and the
Middle East?
A.1. Under the Comprehensive Iran Sanctions, Accountability,
and Divestment Act of 2010, the State Department has the lead
on designating Destinations of Diversion Concern. The Bureau of
Industry and Security (BIS) has requested that State respond to
this question.
Q.2. Can you describe the current level of U.S. international
cooperation, or lack thereof, with the international community
in working to ensure that sensitive materials do not end up in
Iran?
A.2. BIS engages with a variety of foreign governments on
Iranian procurement issues, both directly and as part of multi-
agency U.S. Government delegations. These engagements have
generated significant successes in the fight against illicit
Iranian procurement: Foreign governments have enacted export
control laws, cooperated in multi-national investigations,
brought foreign prosecutions and assisted in U.S. prosecutions,
including extraditing suspects to the United States. Global
cooperation to stymie Iranian procurement has never been
higher.
BIS has Export Control Officers (ECO) in six foreign
locations--Abu Dhabi, Beijing, Singapore, Hong Kong, New Delhi,
and Moscow. These ECOs are BIS enforcement agents temporarily
assigned to the International Trade Administration's U.S. &
Foreign Commercial Service. The principal mission of the ECOs
is to ensure that U.S. dual-use items (commodities, software,
and technology) entering their region are used in accordance
with U.S. export control laws and regulations. Compliance
verification is accomplished through targeted end-use checks
and by working with the host governments and local businesses
to ensure that they understand and comply with U.S. export
control laws and regulations. ECOs also work with host
governments and local businesses to provide information and
appropriate training to facilitate better understanding of U.S.
dual-use export control requirements, and to help develop
indigenous export control capabilities.
Other agencies such as the Department of State also work
with foreign governments to thwart the export of sensitive
items to Iran.
Q.3. As you work to ensure that goods services or other
technologies do not end up in Iran, what do you see as the
greatest areas of concern?
A.3. The area of greatest concern continues to be deceptive
practices used by Iranian front companies to illegally obtain
U.S.-origin items. Iran employs a large network of procurement
agents that set up front companies in various countries. These
front companies feed U.S. exporters a steady stream of orders
with false end-use information causing U.S. companies to ship
items destined for Iran under the mistaken belief that they are
destined for legitimate businesses in third countries.
Identifying and disrupting these networks is a top BIS priority
and we have used a variety of tools to attack the problem,
including bringing criminal and administrative charges, placing
front companies and related persons on the BIS Entity List and
imposing Temporary Denial Orders.
Q.4. What additional tools or resources do you think would be
most useful for the Commerce Department as it seeks to enforce
CISADA and other laws in this area?
A.4. The Administration's export control reform initiative
envisions the eventual creation of a single licensing agency as
well as a consolidated enforcement unit that would merge the
criminal law functions of BIS's Export Enforcement and U.S.
Immigration and Customs Enforcement's export enforcement unit
into a single entity within ICE. In advance of this ultimate
goal, however, BIS's Export Enforcement would benefit greatly
from permanent, independent authorities in four key areas.
Currently, we must rely on complex arrangements with our sister
agencies to conduct investigations under their authorities in
these areas. These areas are:
LOverseas investigative authority--The BIS Office of
Export Enforcement (OEE) currently conducts overseas
investigations though a complex arrangement with the
Department of Homeland Security. Having permanent,
independent overseas investigative authority would
reduce the bureaucratic steps OEE currently has to
take, thereby streamlining the investigative process.
The additional authority to conduct overseas
investigation would not require additional
appropriations. Having permanent, independent overseas
investigative authority would remove bureaucratic
inefficiencies and allow streamlined use of BIS's
current resources.
LUndercover investigative authority--Undercover
authority is a sophisticated investigative tool that is
used against individuals and entities that attempt to
evade detection and to do harm to United States'
interests. BIS is currently dependent on the
participation and support of other law enforcement
agencies in undercover operations and is thus limited
by the priorities, resources and availability of those
agencies. Providing BIS with independent undercover
investigative authority would remove this impediment.
This proposed authority also would not require
additional appropriations for BIS. BIS currently has
agents who have gone through undercover certification
training. Other agents could be trained on an as-needed
basis utilizing current appropriations. The additional
undercover authority would allow OEE agents to
participate in undercover operations as full law
enforcement partners.
LForfeiture authority and authority to participate
in the Treasury Forfeiture Fund--The independent
authority to obtain forfeiture of the fruits and
proceeds of export violations and to participate in the
Treasury Forfeiture Fund would provide BIS with the
practical ability to attack the underlying economic
motives for export violations, and deprive violators of
the profits of their illegal activities.
LWiretapping authority--Wiretap authority would give
OEE access to the inner workings of export control
conspiracies as they are occurring, thereby providing
invaluable evidence for a prosecutor seeking to prove
the elements of a conspiracy, including evidence to
present to a jury about the intent of the parties.
Additional Material Supplied for the Record