[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

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

                                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

                               __________

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                                Affairs






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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

                              ----------                              

                       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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \2\ http://af.reuters.com/article/idAFTRE67716B20100808.
---------------------------------------------------------------------------
    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



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