[Senate Hearing 112-366]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 112-366
 
                 U.S. STRATEGIC OBJECTIVES TOWARDS IRAN

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



                                HEARING

                               BEFORE THE



                     COMMITTEE ON FOREIGN RELATIONS

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 1, 2011

                               __________

       Printed for the use of the Committee on Foreign Relations


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                COMMITTEE ON FOREIGN RELATIONS         

             JOHN F. KERRY, Massachusetts, Chairman        
BARBARA BOXER, California            RICHARD G. LUGAR, Indiana
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   MARCO RUBIO, Florida
JIM WEBB, Virginia                   JAMES M. INHOFE, Oklahoma
JEANNE SHAHEEN, New Hampshire        JIM DeMINT, South Carolina
CHRISTOPHER A. COONS, Delaware       JOHNNY ISAKSON, Georgia
RICHARD J. DURBIN, Illinois          JOHN BARRASSO, Wyoming
TOM UDALL, New Mexico                MIKE LEE, Utah
               William C. Danvers, Staff Director        
        Kenneth A. Myers, Jr., Republican Staff Director        

                              (ii)        




                            C O N T E N T S

                              ----------                              
                                                                   Page

Cohen, Hon. David S., Under Secretary for Terrorism and Financial 
  Intelligence, U.S. Department of the Treasury, Washington, DC..     8
    Prepared statement...........................................    10
Kerry, Hon. John F., U.S. Senator from Massachusetts, opening 
  statement......................................................     1
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening 
  statement......................................................     2
Sherman, Hon. Wendy R., Under Secretary of State for Political 
  Affairs, U.S. Department of State, Washington, DC..............     4
    Prepared statement...........................................     6
    Responses to questions submitted for the record by Senator 
      John F. Kerry..............................................    44

              Additional Material Submitted for the Record

Letter from Timothy F. Geithner, Secretary of the Treasury, to 
  Senator Carl Levin, chairman of the Senate Committee on Armed 
  Services.......................................................    18

                                 (iii)




                 U.S. STRATEGIC OBJECTIVES TOWARDS IRAN

                              ----------                              


                       THURSDAY, DECEMBER 1, 2011

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
SD-419, Dirksen Senate Office Building, Hon. John F. Kerry 
(chairman of the committee) presiding.
    Present: Senators Kerry, Menendez, Cardin, Casey, Webb, 
Shaheen, Coons, Udall, Lugar, Corker, Risch, Isakson, Barrasso, 
and Lee.

            OPENING STATEMENT OF HON. JOHN F. KERRY,
                U.S. SENATOR FROM MASSACHUSETTS

    The Chairman. The hearing will come to order.
    Thank you all for being with us this morning.
    I am going to just have very, very brief remarks because we 
want to hear from the witnesses.
    Obviously, I think everybody understands that the question 
of Iran's relationship with its neighbors and with the world is 
much on everybody's mind. There could not be a more critical 
challenge in terms of proliferation and questions of terrorism 
in the region, and I think every one of us are deeply, deeply 
concerned about how we might be able to change this current 
equation in a way that is rational and beneficial to all 
parties.
    We have two very highly capable witnesses here this morning 
to help us examine this complicated situation, and, I hope, 
help us shed light on how we can positively influence Tehran's 
behavior and confront this question of nuclear weaponization. 
Wendy Sherman has appeared many times before the committee and 
today marks her first appearance as the Under Secretary of 
State for Political Affairs, and I am delighted to welcome her 
here in that capacity. And appearing with her is David Cohen, 
the Under Secretary for Terrorism and Financial Intelligence at 
the Treasury Department. They are both very competent, 
dedicated, and experienced public servants, and we are happy to 
have them here to answer our questions today.
    Obviously, with the Quds Force allegedly plotting to kill 
the Saudi Ambassador to the United States right here in 
Washington, DC, and now with the world's nuclear watch dog 
agency, the IAEA, issuing a very detailed and careful report 
about Iran's activities relative to nuclear processing, these 
two developments highlight the breadth of the strategic 
challenge that we face.
    So I am not going to say more. I want to learn here today 
and listen carefully and I look forward to the testimony of 
both of our witnesses.
    Senator Lugar.

          OPENING STATEMENT OF HON. RICHARD G. LUGAR,
                   U.S. SENATOR FROM INDIANA

    Senator Lugar. Mr. Chairman, I join you in welcoming our 
distinguished witnesses. I am hopeful they will illuminate 
administration strategy toward Iran's nuclear program and other 
issues raised by Iranian activities in the Middle East.
    Iran continues to be a direct threat to United States 
national security, the security of our close ally Israel, and 
other United States interests in the region. The October 
disruption of an alleged plot to assassinate the Saudi 
Ambassador to the United States implicated the Iranian 
Government. Just days ago, the regime appeared to be complicit 
in the attack on the British diplomatic mission in Tehran. 
Iran's material and financial support of Hezbollah and Hamas 
continues to undermine international efforts to promote peace 
and economic prosperity in the Middle East. And its lethal 
support and training for militants in Iraq and Afghanistan have 
threatened United States and coalition forces.
    Iran's leaders have issued cynical statements of support 
for this year's democratic movements across the Middle East and 
North Africa, even as they suppress dissent at home. In 2\1/2\ 
years since the Iranian Government's deadly repression of 
protests after the disputed 2009 Presidential election, the 
human rights situation in Iran has not improved. The regime 
persists in its persecution of many political activists, 
lawyers, students, journalists, trade unionists, and 
filmmakers. Iranian citizens lack basic freedoms that we 
Americans hold dear, including freedom of expression, freedom 
of assembly, and the freedom to choose their government through 
transparent, fair elections. As we debate how most effectively 
to constrain Iran's nuclear ambitions, it is important to keep 
in mind those who continue to pay a personal cost for 
expressing their opposition to the Iranian regime.
    Against this backdrop, Iran continues advancing toward a 
nuclear weapons capability. The IAEA Board of Governors passed 
a near-unanimous resolution on November 18 calling on Iran to 
comply fully with its obligations under Security Council 
resolutions and IAEA requirements and urging Iran to intensify 
its dialogue with the agency to resolve outstanding questions. 
The move comes after the agency reported on November 8 that 
Iran continues to violate its obligations to suspend all 
enrichment-related and heavy water-related projects and 
expressed serious concern about the possible military 
dimensions of Iran's nuclear program.
    On November 21, the United States strengthened bilateral 
sanctions against Iran--targeting entities that contribute to 
Iran's ability to develop its petroleum and petrochemical 
resources through the provision of goods and services; 
designating entities and individuals involved with Iran's 
proscribed nuclear procurement activities; and labeling Iranian 
financial institutions as primary money laundering concerns. 
These new sanctions build on a bilateral framework of existing 
measures in the Comprehensive Iran Sanctions and Accountability 
and Divestment Act of 2010 and the Iran Sanctions Act. 
Additionally, the United Kingdom announced new restrictions 
that cut off all financial ties between British financial 
institutions and Iranian banks. Canada also imposed further 
sanctions, prohibiting financial transactions with Iran and 
expanding the list of prohibited goods for export. The European 
Union announced new measures that will ban European companies 
from doing business with an expanded list of firms and 
organizations and will subject an expanded list of individuals 
to asset freezes and visa bans.
    Although these steps are significant, by themselves they 
are unlikely to be decisive in moving Iran toward accepting a 
verifiable end to its nuclear weapons program. Our task 
continues to be the achievement of an international consensus 
in favor of sanctions that would present the Iranian regime 
with the stark choice between continuing their nuclear weapons 
program and preserving the economic viability of their country. 
From decades of experience with sanctions policy, we know how 
difficult this might be to achieve. Sanctions are prone to 
circumvention and can create unintended consequences. We also 
know that some nations will not be full participants in a 
robust sanctions regime against Iran, and others may be 
obstacles.
    But international will for a decisive sanctions strategy 
has strengthened as Iran's intransigence has continued. We also 
have seen indications of fissures within Iran's Government as 
it contends with high unemployment, inflation, and dismal 
prospects for economic growth. Popular upheaval against the 
repressive Syrian Government not only weakens Iranian influence 
in the region, it underscores for the Tehran regime the 
domestic risks it assumes by incurring the economic 
consequences that come with nuclear noncompliance.
    The United States should be exploring every option to 
accelerate and intensify the economic pressure on the Iranian 
Government while working with allies to construct a more 
comprehensive approach to sanctions than has been achieved thus 
far. This should be a top priority of the administration and 
Congress.
    As I have frequently advocated, we also should be devoting 
substantial assets to communicating directly with the Iranian 
people and supporting their unfettered access to the Internet 
and social media outlets. The Iranian regime blocks satellite 
broadcasts and Internet access in order to control and 
manipulate information coming into and out of Iran. U.S. 
satellite TV, radio, and Internet operations all offer 
important lifelines to beleaguered human rights activists and 
supporters of democratic reforms. Access to communications 
technology can be a powerful stimulus for change, as we have 
seen during the Arab Spring.
    I look forward to hearing from our witnesses regarding the 
administration's plans for further isolating the regime in 
Tehran. What is being done to enhance international economic 
sanctions and does the administration have a strategy for 
overcoming obstacles posed by China, Russia, and other nations?
    I thank the chairman.
    The Chairman. I thank you, Senator Lugar, very much.
    Secretary Sherman, if you would lead off, and then 
obviously Secretary Cohen. And we look forward to having a good 
dialogue with you. Thank you.

 STATEMENT OF HON. WENDY R. SHERMAN, UNDER SECRETARY OF STATE 
                  FOR POLITICAL AFFAIRS, U.S.
              DEPARTMENT OF STATE, WASHINGTON, DC

    Ms. Sherman. Thank you very much, Chairman Kerry, Ranking 
Member Lugar, distinguished members of the committee. Thank you 
very much for inviting me and my colleague, U.S. Treasury Under 
Secretary David Cohen, to discuss the administration's whole-
of-government approach to the multiple threats posed by Iran, 
its nuclear ambitions, its support for international terrorism, 
its destabilizing activities in the region, and its human 
rights abuses at home.
    Before we start, I must note that we have yet had another 
example this week of Iran's reckless, destabilizing disregard 
for international norms. The storming of the British Embassy 
was a dangerous affront to the international community, and the 
Government of Iran's continued disregard for its obligations to 
protect diplomats deepens its isolation from the international 
community. In this crisis, we stand with our close colleagues 
from the United Kingdom and are encouraged by so many others 
who are showing their support in so many ways.
    Our overall policy regarding Iran is clear. First and 
foremost, we are determined to prevent Iran from acquiring 
nuclear weapons. Iran's illicit nuclear activity is one of the 
greatest global concerns we face, as both the chairman and the 
ranking member have said. Since this administration took 
office, we have built and led a global coalition to create the 
toughest, most comprehensive set of sanctions to date on the 
Iranian regime. President Ahmadinejad, himself, recently 
characterized our sanctions as ``the heaviest economic 
onslaught on a nation in history.''
    Our multilateral phased policy of increasing pressure on 
Iran has been effective. In January 2009, Iran appeared 
internally united and regionally influential, while the 
international community was divided on how to address Iran's 
nuclear activities. Today, after 3 years of increasing 
international pressure by the Obama administration, the regime 
is regionally isolated and the international community is 
united in its determination to prevent a nuclear-armed Iran.
    Just 10 days ago, this administration intensified that 
pressure on Iran in three ways: targeting the petrochemical 
industry, designating 11 more individuals and entities for 
facilitating Iran's proliferation activities, bringing the 
total to over 280 designations under Executive Order 13382, and 
identifying Iran as a jurisdiction of primary money laundering 
concern under section 311 of the U.S. PATRIOT Act.
    These new actions augment the broad portfolio of tools 
already provided by the Congress. The list is long. We imposed 
the first sanctions ever under the Iran Sanctions Act, as 
amended by CISADA. Earlier this year, using INKSNA, the State 
Department sanctioned 16 foreign companies in May, including 
entities in China, Venezuela, and Belarus. We are vigilant with 
our human rights Executive order and have already sanctioned 11 
senior Iranian officials and three entities, including the 
Islamic Revolutionary Guard Corps, and Quds Forces.
    All of these sanctions demand a whole-of-government 
approach, and the State Department works very closely with the 
Department of Treasury. We will elaborate certainly after our 
opening comments on our work together.
    The key to this and all we have done over the last 3 years 
is that we are not alone in our policy responses and sanctions 
on Iran. Today, the European Union has met to formalize 
additional sanctions on roughly 180 individuals and entities 
linked to Iran's proliferation activities, and as you know, the 
U.K. closed its Embassy in Iran and kicked Iranian diplomats 
out of the U.K.
    On November 21, when we announced our latest round of 
measures, the U.K. and Canada concurrently adopted similar 
sanctions to isolate Iran's financial sector. Three days 
earlier, on November 18, the IAEA Board of Governors passed a 
resolution cosponsored by all P5+1 countries, including Russia 
and China, urging Iran to come clean about the possible 
military dimensions of its nuclear program. The final vote was 
32 to 2, overwhelming by any standard. On that same day, the 
United Nations General Assembly sent its own message by 
adopting Saudi Arabia's resolution condemning the assassination 
plot against its Ambassador to the United States. A clear 
majority supported that resolution, and more than one-fourth of 
all U.N. member states cosponsored it. Sanctions are always 
more effective when they are multilateral, and sanctions on 
Iran are no exception.
    We are already looking forward to what comes next. Iran's 
greatest economic resource is clearly its oil exports. Sales of 
crude oil line the regime's pockets, sustain its human rights 
abuses, and feed its nuclear ambitions like no other sector of 
the Iranian economy. The Obama administration strongly supports 
increasing the pressure on Iran, and that includes properly 
designed and well-targeted sanctions against the Central Bank 
of Iran, appropriately timed as part of a carefully phased and 
sustainable policy toward bringing about Iranian compliance 
with its obligations.
    Beyond the international community's concerns with Iran's 
nuclear program, we continue to expose Iran's egregious human 
rights situation which serves to deepen Iran's isolation from 
the world community. On November 21, for the 9th year in a row, 
the U.N. General Assembly's Human Rights Committee rebuked Iran 
for its serious human rights abuses by the largest margin ever. 
We welcome the U.N. Special Rapporteur for Human Rights for 
Iran highlighting the regime's systematic repression of its 
citizens' freedoms. We continue to collaborate with world 
leaders, religious leaders, and NGOs to address violations of 
religious freedom.
    Though the door to engagement with the regime remains open, 
if they decide to engage seriously with us to resolve the 
serious concerns we have with its nuclear program, we are clear 
that we distinguish between how we deal with the inexcusable 
behavior of the Iranian regime and our broader interactions 
with the Iranian people. That is why we will be very soon 
launching Virtual Embassy Tehran. This Web site will provide 
Iranians with accurate information about our policy, visa, and 
U.S. educational opportunities. We also engage Iranians through 
social media, including a Farsi Facebook page and a Twitter 
account, and through our broadcasting tools, Voice of America 
Persian and Radio Farda. We are taking measures to prevent Iran 
from jamming satellite signals and to approve software licenses 
that facilitate the free flow of information. These actions 
make clear our sincere desire to engage the Iranian people and 
further expand the internal debates among the Iranian 
leadership.
    This engagement I described with the Iranian people, 
alongside unbending pressure of the Iranian leadership to 
comply with its obligations, forms the core of U.S. policy 
toward Iran, and I look forward to discussing this in greater 
detail through your questions. Thank you.
    [The prepared statement of Ms. Sherman follows:]

              Prepared Statement of Hon. Wendy R. Sherman

    Chairman Kerry, Ranking Member Lugar, distinguished members of the 
committee, thank you for inviting me here today to discuss the 
administration's approach to the multiple threats posed by Iran--by its 
nuclear ambitions, its support for international terrorism, its 
destabilizing activities in the region, and its human rights abuses at 
home. I am delighted to be joined by Under Secretary David Cohen.
    American policy regarding Iran is clear: First and foremost, we are 
determined to prevent Iran from acquiring nuclear weapons. Iran's 
illicit nuclear activity is one of the greatest global concerns we 
face. Since this administration took office, we have built and led a 
global coalition to create the toughest, most comprehensive set of 
sanctions to date on the Iranian regime. President Ahmadinejad himself 
recently characterized our sanctions as ``the heaviest economic 
onslaught on a nation in history.''
    Our policy leverages the power of multilateral action and of 
likeminded countries to pressure Iran to comply with its international 
obligations, coupled with an offer to engage diplomatically in the P5+1 
context if Iran is serious about negotiating and addressing our and the 
world's concerns about its nuclear program.
    Our policy has been effective: in January 2009, Iran appeared 
internally united and regionally influential, while the international 
community was divided on how to address Iran's nuclear activities. 
Today, after 3 years of increasing international pressure, the regime 
is regionally isolated, and the international community is united in 
its determination to prevent a nuclear-armed Iran. This reversal is due 
in part to the measures taken by the United States and our allies to 
exact steep costs on Iran and its efforts to acquire nuclear weapons. 
By refusing our offer
to engage, Iran has demonstrated that it is responsible for our current 
impasse,
and we have mobilized broad support to hold Tehran accountable for its 
deceptive behavior.
    Just 10 days ago, we intensified the pressure on Iran in three 
ways: The President signed an Executive order targeting the development 
of Iran's petroleum resources and maintenance or expansion of its 
petrochemical industry. Second, State and Treasury designated 11 
individuals and entities for facilitating Iran's proliferation 
activities, including four entities identified by State as key nodes in 
Iranian missile and nuclear procurement networks. This action brings 
the total to over 280 designations under Executive Order 13382. 
Finally, the administration identified Iran as a jurisdiction of 
primary money laundering concern under section 311 of the USA PATRIOT 
Act. This finding makes clear that doing business with any part of the 
Iranian financial sector, including Iran's Central Bank, private 
Iranian banks, and subsidiaries operating outside Iran, risks doing 
business with a financial system that shelters money launderers and 
terrorists.
    These new actions augment the broad portfolio of tools already 
provided by the Congress. Using the new authority provided by the 
Comprehensive Iran Sanctions, Accountability, and Divestment Act of 
2010, the Department of State imposed the first sanctions ever under 
the Iran Sanctions Act, as amended, and has designated 10 firms for 
investing in Iran's energy sector or providing refined petroleum to 
Iran since 2010. Under the Iran, North Korea, and Syria 
Nonproliferation Act (INKSNA), the State Department sanctioned 16 
foreign companies in May, including entities in China, Venezuela, and 
Belarus. We will continue our vigilance on the regime's serious human 
rights abuses, and have already sanctioned 11 senior Iranian officials 
and three entities, including the Islamic Revolutionary Guard Corps, 
under Executive Order 13553, which was issued in 2010. All of these 
sanctions demand a whole-of-government approach and the Department of 
State works closely with the Department of the Treasury. My colleague, 
Under Secretary Cohen, and I can elaborate further on our work 
together.
    The key to this and all we have done over the last 2\1/2\ years is 
that we are
not alone. The same day that we announced our measures, the U.K. and 
Canada adopted similar sanctions to isolate Iran's financial sector. 
Today, the European Union will meet to formalize additional sanctions 
on roughly 200 individuals linked to Iran's proliferation activities. 
On November 18, the International Atomic Energy Agency Board of 
Governors responded to the latest Director General's report by passing 
a resolution urging Iran to come clean about the possible military 
dimensions of its nuclear program. The United States rallied the P5+1 
members to cosponsor the resolution, which was adopted overwhelmingly 
and sent the message that Tehran's pursuit of nuclear weapons is 
unacceptable. On that same day, the U.N. General Assembly sent its own 
message by adopting Saudi Arabia's resolution condemning the 
assassination plot against its Ambassador to the United States. 
Cosponsored by more than a fourth of all U.N. Member States, the 
resolution condemned attacks against diplomats and called on Iran to 
comply with its international obligations. As we learned from cases 
around the world, sanctions are most effective when they are 
multilateral, and that is what we have seen with Iran as well.
    All of this is taking place in the context of global transition. 
Europe is concerned about its economic situation and the vision of a 
united continent. Among the P5+1, Russia has parliamentary elections in 
December and Presidential elections in March, with Prime Minister Putin 
expected to return to the Presidential office. France has Presidential 
elections later in the spring. China is looking inward as it manages 
its own succession politics. Meanwhile, governments in the region 
continue to have grave concerns about Iran's nuclear intentions: not 
only Israel, but also Saudi Arabia and other Gulf States watch with 
intensity what Iran does and what we do in response. These factors pull 
in often divergent directions regarding our approach to Iran, but we 
continue to coordinate robust actions with our partners to prevent Iran 
from acquiring nuclear weapons.
    It is clear that, as a result of the measures we have already taken 
in lock step with the international community, the Iranian regime feels 
isolated and vulnerable, not emboldened. This is true, not just in the 
case of our European allies but in Iran's own backyard. Iran has failed 
to co-opt the Arab uprisings, despite its efforts to take advantage of 
them, and alienated itself by supporting Bashar al-Assad's brutal 
repression of Syrian citizens. While we, the Arab League, Turkey, the 
EU, and others support the legitimate demands of the Syrian people, 
Iran occupies a lonely and indefensible position as Assad's ally. The 
burning of Iranian flags in the streets confirms that Syrians know Iran 
is not on their side. We will continue to support Syrians' desire for a 
government that reflects their aspirations, not Iran's. Once Assad 
finally does go, Iran will be alone in the region, more isolated than 
ever--a fact that cannot have escaped either regime's leadership. Iran 
also hopes to project its negative influence into Iraq after our 
withdrawal. However, Prime Minister Maliki said he will not tolerate 
violence by militant groups, including those backed by Iran, and we 
will continue to work to strengthen Iraqi security forces' 
capabilities.
    Beyond the international community's concerns with Iran's nuclear 
program, we continue to expose Iran's egregious human rights situation, 
which serves to deepen Iran's isolation from the world community. On 
November 21, for the ninth year in a row, the U.N. General Assembly's 
human rights committee rebuked Iran for its serious human rights 
abuses, by the largest margin ever. We welcome the U.N. Special 
Rapporteur for Human Rights for Iran highlighting the regime's 
systematic repression of its citizens' freedoms. We continue to 
collaborate with world leaders, religious groups, and NGOs to address 
violations of religious freedom.
    We assist those Iranians who want to hold their government 
accountable by offering training, media access, and exchange programs. 
We will be opening Virtual Embassy Tehran to provide Iranians with 
accurate information about our policy, visas, and U.S. educational 
opportunities.We also engage Iranians through social media, including a 
Farsi Facebook page and a Twitter account, and through our broadcasting 
tools, Voice of America Persian and Radio Farda. We are taking measures 
to prevent Iran from jamming satellite signals, and to approve software 
licenses that facilitate the free flow of information. These actions 
make clear our sincere desire to engage the Iranian people and further 
expand the internal debates among the Iranian leadership.
    We share the Congress' concern about Iranian behavior and we will 
work with you. Working with allies to strengthen implementation of 
existing sanctions and to expand sanctions to exploit new regime 
vulnerabilities, and maintaining P5+1 consensus offers our best way 
forward to pressure Iran. We want to work with you to ensure we have 
the means and the flexibility to accomplish this while avoiding 
unforeseen consequences and sustaining the unprecedented multilateral 
coalition we have assembled in opposition to Iran's nuclear ambitions. 
Within that framework, we welcome your ideas to help us continue to 
increase the pressure for a change in Iranian behavior.
    Thank you, and I look forward to your questions.

    The Chairman. Thank you, Madam Secretary.
    Secretary Cohen.

STATEMENT OF HON. DAVID S. COHEN, UNDER SECRETARY FOR TERRORISM 
 AND FINANCIAL INTELLIGENCE, U.S. DEPARTMENT OF THE TREASURY, 
                         WASHINGTON, DC

    Mr. Cohen. Chairman Kerry, Ranking Member Lugar, and 
distinguished members of the committee, thank you for the 
opportunity to appear before you today, along with my friend 
and colleague, Under Secretary Sherman, to discuss the Treasury 
Department's contribution to the Obama administration's 
integrated strategy to address the threat posed by Iran's 
nuclear activity and its extensive support for terrorism.
    As recent events have made clear, we are at a critical 
crossroad in our effort to bring consequential pressure to bear 
on Iran. The IAEA's recent stark report about Iran's nuclear 
weapons-related activities, the foiled plot by the IRGC Quds 
Force to assassinate the Saudi Arabian Ambassador to the United 
States, and the attack on the British Embassy in Tehran are 
only the most recent reminders of the grave and multifaceted 
threat we face from Iran.
    It is more important than ever that we work together with 
the international community to increase the financial pressure 
on Iran, including through an effective, well-designed, and 
well-targeted strategy to further isolate the CBI, the Central 
Bank of Iran, an institution that has long been cut off from 
the United States.
    Before turning specifically to potential action against the 
CBI, I want to take a moment to explain our recent action 
identifying Iran as a primary money laundering concern under 
section 311 of the USA PATRIOT Act. This action builds on the 
work we have been doing 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. A critical element in these efforts has been 
the imposition of sanctions on approximately two dozen Iranian 
Government-owned banks for facilitating Iranian illicit 
conduct. But the depth and breadth of Iranian financial 
institutions' involvement in illicit activities extends beyond 
this group of designated banks.
    And so on November 21, we took the virtually unprecedented 
step of identifying the entire Iranian financial sector, 
including the Iranian Central Bank, as posing a risk to the 
global financial system. This action under section 311 also 
provides new information about the role of Iran's Central Bank 
in facilitating illicit conduct and sanctions evasion by 
supporting Iran's designated banks. By presenting an 
unambiguous public record of the broad scope 
of Iran's illicit conduct across all of Iran's financial 
system, we 
are sending a clear message to the world's banks: any financial 
institution that transacts with any Iranian bank, including the 
Central Bank of Iran, runs a grave risk of facilitating Iran's 
illicit activities.
    The United States is not acting alone. The U.K. and Canada 
took similarly strong actions on November 21 to protect their 
respective financial sectors from the Iranian threat. The 
result is that Iran is now cut off entirely from three of the 
world's largest financial sectors. And 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 
has been increasingly unable to attract foreign investment, 
especially in its oil fields, leading to a projected loss of 
$14 billion a year in oil revenues through 2016.
    Iran's economy today is struggling more than at any time 
since the 1979 revolution. One powerful illustration of this is 
found in the chart appended to my written testimony which shows 
the steady erosion in the market value of the rial, an erosion 
that Iran's Central Bank has been unable to halt. Recently 
President Ahmadinejad was forced to admit the impact of 
sanctions. Observing that the West imposed the most extensive 
sanctions ever, he lamented that, ``every day our banking and 
trade activities and our agreements are being monitored and 
blocked.''
    While the impact of our efforts has never been clearer, we 
are resolved to build and sustain as much pressure as necessary 
to bring Iran to meet its international obligations. To that 
end, we are keenly focused on applying additional pressure on 
the Central Bank of Iran. We welcomed French President 
Sarkozy's call last week for a multilateral asset freeze on the 
CBI, as we recognize that coordinated and focused action 
against the CBI could have a particularly powerful impact on 
Iran's access to the international financial system and its 
ability to access the hard currency it earns from oil sales. 
And we welcome the opportunity to continue to work with 
Congress on a workable and effective approach to targeting the 
CBI.
    We share the same goal. We must act in a way that has the 
greatest impact on Iran's bottom line. As we have learned from 
our sanctions efforts to date, the key to achieving this goal 
is to bring together an international coalition to work in 
concert to reduce exposure to the CBI and to Iranian oil 
exports. Now more than ever, it is imperative that we act in a 
way that does not threaten to fracture the international 
coalition of nations committed to the dual track approach, does 
not inadvertently redound to Iran's economic benefit, and 
brings serious and lasting pressure to bear on Iran, including 
through coordinated action on the CBI.
    Finally, it is important to remember that acting against 
the CBI is not the only avenue available to us to bring 
pressure to bear on Iran. We have at our disposal a number of 
tools, including CISADA, to enhance the financial and economic 
pressure on Iran, and we are eager to work with Congress to 
develop new tools to apply additional pressure. Put simply, if 
Iran continues to choose its path of defiance, we will continue 
to develop new and innovative ways to impose new and ever-more 
costly sanctions on Iran.
    I look forward to continuing to work with the Congress on 
this vitally important national security issue. Thank you.
    [The prepared statement of Mr. Cohen follows:]

               Prepared Statement of Hon. David S. Cohen

                              introduction
    Chairman Kerry, Ranking Member Lugar, and distinguished members of 
the committee, thank you for the opportunity to appear before you 
today, along with my friend and colleague Under Secretary Sherman, 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 activities and its extensive support for terrorism.
    I will focus my remarks today on our Iran sanctions strategy, with 
particular emphasis on the Treasury Department's most recent action to 
expose the extensive illicit finance threat that the entire Iranian 
financial sector--including Iran's Central Bank--poses to the 
international financial system. I will also discuss the impact that our 
implementation of the Comprehensive Iran Sanctions, Accountability, and 
Divestment Act of 2010 (CISADA) and other financial sanctions are 
having on Iran, as well as our plans to increase the cost of Iran's 
intransigence until Iran agrees to curtail its pursuit of nuclear 
weapons. As I will explain, we are at a critical crossroad today in our 
effort to bring consequential pressure to bear on Iran. The options 
that we are now considering, including additional sanctions against the 
CBI, require that we work together to ensure that we deliver strong and 
well-targeted pressure on Iran.
                        iran sanctions strategy
    The Treasury Department's increasingly powerful and disruptive 
sanctions 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. As 
Under Secretary Sherman describes in her testimony, the Obama 
administration has presented Iran with a genuine opportunity for 
dialogue, creating a clear choice for Tehran. Iran's leadership can 
choose to meet Iran's international obligations, allowing Iran to 
deepen its economic and political integration with the world and 
achieve greater security and prosperity for the Iranian people. Or, 
Tehran can continue to flout its responsibilities and face even greater 
pressure and isolation. Unfortunately, Iran has steadfastly refused to 
respond meaningfully to the administration's offer of engagement and 
has continued to pursue technologies and equipment that could only be 
applied to a nuclear weapons program. Just last month, the 
International Atomic Energy Agency (IAEA) issued a stark report laying 
out in detail Iran's past and present nuclear weapons-related 
activities. Shortly thereafter, the IAEA's Board of Governors adopted a 
resolution expressing its ``deep and increasing concern'' about 
unresolved questions regarding Iran's nuclear program, including its 
possible military dimensions.
    Our broad-based pressure strategy is aimed at persuading Iran to 
change its course and to make clear to Iran the consequences of its 
continued intransigent behavior. Among the most important elements of 
this strategy are targeted financial measures designed to disrupt 
Iran's illicit activity and to protect the international financial 
system from Iran's abuse. We have focused our efforts on exposing 
Iranian entities' illicit and deceptive activities, an approach that 
has garnered support among foreign governments and led them to take 
similar actions, enhancing substantially the impact of our actions. 
Because these actions have highlighted the pervasive nature of Iran's 
illicit and deceptive conduct and the reputational risks associated 
with Iran-related business, the private sector around the world has 
taken notice and has often taken voluntary steps beyond their strict 
legal obligations, further amplifying government actions.
    Our ability to implement this pressure strategy 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 neither the Islamic Revolutionary Guard 
Corps (IRGC) nor Iranian banks designated for their involvement in 
support for proliferation and terrorism should be allowed to have 
access to the international financial system. The results have been 
dramatic: our implementation of CISADA has resulted in a massive 
disruption of 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.
                   implementing the pressure strategy
    In implementing the pressure strategy, Treasury has focused on 
developing sanctions actions that expose the Iranian Government's 
involvement in a broad range of illicit conduct, including nuclear and 
missile proliferation, support for terrorism, human rights abuses, and 
deceptive financial conduct and evasion of international sanctions. Our 
actions in recent months illustrate that such illicit conduct is indeed 
pervasive in multiple Iranian Government sectors--including Iran's 
Government-owned banks, its government-operated transportation 
infrastructure, and the IRGC, a branch of Iran's military. Examples of 
recent actions targeting Iranian illicit conduct include:

   Abuse of the Global Financial System. Treasury actions 
        targeting Iranian banks are intended to prevent those banks 
        from using the international financial system to facilitate 
        Iran's proliferation activity or terrorism support, or from 
        assisting other banks or entities in evading U.S. or 
        international sanctions. We continued these efforts in May by 
        designating Iran's Bank of Industry and Mine (BIM) under E.O. 
        13382 for providing financial services for other designated 
        Iranian banks. BIM is the 22nd Iranian-state owned financial 
        institution to be designated by Treasury in the last 5 years.
   Use of Transportation Infrastructure to Facilitate Illicit 
        Conduct. Our actions against key elements of Iran's 
        transportation infrastructure are aimed at impeding Iran's use 
        of ships, airlines, and ports for its proliferation-related or 
        terrorism support activities. This year, 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. We 
        imposed sanctions against Iran Air, the Iranian national 
        airline carrier and its largest airline, because it has been 
        used by the IRGC and Iran's Ministry of Defense for Armed 
        Forces Logistics (MODAFL) to transport military-related 
        equipment. We also designated the second-largest airline in 
        Iran, Iranian commercial airline Mahan Air, for providing 
        financial, material, and technological support to the IRGC-Qods 
        Force. We sanctioned 46 companies and individuals affiliated 
        with Iran's national maritime carrier, the Islamic Republic of 
        Iran Shipping Lines, which is subject to U.S. and international 
        sanctions, and three individuals who each play a key role in 
        aiding IRISL's sanctions evasion activities worldwide.
   Human Rights Abuses. As the Iranian regime's abuse of its 
        citizens' human rights has continued, Treasury, working with 
        State, has imposed sanctions 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. Under an authority that targets those 
        responsible for or complicit in human rights abuses in Syria, 
        Treasury designated the LEF for supporting the Syrian General 
        Intelligence Directorate in its brutal suppression of the 
        Syrian people. Treasury also designated LEF's Chief and Deputy 
        Chief, and two senior IRGC-Qods Force officers, including IRGC-
        QF Commander Qasem Soleimani for supporting the brutal 
        suppression of the Syrian people orchestrated by the Syrian 
        General Intelligence Directorate.
   Support for Terrorism. We designated six members of an al-
        Qaeda facilitation network operating in Iran under an agreement 
        with the Iranian Government, thereby degrading this network's 
        ability to function while exposing Iran's continued support for 
        terrorism worldwide. Treasury also sanctioned five individuals, 
        including four senior IRGC-QF officers--among them the 
        previously designated IRGC-QF Commander Soleimani--connected to 
        a plot to assassinate the Saudi Arabian Ambassador to the 
        United States, Adel al-Jubeir and carry out follow-on attacks 
        against other countries' interests inside the United States and 
        in another country.
   Proliferation-related Activities: On November 21, the State 
        Department and Treasury designated 10 entities and one 
        individual for their links to the Atomic Energy Organization of 
        Iran (AEOI), the main Iranian organization responsible for 
        research and development activities in the field of nuclear 
        technology, including Iran's centrifuge enrichment program and 
        experimental laser enrichment of uranium program.
    exposing the iranian financial sector as an illicit finance risk
    The depth and breadth of Iranian financial institutions' illicit 
activities--from direct support for proliferation transactions, to 
assisting known proliferators' sanctions evasion efforts, to operating 
without appropriate regulatory controls--means that any financial 
institution that transacts with any Iranian bank runs a grave risk of 
facilitating Iran's illicit activities. Recognizing this pervasive risk 
to the U.S. and international financial systems, Treasury took 
regulatory action on November 21 to identify the entire Iranian 
financial sector--including not only already designated banks and their 
branches operating outside of Iran, but also nondesignated banks, their 
foreign affiliates, and the Central Bank of Iran (CBI)--for posing an 
illicit finance risk to the global financial system. We did so by 
identifying Iran as a jurisdiction of ``primary money laundering 
concern'' pursuant to section 311 of the USA PATRIOT Act.
    The term ``primary money laundering concern'' covers multiple forms 
of illicit finance of greatest concern, such as terrorist financing and 
WMD proliferation financing. Indeed, the section 311 finding against 
Iran sets out an unambiguous public record of the broad scope of Iran's 
illicit conduct. In particular, the finding describes Iran's activities 
as a state sponsor of terrorism, its longstanding provision of 
financing and support to Hezbollah, Hamas, and other terrorist 
organizations, and more recent Iranian cooperation with al-Qaeda. The 
finding explains the role that the IRGC and the IRGC-Qods Force, in 
particular, play in facilitating Iran's support for terrorism. The Qods 
Force involvement in terrorism support has been highlighted most 
recently in the public allegations that the Qods Force was involved in 
an Iranian plot to assassinate the Saudi Ambassador to the United 
States. The finding also explains Iran's use of its banks, such as Bank 
Saderat, to provide terrorist financing, and describes its lack of 
sufficient laws to combat terrorist financing.
    In addition, the finding makes a full case with respect to Iranian 
financial sector involvement in the financing of WMD proliferation, 
providing a detailed accounting of the many banks in Iran that engage 
in such activity. The finding explains the deceptive financial 
practices that Iranian banks use to disguise illicit conduct, and 
explains the role that exchange houses and front companies play in this 
deception, and Iran's involvement in the stripping of identifying 
information off of international wire transfers, putting the foreign 
banks that handle such transfers at risk for involvement in illicit 
conduct.
    The section 311 finding also provides new information about the 
role of Iran's Central Bank in facilitating illicit conduct and 
sanctions evasion. Since section 311 was enacted in 2001, Treasury has 
applied it on a few occasions to other jurisdictions that pose 
substantial money laundering threats. But in each prior instance where 
special measures were proposed, Treasury explicitly exempted central 
banks from the reach of the so-called ``jurisdiction 311'' in order to 
allow the central bank to perform those duties that central banks 
customarily execute.
    Not so this time, and for good reason. Iran presents a unique case. 
As the November 21 finding explains, the Central Bank of Iran is 
actively facilitating the evasion of international sanctions by 
supporting Iran's designated banks. For example, the CBI assisted 
designated Iranian banks, including Bank Saderat, Bank Mellat, the 
Export Development Bank of Iran, and Bank Melli, by transferring 
billions of dollars to them through a variety of payment schemes 
designed to deceive large international banks and take advantage of 
smaller, perhaps less sophisticated intermediaries. Similarly, the CBI 
also provided financial support directly to the U.S.-, EU-, and UNSC-
designated engineering arm of the IRGC, Khatam al-Anbiya, which has 
been involved in Iran's proliferation activities and has been recruited 
to develop Iran's key energy resources.
    This regulatory action reinforces U.S. and international sanctions 
already in place against Iran and provides greater certainty that the 
U.S. financial system is protected from Iranian illicit activity. While 
U.S. financial institutions already are generally prohibited from 
engaging in both direct and indirect transfers with Iranian financial 
institutions, Treasury's Financial Crimes Enforcement Network (FinCEN) 
issued a proposed rule alongside the 311 finding that would require 
U.S. financial institutions to implement additional due diligence 
measures in order to prevent any improper indirect access by Iranian 
banking institutions to U.S. correspondent accounts. Although the 
section 311 action will have a regulatory impact for U.S. banks, we 
also expect that it will have a broader chilling effect on foreign 
banks' willingness to do business with Iran, given the risks that are 
detailed in the finding.
    The U.S. is by no means alone in its assessment of the risks posed 
by the Iranian financial system. The U.K. and Canada also took similar 
strong actions on November 21 to protect their respective financial 
sectors from the Iranian threat. Highlighting that ``the Iranian 
regime's actions pose a significant threat to the U.K.'s national 
security and the international community,'' the U.K. announced that it 
had imposed new financial restrictions against Iran by cutting off 
Iran's banking sector from access to the U.K. All U.K. credit and 
financial institutions are now generally required to cease business 
relationships and transactions with all Iranian banks, including the 
Central Bank of Iran, and their branches and subsidiaries. For its 
part, Canada imposed new restrictions under its Special Economic 
Measures Act in response to the IAEA's report, prohibiting financial 
transactions with Iran, sanctioning additional individuals and 
entities, and expanding the list of prohibited goods.
    U.S., U.K. and Canadian concerns about the risks posed by the 
Iranian financial system are only further reinforced by recent reports 
of a massive embezzlement scandal in Iran. The Government of Iran has 
accused a network of Iranian state-owned and private banks of forging 
documents and issuing fictitious and fraudulent loans with an estimated 
value of approximately $2.6 billion to politically connected 
individuals for the purchase of stakes in state-owned companies. The 
scandal has thrown into sharp relief the Iranian Government's abiding 
weakness in the supervision of its financial sector and echoes the 
extensive fraud and corruption that exists in many sectors of the 
Iranian economy. While the regime has tried to distance itself from the 
scandal as much as possible, the Minister of Economy and Finance, 
Shamseddin Hosseini, who narrowly survived an impeachment vote by the 
Iranian Parliament, has publicly conceded that ``we need to have a 
multilevel oversight system so institutions can control the loans they 
disburse,'' acknowledging that had such safeguards been in place, 
``such a huge fraud could not have happened in the banking system.'' 
\1\ The scandal, implicating the highest levels of the Iranian 
Government, including the Deputy Governor of the CBI, reinforces 
persistent doubts about the integrity of Iran's financial sector.
---------------------------------------------------------------------------
    \1\ ``Heads of Three Government Branches Recount Positions on Bank 
Corruption Case,'' Tehran Donya-ye Eqtesad Online, November 9, 2011.
---------------------------------------------------------------------------
           the impact of sanctions on iran's financial sector
    During testimony before the Senate Banking Committee in October, I 
reported that Iran's financial isolation, and the economic impact of 
that isolation, have continued to grow. Today, I can report that the 
trend continues to accelerate.
    Due to a combination of factors--including UNSCR 1929, financial 
sanctions imposed by the U.S., 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. Today, 
Iran's largest state-owned banks--each of which has been sanctioned by 
the U.S., the EU, and several of our allies--are largely unable to 
access the international financial system. Iran's shrinking access to 
financial services and trade finance has made it more difficult for 
Iran to attract foreign investment, pay for imports, and receive 
payment for exports. This has exacerbated persistent macroeconomic 
weakness due to the Iranian Government's mismanagement of its economy.
    One good illustration of the economic pressure resulting from this 
financial squeeze is Iran's recent difficulty in defending the value of 
its currency, the rial. For nearly a decade, the CBI has supported a 
single, official exchange rate for the rial, using hard currency earned 
through oil sales to stabilize it. Since the adoption of UNSCR 1929 and 
various U.N. member states' actions to implement the resolution, 
however, the CBI has struggled to maintain stability in Iran's currency 
markets. Sanctions have increased the cost and difficulty of accessing 
adequate foreign exchange, weakening the CBI's ability to respond 
adequately to pressures in currency markets, particularly as 
accelerating inflation has exerted unusual pressure on the rial 
exchange rate. This has produced a multiple-tier currency market in 
Iran--including an official exchange rate and an even more expensive 
market rate.
    In September 2010, the spread between the official and the market 
exchange rate widened dramatically. While the rial made a moderate 
recovery during the fall of 2010, it rapidly began to lose value again 
in January 2011. To close this gap, the CBI devaluated the rial by 11 
percent in June 2011. The CBI's policy response, however, failed to 
stabilize the market, and the rial plunged in value against the dollar 
and the euro over the past several weeks.
    Today, the spread between the official and open market rates hovers 
above 20 percent, one of the highest levels in recent history, fueling 
serious inflation, high unemployment, and domestic discontent. (A chart 
depicting the increasing spread between the official and market rate is 
appended to my testimony.) Because of the rial's decline in value, 
ordinary Iranians are urgently seeking out foreign currency, such as 
dollars or Euros, for safety, yet they are having trouble accessing 
hard currency, and when they can, they have to pay the unofficial 
market rate. At the same time, senior government officials and 
preferred businesses, including IRGC-owned and controlled operations, 
are able to access foreign exchange at the official rate, essentially 
engaging in profitable arbitrage on the back of the average Iranian. 
Central Bank Governor Bahmani has conceded that the CBI has limited 
ability to respond to volatility in currency markets and blamed U.S. 
and international sanctions, noting that ``Iran is now facing 
international restrictions and this has to be taken into 
consideration.'' \2\ Iran's ability to respond to macroeconomic 
challenges will continue to be hampered by sanctions, at great cost to 
Iran's long-term economic growth.
---------------------------------------------------------------------------
    \2\ ``Heads of Three Government Branches Recount Positions on Bank 
Corruption Case,'' Tehran Donya-ye Eqtesad Online, November 9, 2011.
---------------------------------------------------------------------------
    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 of the Iranian 
economy. In a recent speech to the Iranian Parliament, President 
Ahmadinejad finally admitted the strong impact that sanctions are 
having on Iran's economy. He noted that ``the West imposed the most 
extensive . . . sanctions ever'' and that ``this is the heaviest 
economic onslaught on a nation in history.'' He went on to acknowledge 
that ``every day, all our banking and trade activities and our 
agreements are being monitored and blocked.'' \3\ This significant 
admission is a clear sign that U.S. and international sanctions are 
having a strong impact on the Iranian economy and the Iranian regime.
---------------------------------------------------------------------------
    \3\ ``Ahmadinejad Stresses System Unity at Minister's Impeachment 
Hearing,'' Tehran Voice of the Islamic Republic of Iran, November 1, 
2011.
---------------------------------------------------------------------------
               the continuing threat and the way forward
    In light of the mounting evidence of the impact of sanctions, and 
in light of Iran's continued refusal to engage meaningfully and 
substantively with the international community, we are committed to 
applying greater financial and economic pressure on Iran. Let me be 
clear: We are firmly devoted to significantly intensifying the pressure 
on Iran, and doing so in a way that delivers swift, focused and 
powerful pressure on the Iranian leadership to further sharpen their 
choice between isolation and engagement.
    As we explore opportunities to increase pressure on Iran, we are 
keenly focused--as is the Congress--on applying additional sanctions on 
the Central Bank of Iran. So we welcome French President Sarkozy's 
suggestion last week for a multilateral asset freeze on the CBI, as we 
recognize that coordinated and focused action against the CBI could 
have a particularly powerful impact on Iran's access to the 
international financial system and its ability to access the hard 
currency it earns from oil sales. And we welcome the opportunity to 
continue to work with Congress on an effective, well-designed and well-
targeted sanction against the CBI. As we prepare these steps, it is 
imperative that we act in a way that does not threaten to fracture the 
international coalition of nations committed to the dual-track 
approach, does not inadvertently redound to Iran's economic benefit, 
and brings real and meaningful pressure to bear on Iran.
    It is also important to remember that delivering potent pressure on 
Iran is not wholly dependent on how we address the Central Bank. Put 
simply, a designation of the CBI is not the only step, nor would it be 
the last step, available to bring consequential pressure to bear on 
Iran. For example, as more and more countries and foreign banks refuse 
to deal with designated Iranian banks, we remain keenly focused on the 
possibility that nondesignated Iranian financial institutions may 
become involved in proliferation activity or terrorist financing. When 
we see Iranian banks stepping in to pick up business for designated 
banks, or beginning to process proliferation transactions, we will 
swiftly impose new sanctions, as was the case recently with Bank of 
Industry and Mine.
    We will continue our intensive efforts to implement CISADA, which, 
as I noted, have been enormously successful in driving down to almost 
nil the international activity of designated Iranian banks. As we learn 
of activities that may trigger CISADA sanctions, we will continue to 
either obtain immediate resolution or impose CISADA sanctions.
    We will stay ahead of efforts by Iran to develop workarounds to its 
financial isolation. This means working with our partners around the 
world to identify the ways--both overt and deceptive--in which Iran 
seeks to establish new financial footholds, and take action to stop 
them.
    We will relentlessly pursue IRISL ships, front companies, agents 
and managers, exposing and sanctioning them, and driving IRISL out of 
operation. And, as evidenced by the Tidewater designation in June, we 
will aggressively expose the IRGC's expanding role in the Iranian 
economy and work with our partners in Europe and elsewhere to apply 
sanctions on IRGCcontrolled companies.
                               conclusion
    Although we are making progress to identify Iran's illicit behavior 
and pressure Iran to comply with its international obligations, there 
is, of course, significant work still before us. The recent IAEA 
report, which exposes Iran's activities relevant to the development of 
a nuclear explosive device, coupled with the recently exposed plot by 
which Iran's IRGC-QF planned to assassinate the Saudi Ambassador to the 
United States, only underscores the importance of not only maintaining, 
but qualitatively enhancing, the pressure on Iran.
    As Secretary Geithner has said, ``the policies that Iran is 
pursuing are unacceptable--and until Iran's leadership agrees to 
abandon this dangerous course, we will continue to use tough and 
innovative means to impose severe economic and financial consequences 
on Iran's leadership.'' We want to work with Congress to broaden and 
strengthen CISADA and other Treasury authorities and to take careful, 
focused steps to address the illicit conduct of the CBI.
    I look forward to continuing our work with this committee as 
Treasury continues to pursue this enormously important strategic 
objective.




    The Chairman. Thank you very much, Mr. Secretary.
    Let me begin by asking you, if I may. I know you are both 
aware, obviously, of the Menendez-Kirk amendment to the defense 
authorization bill on the floor now. And this would seek to 
impose sanctions against entities, including other central 
banks, that trade with the Central Bank of Iran. I know what 
your position is, and I have a letter here from Secretary 
Geithner to Chairman Levin expressing the opposition of the 
administration, but I think it would be helpful to the members 
of the committee if you could discuss in some detail what the 
problems are with that amendment and how it does or does not 
supplement what you are trying to do and why you think there is 
a better approach, if you do.
    Mr. Cohen. Yes, Mr. Chairman. Why do I not begin addressing 
that question?
    I think at the outset it is important to emphasize that we 
completely share the goal that animates the Kirk-Menendez 
amendment and are completely committed to delivering real and 
sustained pressure on Iran to bring them to understand the 
choice that is before them.
    The concern that we have with this amendment is that we 
think it risks two things that we want to avoid. One is it 
risks fracturing the international coalition that has been 
built up over the last several years to bring pressure to bear 
on Iran. Especially today in the aftermath of what has occurred 
in Tehran over the last several days, in the aftermath of the 
IAEA report, and in the growing sense of urgency 
internationally with respect to Iran's nuclear program, I think 
we have an opportunity work cooperatively and collaboratively 
with our international partners to bring additional pressure to 
bear on Iran.
    The amendment, however, would focus the most powerful 
sanction that we have: the termination of access to the United 
States on the largest financial institutions and the central 
banks in some of our closest partners. And I think it is our 
sense that we are more likely to achieve the cooperation and 
the coordinated action to bring pressure to bear on the CBI and 
on Iran more broadly if we approach this issue through an 
effort to coordinate action voluntarily against the CBI and 
against Iran rather than through the threat of coercion that is 
contained in the amendment.
    The Chairman. Can you just flesh out a little bit sort of 
why that is so threatening perhaps to some of our friends? What 
does it wind up doing to them?
    Mr. Cohen. Yes. The way this amendment would operate, Mr. 
Chairman, is that it would say to foreign financial 
institutions--and in this instance we are talking about the 
largest financial institutions in our closest partners, as well 
as central banks in our closest partners. It would say to them 
that if they continue to process oil transactions with the 
Central Bank of Iran, their access to the United States can be 
terminated. It is a very, very powerful threat. It is a threat 
to the commercial banks to essentially end their ability to 
transact in the dollar and their ability really to function as 
major international financial institutions. That threat being 
focused on our closest allies, as I said, risks a dynamic with 
those governments and with these banks that I think is as 
likely to push them away and to impede the ability to bring 
together a coordinated effort against Iran as to generate that.
    The Chairman. Well, I suppose a proponent of it might say, 
well, that is because they are not serious about putting 
pressure on Iran.
    Mr. Cohen. Mr. Chairman, I think what we have seen is just 
the opposite. I mean, we are talking about countries like 
Japan, countries like South Korea, many of our partners in 
Europe. These countries, over the last several years, have 
demonstrated a willingness to work us, to work with us very 
closely to bring real and sustained pressure on Iran. And I 
think we are seeing in the EU just today, as Under Secretary 
Sherman noted, additional steps being taken to bring pressure 
to bear on Iran. And it is our judgment that the best way to 
proceed is to continue to work with our partners to develop the 
means and the mechanisms to bring that pressure to bear, 
including pressure directly on the Central Bank of Iran and on 
Iran's ability to sell its oil and to earn revenue from its oil 
sales.
    I think the way to accomplish that is, in part, to pursue 
the suggestion of President Sarkozy to bring multilateral 
freeze on the CBI's assets and as well to work with our 
partners who have already shown a willingness to consider 
reducing their imports of Iranian oil and to do that in an 
orderly and coordinated fashion. That, we think, is better 
calculated to achieve the ultimate objective here which is to 
reduce Iran's access to the very important source of revenue 
for its economy, its oil revenue.
    The Chairman. So what you are really saying is this is a 
very blunt instrument which risks adverse reaction as opposed 
to a calculated, carefully orchestrated effort that is 
currently underway to actually accomplish the very same end. Is 
that correct?
    Mr. Cohen. I think that is exactly right.
    The Chairman. Secretary Sherman, I think you wanted to add 
to that. You might add also how perhaps even this amendment, 
which we all understand its motivation is legitimate and we all 
agree with, may have the unintended consequence, I believe, of 
even enriching Iran and providing money for the very program 
that we want to stop. Is that not accurate?
    Ms. Sherman. Right, absolutely. In fact, that is where I 
was going to start, Mr. Chairman, which is the irony of this 
amendment--and as you say, we all agree with the impulse, the 
sentient, the objective, which is to really go at the jugular 
of Iran's economy. Indeed, analysis that we have done--although 
there are many analytics to this and no one knows for sure, but 
there is absolutely a risk that, in fact, the price of oil 
would go up, which would mean that Iran would, in fact, have 
more money to fuel its nuclear ambitions, not less.
    And our real objective here is to cut off the economic 
means that Iran has for its nuclear program, and in fact, the 
sanctions that have been imposed, the toughest regime ever in 
the history of our country and in the world, quite frankly, has 
meant that it is not only--those sanctions not only act as a 
deterrence, but probably more importantly in the short run, 
they act as a way to slow Iran's progress so that it is harder 
for Iran to finance its program. It is harder for Iran to get 
the technology it needs, and indeed, in a speech that National 
Security Advisor Tom Donilon just gave a few days ago, he noted 
in 2007 the head of Iran's atomic energy organization boasted 
that Iran would have 50,000 centrifuges installed within 4 
years. We are now nearing the end of 2011, and the IAEA reports 
that Iran has installed 8,000 centrifuges with perhaps 6,000 
operating. So Iran's ambition to really be much further in its 
nuclear program has been undermined by the sanctions that have 
been imposed in a multilateral fashion in a targeted and 
careful way.
    As you mentioned, Mr. Chairman, I have had the honor of 
being in this position now for 2 months. In those 2 months, I 
have met with every political director of the P5+1. I have been 
to Russia, China, Tokyo, Seoul, Brussels, and a variety of 
other places. In every one of those meetings, the first 
priority is Iran, and the response has been amazing. Every day 
people are willing to take another action, and the multilateral 
phased approach that the Under Secretary so well articulated, 
is crucial to maintaining that multilateral framework. And we 
know that sanctions are the most powerful when they are 
multilateralized.
    The Chairman. Well, thank you, Madam Secretary.
    I am going to place this letter from Secretary Geithner to 
Chairman Levin written today or dated today into the record.
    [The letter referred to follows:]

                         Secretary of the Treasury,
                                Department of the Treasury,
                                  Washington, DC, December 1, 2011.
Hon. Carl Levin,
Chairman, Committee on Armed Services,
U.S. Senate, Washington, DC.
    Dear Chairman Levin: I am writing to address amendment 1414 to S. 
1867, the National Defense Authorization Act for Fiscal Year 2012, 
regarding the imposition of sanctions on foreign financial institutions 
that conduct business with the Central Bank of Iran (CBI).
    The Obama Administration's determination to prevent Iran from 
acquiring nuclear weapons is unwavering. We are resolved to build and 
sustain as much pressure as necessary to bring Iran to meet its 
international obligations and address the international community's 
grave concerns with its nuclear program. I know that you and your 
colleagues in the Senate share this commitment.
    We understand that this amendment was offered in this spirit. 
However, I am writing to express the Administration's strong opposition 
to this amendment because, in its current form, it threatens to 
undermine the effective, carefully phased, and sustainable approach we 
have undertaken to build strong international pressure against Iran. In 
addition, the amendment would potentially yield a net economic benefit 
to the Iranian regime.
    We have steadily increased the pressure on Iran by tightening 
sanctions, closing loopholes, and encouraging other countries to do the 
same. Congress has been absolutely critical in providing some of the 
tools that we have used to accomplish that goal, and we are seeing 
genuine results. The collaborative approach the U.S. has taken with our 
international partners has led many to impose sanctions on Iran that 
were not even contemplated three years ago, including on Iran's energy 
sector.
    Iran's greatest economic resource is its oil exports. Sales of 
crude oil line the regime's pockets, sustain its human rights abuses, 
and feed its nuclear ambitions like no other sector of the Iranian 
economy. We are committed to doing as much as possible to reduce Iran's 
oil revenue while concurrently working to stabilize global oil markets. 
Today, the United States does not permit the import of Iranian crude. 
Other countries have already begun to reduce their consumption of 
Iranian crude and the Administration is working hard to discourage 
anyone from taking advantage of the responsible policies of these 
countries. Our closest allies are seriously considering curtailing 
their own crude purchases altogether in the near future and we are 
doing everything possible to encourage them to make the right decision.
    However, as currently conceived, this amendment threatens severe 
sanctions against any commercial bank or central bank if they engage in 
certain transactions with the CBI. This could negatively affect many of 
our closest allies and largest trading partners. Rather than motivating 
these countries to join us in increasing pressure on Iran, they are 
more likely to resent our actions and resist following our lead--a 
consequence that would serve the Iranians more than it harms them. 
Further, there is a substantial likelihood that this amendment, 
particularly if passed into law at this time and in its current form, 
could have the opposite effect from what is intended and increase the 
Iranian regime's revenue, literally fueling their suspect nuclear 
ambitions. The Administration is prepared at your convenience to share 
the details of our analysis on this point, in a classified briefing.
    The Obama Administration strongly supports increasing the pressure 
on Iran significantly, including through properly designed and well-
targeted sanctions against the CBI. The Administration has several 
legislative proposals to both enhance and expand the Comprehensive Iran 
Sanctions, Accountability, and Divestment Act (CISADA) and to strike at 
the CBI that we would like to discuss with you and your colleagues. We 
intend to work with our partners to achieve the objectives of this 
amendment, but in a fashion that we believe will have a greater and 
more sustainable impact on Iran. We ask that you continue to work with 
us on ways to improve this amendment and to consider other, more 
immediate and more effective steps that we can take to accomplish our 
shared goals while we work with our partners to bring about the effects 
this amendment is intended to achieve.
            Sincerely,
                                               Timothy F. Geithner.

    The Chairman. And I would just call the attention of our 
colleagues to the most relevant paragraphs in which the 
Secretary says, ``as currently conceived, this amendment 
threatens severe sanctions against any commercial bank or 
central entity if they engage in certain transactions. Rather 
than motivating these countries to join us in increasing 
pressure on Iran, they are more likely to resent our actions 
and resist following our lead, a consequence that would serve 
the Iranians more than it harms them. Further, there is a 
substantial likelihood that this amendment, particularly if 
passed into law at this time and in its current form, could 
have the opposite effect from what is intended and increase the 
Iranian regime's revenue, literally fueling their suspect 
nuclear ambitions.''
    And then it goes on to describe that it does have an 
approach expanding Iran's actions and actually focusing on the 
CBI working with our partners to achieve the objectives of the 
amendment, but in a fashion that, to quote the Secretary, ``we 
believe will have a greater and more sustainable impact on 
Iran.''
    So I think it is important for members to take note of this 
as we think about what will occur potentially on the floor.
    Senator Lugar.
    Senator Lugar. Thank you very much, Mr. Chairman.
    It seems to me that in thinking through the action with 
regard to Iran, we have not mentioned what frequently is in the 
press. That is the thought that Israel might, in fact, decide 
to attack Iran and simply attempt to take out elements of the 
regime's nuclear program. On several occasions, the United 
States has given the advice that this would be particularly 
difficult to do in light of reports that most of Iran's nuclear 
infrastructure is underground or otherwise difficult to reach. 
Nevertheless, this matter continues to be argued in Israeli 
politics and cannot be ignored.
    Some would say that if the infrastructure is indeed 
difficult to destroy, it would be preferable for the United 
States to prosecute the attack because we are likely to be more 
efficient and more effective.
    What we are really talking about here is that because of 
the nuclear threat and this particular kind of regime, the 
potential for war, the potential for actual physical attack and 
retaliation by the Iranians is very sizable. As you have made 
clear, this is not merely an academic exercise.
    Let me be very serious about this. We had a very good 
lecture this morning by Karim Sadjapour from the Carnegie 
Endowment for International Peace. You are no doubt familiar 
with him as he is a regular lecturer on these affairs. His 
focus, first of all, was on the Voice of America and its 
activities in Iran. Now, I would say Karim was critical of the 
Voice of America's activities, not in the sense that we are not 
spending money, but rather that the effectiveness of our 
programming is being hampered by a bureaucracy that he believes 
is rendering VOA less effective than it should be.
    I am not a critic of the program. I would just say we 
believe that it should operate as effectively as possible. This 
imperative is made clear when one considers that at least two-
thirds of the Iranian population is below 30 years of age. The 
potential for improvement of our programs is there as, 
according to some analysts, the British programs are drawing a 
better audience than ours. Thus, I would just ask you to take a 
strong look at these programs because they are still an avenue 
to at least two-thirds of the population.
    On the sanctions business, it would appear to me that 
although there are risks in alienating our allies and others, 
the Central Bank focus really is a deadly problem for Iran if 
executed completely.
    In addition, we ought to thoroughly think through the 
possibility of decreasing Iran's oil exports. Now, at this 
point, the Chinese, who were thoroughly uncooperative with 
regard to the banking sanctions and would be outraged if their 
oil imports from Iran were disrupted, are a real factor. But 
they are not taking this very seriously now anyway. Given that 
we are going to have to either contend with diplomacy with the 
Chinese or potential warfare with the Iranians, I would prefer 
that we visit with the Saudis and give them the opportunity to 
export to the Chinese in greater measure. This could eliminate 
a great source of funds for the regime, as over 50 percent of 
its income is coming right now from oil exports. To the extent 
that you really hit the Central Bank and stop the exports, you 
really do make a very big difference in terms of the ability of 
that government to function, quite apart from the ability of 
the people to tolerate it.
    Again and again, people are saying that the Arab Spring 
came to Egypt largely because of elderly people out in the 
hustings, not in Tahrir Square, but the people out in the 
hustings who were starving and were not getting the subsidies 
from the government because the price of food was going up. 
That is occurring in Iran too and can be accelerated very 
substantially.
    So I just ask you for your comments on these editorial 
opinions because I think we all feel very strongly about this 
and are all attempting to act as wisely as possible.
    Ms. Sherman. Thank you very much, Senator Lugar. Let me 
make a few comments on the military option you mentioned, 
communications capabilities, ways to reach the Iranian people, 
and a comment again on CBI, and then turn it to Under Secretary 
Cohen.
    We agree with you. We think that the broadcasting 
possibilities, the Twitter possibilities, the social media is 
quite crucial to reaching the Iranian people. And, in fact, our 
Voice of America Persian and Radio Farda reaches as many as 20 
million Iranians per week, and Web sites receive an estimated 
60,000 visits per day. I take your point that we should do 
everything we can to increase our capabilities and we are 
working very hard to do that.
    On Facebook, we have 37,000 fans. We obviously want to 
increase that decidedly. Twitter, 8,000 fans. YouTube, 270,000 
views. In May, the Secretary announced the extension of visa 
validity for Iranian students in humanities-related fields, and 
I think if I remember correctly, the percentage of Iranian 
students has increased 20 percent in the last year. In October, 
the Secretary gave interviews on BBC's Persian service and on 
VOA's Persian satirical news show, which is wildly popular. You 
are quite right. The BBC's Persian is incredibly well 
penetrating. We work very closely with the BBC. This is, again, 
part of our multilateral effort to work with others. They have 
some capabilities in part because they have been present, at 
least until now, in Tehran which gives them capabilities that 
we do not.
    I do have those numbers. According to the International 
Institute of International Education, 5,626 Iranians studied at 
U.S. universities in 2010, an increase of 895 students since 
2009, and we want to increase that for all the reasons you well 
understand.
    So I take your point, and we think this is important. It is 
why we are starting Virtual Embassy Iran, and we will be 
launching that shortly. And we also, as I think you know, use 
technologies worldwide to help people ensure that they have 
access to the Internet and can get past satellite jamming. Some 
of that I would be glad to have someone brief you about further 
in a classified setting, but it is quite crucial.
    Second, on your concern raised about military action, 
clearly that is nobody's preferred course of action, but the 
President has said and has repeatedly said that all options 
remain on the table in the situation that we are facing because 
we do not want to be in a situation--anyone in the world--and 
there is very strong international coalition on this to be in a 
position where Iran acquires nuclear weapons.
    At the same time, we think the dual-track approach that we 
are taking, which is pressure and engagement, though Iran has 
yet to take that hand toward engagement because we expect there 
to be serious conversation about their weapons program without 
preconditions and they are not quite ready to do that--so we 
will intensify and increase the pressure decidedly on a regular 
basis.
    On CBI, I take your point that if one has to make a choice 
between war and the risks with CBI, that is a very tough and 
compelling calculation. We do not think we have to go there 
today. What we think we need to do is have targeted efforts 
regarding CBI that can be multilateralized. As Under Secretary 
Cohen mentioned, French President Sarkozy's suggestion of asset 
freezes on CBI is one thing that we are all looking at and 
talking with our colleagues about around the world. You are 
quite right that we need to be pushing parties around the world 
tough, harder to take action.
    That was really much of what I was doing in China, and 
China has agreed and publicly so today to finally accept 
Special Envoy Bob Einhorn to come to China and to assist them 
in better applying the sanctions regime to what they are doing. 
They have slowed down their actions. They have not backfilled, 
but indeed, they need to take further action and we would agree 
with you absolutely in that regard.
    Let me turn, if I may, to Under Secretary Cohen----
    The Chairman. I think we are going to have to take that 
answer and thank you.
    Ms. Sherman. We will come back, I am sure.
    The Chairman. I am sure we will.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    You know, Mr. Secretary, I have to be honest with you. I am 
extremely disappointed. You all did not like the original 
amendment offered, and at the request of the administration, we 
engaged in a good faith effort to try to create an amendment 
that would have the maximum effect on Iran's economy with 
minimum disruption to the oil market of the United States. That 
original amendment had no waivers whatsoever. Maybe we should 
have allowed that to stand. That is the vote we would be 
having.
    At your request, we engaged in an effort to come to a 
bipartisan agreement that I think is fair and balanced. And now 
you come here and vitiate that very agreement. So that says to 
me in the future that when you come to me and ask me to engage 
in a good faith effort--you should have said we want no 
amendment, not that you did not care for that amendment.
    Now, having said that, let me just say everything that you 
say in your testimony undermines the credibility of your 
opposition to this amendment. The clock is ticking. The 
published reports say we have about a year. Now, when are we 
going to start our sanctions regime robustly? Six months before 
the clock has been achieved before they get a nuclear weapon?
    Now, this amendment was crafted in such a way that it gives 
the President two significant pieces of discretion, No. 1, to 
determine that there is sufficient supply in the oil market 
that it would not create a disruption. And if he finds that is 
not the case, then the actions would not go into effect. And 
second, notwithstanding that he might find that, yes, there is 
enough oil in the market that would not create a disruption, 
that in fact he has a second opportunity in a national security 
waiver.
    So I find it pretty amazing that you all come here and say 
what you have said in response to the chairman. And let me just 
say I looked at the Treasury Secretary's letter. Nowhere does 
he talk about economic disruption to us, very interestingly. I 
think he would have made that case if in fact there was any 
such disruption. He actually makes two statements here that I 
think are pretty redeeming of our amendment. He says, No. 1, 
Congress has been absolutely critical in providing some of the 
tools that we have used to accomplish the goal of tightening 
sanctions.
    But for Congress, you would not have had the sanctions, and 
I have never seen this or any other administration come before 
the Congress and say, please, give me a sanctions regime. You 
have rebuffed it every step of the way even though it is the 
sanctions law that we have given you that has allowed you to 
achieve some limited progress.
    Second, he says the sales--referring to Iran--the sales of 
crude oil line the regime's pockets, sustain its human rights 
abuses, and feeds its nuclear ambitions like no other sector of 
the Iranian economy. Well, then, if that is the fuel that 
allows Iran to march to nuclear weapons, then you need to cut 
off the fuel. And that is exactly what we are focused on doing.
    I find it amazing that the Europeans are considering doing 
some of this. France, in particular, has been advocating such a 
measure in international reports earlier this month after it 
was revealed that Iran is moving closer to building its own 
nuclear weapon. The European nations are discussing imposing 
their own embargo. So we basically say to financial 
institutions, do you want to deal with a $300 billion economy 
or do you want to deal with a $14 trillion economy? I think 
that choice is pretty easy for them.
    So I find it pretty outrageous that while the clock is 
ticking and you ask us to engage in a more reasoned effort, 
then we produce such an effort in a bipartisan basis, you come 
here and say what you say, which really undermines your 
relationship with me for the future because you are not going 
to tell me that, please engage with us in an effort to find a 
more refined solution, and then when we do that, say you do not 
care for it. It would have been more honest to say we do not 
want any amendment whatsoever.
    Now, the fact is that several major energy traders continue 
to make prohibited sales of refined petroleum to Iran, and yet 
our response has been to sanction the front companies like the 
Royal Ouster Group rather than the major figures behind the 
sales. You have 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. So even though we have given you the tools, you have 
not shown us the robust effort when the clock is ticking to use 
that which we have given you.
    So that is why 80 Members of the Senate--at a time in which 
it is very difficult to find bipartisan agreement--have joined 
in our Iran, North Korea, Syria Sanctions Act, because they 
understand that just as the Iranians move to circumvent the 
sanctions regime that we have already imposed and to find ways 
to achieve loopholes, we must remain one step ahead of them and 
close those loopholes and, at the end of the day, be able to 
ensure that our sanctions regime is effective.
    Now, had you all embraced that effort, maybe we would not 
be where we are today. If you had used the sanctions regime you 
already have and been more robust instead of taking the shell 
groups, gotten to the heart of it, we would not be where we are 
today. And if the Europeans are considering an embargo, we 
should not be leading from behind. We should be leading 
forward.
    I think the amendment that we will hopefully vote upon 
today is reasoned. It is balanced. It gives the President 
discretion to determine both the oil markets and whether there 
are sufficient supplies. And look, Libya is coming back on 
track. We certainly see Iraq producing more. The Saudis have a 
great ability to produce more. So I find it disconcerting, to 
say the least.
    And I do not really have any questions for you. I just 
wanted to set the record straight here after you vitiated my 
amendment.
    Thank you, Mr. Chairman.
    The Chairman. I do not think they vitiated it. I think they 
vilified it.
    Let me just ask you this question. Is there a way, Madam 
Secretary, to address--in the letter, I noticed that it said in 
``its current form.'' And you have a number of times said ``in 
its current form.'' Therefore, both to afford you an 
opportunity to respond but also just to try to deal with what 
is on the table here, is there in fact a way? Is it a no 
amendment situation, or is it this amendment in its current 
form and there is some way, in fact, to address what your 
concern is?
    Ms. Sherman. Let me, if I may, defer to Under Secretary 
Cohen in a second.
    I think there is a way to target CBI, and David will talk 
about some of those in a moment. What I think is crucial is 
that we do it in a way that is multilateralized. And the one 
point I would say, Senator Menendez, from our perspective at 
the State Department is that it is true that the Europeans are 
talking about this. And we are working diplomatically around 
the world both David and myself to encourage everyone to make 
the right decision to do what the United States has already 
done. Today we have no interactions with CBI. And we would hope 
others would do that as well and make the right decision in a 
way that works economically for them and ensures that Iran does 
not get more revenue because the price of oil spikes.
    And I appreciate that you have tried to address those 
issues in the amendment, but if I may, let me defer to my 
colleague at Treasury.
    Mr. Cohen. Thank you.
    Let me first address the concern about how we have been 
working with you and your staff with respect to the amendments. 
I think we very much appreciate the opportunity to work with 
you on this issue. We wholeheartedly share the objective of 
bringing real pressure to bear on the CBI. What we were doing 
working with you and with your staff was trying to devise an 
approach that is best calculated to bring that pressure to bear 
directly on the CBI while avoiding potential adverse 
consequences to our international diplomatic efforts, as well 
as to the economic situation in Iran in particular.
    If there was a misunderstanding with respect to whether we 
were supportive of the amendment as it was modified, I 
apologize for that. We had tried to be clear that we wanted to 
work with you, work with your staff to modify the amendment in 
a way to improve it, but I think we tried to be clear 
throughout that our judgment is that the best course to pursue 
at this time is not to apply a mechanism that puts at risk the 
largest financial institutions, the central banks of our 
closest allies, that the course that we should be pursuing to 
bring real and significant pressure on the CBI and to do 
exactly what you, Senator Menendez, highlighted, which is to 
attack Iran's ability to get access to the revenue from its oil 
sales, is to work collaboratively and cooperatively with our 
partners on an approach to reduce their importation of Iranian 
oil, a step that the United States has already taken.
    We now import no oil from Iran. We now have no relationship 
with the Central Bank of Iran. What we want to do is to work 
with our international partners in an effort to have them get 
to that same point but in an orderly, cooperative, 
collaborative fashion. That is our sense of the best way to 
proceed here.
    Just to reiterate, we completely share the objective here 
of addressing the CBI and the CBI's ability to operate in the 
international financial system. The issue is how do we go about 
this in a way that is best calculated to achieve the objective 
that we are looking to achieve while minimizing the potential 
for adverse collateral consequences.
    The Chairman. So, bottom line, you are really saying that 
it is not curable. You just oppose the amendment.
    Mr. Cohen. Mr. Chairman, our position is that the right 
course is to not adopt this amendment. We recognize----
    The Chairman. But then it is disingenuous to say ``in its 
current form'' with all due respect.
    Mr. Cohen. If I could continue. We also recognize that 
there is substantial support for this amendment in the Senate, 
and if it is to be adopted, we do think that there are some 
important changes that should be incorporated to ensure that it 
achieves the objective that we are all looking to achieve. So 
our preferred course is for this amendment to not be included 
in the Defense Authorization Act. If it is included, we do want 
to continue to work with Senator Menendez and the Senate as a 
whole to bring in a few additional changes that we think are 
critically important to ensure that it operates in a way that 
is as designed.
    The Chairman. Senator Corker, thanks for your indulgence.
    Senator Corker. No problem. I understand that we have the 
amendment on the floor and I understand additional time is 
worthy to talk about that.
    Senator Menendez referred to published reports of Iran 
having the ability to have a weapon in a year. Is that a 
timeline that you all believe is worth at least internalizing?
    Ms. Sherman. Senator, there is great debate.
    Senator Corker. And I do not want a long answer.
    Ms. Sherman. Yes. No, I will not give you one.
    There is great debate about the timeframe, and the 
timeframes are at what point they have a breakout capability, 
at what point they will have a weapon. And all of those 
timeframes are seen differently analytically.
    Senator Corker. Is it worth thinking about the published 
reports as being generally where things are?
    Ms. Sherman. Published reports are one data point. There 
are others who would disagree. I think what our objective is is 
to--every country in the world ostensibly has breakout 
capability and the capability of getting a nuclear weapon. Our 
objective with Iran is for them not to have them and to 
lengthen the period of time for as long as possible that it 
will take them to get there.
    Senator Corker. We understand that.
    Ms. Sherman. Everything we do every day takes any timeframe 
you have seen in a published report and makes it longer. 
Anything we can do to degrade their program will make that 
timeline longer, and that is crucial.
    Senator Corker. So for what it is worth, I respect the work 
that you all have been doing. I have been to several hearings 
where you all presented both publicly and privately what you 
are doing, and I understand how you do not want Congress to end 
up with a blunt object that does not work for you. At the same 
time--and I think it has been pretty fascinating actually to 
see the effects that you have had in some areas of their 
economy.
    But it does not look like to me the lines are going to 
cross, 
or at least at the right point. It does not look to me like the 
sanctions, even though there has been some successes, are going 
to achieve their end prior to the time that Iran actually has a 
nuclear weapon. And I think that is what has gotten much of 
Congress concerned. And so I think you generally are thinking 
the published reports are not way off. I do not think you are 
going to get there personally. I do not think you are going to 
get there. And so I share Senator Menendez's concerns.
    You know, we have worked with you also on other proposals. 
I have to say that Treasury, generally speaking, has stiff-
armed on numbers of fronts, and it seems to me that a 
responsible approach to today's amendment would have been to 
have laid out what it was you wanted to pass. And I am not a 
cosponsor yet, but I am pretty irate that Senator Menendez has 
worked with you all this time. I know they have made changes. 
We have been meeting with his staff, with Kirk's staff, with 
others. Why have you not offered what ought to be put in place 
before today's vote? That seems highly irresponsible on your 
part.
    Mr. Cohen. Senator Corker, we have continued to engage with 
Senator Menendez.
    Senator Corker. I do not want engagement. Why have you not 
laid out--why does Secretary Geithner not lay out what it is he 
would like to see happen?
    Mr. Cohen. I think Secretary Geithner's letter, with all 
respect, does lay out what we think should happen with this 
amendment, which is that----
    Senator Corker. That it be defeated.
    Mr. Cohen. Yes, that it not be adopted.
    That being said, there are additional amendments to the 
amendment that we have provided to Senator Menendez and his 
staff, and so we are eager to continue to work with Senator 
Menendez and the Senate as a whole, if this is going to 
proceed, to have it proceed in a fashion that is more workable.
    If I could just comment on one other of your remarks on the 
timelines. I think both Under Secretary Sherman and I are 
trying to convey that we recognize both the urgency, whether it 
is a 
1-year timeline or whatever it is, that there is a significant 
urgency on the pressure track and if you are thinking about the 
lines crossing, we agree--the administration agrees--that our 
line needs to accelerate, and we are intent on doing is 
bringing additional pressure to bear, consequential pressure to 
bear on Iran in very short order.
    The question that I think we are addressing is how best to 
achieve that, and our concern with the amendment is that we 
think that may not be the best way to proceed. It is not that 
we are coming before the committee and saying everything is 
fine, leave us alone, let us continue on. What we are saying is 
we recognize that we are at a point in time where the right 
course is to intensify the sanctions, and we want to do that 
and we want to do that in a way that is best calculated to 
work. And we just think that the way to do that is to work 
cooperatively with our international partners in a fashion that 
has, I think, borne substantial fruit over the last several 
years and we think can work going forward.
    Senator Corker. Let me ask you this. Would it make sense 
for Menendez and Kirk to give you 60 days to make that happen? 
If it does not, this goes into effect.
    Mr. Cohen. I think we are interested in continuing to 
figure out how to give us the space to work and we can continue 
to work----
    Senator Corker. And I appreciate the fact that you are 
working with allies and friends. It does send a signal that we 
really are willing to work on sanctions on everything but that 
that matters, and that is petroleum exports. But I understand 
that you want to work with them, with our friends, in a way 
that makes most sense. And I appreciate the executive branch 
wanting some flexibility. I do think there have been ways 
probably to make this amendment work.
    But, Ms. Sherman, you made a comment that every political 
candidate has made probably for 8 years, and that is all 
options ought to be on the table. And it is what every 
candidate on both sides of the aisle running for any office 
other than city council has said for years. And yet, I guess I 
would ask the question, are we making plans with our friends 
toward military action, not doing it, but are we making those 
kinds of plans that are known and send signals to Iran that if 
these sanctions do not work, we really are prepared to use that 
option? Is that taking place at present?
    Ms. Sherman. I would say briefly two things, Senator.
    One, the President of the United States has said publicly 
on several occasions that all options are on the table, and I--
--
    Senator Corker. Like I said, every candidate has said that.
    Ms. Sherman. But from Iran's point of view, when the 
President of the United States says that, whoever the President 
of the United States is, whatever party, it is a serious and 
fundamental statement.
    Senator Corker. George Bush said that. George Bush probably 
before him said that.
    Ms. Sherman. But Iran understands and they read the 
newspapers and see what is happening. They understand it is a 
serious possibility, and we have reason to understand that they 
believe that.
    And second, in terms of plans and planning, my experience--
I am sure yours as well--is that the Department of Defense 
plans for virtually every hypothetical situation there is in 
the world.
    Senator Corker. Thank you, Mr. Chairman. Thank you all for 
your work, and thank you, Senator Menendez, for focusing on 
this issue.
    The Chairman. Thanks, Senator Corker.
    Senator Cardin.
    Senator Cardin. Thank you, Mr. Chairman.
    Let me thank both of our witnesses.
    There may be some disagreement on the timeline as to when 
Iran will have a nuclear capacity for a weapon, but there is no 
disagreement on the timeline on the vote on the Menendez-Kirk 
amendment. That is going to take place momentarily, certainly 
within the next 24 hours. So I would just urge you with the 
sense of urgency as it relates not just to this amendment but 
to this issue.
    Now, we have all talked about Iran, and let me put it in 
context. Iran is an extremely dangerous country. They are 
supporting terrorism, and we have known what cost that has been 
to the American people. They are abusing their own people. They 
are supporting Syria's efforts on the abuse of the people of 
Syria. And the list goes on and on.
    As you pointed out, Secretary Cohen, the international 
referee on nuclear nonproliferation has judged that Iran is 
proceeding with a nuclear weapon. They point out that what they 
are doing would be inconsistent with anything other than a 
nuclear weapon. So we know that we are on a glide path of an 
extremely dangerous situation, which brings us to timing 
issues.
    I want to just underscore what Senator Corker said. I think 
on both sides of the aisle we appreciate the leadership of the 
Obama administration in reaching out to the international 
community and getting more international support for sanctions 
than we have had in the past. That is extremely important. But 
it starts with U.S. leadership. We have seen over and over 
again that without the United States stepping forward, the 
international community is slow, in many cases will not act at 
all.
    So dealing with the Central Bank of Iran, your own reports 
show that they are money laundering. They are assisting the 
proliferation of nuclear weapons, and they are assisting 
terrorism. We have cut off relations with the Central Bank of 
Iran. It is a clear signal to the international community that 
we are very serious about drying up the financial capacity of 
Iran. That is the only way we believe that sanctions will 
effectively change course of Iran on its nuclear ambitions for 
a nuclear weapon.
    That brings me again to the timing issue. If we do not move 
forward rapidly, then I am not sure it can be effective. And 
what I do not understand, and maybe you can help clarify for 
me, the Menendez amendment gives you 2 months before any action 
takes place. You have another 3 months after that to cool off 
issues, and then after the 5 months, you have the waiver 
authority. So it seems to me it speaks volumes as to ratifying 
the policy that you have already stated. The Central Bank of 
Iran is money laundering, it is proliferating, and it is 
supporting terrorism. We had nothing to do with it and we want 
the international community to work with us to cut off the 
Central Bank of Iran. This amendment gives you the tools to 
work with the international community to be selective as to 
what national banks should be sanctioned. You could be 
selective.
    So I am not exactly sure the resistance to the passage of 
the amendment, and maybe you can help clarify this for me 
because all the horrible things you have said I have heard 
before. Oil supply. We know about that issue. We have heard 
that before. But it seems to me this gives us the power to work 
with the international community to provide the type of unity 
necessary showing that America is very serious about cutting 
off the financial capacity of the Government of Iran.
    Where am I wrong on the 5 months you have? That gives you a 
lot of time for your diplomacy. I know diplomacy can take time. 
Five months is a long time, particularly when we are looking at 
a glide path for Iran that if action does not take place within 
the next several months on changing their course of action, it 
may be too late.
    Mr. Cohen. Senator Cardin, I think the concern is that in 
the course of that effort, whether it is the 60 days or the 5 
months, before there are aspects of the provision that would 
kick in, we are operating in an environment where we are going 
to our closest allies with a stick rather than with an effort 
to----
    Senator Cardin. The stick requires the President to make 
certain findings before it can be used.
    Mr. Cohen. It does. But I think the concern is that from 
the perspective of the financial institutions involved, the 
perspective of the governments involved, there cannot be any 
confidence from their standpoint that a waiver will be invoked 
or that a determination will be made to obviate the----
    Senator Cardin. But is our objective not to get them not to 
deal with the Central Bank of Iran?
    Mr. Cohen. It absolutely is. And we just have a 
disagreement in the tactics to achieve that.
    Senator Cardin. But if country A, our close ally, wants to 
work with us and block the Central Bank of Iran but country B, 
our ally, does not, is it not helpful for country A to know 
that there is a reward and punishment issue involved to 
adhering to the sanctions? Does it not help our allies to know 
that we want all of our allies to cut off the financing of Iran 
through its Central Bank in order to be able to avoid a nuclear 
Iran?
    Mr. Cohen. It will be helpful. At the risk of repeating 
myself, the judgments of the administration--and not just 
Secretary Geithner, but the administration broadly--is that the 
best way to work with our four allies on this is not by 
threatening our most severe sanction against their largest 
financial institutions, but to work with them and to build on 
the international consensus that already exists and to take 
these steps.
    Senator Cardin. I understand your point, and I think it 
represents a traditional difference of view between the 
executive and legislative branches, and I think the legislative 
branch will speak today.
    The Chairman. Thank you very much.
    Senator Risch.
    Senator Risch. Thank you, Mr. Chairman.
    First of all, let me say that the views expressed here by 
Senator Menendez, Senator Cardin, Senator Corker are all views 
that are very representative of the consensus of the 
legislative branch of Government right now. I have no doubt and 
I do not think any Member of this Congress has any doubt that 
the goals and objectives of the executive branch are exactly 
the same as the goals and objectives of the legislative branch.
    However, we got a real problem in what I would call an 
enthusiasm gap or an urgency gap--sense of urgency gap between 
how the legislative branch views this and how the executive 
branch views this. And this frustration that you are seeing 
here today I think is the result of that gap that exists 
between us, and that needs to be resolved and we believe it 
needs to be resolved urgently.
    I would think--and I think many of my fellow Senators 
believe--that after the IAEA report, your sense of urgency 
should have risen to our sense of urgency. And we are not 
seeing that. We hear the words. We hear the talk, but we have 
wanted action for some time and it just has not happened. And 
so the result of that is what you see in front of you.
    So I would strongly suggest that rather than coming up here 
with a strategy on how you are going to try to torpedo this 
amendment, you figure out how you are going to make this 
amendment work because this amendment is going to pass. And it 
is not going to pass by a close vote; it is going to pass by a 
very large vote. I think those of us who serve here in the 
Senate hope that it will send the signal that we want to see 
sent.
    Look, this issue is not a trade issue that we are arguing 
over. It is not some dispute we have on borders or something. 
When it comes to the issues in the world today, this issue 
ranks right up at the top. The United States cannot be wrong on 
this. The world cannot be wrong on this. We cannot make a 
mistake on this.
    Unfortunately, I think most of us agree with what Senator 
Corker said when he said, well, you know, you are trying to do 
this through sanctions, and to quote Senator Corker, I think he 
said ``I do not think you are going to get there.'' And I have 
to tell you that I believe that is the consensus view of the 
Senate up here also. Again, that is why you are seeing what you 
are seeing in the form of this amendment.
    So I guess what I would tell you is you probably need to go 
out of here and figure out how you are going to make this work 
and how you are going to raise to the level of urgency that we 
have and that you have seen here today.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Risch.
    Senator Webb.
    Senator Webb. Thank you, Mr. Chairman.
    And Secretary Cohen and Secretary Sherman, I apologize for 
arriving here late. I am on the Armed Services Committee and 
we've got a markup on the floor. But, I was able to watch a 
good portion of your testimony while we were considering 
amendments in my office.
    I want to ask you a couple questions. Again, I apologize if 
I may have missed them already being discussed while I was 
doing these other things and getting over here.
    First of all, I am not a great fan of sanctions in general, 
and I believe if the circumstances require that they take 
place, that they should be clearly targeted. They should have 
somewhat of--I cannot say a guarantee but somewhat of a 
certainty that they would be effective and also that they would 
be widely supported in the international community. Listening 
to your testimony, I can hear--I think--a very sincere concern 
about the possibility that you may end up doing more harm than 
good if certain types of sanctions are put into place here.
    I have not decided how I am going to vote on this 
amendment. I am still thinking this through.
    But, I would like to ask you three questions in the time 
that I have here. The first is--and again, I apologize if you 
have already stated this, but could you compare the sanctions 
that would be put in place under this amendment with the 
sanctions that the United Kingdom put in place earlier?
    Mr. Cohen. The sanctions that the United Kingdom put in 
place last week essentially brought the U.K. into line with 
where the United States has been for many years. We, years ago, 
cut off the Iranian financial sector from the United States. 
The U.K., over the past several years, has taken actions 
against particular institutions. What they did a week ago 
Monday was to cut off the entire Iranian financial sector. So 
they are now in line with where we are. The Canadians as well 
are in line with where we are and where we have been for some 
time.
    Senator Webb. Thank you.
    With respect to your concern--and this is a concern also 
being expressed in a letter from the Secretary of the Treasury 
that our closest allies would curtail purchases altogether in 
the future or would cease to cooperate. Do you see a 
predictable outcome among these countries that you are 
discussing if this amendment were to pass?
    Mr. Cohen. Well, Senator, I think what we and what 
Secretary Geithner was driving at is that we see and we are 
working with our partners to have them reduce their reliance on 
imports from Iran, as the United States has done. We import no 
oil from Iran. We are seeing that our partners recognize, in 
part because of the actions that we have taken and the 
information that we have put out into the public domain, the 
danger involved in purchasing Iranian oil and having those 
revenues flow to the CBI which uses those revenues to fuel 
Iran's dangerous activities. And so what we are doing and have 
been doing and want to continue to do is to work with our 
partners to draw down, if possible, entirely cease importation 
of Iranian oil.
    Senator Webb. You are saying in your testimony that the 
potential effect of the amendment is to reduce that level of 
cooperation?
    Mr. Cohen. I think there is a danger that it will result in 
less cooperation because of the reaction to the threat that is 
being visited on their financial institutions.
    Ms. Sherman. If I might, Senator, add a couple of things to 
that.
    There are very close allies of ours who have very complex 
commercial relationships with Iran, not in the arenas in which 
we have already imposed sanctions, but in everyday things, 
selling television sets or just household goods. And our 
reading of the effort by Senator Menendez and Senator Kirk and 
by so many Senators to achieve the same objective that we 
achieve, which is to cut off the lifeblood of Iran's economy so 
that they pull back from their nuclear weapons program, in fact 
will see our taking such an action as a blunt instrument that 
takes away their capabilities of dealing with their financial 
life.
    Senator Webb. And obviously at this point we would not 
characterize China as one of our closest allies here or in 
other places. As these other policies have been put into place, 
China has very noticeably not cooperated. They are becoming 
Iran's most active trading partner. They are still trading oil. 
What is their reaction to this? What would you think would be 
their reaction to this sort of a process like the new 
legislation or even existing policy? What are they doing?
    Ms. Sherman. Well, let me speak to the broad relationship 
with China in regards to Iran and defer to Under Secretary 
Cohen on the specific CBI reaction.
    We take what China is doing quite seriously. I just 
returned from Beijing and a great deal of the meetings that I 
held were exactly on this point. As a result of that, they have 
finally agreed that Special Envoy Bob Einhorn can go to China, 
sit down, and help them to better enforce the sanctions regime 
that is in place. They have, in fact, slowed down their 
actions. They have not, to the best of our knowledge, 
backfilled from others who have pulled out. We have, indeed, in 
INKSNA sanctioned a Chinese individual and five Chinese firms 
are under INKSNA sanctions. There are other Chinese companies 
that are currently under investigation. And I was quite candid 
with China about each of those cases and the action that we 
would expect or otherwise----
    Senator Webb. I apologize for interrupting you. I have got 
about 7 seconds, and I do not want to take my colleague's time.
    Secretary Cohen, do you see China's economic activity with 
respect to Iran decreasing if this goes forward?
    Mr. Cohen. Senator, I cannot pretend to predict how China 
would react to this. I think it is quite possible that the 
Chinese, if this amendment were adopted, would take the risk 
essentially that we would cut off their financial institutions 
from the United States. But I am just not in a position to 
predict exactly how the Chinese will react for many reasons 
that Under Secretary Sherman described. The relationship 
between China and Iran is a very complicated one, one that we 
have been working on----
    Senator Webb. To this point--the bottom line--they have not 
reduced their economic participation as we have put policies 
into place? I am a minute over so a short answer is better.
    Mr. Cohen. I will answer it very briefly. I think the 
Chinese have essentially remained at the same level of economic 
engagement with Iran, give or take, over the last several 
years.
    Senator Webb. Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Webb.
    Senator Isakson.
    Senator Isakson. Thank you, Mr. Chairman.
    Under Secretary Sherman, there have been expressions by the 
administration of concern about the consequences on oil prices 
with the passage of this amendment. I have heard the testimony 
today about concerns of what it might do to other countries 
that have banking relationships with Iran that are friends of 
ours. Are we also measuring what the consequences of an Iranian 
nuclear test might do to world stability and to oil prices or 
what a nuclear incident in the Strait of Hormuz might do? Are 
we calculating that?
    I know the concern I have, and I really only speak for 
myself. But I think I am speaking for the people of Georgia. It 
seems like the sand in the hourglass is running out. We do not 
know exactly when but there is no question that Ahmadinejad and 
the Iranians, if given the opportunity and with the material, 
probably would use fissionable material in some nefarious way 
against Israel or against somebody in the Middle East. That is 
a calculation that must be in my mind paramount in terms of how 
we deal with Iran, which is why I think it is so important that 
we send the legislative message from the Congress of the United 
States that time is running out on Iran as well. And I would 
like for you to respond to that, if you would.
    Ms. Sherman. Senator, as you have said, as others have said 
this morning and as I want to reiterate, we absolutely share 
the sense of urgency of the Congress. We were not surprised by 
the Amano report which said that up until 2003, there was a 
structured program in Iran to develop nuclear weapons and since 
then, there clearly have been ongoing activities. And there are 
possible military dimensions because there are activities, for 
which there is no plausible explanation except military use, 
and certainly Iran has not offered us a plausible explanation. 
We were not surprised because we were one of the 10 countries 
that supplied information to Director General Amano to produce 
that report. So we quite understandably know what is happening 
in Iran, where it is headed.
    We have successfully, through this multilateral and phased 
and cooperative sanctions approach that has been helped with 
tools that Congress has given to us, as well as Executive 
orders and our IEPA authority, have indeed slowed down Iran's 
capability, have extended that timeline not only from 
enrichment, from their hoping to have 50,000 centrifuges to 
only having 6,000 or 7,000 centrifuges. We have slowed down 
their program. We have degraded their program. We have not 
ended it, and we have not ended our sense of urgency. So we 
quite agree with you.
    And I think that is why, when the Amano report came out--
and that was virtually a unanimous vote at the IAEA Board of 
Governors, and that did not happen by accident. That happened 
by a concerted diplomatic effort to make that occur. We took 
action, along with the U.K. and Canada, to add additional 
sectors, additional sanctions to our arsenal to try to deal 
with Iran's nuclear program.
    So we are completely where the Congress is in terms of the 
sense of urgency. As Secretary Cohen said earlier, what we are 
talking about today is tactics of getting there. In that, we 
have some disagreements and we should continue this debate. And 
as Secretary Cohen said, we are well aware of the strong 
support for this amendment today, and we understand the impulse 
for that amendment because we share the objective. We just 
think there is a better way to go about it.
    Senator Isakson. Thank you.
    Under Secretary Cohen, as I understand it, Treasury in 311 
findings had some pretty astounding revelations about the 
Central Bank of Iran, A, in terms of them funding other banks 
that are sanctioned by the United States, and B--what is their 
name--the IRGC construction firm that is under sanction. What 
do those findings alone tell us about why we have not 
sanctioned the Central Bank yet? Because those are clear 
findings of the Treasury of what I think are clear violations 
of our sanctions already.
    Mr. Cohen. Well, Senator, we in our 311 finding broadly 
described the Iranian financial system's involvement in Iranian 
illicit activity and specifically included information about 
the Central Bank of Iran's deceptive practices that you 
identified.
    We are using the foundation of that finding with our 
partners as a way to further highlight the risk of doing 
business with Iran, any of the financial institutions in Iran 
and with the Central Bank of Iran in particular. It has allowed 
us to have in one place the comprehensive presentation of the 
risks involved in doing business with Iran, including the 
Central Bank.
    The question of how we then take the next step is something 
that is left for us to continue to work on and work on with the 
Congress and work on within the administration. The findings in 
the 311 do not predetermine any particular action, but we have 
at our disposal a range of possible next steps with respect to 
Iran. And I think this gets back to the comment that Under 
Secretary Sherman said. What we are looking to do is to bring 
to bear on Iran and on the Central Bank of Iran, but more 
generally on Iran overall, substantial additional pressure. And 
if the right step is to bring a sanction onto the Central Bank 
of Iran, we are prepared to take that step.
    We think that, as we sit here today, the right thing to do 
is to proceed with a multilateral effort to isolate the Central 
Bank of Iran, to work with our partners to reduce their import 
of Iranian oil, and to take an action to freeze the assets of 
the Central Bank of Iran. That would be, in essence, the steps 
that we would want to pursue with respect to the CBI with a 
real sense of urgency with a notion that the clock is ticking 
and we have got to ramp up our efforts here. But that is where 
we are looking to proceed.
    Senator Isakson. I respect the fact that both of you have a 
very difficult job and that diplomacy under any circumstances 
is tough, particularly when you are dealing with a dishonest 
broker like the Iranians have been. But I think Menendez-Kirk 
does reflect the sentiment of the majority of the people of 
Georgia and, I would suspect, the United States, and I think 
urgency is something all of must consider in dealing with the 
Central Bank and with the nation of Iran.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Isakson.
    Senator Shaheen, I do not think it is an award, but I think 
you get special recognition for greatest price paid trying to 
get to a meeting of the Foreign Relations Committee.
    Senator Shaheen. Thank you, Mr. Chairman. I hope you will 
acknowledge that in the future when I have legislation pending 
before this committee.
    The Chairman. Absolutely. We owe you.
    Senator Shaheen. You should have seen the other guy.
    [Laughter.]
    Let me begin first by thanking both of you for the efforts 
that you all have been making to address Iran's move toward 
achieving a nuclear weapon.
    I do want to, though, share the sentiment that has already 
been expressed by my colleagues on this committee, that I 
believe Menendez-Kirk amendment is going to pass. And so I 
would hope that if there are suggestions that the 
administration has about things you would like to see different 
in that amendment, that you would share those with us because I 
do think, as you have heard, we are going to act on this within 
the next 24 hours, and so it would be helpful to know what else 
you might like to see happen.
    Having said that, I wonder. Both Senator Menendez and 
Senator Webb raised the criticism that the administration is 
not doing enough with the sanctions that have already been 
designated and particularly with respect to some of the Chinese 
companies. You responded to that briefly, Under Secretary 
Sherman, but is there more you can tell us about whether the 
administration has in your opinion been doing enough with the 
sanctions you already have or what else could be done?
    Ms. Sherman. Thank you very much, Senator, and thank you 
for the suggestion of bringing to Senator Kirk and Senator 
Menendez any additional suggestions we might have in the short 
period of time that is left, and we will certainly take that 
back and consider that.
    As I said, we understand the concern about China. It was 
the focus of a trip that I made last week to impress upon China 
the reality and the prompt action that was required on their 
behalf regarding a number of situations, my request for Special 
Envoy Bob Einhorn to finally be welcomed to China to help them, 
in fact, follow through on the sanctions regime and the 
obligations, which we have not talked enough about here, under 
the U.N. Security Council resolutions. There are five 
resolutions that have passed, four which have legally binding 
requirements. And so this is not just a United States request. 
This is a U.N. Security Council obligation of states around the 
world.
    We have sanctioned 280 individuals and entities over the 
last few years. We, of course, think we should do more and 
better. In fact, when the QDDR was written at Secretary 
Clinton's request, one of the things that came out of that was 
to, in fact, increase our enforcement capabilities, to increase 
the number of FTE, to organize the State Department in a better 
way to, in fact, enforce sanctions. That process is underway. 
We are trying to not have it constrained by the budget, 
constraints that we all now face.
    But, yes, we think we should do more. We have accelerated 
that progress, and we expect to be accelerating it even further 
in response to everyone has said here, which is this is an 
urgent problem.
    Senator Shaheen. Thank you.
    There is an interesting opinion piece in today's European 
edition of the Wall Street Journal, which I assume both of you 
might have seen, that highlights the involvement of the 
Revolutionary Guard in not just the nuclear and missile 
program, but in so many other economic areas in the country. 
And the article quotes you, Mr. Cohen, from your October 
testimony to Congress that the Revolutionary Guard has expanded 
its reach into so many critical sectors of the economy. Can you 
talk about how difficult it is to draw a line between the reach 
of the Guard and how that affects our ability to address 
through sanctions to bring pressure on Iran? And then also, if 
you would, talk about how we are working with our European 
allies to address the IRGC's move into legitimate businesses.
    Mr. Cohen. I am happy to, Senator, because I think the IRGC 
has been one of our key targets for sanctions over the last 
several years. It is recognized in Security Council 
resolutions. It is recognized by the EU and certainly 
recognized in our sanctions as a target that is very deserving 
of sanctions. The IRGC is involved in the most dangerous 
activities in Iran, and as it continues to expand into the 
Iranian economy to the detriment of the average Iranian 
citizen, frankly it provides us with additional ways to apply 
pressure on the Iranian regime.
    So earlier this year, for instance, we applied sanctions on 
an entity called Tidewater Middle East Company which is a port 
operator at seven of the ports in Iran, including the largest 
container terminal at the Bandar Abbas port. The IRGC had come 
in and taken over ownership of that entity several years ago. 
We have applied sanctions to Tidewater. It is now the law of 
the United States that any foreign financial institution that 
engages in a transaction with Tidewater risks having its access 
to the United States terminated.
    We are continuing to press our allies in Europe to add 
Tidewater to the list of sanctioned entities in Europe as well 
because Europe has taken a number of steps to sanction IRGC-
related entities including, I think most importantly, an entity 
called Khatam
al-Anbiya, which is a major construction firm in Iran that has 
been subject to sanctions.
    Senator Shaheen. And have we been successful at persuading 
them on Tidewater?
    Mr. Cohen. To be candid, Senator, I am waiting to see if it 
is included in the list of 180 new sanctioned entities that the 
EU has announced today. But if we are not successful today, I 
can assure you that we will continue to press the Europeans to 
add Tidewater to the list of sanctioned entities on the EU 
list.
    But the IRGC--I see my time has expired. Just one final 
comment. The IRGC, as it continues to expand into the Iranian 
economy, as more and more average Iranian citizens are moved 
out of the economy and the government and its most dangerous 
entities expand their economic reach, we will continue to take 
action and to designate those entities and work with our 
partners to do the same.
    Senator Shaheen. Thank you.
    The Chairman. Senator Coons.
    Senator Coons. Thank you, Chairman Kerry, and thank you for 
holding this hearing.
    I am simply going to renew comments I know you have heard 
from literally every single member, I believe, of this panel so 
far about how rapidly Iran is making progress toward the 
acquisition of a nuclear weapon, about how gravely the people I 
represent are concerned about this, and about a real lack of 
clarity about the communication with Senator Menendez about an 
amendment, of which I am a cosponsor and for which I intend to 
vote today in the absence of some better clarification or 
understanding of why the timing and the waiver provisions are 
insufficient. It is rare that I do not--I take very seriously 
the letter of the Secretary and your input and respect your 
efforts.
    But I think August 9 a letter went to the President from 92 
Senators urging prompt engagement and action on sanctioning the 
Central Bank of Iran, urging more progress toward exactly the 
sort of multilateral effective sanctions regime that we have 
been discussing at great length here. And I think what you are 
hearing, just speaking for myself, is a steadily increasing 
level of grave concern bordering on alarm.
    Since August, the IAEA report has come out, allegations of 
an assassination plot against a Saudi diplomat, the assault on 
the British Embassy. There is no doubt in my mind that Iran is 
the most dangerous nation in the world at this point and that 
this situation, as it steadily moves in a bad direction, is 
going to push us toward some tough decisions. The ranking 
minority member started by asking you about planning for a 
potential military action. I wonder what we are doing to 
prepare the American people for the possibility of necessary 
action by either our close ally Israel or the United States.
    And I think the level of engagement you are hearing from 
this panel simply reflects that, a concern that 6 months on--
that letter was in August. It is December--you are pushing back 
very hard on an amendment by Senator Menendez that, by its 
structure, gives months more for diplomacy. I think the 
Iranians by their actions have finally made abundantly clear to 
the international community what they are doing and their 
intentions. And the statements certainly of Ahmadinejad are 
appalling, gravely concerning, and a clear source of concern, 
legitimate concern, by the people of Israel, the United States, 
and all of our allies.
    So I hope you take this very seriously, and in the absence 
of any clear input from you on what is insufficient about the 
Menendez amendment, I intend to vote for it today. So there is 
not a lot of time for back-channel communication. This is an 
active issue, and I mean that both between our branches and 
between the United States and Iran.
    I am eager to hear from you anything more that would give 
me some confidence that the Chinese, who are still the worst 
actors in this field, with whom we have so many other problems 
in intellectual property, in currency manipulation, and 
ongoing--we are in a full-on trade war in my view with the 
Chinese. We just need to manage it as appropriately as we can 
in the interest of the people of the United States.
    One of the things I had hoped to hear today was that we are 
making real progress with them in engaging them in an effective 
multilateral sanctions regime that is bearing down on the 
Iranians, and I was encouraged to hear that they are accepting 
Special Envoy Einhorn. But under CISADA, I do not see that we 
have aggressively and effectively sanctioned Chinese actors in 
this area, and given the hourglass that has been referred to by 
Senator Menendez and others, I am really concerned that we are 
not being aggressive enough in this field.
    Please, if you would, Under Secretary Sherman.
    Senator Menendez. Would my colleagues, before the Secretary 
answers, give me 30 seconds before I have to leave to respond 
to something?
    Senator Coons. Certainly.
    Senator Menendez. Two things. No. 1 is the Secretary 
mentioned that there are many nations that have complicated 
relationships with Iran. But our section E specifically only 
focuses on sale or purchase of petroleum and petroleum 
products. So it is not going after all of those other 
complicated relationships.
    And No. 2 and pursuant to your question and your concern, 
which I appreciate your support of the amendment, is that, you 
know, the Chinese have already taken the risk. Under the 
existing sanctions regime, the Chinese have not moved. So the 
answer to that question is pretty clear.
    And I thank the gentleman for giving me some time.
    Senator Coons. Thank you, Senator.
    Under Secretary.
    Ms. Sherman. Thank you. I thank both of you, Senators.
    On China, I would reiterate what I said earlier, which is I 
agree. We want more action out of China. They have taken some 
action to slow down their activity, not to backfill from others 
who have pulled out of the Iranian oil sector in particular. We 
have sanctioned one individual and five or six entities in 
China. We have others that we are looking at that was the 
subject of some of my discussion with them last week. So I 
would agree with you. They should take more action.
    I will say this, that they have stuck with the 
international coalition. They did cosponsor the resolution at 
the IAEA. They did vote in the U.N. General Assembly for the 
resolution condemning the actions on the Saudi Ambassador. It 
is important to have them inside the tent as opposed to outside 
the tent, but there is no doubt in any of our minds that they 
need to take far more action than they have. And we are quite 
aggressively engaged with them. This was the subject of some of 
the President's discussions in Honolulu, and in Bali just 2 
weeks ago, Secretary Clinton's with Counselor Dai, so at every 
level, with Vice President Biden's with Xi Jinping, who is set 
to be the next leader of China. So we share the focus, the 
urgency, the attention and the obligation that China has under 
the U.N. Security Council resolutions to, in fact, follow 
through. So we share that and I take your message that we need 
to pursue it even more urgently than we already are.
    Again, on the Kirk-Menendez, we appreciate, as Under 
Secretary Cohen said initially, that this will pass. We 
obviously would appreciate more discretion than even exists in 
the current draft of the amendment. We think tactically that it 
may both increase the price of oil, which will give Iran a 
windfall. That is not the objective, I know, of the 
legislation, but may in fact have that effect.
    And second, we are concerned--and may even create that 
windfall during this 5-month period of extensions that exist in 
the legislation because of the anticipation of the markets.
    So I think no one knows exactly what will happen, but there 
is most definitely a risk that Iran could get a windfall from 
this, let alone complicate our relations with very close 
friends and allies.
    Senator Coons. Thank you.
    Seeing that I have run out of time, I will submit some 
additional questions for the record. I just urge the Under 
Secretary to use his great skills to convey effectively to the 
markets things that might avoid that sudden spike. I think the 
reality is that Members of the Senate are concerned that we 
send a clear and strong message about our determination to 
prevent Iran from making any further progress in acquiring 
potential weapons.
    Thank you.
    The Chairman. Thank you, Senator Coons.
    Senator Casey.
    Senator Casey. Thank you, Mr. Chairman.
    Under Secretary Sherman, Under Secretary Cohen, we are 
grateful for your testimony and your public service.
    I think what you are hearing in this discussion today is a 
real concern about a sense of urgency or what some would 
assert, a lack thereof. Like a lot of us, we get the chance to 
travel in places like the Middle East. When I was there last in 
the summer of 2010, Senator Shaheen was on the trip as well. We 
had a visit to about seven countries in 9 days, if my math is 
right. And at that time, months before the Arab Spring and at a 
time when there was a real consensus about the threat posed by 
Iranian regime, whether you were in Israel or Saudi Arabia, 
whether you were in Egypt or some other place, a real sense of 
not just consensus but real worry. That was the summer of 2010.
    If anything, it has become not only more apparent but I 
think more urgent. And I think it is finally more apparent to 
people across our own country because of the assassination 
plot, because of what the IAEA reported recently.
    I do not want to walk through all of it, but I mean, the 
language is pretty compelling when the IAEA says they have 
credible information that Iran has carried out activities 
``relevant to the development of a nuclear explosive device.'' 
And then, of course, they outline it further.
    So there is a sense of urgency here or there is, I think, a 
greater sense of urgency that a lot of people feel in our 
country, and perception is very important in these situations, 
as you know. But there does not seem to be an administration 
policy or set of actions that is commensurate with that sense 
of urgency.
    Look, I am a cosponsor of what Senator Menendez and Senator 
Kirk are trying to do, and I have long labored in this 
vineyard. But when we read letters that talk--like the one from 
Secretary Geithner--continue to work with, negatively affect 
many of our closest allies, likely to have allies resent our 
actions or resist following our lead--and we all want to have 
collaboration. We all want to have a steady effort here. But 
this is a move way beyond where we were in 2010.
    Let us assume for a second that there was no nuclear 
threat, if we could magically remove that threat. Just the 
impact this Central Bank has on being the banker for a lot of 
bad guys in that region, Hamas, Hezbollah, so many bad guys 
that they provide resources for--that is another reason for the 
sense of urgency. So I think that is what you are hearing here.
    And I guess my question is very simple. If not this, what 
should we do right now in the next month or 2, and if not this 
now, how long will the strategy that you want to put in place 
or continue--how long will that take?
    Mr. Cohen. Senator, on the sense of urgency, I can assure 
you that on my own behalf and on behalf of the entire 
administration, there is not an issue that focuses the 
attention of the administration more than the threat of Iran 
and as it is laid out in the IAEA report. We feel that sense of 
urgency every day.
    I have just returned, just yesterday morning, from a short 
trip to Israel and the UAE which is the most recent of my 
journeys both to consult with our allies who are working on 
this issue and to learn about their perspective on the threat 
and to bring that back and to feed that into our process.
    We are working on this issue every day and have taken steps 
to bring to bear more financial, commercial, and diplomatic 
isolation on Iran today than it has ever seen before. It is, I 
think, fair to say that we have applied a substantial degree of 
pressure on Iran, and at the same time, we recognize that there 
is more to do. And so the steps that we are prepared to take in 
the short term, assuming the Kirk-Menendez amendment is not 
adopted, which I recognize may not be a valid assumption--we 
are committed to taking action against the CBI to freeze its 
assets, to work with our allies to have them take a similar 
action and to work with our allies to encourage them to take 
the steps that they have already indicated a willingness to 
consider, which is to ramp down their involvement with the CBI 
and their purchases of Iranian oil. That will constrict Iran's 
access to the hard currency and to the revenue that it needs to 
fuel the activities that you address, Senator. That is the 
course that we want to proceed on while, at the same time, 
continuing to apply the sanctions that we have across a range 
of areas.
    The new Executive order from just 10 days ago on the 
petrochemical sector and on the production of oil in Iran is a 
very significant new step that goes after anyone providing 
goods or services to either of those industries. The 
petrochemical industry is the second most important source of 
export revenue to Iran. The petroleum industry is the first. 
Those sanctions directly target Iran's ability to continue to 
develop both of those sectors.
    So we have been pursuing and are intent on continuing to 
pursue a range of significant and powerful sanctions on Iran.
    The issue--you know, I think we have been discussing it 
this morning. The issue is how best to achieve that while 
minimizing the potential of an adverse consequence of this 
backfiring. And as Under Secretary Sherman alluded to and as 
Secretary Geithner notes, we have real concern that the 
amendment, as it is currently drafted, even with the phase-in 
and even with the potential for waivers, has the potential to 
actually increase revenues to Iran, and that is obviously 
something that we all want assiduously to avoid.
    Senator Casey. I know I am out of time. Under Secretary 
Sherman, I do not know if you have anything you want to add.
    Ms. Sherman. The only thing I would add that we have not 
discussed here this morning is that the international 
environment is changing on a daily basis and probably one of 
the most significant things that will happen sometime in the 
near future is a change in Syria. Iran has really only two 
allies left: Syria and Hezbollah. And when, indeed, Bashir al-
Assad steps aside, which he most undoubtedly will do--it is 
just a matter of when, not if--Iran will lose one of its last 
proxies in the world. And it will further focus the attention 
of the international community on what has to occur here and 
create some different political circumstances that I think will 
help us to further isolate Iran and to make it pay a price for 
its illicit activities.
    Senator Casey. Thank you.
    The Chairman. Senator Casey, thank you.
    Let me just say I think we in the Congress have a 
difference of opinion about a particular step, but I want to 
assure my friend and colleague that on the issue of urgency, I 
can attest that I cannot think of any issue that is 
concentrating the minds of the administration more than this 
right now or at any other time. Yesterday I was at the White 
House in a meeting about this particular topic. I know that the 
Secretary of State and the State Department are as focused on 
it as can be. I do not think anybody has any illusions about 
the timeframe or the urgency. There may be some differences 
about timing on a particular step or a particular methodology, 
but I would not view this amendment or the discussion this 
morning as somehow some great departure. And I think it is 
important for everybody, particularly outside of here, to 
understand that. There is a universal understanding amongst our 
allies also. This is the topic of conversation right now, and I 
think everybody needs to be aware of that.
    Senator Udall.
    Senator Udall. Thank you, Chairman Kerry, and thank you for 
holding this hearing at this very appropriate time.
    And I appreciate you all being here and your service to the 
country.
    Under Secretary Cohen, I do not know if you can answer 
this, but I thought publicly I wanted to at least try to 
explore it a little bit with you. It has been reported that 
A.Q. Khan's designs and plans have been widely copied by the 
Iranians. Do you know if Pakistan or elements of Khan's black 
market network are currently supporting Iran's program? And 
then what tools do we have to deal with black market nuclear 
materials? The whole discussion here has been about our allies 
and working with our allies, but we have some other very 
dangerous situations to deal with here.
    And Secretary Sherman, if you want to start, please go 
ahead.
    Mr. Cohen. So I do want to be mindful of the setting in how 
I respond.
    Senator Udall. Yes.
    Mr. Cohen. So let me just say this. We are focused very 
carefully on who is supplying material to Iran and in 
particular to Iran's nuclear program. We have, obviously, a 
range of sanctions already in place against entities in Iran, 
as well as entities outside Iran that have been supportive of 
their nuclear proliferation activities, and we continue to 
track very closely the individuals and entities involved in 
supplying Iran's nuclear program, the material for its program.
    So I do not want to get into any greater specificity on 
that in this setting. You know, we are happy to brief you in a 
different setting with additional information. But we spend an 
enormous amount of time trying to understand who it is that is 
supplying Iran and then taking action to try and isolate them 
from the international economic and the commercial and 
financial systems so that they are not able to do so.
    Ms. Sherman. I would only add, Senator--and would be glad 
to go into further detail in a classified setting--that A.Q. 
Khan's tentacles throughout the world have been much discussed, 
much absorbed, and much tracked, and that the State Department 
and the entire administration pays close attention to sort of 
the trading routes of nuclear materials. One of the great 
experts in this regard is the ranking member of this committee 
who probably understands the trade of materials and technology 
as well as any of us do.
    I would note as well we do this not only for Iran, but 
North Korea and other would-be nuclear powers, and Secretary 
Clinton, in her meetings in Burma in efforts to not only 
encourage the democratic trends that are taking place, but also 
is being very quite clear with the leadership in Burma that 
ties to North Korea and potential shipments need to stop. So 
the tracking of these routes that might increase nuclear 
proliferation are something that is quite well attended to.
    Senator Udall. Thank you for that answer, and we may have 
an opportunity to explore this in other settings.
    But the amendment that has been discussed here today is 
targeting the sale of Iranian oil. And I had a couple of 
questions, and I am just going to throw them all out and have 
you try to answer them.
    In light of the widely reported pullout of major energy 
firms from Iran's energy sector, what is your assessment of the 
Iranian oil and gas industry at this point? If that sector is 
declining, how will world energy prices be affected going 
forward? Who is purchasing Iranian oil? Who are the big 
purchasers? What are the percentages there? Are those numbers 
going up or down. For example, with the Chinese, how major of a 
purchaser are they, and from what you have described, Secretary 
Sherman, is that going down? And then is there any indication 
that Iran cannot sell any of its oil on the world oil market?
    Ms. Sherman. Thank you. The data on all of this fluctuates, 
and in this setting, I can discuss open-source reports.
    Iran is still doing relatively well because the price of 
oil is quite high, and that actually has been the nature of a 
lot of our discussions and concerns about the Kirk-Menendez 
amendment, which is that it may increase the price of oil which 
would only accrue to the benefit of Iran.
    In terms of monthly deliveries of refined petroleum to 
Iran, which is quite crucial to their economy, whether they are 
lower today than they have been in the past, although month-to-
month numbers fluctuate, it is our view that they are 
significantly lower than before CISADA was passed and that in 
fact CISADA has had an impact. And furthermore, the price for 
these products is reportedly higher, that is, the refined 
petroleum coming in. As most people know on this committee, but 
the public may not know, although Iran has a lot of oil, it 
does not have the capacity to refine that oil for its domestic 
use. So it has to send out the oil, get it refined elsewhere, 
and have it come back in. And the prices for that refined oil 
has increased 10 to 25 percent since CISADA.
    So again, the sanctions that we have are biting. Yes, Iran 
is deploying some deceptive practices to circumvent these 
sanctions, but we are, I think, working very hard to stay ahead 
of those tactics.
    Mr. Cohen. And Senator, just to respond to your question 
about who is purchasing Iranian oil today, there are purchasers 
in the EU, Greece, Italy, the Netherlands. Outside of the EU, 
China is obviously a big purchaser, as is Japan, South Korea, 
India, Turkey; Sri Lanka, I think, gets all of its oil from 
Iran. But those are the major purchasers of Iranian oil today.
    Senator Udall. Do you have any sense on percentages? I 
mean, is China the biggest purchaser? Do they purchase 50 
percent of----
    Mr. Cohen. Excuse me. I am sorry.
    Senator Udall. Yes. Go ahead.
    Mr. Cohen. China purchases about 20 percent of Iranian 
output. Why don't I give to you--these are unclassified 
figures. I can give you a chart that sets out exactly how much 
each of these countries imports from Iran and what percentage 
it makes up of their imports.
    Senator Udall. And is your sense because of our activities, 
the things that you have been describing--are any of those 
going down at this point? Or which countries would be impacted 
or taking action or doing something that is putting a crunch on 
the Iranian situation?
    Mr. Cohen. Senator, I think what we are looking to do is to 
work with our closest allies, particularly in the EU, in Asia, 
in India potentially to try and have them reduce their 
importation of Iranian oil. I think we have not seen to date 
that occur, but I do think we see the potential for a 
coordinated effort to bring that about.
    Senator Udall. Thank you very much.
    Sorry, Mr. Chairman, for going over a little bit.
    The Chairman. No, no. Thanks a lot.
    Senator Udall. I appreciate you doing this today.
    The Chairman. Thanks, Senator Udall. I appreciate your 
participation and everybody's.
    I think, Under Secretaries, you can see from the broad 
presence here today and the number of questions the intensity 
of the concern and the focus here. And I know you knew that 
before you came. We are very, very appreciative of your 
presence here today. I think this hearing has helped to 
underscore, for the public certainly and for all interested 
parties, the deep concerns that exist right now, and hopefully 
in the next weeks and early months here, everybody will be able 
to come together in a sensible way to avoid the potential, very 
dangerous alternatives and options that are facing everybody in 
this.
    Almost certainly we will have another hearing on broad 
policy aspects regarding this, I would say in early February, 
depending again on the return schedule and what happens in the 
next few days here. And we will sort of start to lay the plans 
for that.
    We know you are focused on it, and as I said a moment ago, 
I am confident about the intensity of the efforts and the 
breadth of the options that are being considered here.
    So thanks for contributing to this. We are very, very 
appreciative of your presence today and we look forward to 
continuing a good dialogue with you.
    We stand adjourned. Thank you.
    [Whereupon, at 12:10 p.m., the hearing was adjourned.]
                              ----------                              


              Additional Material Submitted for the Record


   Responses of Under Secretary of State Wendy Sherman to Questions 
                    Submitted by Senator John Kerry

    Question. Some analyses indicate that not all of Iran's actions in 
Afghanistan and Iraq are contrary to U.S. interests. For example, the 
aid and reconstruction work Iran has done in both countries may 
complement U.S. efforts, and Iran has supported President Karzai of 
Afghanistan and Prime Minister Maliki in Iraq.

   What are the risks as the U.S. withdraws its troops--first 
        from Iraq, later from Afghanistan--that Iran's presence in the 
        region will expand?
   What areas of common interest do the United States and Iran 
        share on other issues or with respect to other countries in the 
        region?

    Answer. Iraqis have repeatedly demonstrated their desire to develop 
a strong, independent state and their resistance to Iran's meddling. 
Prime Minister Maliki has said he will not tolerate violence by 
militant groups, including those backed by Iran, and Iraqi leaders 
confronted Iranian-backed militias operating in Iraq in 2008 and again 
this year after violence against our troops spiked in January. All 
significant Iraqi political groups, with the exception of the Sadrist 
bloc, support a long-term partnership with the United States, and we 
have made it clear to Iraq--and Iran--that we remain committed to being 
a strong and enduring partner to the Iraqis.
    The Government of Iraq's recent decision to purchase F-16s 
demonstrates its commitment to build its external defense capabilities 
and maintain a lasting strategic relationship with us, a commitment we 
will reaffirm during Prime Minister Maliki's upcoming visit to the 
United States.
    We are working with Middle East allies to encourage Iraq's 
reintegration into the region and bolster defenses against shared 
regional threats, such as those coming from Iran. Last, we are 
encouraged that Iraq is strengthening its relations with EU countries 
and key regional players like Turkey to diversify its foreign 
relations.
    With regard to Afghanistan, we recognize the Afghan Government's 
need to build productive relationships with all its neighbors, 
including Iran, which hosts roughly 1 million registered Afghan 
refugees and maintains significant economic ties in western 
Afghanistan. Iran was a signatory to the Istanbul Declaration, which 
calls for supporting ``stability and peace in Afghanistan, as well as 
respect for Afghanistan's sovereignty, unity, and territorial 
integrity'' and ``resolutely combating and eliminating terrorism in all 
its forms.'' Iran should share some of our interests in the region, 
such as reducing the production and trafficking of drugs from 
Afghanistan and preventing the return of radical groups like al-Qaeda 
and the Taliban. Unfortunately, most of its actions in the region have 
contributed to greater instability. Iran has interfered in both 
countries' internal politics, particularly in Iraq, and funneled lethal 
aid to terrorist groups in both Iraq and Afghanistan, as well as to 
Hezbollah and Hamas. It has provided material support to the Syrian 
regime, not only in opposition to our interests, but those of regional 
players like Turkey and Saudi Arabia.
    We remain vigilant regarding Iran's motives and actions in the 
region, and we are committed to maintaining strong relationships with 
Iraq and Afghanistan.

    Question. The State Department launched its virtual embassy in Iran 
this week.

   What does the United States Government hope to achieve 
        through the Virtual Embassy? How does this measure fit into 
        broader efforts to connect with the Iranian people?
   What steps is the United States Government taking to protect 
        Iranians who access the Virtual Embassy Web site, given that 
        their activities may well be closely monitored by the 
        Government of Iran?

    Answer. The Government of Iran is extremely adept at monitoring and 
filtering information, and we are launching Virtual Embassy Tehran as a 
cornerstone effort to bring down the government's ``electronic 
curtain.'' The Web site's content is available in English and Persian 
and operates like any other U.S. Embassy Web site, which will allow us 
to engage directly with the people of Iran and provide accurate 
information on visas, U.S. educational opportunities, American culture 
and society, and U.S. policy on Iran and other issues.
    Initiatives like Virtual Embassy Tehran are part of a broader 
strategy to promote mutual understanding, respect, and dialogue between 
the American and Iranian people. The Web site will complement our use 
of social media and traditional broadcasting tools. For example, we 
have a Farsi page on Facebook with over 45,000 fans and a Twitter 
account with nearly 8,000 followers, as well as our more powerful 
broadcasting tools, VOA Persian and Radio Farda.
    We are also working to help those who wish to bring down Iran's 
electronic curtain. While circumvention software is outlawed in Iran, 
we know that it is widely used by the Iranian people. It is not risk 
free, however, and we have urged all individuals operating in closed 
societies like Iran to use caution when utilizing these tools. The 
Department and USAID have also supported a range of digital safety 
training and awareness-raising efforts to educate activists around the 
world about the risks they face and how to protect themselves online. 
Such programs involve ``train the trainers'' approaches; online 
interactive trainings and outreach; and traditional, low-tech efforts 
to distribute high-tech knowledge.

                                  
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