[Senate Hearing 113-48]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 113-48

 
  IRAN SANCTIONS: ENSURING ROBUST ENFORCEMENT AND ASSESSING NEXT STEPS

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

                                HEARING

                               before the

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

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   ON

 EXAMINING THE CURRENT STATE OF IMPLEMENTATION AND ENFORCEMENT OF U.S. 
                  AND MULTILATERAL SANCTIONS PROGRAMS

                               __________

                              JUNE 4, 2013

                               __________

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


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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon                 MARK KIRK, Illinois
KAY HAGAN, North Carolina            JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia       TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts      DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota

                       Charles Yi, Staff Director

                Gregg Richard, Republican Staff Director

                    Colin McGinnis, Policy Director

                  Laura Swanson, Deputy Staff Director

                           Pat Grant, Counsel

                 Riker Vermilye, Legislative Assistant

          John O'Hara, Republican Senior Investigative Counsel

                  Greg Dean, Republican Chief Counsel

                       Dawn Ratliff, Chief Clerk

                      Kelly Wismer, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                         TUESDAY, JUNE 4, 2013

                                                                   Page

Opening statement of Chairman Johnson............................     1

Opening statements, comments, or prepared statements of:
    Senator Crapo................................................     2
    Senator Menendez.............................................     3

                               WITNESSES

Wendy Sherman, Under Secretary for Political Affairs, Department 
  of State.......................................................     4
    Prepared statement...........................................    29
    Responses to written questions of:
        Senator Crapo............................................    46
        Senator Toomey...........................................    49
        Senator Coburn...........................................    51
David S. Cohen, Under Secretary for Terrorism and Financial 
  Intelligence, Department of the Treasury.......................     7
    Prepared statement...........................................    33
    Responses to written questions of:
        Senator Crapo............................................    52
        Senator Warren...........................................    54
        Senator Coburn...........................................    56
Eric L. Hirschhorn, Under Secretary for Industry and Security, 
  Department of Commerce.........................................     8
    Prepared statement...........................................    42
    Responses to written questions of:
        Senator Crapo............................................    57
        Senator Coburn...........................................    58

                                 (iii)


  IRAN SANCTIONS: ENSURING ROBUST ENFORCEMENT AND ASSESSING NEXT STEPS

                              ----------                              


                         TUESDAY, JUNE 4, 2013

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:05 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Tim Johnson, Chairman of the 
Committee, presiding.

           OPENING STATEMENT OF CHAIRMAN TIM JOHNSON

    Chairman Johnson. Good morning. I call this hearing to 
order, and I welcome my colleagues and our witnesses.
    Today's hearing is part of our oversight efforts to ensure 
effective enforcement of the Iran sanctions regime overseen by 
this Committee. We will assess what additional tools might 
enable the President to intensify the economic pressure on 
Iran's leaders to make clear that they must reverse course and 
satisfy the unified demands of the international community to 
abandon their illicit nuclear activities and support for 
terrorism.
    Two weeks ago, the Senate again made clear where we stood, 
voting 99-0 for a resolution expressing support for aggressive 
sanctions enforcement and for Israel's right to defend itself 
against threats from Iran.
    In addition to sanctions on Iran in place prior to 2010, in 
the last 3 years Congress adopted and the President signed into 
law an unprecedented four new sanctions measures. These 
measures, coupled with those imposed by the Administration, the 
European Union, and the U.N. Security Council, have had 
profound effects. They have slowed Iran's nuclear and missile 
program by restricting its access to key technologies. They 
have crippled Iran's economy, causing its currency to plummet 
and inflation to skyrocket. In the last year, its oil sales 
were cut roughly in half, and Government revenues available for 
its enrichment programs were sharply reduced.
    Yet despite this progress, the core strategic objective of 
our sanctions has not yet been realized: Iran's leaders still 
refuse to abandon their illicit nuclear program and verifiably 
limit their nuclear activities to peaceful purposes.
    The International Atomic Energy Agency reports that 
sophisticated new centrifuges being installed at Fordow and 
Natanz will substantially expand Iran's enrichment 
capabilities. While the P5+1 talks have at least helped show 
the world Iran's unwillingness to compromise, they have not yet 
generated results. Some have expressed hope that the upcoming 
Presidential elections in June might lead to change, but that 
seems unlikely since the candidates are all handpicked 
supporters of Iran's nuclear program.
    As Under Secretary Sherman stated recently, there is 
ultimately only one decision maker on Iran's nuclear program: 
the Supreme Leader. He has remained indifferent to the 
suffering of his own people and to their demands for political, 
economic, and social reform. It seems clear that his decision 
to continue Iran's illicit nuclear activities will not be 
reversed without intensified economic pressure, coupled with 
heightened political and diplomatic efforts by the P5+1 group, 
including Russia and China.
    Today we are fortunate again to have Under Secretary of 
State for Political Affairs Wendy Sherman, Under Secretary of 
Treasury for Terrorism and Financial Intelligence David Cohen, 
and Under Secretary of Commerce for Industry and Security Eric 
Hirschhorn. In their testimony and the question period, I hope 
they will highlight what sanctions are working, what additional 
measures are needed that could garner the broad support of the 
international community and preserve the unity of our 
coalition--a unity the Administration has worked very hard to 
preserve--and what challenges we continue to face in 
successfully implementing a strategy that will finally compel 
Iran to abandon its illicit nuclear activities. I look forward 
to their testimony.
    I now turn to Ranking Member Crapo for his opening 
statement.

                STATEMENT OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you, Mr. Chairman.
    Ten days from now, Iranians will vote in an election staged 
by the Ruling Guardian Council for a President who, once 
selected, is destined to continue the longstanding policies of 
the Ayatollah and the powers in Tehran. This is a regime that 
sustains itself through widespread human rights abuses and is 
dedicated to an illegal nuclear weapons program, threats 
against Israel, Hezbollah support for the Syrian regime, and 
the spread of global terror.
    Nothing is more critical than preventing Iran from making 
good on its intentions to obtain a nuclear weapon while trying 
to end the regime's systematic human rights abuses and ability 
to project terror.
    Since our last hearing in October 2011, increasing pressure 
has challenged the Iranian regime through implementation and 
enforcement of sanctions statutes produced in this Committee, 
Presidential Executive orders, and the efforts of Senators Kirk 
and Menendez in the previous two Defense Authorization Acts 
which targeted the Central Bank of Iran's export role and 
expanded sanctions over new sectors of the Iranian economy.
    Also, since then, 50 percent of Iran's crude oil exports 
and over 7 percent of its petrochemical exports have declined, 
nearly $5 billion a month in lost revenue to the Government of 
Iran.
    Thus, the impact of the sanctions on Iran's economy is 
significant. Due to lost revenues for energy purposes, its 
relative isolation from the world's financial system, and its 
own variety of economic mismanagement, Iran is running its 
largest budget deficit in nearly 15 years.
    The value of the rial, Iran's currency, has declined by 
more than two-thirds, and Iran puts its own rate of inflation 
at 31 percent while others maintain it is double that in real 
terms.
    Clearly, sanctions make it more and more difficult for the 
Iranian regime to earn revenue from petroleum sales or to 
conduct international financial transactions. Each passing 
month shows important results obtained through sanctions. Yet 
the Iranian regime is still able to fund nuclear enrichment in 
ways that bear no relationship to a peaceful program.
    The Iranian regime still poses an existential threat to 
Israel, acts as a menace in the region, and is one of the more 
serious threats to the national security interests of the 
United States and its allies. Thus, sanctions may still be too 
narrowly tailored, have gaps in implementation, or be unduly 
hampered by evasive and deceptive practices that must be 
closed.
    We can no longer abide an Iran that continues to amass or 
otherwise access financial resources to pursue one of the most 
destabilizing nuclear programs in the world. The resolve of the 
United States and its partners must remain strong and be ready 
to implement a series of increasingly stricter sanctions that 
push the Iranian regime to change its nuclear enrichment 
calculus.
    The chiefs of the U.S.-Iran sanctions authorities are here 
to report on the progress and difficulties with implementation 
and enforcement of the U.S. multilateral sanctions programs. I 
understand, in fact, that some significant actions have taken 
place just last night and this morning.
    I look forward to working with the Members of our 
Committee, and particularly the Chairman, as we evaluate the 
best way to move forward to further constrict Iran's access to 
funds, revenues, materials, and technologies in an effort to 
change the regime's international behavior and terminate any 
nuclear weaponization efforts.
    Thank you very much, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Crapo.
    Are there any other Senators who wish to make a brief 
opening statement? Senator Menendez.

              STATEMENT OF SENATOR ROBERT MENENDEZ

    Senator Menendez. Mr. Chairman, I want to thank you for the 
hearing, and clearly I appreciate the Committee's jurisdiction 
and its work here on Iran sanctions. As I know that you know, I 
have been in the center of the focus on this issue, and we have 
had tremendous support from all of our colleagues on both sides 
of the aisle. And my recent visit to Jordan and Israel this 
past week only created for me a greater sense of urgency on 
what Iran's role is in terms of the national security of the 
United States as well as the threats of instability in the 
region. Iran is participating significantly in Syria with 
Hezbollah. Half a million refugees in Jordan, now the fourth or 
fifth largest city in Jordan, a population that has grown by 20 
percent, and a kingdom that is under siege by its generosity 
and a real challenge to it. That is an important ally to the 
United States, important to the security of our partner, the 
State of Israel.
    The Iranians, if they have the resources to keep fueling 
Hezbollah and at the same time pursue their nuclear program, it 
becomes a major national security threat to the United States. 
And so I am looking forward to the testimony of our witnesses. 
I appreciate some of the recent actions that were taken. They 
are in line with both the law that we pass as well as some of 
the suggestions that we have made, and we look forward to 
hearing the implementation as we move forward.
    Chairman Johnson. Are there any further statements?
    [No response.]
    Chairman Johnson. I would like to remind my colleagues that 
the record will be open for the next 7 days for opening 
statements and any other materials you would like to submit.
    I would like to welcome the witnesses for our panel today.
    Our first witness is Wendy Sherman, the Under Secretary for 
Political Affairs at the State Department. Under Secretary 
Sherman has been the key negotiator for the U.S. in the P5+1 
negotiations with Iran.
    Our next witness is David Cohen, the Under Secretary for 
Terrorism and Financial Intelligence at the Department of 
Treasury.
    Our final witness is Eric L. Hirschhorn, Under Secretary 
for Industry and Security at the U.S. Department of Commerce.
    I thank all of you again for being here today. I will ask 
the witnesses to limit your remarks to 5 minutes. Your written 
statements will be submitted for the record.
    Ambassador Sherman, please proceed.

   STATEMENT OF WENDY SHERMAN, UNDER SECRETARY FOR POLITICAL 
                  AFFAIRS, DEPARTMENT OF STATE

    Ms. Sherman. Thank you very much, Mr. Chairman, Ranking 
Member Crapo, Senators. Good morning, and thank you for 
inviting me to testify with my colleagues about a top foreign 
policy and national security priority--Iran. From an illicit 
nuclear program to support of terrorism to abusing human 
rights, the Iranian Government continues to ignore its 
international obligations and responsibilities and defy the 
consensus of the global international community. Their costly 
and destructive decisions threaten international security, 
increase tensions in one of the most vital parts of the world, 
and stifle the great potential of the Iranian people.
    In confronting these challenges, the U.S. Government and 
the State Department draw on a full range of tools. This 
includes holding Iran accountable on the world stage, directly 
empowering the Iranian people to hold their own Government 
accountable, and strengthening our alliances with partners to 
show Iran the world is united in its concerns.
    Under the President's and Senator Kerry's leadership, this 
is an all-hands effort. Every day, every bureau in the 
Department of State has their eye on Iran. Even as we speak, 
the IAEA Board of Governors is meeting in Vienna. Along with 
our P5+1 partners, we will urge Iran to comply without delay 
with its nuclear obligations.
    On Iran's nuclear ambitions, the President has been clear. 
First, the United States will prevent Iran from acquiring a 
nuclear weapon. Second, Iran's leaders have a choice: live up 
to their international obligations and become a player on the 
global stage, or continue down the path toward isolation. We 
know which path Iran has chosen so far, so we have put in place 
a dual-track policy, ratcheting up pressure while pursuing a 
diplomatic solution--pressure to incentivize Iran to seek a 
deal that addresses the international community's legitimate 
concerns, engagement to give Iran a way to negotiate that deal 
if they choose to take it.
    On the engagement side, we have offered Iran the 
opportunity to move forward toward a negotiated solution. 
Unfortunately, as you all know, so far the Iranians have fallen 
far short with their response. We are clear-eyed in our 
approach to the P5+1 talks and seek concrete results. After 
all, while the window for negotiation is still open, it will 
not remain so forever. We have an obligation to give diplomacy 
every chance to succeed, but the onus is on Iran.
    On the pressure track, we have worked closely with Congress 
and our allies to level sanctions on Iran that carry real 
consequences. Since 2008, there have been five U.N. Security 
Council resolutions, nine Executive orders by the executive 
branch, and four wide-ranging laws passed by the U.S. Congress. 
These sanctions carry real consequences for Iran.
    Those measures have worked to make sure that Iran 
understands there is a cost to their behavior. Iran is 
increasingly isolated and is under one of the toughest, most 
comprehensive sanctions regimes ever.
    The oil sanctions, which we have been implementing for 18 
months, have resulted in Iran exporting over 1 million fewer 
barrels of crude oil each day than it did in 2011, costing Iran 
between $3 and $5 billion per month. To date, all 20 importers 
of Iranian oil have either significantly reduced or eliminated 
oil purchases from Iran. In these cases, the exceptions have 
served as an artful point of leverage, an incentive with 
importers of Iranian oil.
    Countries cannot go to zero overnight, and we need to make 
sure that Iranian oil is withdrawn from the market in a timed 
and phased way that does not raise global oil prices. But 
exceptions require real and substantial action by our partners. 
This action puts pressure on Iran, not our coalition, and is a 
manifestation of our success.
    With that in mind, exceptions for nine economies will 
expire tomorrow. The Secretary is still reviewing the final 
documents, but as always, my staff will be ready to brief you 
on the results in classified hearing. Put simply, the Iranian 
economy is in a downward spiral. As we saw the candidates 
themselves say in a Wall Street Journal article of June 1 and 
2, ``Candidates air grim views of Iran economy.'' The rial has 
depreciated more than 50 percent in the last year. Foreign 
investment has decreased dramatically. With yesterday's 
Executive order, we are applying additional pressure on Iran's 
automotive sector and expanding sanctions on Iran's 
petrochemical sector. I understand Under Secretary Cohen will 
speak further to this Executive order momentarily.
    One reason we have succeeded is that we are not acting 
alone. The EU has imposed its own sanctions, including an oil 
import ban that resulted in all 27 EU member States ceasing oil 
purchases from Iran. Australia, Canada, Norway, South Korea, 
Japan, and others have enacted their own measures. And even 
among partners who are skeptical of unilateral sanctions, we 
have seen robust implementation of U.N. Security Council 
resolutions and cooperation on specific sanctions issues. We 
must not backslide from this progress. The effectiveness of our 
sanctions depends on our partners, so we have to guard against 
measures that would put too great a burden on those partners. 
Sanctions must be felt by Iran, not by us or our allies, and 
Iran would surely exploit any sign of division.
    Beyond Iran's nuclear ambitions, we are also concerned 
about the destabilizing influence Iran is casting across the 
entire Middle East and beyond. Support to the Assad regime, 
Iran's closest ally, is sustaining the campaign of violence 
against the Syrian people. Its aid to terrorist organizations 
like Hezbollah is threatening our ally Israel and innocent 
civilians worldwide. That is why we are deepening our military 
partnerships across the region, particularly with Israel and 
Gulf States, to defend against attacks from the very groups 
supported by Iran's leaders.
    If I may, Mr. Chairman, I will take one more minute.
    I also want to reiterate our commitment to seeking the safe 
return of Robert Levinson, Amir Hekmati, and Saeed Abedini, 
U.S. citizens missing or detained in Iran. We will continue to 
raise these cases as we pursue all available options until all 
three of these Americans are reunited with their families. And, 
of course, we are deeply concerned about the campaign of 
repression Iran's leaders are waging against their own people. 
Iranians are owed their rights, freedoms, and dignity that we 
cherish here as bedrocks of our Nation and that all people 
around the world deserve. So we are helping Iranians break 
through the electric curtain, creating virtual spaces for those 
voices that are suppressed and leveling sanctions to hold the 
individuals and organizations behind the repression 
accountable.
    Just last week, the Treasury and State Departments worked 
together to announce a novel initiative to make personal secure 
communications tools more easily available for the Iranian 
people.
    I will finish by saying that we are closely watching the 
upcoming election, ahead of which we are again seeing increased 
repression. As Senator Crapo said, Iran's unelected and 
unaccountable Guardian Council has disqualified hundreds of 
candidates based on vague criteria and reiterated that women, 
who make up half of Iran's population, are barred from serving 
as President. While Iran's Supreme Leader called for an ``epic 
election'' to demonstrate Iran's strength, instead we have 
witnessed a process that appears to be unfair, unjust, and 
unrepresentative of the Iranian people, who deserve better from 
their leaders and from their Government.
    I conclude by saying I am confident we can continue to work 
together in dealing with this threat to our security and global 
stability and developing smart and effective measures--measures 
that increase pressure on the regime, allow us to maintain the 
strong coalition we have built, measures that will force Iran's 
leader to make better choices and empower the Iranian people to 
hold their Government accountable.
    Thank you for your partnership. I look forward to answering 
your questions.
    Chairman Johnson. Thank you, Ambassador Sherman.
    Under Secretary Cohen, please proceed.

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

    Mr. Cohen. Thank you, Chairman Johnson, Ranking Member 
Crapo, distinguished Members of the Committee. Thank you for 
the opportunity to testify today on the Treasury Department's 
application of sanctions pressure as one part of the U.S. 
Government's effort, coordinated with counterparts around the 
world, to counter the threat posed by Iran's nuclear and 
ballistic missile program. Under Secretary Sherman has set out 
our overall policy approach to prevent Iran from obtaining a 
nuclear weapon, including the pressure track of the dual-track 
policy. And in my written testimony, I describe in detail how 
the expanding scope and intensity of U.S. sanctions on Iran, 
coupled with energetic and aggressive implementation and 
enforcement, have had a major impact on Iran. Creating this 
powerful sanctions regime has been and must continue to be a 
joint collaborative effort between the Congress and the 
Administration.
    Indeed, through the enactment and aggressive implementation 
of key pieces of legislation, along with a series of Executive 
orders issued by the President, we have been able to isolate 
Iran from the international financial system and drive down 
Iran's oil exports by some 50 percent over the last 18 months. 
In addition, Iran's dwindling oil revenues have been locked up 
by sanctions that require that Iran's oil earnings can only be 
used for limited purposes.
    This morning, I would like to highlight a few actions, 
including some taken very recently, which illustrate well our 
aggressive sanctions posture and the creation, implementation, 
and enforcement of our sanctions.
    Just this morning, we imposed sanctions on an international 
network of 37 companies with ties to Iran's leadership. This 
network, controlled by a foundation called the Execution of 
Imam Khomeini's Order, or EIKO, E-I-K-O, manages businesses in 
countries around the world, including in Europe, the Middle 
East, and Africa, and produces billions of dollars in profits 
for the Iranian regime each year.
    The purpose of this network, which is an agency of the 
Iranian Government, is to generate and control massive off-the-
books investments, shielded from the view of the Iranian people 
and international regulators. EIKO is also charged with 
assisting the Iranian Government's efforts to try to circumvent 
U.S. and international sanctions.
    By identifying EIKO and its extensive networks of companies 
for sanctions today, the property of these entities is blocked 
in the United States. Foreign financial institutions that 
conduct transactions with any of these entities will be subject 
to being cutoff from the U.S. financial system. And those that 
provide them with material support are also at risk of being 
sanctioned.
    This action is just the latest in what has been a steady 
drumbeat of activity targeting Iran over the last several years 
and accelerating over the last few months. In the last month 
alone, we have sanctioned almost 50 additional entities for a 
range of illicit conduct, including human rights abuses, 
support for terrorism proliferation activities, and attempts to 
evade sanctions.
    We have also continued to pursue Iran's key sources of 
revenues. Last week, we targeted Iran's second largest source 
of revenue, its petrochemical industry, by sanctioning eight 
Iranian petrochemical companies for being part of the 
Government of Iran while the State Department applied its 
sanctions against two other Iranian petrochemical companies.
    This Administration's commitment to enhancing sanctions 
pressure on Iran is also made crystal clear in the nine 
Executive orders that President Obama has issued since he 
entered office, including six in the last 2 years. And just 
yesterday, the President signed the latest of these Executive 
orders.
    Although this Executive order contains a number of new and 
important provisions, including expanding our ability to impose 
sanctions on those providing material support to the Iranian 
Government and targeting the Iranian automobile sector, I would 
like to focus on one provision in particular that takes direct 
aim at Iran's currency, the rial.
    As of July 1st, when this new Executive order goes into 
effect, we will be able to impose sanctions on any foreign 
financial institution that conducts significant transactions 
for the purchase or sale of rials or that holds accounts 
outside of Iran denominated in the rial. This new measure is 
designed to make the rial essentially unusable in international 
transactions, place additional restrictions on Iran's ability 
to access its foreign reserves, and isolate Iran even more from 
the international financial system and commercial markets.
    We are taking direct aim at the rial because we have seen 
that its value and stability is of great importance to the 
Iranian regime. Already the rial has lost some two-thirds of 
its value in the last 2 years, and when it plummeted 
uncontrollably last fall, the regime was rattled.
    Finally, we are committed to enhancing sanctions pressure 
in ways that are both effective and implementable.
    We have had productive discussions with this Committee on 
how best to advance our mutual cause of fundamentally changing 
the Iranian regime's calculus on its nuclear program. And as we 
move forward to sharpen the choice for the Iranian regime, we 
stand ready to work hand-in-hand with this Committee and the 
Congress.
    Thank you.
    Chairman Johnson. Thank you, Under Secretary Cohen.
    Under Secretary Hirschhorn, please proceed.

 STATEMENT OF ERIC L. HIRSCHHORN, UNDER SECRETARY FOR INDUSTRY 
              AND SECURITY, DEPARTMENT OF COMMERCE

    Mr. Hirschhorn. Thank you, Mr. Chairman, Ranking Member 
Crapo, and Members of the Committee. I appreciate the 
opportunity today to discuss the Commerce Department's role 
regarding U.S. export controls on Iran.
    Iran continues to engage in widespread efforts to illegally 
acquire U.S.-origin commodities, software, and technology. 
Indeed, 40 percent of the open enforcement cases in the Bureau 
of Industry and Security involve Iran.
    The Bureau's wide range of enforcement tools includes 
imprisonment, criminal and civil fines, temporary denial 
orders, long-term denials of export privileges--not only for 
Iranian entities but entities around the world who cooperate in 
diversions to Iran--the BIS Entity List, and asset forfeitures. 
We employ all these tools, and vigorously so, to fight unlawful 
diversions to Iran.
    We have approximately 100 Federal law enforcement officers 
in nine field offices throughout the United States, supported 
by investigative and intelligence analysts at headquarters. 
They are the only Federal law enforcement agency that is 
dedicated solely to investigating and enforcing U.S. export 
control violations.
    We also have export control officers in six foreign 
locations who conduct end-use monitoring in 28 countries. Their 
work is augmented by Foreign Service personnel at other 
locations overseas as well as Sentinel visits led by 
domestically based BIS agents. Moreover, we coordinate with the 
State Department on end-use checks in places where Munitions 
List and Commerce Control List items are colocated. And in the 
last full fiscal year, we conducted nearly 1,000 end-use checks 
in 53 different countries.
    Beyond the traditional criminal penalties and civil fines, 
we have made effective use of temporary denial orders to 
prevent diversion of U.S.-origin aircraft items to Iran. We 
also can deny privileges for longer periods than the 180-day 
temporary periods, and can apply other civil and administrative 
penalties.
    Another powerful tool we employ is the Entity List, which 
generally prohibits named entities from receiving any items 
subject to our rules without a license from our Bureau. BIS 
rarely, if ever, approves such licenses. Since October 2009, we 
have added 80 entities to the Entity List because of their 
involvement in diverting U.S.-origin items to Iran.
    We also maintain a consolidated list of persons sanctioned 
by Commerce, State, and Treasury that is available to the 
public without charge. We are averaging close to 1,000 hits 
from exporters and re-exporters every business day, and 12,000 
companies have signed up for email notification whenever the 
list is updated.
    Importantly, companies and banks worldwide screen against 
this list. Many companies and financial institutions outside 
the United States will refuse all business with listed 
entities, even in cases where no U.S.-origin items are 
involved.
    Another important enforcement tool is asset forfeitures. In 
the last year, we have produced--in our own investigations and 
those with other agencies--forfeitures exceeding $600 million, 
and a substantial proportion of that relates to Iran.
    The President's Export Control Reform Initiative is 
strengthening Iran-related enforcement. The Departments of 
Commerce, State, Defense, Energy, and Treasury, along with the 
Office of the Director of National Intelligence, participate in 
the new Information Triage Unit, which assembles and 
disseminates relevant information, including classified 
materials, to ensure that all agencies have full data on 
license applications. In its first year, this ITU produced more 
than 1,000 transaction reports, many of them dealing with Iran.
    We also have the new Export Enforcement Coordinating 
Center, which facilitates information sharing and coordination 
among 18 law enforcement and intelligence agencies. A great 
deal of this center's efforts are focused on diversions and 
potential diversions to Iran.
    You asked in your letter, Mr. Chairman, whether additional 
resources would increase our effectiveness, and I am pleased to 
note that the President's budget for fiscal year 2014 requests 
just over $8 million to augment our enforcement capabilities. 
This is for additional analysts, special agents, and three new 
export control officers. And two of those officers would be 
stationed in Turkey and the UAE, which, of course, are 
countries proximate to Iran, and that is why we want to put 
them there.
    We stand ready, as always, to work closely with this 
Committee and the Senate to maintain all the aspects of the 
aggressive and effective export control program against Iran.
    Thank you, sir.
    Chairman Johnson. Thank you. Thank you all for your 
testimony.
    As we begin questions, I will ask the clerk to put 5 
minutes on the clock for each Member.
    Mr. Cohen, in your opening statement you mentioned new 
sanctions announced today against EIKO. How will these new 
sanctions targeting the Supreme Leader and his associates help 
further pressure the Iranians?
    Mr. Cohen. Well, Mr. Chairman, as you note, this morning we 
announced a set of designations of a labyrinth of companies 
associated with an organization called EIKO, the Execution of 
Imam Khomeini's Office. This is an agency of the Iranian 
Government. It works on behalf of the Iranian leadership. It 
works under the direction of the Supreme Leader's office. And 
one of the two major components of this group of companies, 
something called Tadbeer Group, manages billions of dollars of 
investments for Iran, for the Iranian leadership, including 
investments for the Supreme Leader himself and other leadership 
figures.
    One of the things that we have tried to do in our sanctions 
over time is to target our actions to the greatest extent 
possible on those aspects of the Iranian economy, the Iranian 
financial system, that have the greatest likelihood of 
affecting the calculation of the leadership. And as Under 
Secretary Sherman noted, the very top of the Iranian leadership 
is where the nuclear file resides. So it is our hope that in 
exposing this network of front companies that generates 
enormous profits for the Iranian regime and operates under the 
direction of the Supreme Leader's office, we will advance our 
efforts to gain the attention of those who hold the nuclear 
file.
    Chairman Johnson. Ambassador Sherman, a new round of 
significant reduction to terminations is due this week. The 
recent reduction of purchases of Iran crude oil has had a 
significant impact on Iran's revenues. What additional steps 
could be taken to further reduce Iranian revenue from crude oil 
or other petroleum-related products, including by accelerating 
the pace of reductions? What do you think is an appropriate 
target for such reductions in barrels per day?
    Ms. Sherman. Thank you very much, Mr. Chairman. As you 
noted, the NDAA focuses on reducing Iran's exports of crude 
oil, which is the single biggest by far source of revenue for 
the Iranian Government. As I mentioned in my opening statement, 
we estimate that costs, the reductions so far, $3 to $5 billion 
per month to the Iranian economy. We have concentrated on 
areas, as David said, that have the biggest impact on Iran with 
the least impact on global oil markets. And as I think most of 
you know, when the NDAA first went into effect, we sent teams 
around the world to the oil producers to get them to put as 
much on the table as they could, to offer contracts to people 
who were going to do reductions, and we played a very active 
role in trying to marry up those who were reducing with those 
who were providing so that we could try to maintain a good oil 
price for the American consumer as we sought to change the 
calculus by Iran.
    Executive Order 13622 extends the Administration's ability 
to target other petroleum products. This includes condensate, 
liquefied petroleum gas--LPG--and similar petroleum products. 
We have a very active and robust dialog with a number of 
companies that are still involved in purchasing petroleum 
products such as condensates from Iran. Our message to those 
companies and the countries that they supply is simple: Find 
other sources or face sanctions. And we are trying to help them 
solve their problems where they have specific industry issues.
    We have turned to focus on Iran's other petroleum sales as 
Iran itself has turned to them to generate lost revenue. We are 
engaging with companies to secure their exit from those 
transactions, and we are prepared to use sanctions, as we have 
already demonstrated, if they fail to do so.
    So we are looking at these, and I know that our teams are 
working with your Committee as you consider further legislative 
action to see where we might further deepen our actions around 
oil while ensuring that we maintain the international 
coalition, we ensure that we maintain a good oil price for 
American consumers, and that we manage the world's energy 
security.
    Chairman Johnson. Senator Crapo.
    Senator Crapo. Thank you very much, Mr. Chairman.
    Ms. Sherman, one of the three people you identified being 
wrongly held in Iran is Pastor Saeed Abedini from Idaho. I want 
to assure you again that the people of Idaho are extremely 
committed to obtaining Pastor Abedini's release. And to the 
extent that you can in a nonsecure hearing, I would like you to 
tell me what is being done to obtain his release and also 
assure me that the release of Pastor Abedini and the other 
Americans who are wrongly held in Iran is of the highest 
priority at the Department of State.
    Ms. Sherman. Thank you very much, Senator. For those of you 
who do not know on the Committee and those who may be watching, 
Saeed Abedini was spearheading the construction of an orphanage 
in 2009 when the Revolutionary Guard detained him and threw him 
into prison, which is just outrageous on its face.
    Senator Crapo. And his treatment in prison has been 
outrageous.
    Ms. Sherman. His treatment has been outrageous. We are very 
concerned. Secretary Kerry issued a written statement on March 
22nd expressing his concern over reports that Mr. Abedini has 
suffered physical and psychological abuse in prison, that Iran 
continues to refuse consular access by Swiss authorities. We 
have had the Swiss go in on countless occasions to request 
consular access. They are our protecting power in Iran, and we 
have called for his immediate release.
    We condemn Iran's continued violation of the universal 
right of freedom of religion and call on the Iranian 
authorities to respect Mr. Abedini's human rights and release 
him. We will continue to pursue this in every way that we 
possibly can through every channel that we possibly can to gain 
his release, as we will for Mr. Levinson and Mr. Hekmati.
    Senator Crapo. Well, thank you very much, and I will 
continue to work with you to get further briefings on that. I 
appreciate your attention to it and your assurance of its 
priority.
    I just have a quick question for each of you, and since I 
only have 2 or 3 minutes left, maybe I will just focus it on 
Mr. Cohen, but maybe others, if you have other responses, 
please give them. And my question is simple. The overall 
sanction efforts imposed by the United Nations and the United 
States and its allies have not to date achieved the intended 
goal of reaching a sustained suspension of Iran's uranium 
enrichment activities. We have discussed that there has been a 
lot of progress, but the bottom line is and the question is: 
Are we doing everything we can? Do we have adequate resources? 
Does Congress need to provide additional tools? What else can 
we do in terms of providing authority and support to help us 
achieve this objective?
    Mr. Cohen. Well, Senator, I think your observation is 
exactly right, that we have, I think, substantially increased 
the pressure on Iran over the last several years, working in 
close tandem with Congress and in the efforts that my 
colleagues and I and our teams have been engaged in. We have 
not yet achieved the objective, which is to change the Iranian 
Government's calculus.
    I think we have seen some indications in the last 
negotiating session that the sanctions pressure that we are 
applying on Iran is beginning to have some impact on the 
calculus of the regime. They came to the Almaty, Kazakhstan, 
negotiating sessions with a request, the desire to get 
sanctions relief, which only, I think, reaffirms that we are on 
the right path in pursuing the dual-track strategy.
    In terms of additional measures, as I described in my oral 
testimony and as you noted in your opening statement, we took 
two actions in the last 2 days that I think promise to increase 
the pressure. This is in line with actions that we have been 
taking over the last several months to ramp up the pressure, 
which is in line with actions we have been taking over the last 
several years to ramp up the pressure.
    We are looking forward to the implementation of IFCA, which 
goes into effect on July 1st, which has a number of important 
provisions that will increase the pressure on Iran. And we are 
looking forward to working with this Committee on potential new 
legislation that is both effective and implementable, that 
keeps our coalition together with our international partners 
and adds pressure on the regime.
    I think we remain committed to this dual-track policy. We 
think that it bears the potential to succeed, that through the 
combination of enhanced pressure and the offer of diplomatic 
engagement, we can help change the course of the program. But 
as Under Secretary Sherman noted, the window of time is 
shortening, and the time to really ramp up the pressure is now.
    Senator Crapo. Well, thank you. My time is up. I would just 
ask each of the witnesses to submit in writing what specific 
additional measures we should be considering, in your opinion, 
with regard to providing the full set of tools that we need in 
order to deal with this issue.
    Chairman Johnson. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    Let me first congratulate you for the actions you took last 
week in sanctioning Iran's petrochemical industry as a revenue 
source for Iran's illicit nuclear program, as well as 
yesterday's Executive order and new sanctions on Iran's 
automotive sector, which is something I had recommended--and I 
am glad to see that you took the existing law as an opportunity 
to consider it a dual-use venue--and on significant 
transactions in the rial, which I think basically makes the 
rial rather worthless outside of Iran. Those actions have a 
real impact on Iran.
    And our challenge is at the end of the day how do we get 
the Supreme Leader to change his calculus because the nuclear 
portfolio is purely in his domain, regardless of what the 
elections produce. And while we have significantly impacted 
Iran's economy, we have not, at least visibly, deterred the 
thinking of the Supreme Leader toward the goal.
    So, in my mind, what has to be clear here is that every 
tomorrow is a worse tomorrow than today for the Iranian regime 
and that our sanctions effort, which is the last tools of 
peaceful diplomacy, are our best opportunity to try to avert 
other options, and to do that, we need it to be so strong that 
it becomes very clear to the regime that every tomorrow is far 
worse than today, and that altering the course is totally in 
the domain of the Supreme Leader so that his country does not 
get affected in the ways that the reductions have.
    So, in that respect, I know that--I have two particular 
lines of questions. One is I know that tomorrow is the day that 
exceptions are up, and a large portion of the sales that have 
been taking place, even though we have cut crude oil exports by 
half, Iran still has energy sector exports of about $83 billion 
in 2012--about $60 billion in oil, $23 billion in natural gas, 
fuel oil, and condensates.
    Under Secretary Sherman, do you expect that the exception 
of China will be renewed tomorrow? And if so, will we see for 
China and those other countries for which we have given 
exceptions a further reduction? And if so, is it a significant 
reduction?
    Ms. Sherman. Senator, thank you for your question. As you 
noted, indeed the NDAA sanctions on oil have been very 
effective. More than 20 countries have either reduced or 
eliminated crude oil purchases from Iran, and there are only 
six remaining purchasers of Iranian oil: India, Japan, China, 
Republic of Korea, Turkey, and Taiwan. The Secretary will make 
his decision tomorrow, so I am not at liberty to say what that 
decision is today since he has not made it yet. But I can 
assure you that every country that gets an exception tomorrow, 
for those who do, they will have made a significant reduction 
because that is, in fact, what is required by law, and we will 
be up briefing you on that significant reduction.
    Senator Menendez. Since you cannot answer the question, let 
me go on to my next----
    Ms. Sherman. Sure.
    Senator Menendez. I just hope--and I will be watching--to 
see that what you and I might describe as ``significant 
reduction'' is in harmony versus a reduction that is to some 
degree a reduction, but it is not what we need to do in order 
to achieve our ultimate goal. So I will be looking at that.
    I want to know--you know, obviously this whole purpose of 
reduction is to get to a certain point, which is to change the 
regime's calculation. Would the Administration support 
tightening the CBI Petroleum sanctions to ultimately complete 
cessation of purchases of petroleum of Iran by a certain date, 
let us say at the end of 2014? It would send a very clear 
message of the consequences that would flow.
    Ms. Sherman. Let me begin, and then Under Secretary Cohen 
may want to add. We are happy to discuss with the Congress any 
ideas to further tighten sanctions. I think that we absolutely 
share the goal of the Congress to maximize the pressure on Iran 
in every way we possibly can. I think we want to make sure that 
whatever we do, it follows a set of principles. The onus is on 
Iran, not on our partners, because we have to keep the 
international coalition together. We want to make sure that we 
help our friends and allies replace any petroleum needs that 
they have as they make these reductions and changes and that 
the world community can sustain that and can sustain prices 
that are acceptable to consumers, even with the need to put 
pressure on Iran. So we are happy, Senator, to discuss any 
option with you.
    Senator Menendez. Well, I appreciate that. I think we need 
to look at that possibility as a way to achieve our ultimate 
goal.
    Finally, if I may, Mr. Chairman, Secretary Cohen, I think 
you have been doing a pretty good job of pursuing the 
enforcements. I have two questions for you.
    One, we keep adding sanctions regimes, which we need to. My 
first question is: Do you have the wherewithal, the resources, 
to continue to pursue the sanctions regime we want? Because if 
I give you tenfold the work and it still remains with the same 
universe to enforce, I get concerned that your enforcement 
capability is limited by your resources. That is question 
number one.
    Then question number two, you outlined or put out a release 
a little while ago about a network of front companies that Iran 
has to try to circumvent the sanctions, and you talked about 
that network. Is there anything that we are going to do to that 
network? Or are we just identifying the network?
    Mr. Cohen. Senator, thank you for the kind words. In terms 
of resources, my team is working flat out. I can tell you that 
we have a lot of important issues on our plate, none more 
important than this, and we are devoting an enormous amount of 
energy and resources to implementing the range of sanctions 
programs that we have. I think we are doing a good job of it, 
but, you know, my folks are working very, very hard at this.
    Senator Menendez. Well, that is diplomatic speak for you 
will not give me a direct answer that you need more money, but 
it sounds like if you are working flat out, then, you know----
    Mr. Cohen. We are working flat out. I think one very 
important principle as we look at the sanctions, particularly 
sanctions to come, is that they are implementable. And one of 
the things that we try to work with this Committee on is, as 
new ideas are generated, to make sure that we look at them both 
in terms of the impact on what we are trying to achieve here 
and ability to implement. That is obviously hugely important to 
our ability to enforce these sanctions regimes, that the 
sanctions that we adopt and that Congress legislates can be 
implemented effectively.
    I am sorry. I am forgetting the second----
    Senator Menendez. The network, and then I will----
    Mr. Cohen. The network that we identified this morning, 
this network of 37 companies that are related to EIKO, they are 
all now on the SDN List, the Specially Designated Nationals 
List. Come July 1st, any foreign financial institution that 
does business with any one of those entities risks being cut 
off from the United States, and anybody working with them has 
the potential to be sanctioned.
    So we have done more than identify them. They are now, to 
use a bad pun, ``radioactive.''
    Senator Menendez. Thank you, Mr. Chairman, for your 
courtesy, and I look forward to working with you and the 
Ranking Member as to how do we continue to perfect this regime.
    Chairman Johnson. Senator Corker.
    Senator Corker. Thank you, Mr. Chairman, and I, too, want 
to thank you and look forward to working with you on the two 
committees to come to the best conclusion.
    With that, Secretary Cohen, I appreciate the time we spent 
yesterday in the classified setting looking at some of the 
issues we cannot talk about here. And Senator Menendez seemed 
to have a hard time getting the words ``good job'' out, but I 
will say also again I think you are doing a good job. I know 
that it began with actually people like Menendez and others 
pushing the Administration toward sanctions, and now you all 
have taken that and actually are pushing ahead with things you 
can do through the executive branch, and I appreciate that very 
much.
    Do you want to expand a little bit on what you think the 
impact is going to be on the recent Executive order regarding 
the rial?
    Mr. Cohen. Thank you, Senator Corker, and I should say for 
other Members of the Committee, the classified briefing that we 
did yesterday, available, of course, to share that with other 
Members of the Committee.
    In terms of the Executive order, there are three main 
components to the Executive order that was issued yesterday--
one which targets the rial directly, and as I noted in my oral 
testimony, it makes it now sanctionable for any foreign 
financial institution to convert rials into any other currency 
or to hold the rial in accounts outside of Iran. That should 
make the rial essentially unusable. No foreign financial 
institution outside of Iran I think will risk the potential of 
being cut off from the United States simply so they can 
exchange rials for other currencies or hold rial-denominated 
accounts.
    We are going to----
    Senator Corker. Do you think the world community has yet 
digested the impact that this is going to have on the rial?
    Mr. Cohen. Not yet, inasmuch as we just announced this late 
yesterday. One of the important aspects of this Executive order 
is we announced it yesterday, it goes into effect on July 1st. 
So for this 25-day period or so, foreign financial institutions 
have the opportunity essentially to dump their rials without 
facing sanctions. We would encourage them to do so because, 
come July 1st, if they hold rials or exchange rials, they would 
be subject to sanction.
    The dumping of the rial in this period ought to have the 
effect of driving down the value of the rial versus other 
currencies in the world, which, as I noted, is--one of the 
measures of the effectiveness of our sanctions has been the 
really precipitous decline in the value of the rial over the 
last couple of years.
    Senator Corker. Very good, and I hope this hearing will 
help make that happen. The Chairman is parsimonious with his 
time, so I am going to move on to two other points.
    I think one of the things that I guess we try to do here is 
we want to make sure the sanctions that we put in place work. 
We are trying to time them and put as much pressure as we can 
to cause behavior change. At the same time, we do not want to 
do things that are going to end up being ineffective or cause 
our coalition to break apart. Is that correct? So there is sort 
of a thread that we are trying to go down that keeps the 
pressure on as strongly as possible, keeps our coalition 
together, and does not do those things to really upset the 
world economy.
    I know a House bill has come over and is being looked at. 
If somebody, one person, could speak to both the issue of 
taking oil sanctions down to zero and the effect that that 
would have on the coalition that we have together, and also the 
broad-based sanctions. I know we have it against oil, 
petrochemicals, shipping. We are getting ready to do it against 
autos. Now there are discussions about everything, and if you 
could address those two, and I have one more question if you 
would be fairly brief in response.
    Ms. Sherman. Sure. On going to zero, we think we have to be 
very thoughtful about this. As you point out, we have to keep 
the coalition together. Energy security is critical for all of 
the countries of the world, and the six that I mentioned that 
still import oil--Indian, Japan, China, Republic of Korea, 
Turkey, and Taiwan--are all very energy security dependent. And 
as I know you have heard me say, Senator Corker, but I know is 
a great concern to everyone in Congress is where China is, 
which is the largest consumer of oil. A given percentage 
reduction--to give people an idea of how large it is, a given 
percentage reduction from China, currently the largest 
purchaser of oil from Iran, would be approximately equal to a 
volume reduction twice as large as the same percentage 
reduction from India, 3 times as that of South Korea, and 4 
times of Turkey. So it is an enormous draw for their energy 
security to reduce their oil when, in fact, their consumption 
has gone up. And world oil consumption in 2012 went up 1.1 
million barrels a day, which is more than the number of barrels 
of oil that went down in Iran. So that has to be replaced and 
you have to keep up with the growing demand for oil.
    One of the discussions, I am sure, that the President will 
have with the Chinese when he meets with President Xi Jinping 
this weekend is around climate, around energy security, and 
ways that we can help China move more quickly away from oil so 
that they can further reduce their dependence on Iranian oil.
    So I think we all would like all of Iran's oil to go, but 
it is not in our interest to have any of those six economies 
tank in the process, because we are all interdependent on each 
other. So we have to do this in exactly the way you say: drive 
toward it, make sure we keep the coalition together, ensure 
energy security, ensure economies hold up together, because 
that is important for our own economy.
    Senator Corker. The broad-based sanctions, I know we have 
talked a little bit about that, maybe in another response--I 
want to honor the Chairman's time, so I will just make a 
statement on my last point. We have had some pretty extensive 
communications recently with folks, you know, that are, quote, 
many of our Iran watchers, and I guess one of the things, that 
is beginning to be of concern, and that is the--and, again, I 
applaud the efforts that are taking place in all three of your 
departments regarding sanctions.
    What is beginning to happen, I fear, is that we are 
impacting sort of the broader population. The wealthy, though, 
are getting wealthier. And the wealthy are those folks that are 
right around the regime that actually have the greatest 
ability, if you will, to try to impact the behavior change. So 
I would just make a statement, and we will probably follow up 
with a QFR. But I think that we need to focus on those more 
targeted sanctions toward those individuals that most readily 
can effect regime behavior change, and I fear that the path we 
are going down--and, again, I applaud it, OK? I applaud what 
you are doing. But I think we are ending up sort of turning 
public opinion in a different way than we would like, and yet 
not really affecting the actual behavior of the leaders that 
can actually change what is happening.
    So I thank you for your efforts. I know we will follow up. 
You may speak to that in other testimony and questioning, but, 
Mr. Chairman, again, thank you for the hearing.
    Chairman Johnson. Senator Corker, I know better than to be 
overly parsimonious with your time.
    [Laughter.]
    Chairman Johnson. Senator Manchin.
    Senator Manchin. Thank you, Mr. Chairman, and I thank all 
three of you for being here today, and I appreciate the direct 
answers we are receiving, and it is very helpful.
    I know it has been noted by Senator Menendez and also 
Senator Corker that we have been trying to hurt Iran's economy, 
and we have hurt Iran's economy, but it has not kind of stopped 
them, and it looks like they are determined to move on, which 
is something that we cannot accept or tolerate in any way, 
shape, or form.
    I am convinced that we have to do more on the sanctions, 
and along with Senator Kirk and many Members of this Committee, 
we have introduced a bill, which is the Sanction Loophole 
Elimination Act. I think you are aware of it, and it is about a 
$30 billion--I think it is $30 billion foreign exchange 
reserves, and we thought that would have an impact. What are 
your feelings on that? And do you think--first of all, have you 
recognized that--I think, Mr. Cohen, maybe you could start with 
this. Have you recognized that to be a concern and how much of 
an impact would it have if we implemented it?
    Mr. Cohen. Well, Senator, we have been looking carefully at 
that legislation. Just to take a step back, one of the efforts 
that we have been engaged in is, as the oil revenues that Iran 
is earning have decreased because of the amount of oil that 
they are selling is decreasing, we are also looking at ways to 
make it more difficult for Iran to get access to the revenue 
that it is earning. So it has sort of a multiplier effect on 
their oil sales.
    Senator Manchin. Right.
    Mr. Cohen. Legislation that went into effect earlier this 
year, as I noted in my oral testimony, has locked up in the six 
oil-importing countries the revenue that Iran is earning. It 
can only be used to facilitate bilateral trade between those 
six countries and Iran. The money cannot be moved outside of 
those countries, cannot be repatriated back to Iran. That has 
had an impact on the value of the rial. It has had an impact of 
essentially reducing on a dollar-for-dollar basis the value of 
their oil exports.
    The proposal that is in the legislation that you have 
introduced, as I understand it, is a way to intensify the 
impact of this lockup by requiring the payment for oil to be in 
local currency. I think this is an issue along with sort of a 
range of issues that are very much worth looking at to figure 
out how we can make it more difficult for Iran to get access to 
their oil revenues. And I think as we go forward in the season 
where there is legislative activity, I think we are very much 
interested in working closely with you on that piece of 
legislation, sort of as it fits into this whole network of 
sanctions----
    Senator Manchin. Do you all agree that it is about $30 
billion for Iran right now being able to really transfer in 
euros, is really what seems to be their most aggressive change?
    Mr. Cohen. I think we are probably best talking about that 
in a closed session.
    Senator Manchin. Got you. OK. Then next of all, I would say 
along those same lines, I am concerned about their advancement 
of natural gas in the pipeline, and that would give them a 
tremendous amount of security and also a lot of, I think, 
exchange with these countries that would be dependent on them. 
What is your feelings of that and the direction we have taken?
    Mr. Cohen. We are just choreographing here. Let me just 
give one quick answer and then turn it over to Under Secretary 
Sherman.
    One important point on natural gas is that, come July 1st, 
under IFCA, which goes into effect on July 1st, that same 
mechanism of locking up the earnings from oil will apply to 
Iran's natural gas sales. So after July 1st, the natural gas 
that they sell, which is significantly less than their oil 
exports, will also be subject to this bilateral trade 
restriction. So the value of their natural gas----
    Senator Manchin. The development of the pipeline is 
continuing as we speak?
    Mr. Cohen. I will let you speak to the pipeline.
    Ms. Sherman. Let me speak to the natural gas broadly, if I 
may, Senator. We do not support natural gas sanctions as it is 
not a significant revenue earner for Iran, and it would not 
really increase pressure on the Iranian regime, and it would be 
highly disruptive to the neighbors, some of whom we depend on. 
Iran is a net natural gas importer and trades natural gas with 
only four countries: Turkey, Turkmenistan, Azerbaijan, and 
Armenia. Of the four, only Turkey purchases natural gas, and 
there is a classified report I would refer you to on the impact 
of natural gas sanctions. It was a classified report provided 
pursuant to Section 505(b) of the TRA in December 2012, and I 
would urge you to read that, and I would be glad to discuss it 
further with you in a classified setting.
    Senator Manchin. And the only thing I can ask you about the 
classified setting, me and Senator Warren were just talking, if 
there could be maybe more than one of us that can meet with you 
on this Committee.
    Ms. Sherman. Sure.
    Senator Manchin. Would that be something that could be 
arranged through the chairmanship?
    Ms. Sherman. Sure. And, in fact, for the House Foreign 
Affairs Committee, and it is a standing--to the Senate Foreign 
Relations Committee to this Committee as well, we are happy to 
do a classified briefing on Iran, writ large, and bring in the 
intelligence community to answer your questions in detail. And 
I think the Senate Foreign Relations Committee had to 
reschedule that, but the House held the classified briefing, 
and I think they found it very helpful.
    Senator Manchin. Mr. Chairman, if you could set up a 
meeting for us, we would deeply appreciate that. That would be 
very helpful, and, again, I want to thank you all. I think all 
of you are doing a great job, and we appreciate it very much. 
Thank you.
    Chairman Johnson. Senator Moran.
    Senator Moran. Mr. Chairman, thank you very much. I thank 
the witnesses for being with us today. Our country faces 
tremendous foreign policy challenges. I cannot think of one 
more serious, more challenging than this one. And I just want 
to encourage you to use every tool that is available that 
Congress gives you to implement these sanctions in as dramatic 
and drastic and such a consequential effect as possible.
    I want to ask just a couple of questions about these 
issues. Sanctions only work if they are imposed and enforced in 
a broad way across the globe. Secretary Sherman, what countries 
are you most concerned about violating the sanctions? Who is 
the least likely--who is not cooperating with us? And what is 
our reaction to that?
    Ms. Sherman. Well, I do not know that I could single out an 
individual country.
    Senator Moran. I assume that you could, but I doubt that 
you would.
    Ms. Sherman. That is true. But what I will say is that we 
really press every country--with the new IFCA legislation that 
goes into effect July 1, where the Executive order was passed 
yesterday, we have done extensive briefings already with 
embassies all over the world. We have had our Ambassadors go in 
with guidance and instructions. We have sent teams to--I think 
in Singapore alone, because of all the shipping, they briefed 
something like 300 companies that wanted to know what the 
impact of those sanctions would be.
    We have met with embassies and invited them into briefings 
here in Washington. As each piece of legislation comes through, 
we send out teams around the world. And besides the terrific 
investigatory teams of Treasury and Commerce, before Secretary 
Clinton left, she set up a new Sanctions Office, and we now 
have a Sanctions Coordinator, Dan Fried, with a team that also 
helps to bring together all the strands of sanctions--human 
rights, business, economic--that we have at the Department of 
State.
    And, in addition, I think all Members should understand 
that we work extensively with the intelligence community to put 
together dossiers and evidentiary packages for each one of 
these sanctions implementations because many of these sanctions 
have to be able to stand up in court. And, in fact, in Europe, 
where sometimes the thresholds have been lower than U.S. 
standards, they are now facing several challenges in courts.
    And, of course, we use sanctions often because the threat 
of sanctions alone may get a company or a country to take the 
action necessary without us having to impose the sanctions.
    So although we have sanctioned over 350 entities and 
individuals, I would suspect thousands more have stopped 
nefarious behavior because of the threat of sanctions.
    Senator Moran. That makes sense to me. Is there a common 
theme or thread among those who are less cooperative? Is it 
economic? Is that the reason that----
    Ms. Sherman. Oh, I would say far and away it is just 
commercial avarice that plays out.
    Senator Moran. OK. The State Department imposed visa 
restrictions on nearly 60 Iranian officials and individuals 
that we believe are involved in human rights violations. That 
is required by the Comprehensive Iran Sanctions, 
Accountability, and Divestment Act. I think that act also 
requires that those individual names be posted at both State 
and Treasury Web sites.
    Ms. Sherman. I was checking with my expert. I do not 
believe that is the case, Senator.
    Senator Moran. Would you confirm that with me, although I 
trust your expert, but I would like to know that, because I 
think that the public knowledge of that is important. Do the 
banks----
    Ms. Sherman. The reason we do not do that is no visa 
decision is public information. You would not want your visa 
history to be public information, and so we do not do that in 
any visa situation. It is always classified and private.
    Senator Moran. The financial institutions involved are 
provided with names and identification but not the public?
    Mr. Cohen. Senator, there were two related actions taken. 
The State Department identified I think 60-odd people for visa 
restrictions. At the same time, the Treasury Department imposed 
sanctions on a set of individuals for human rights abuses. The 
designations that the Treasury Department----
    Senator Moran. Sanctions as compared to the visa----
    Mr. Cohen. Exactly.
    Ms. Sherman. Correct. So his is public. The visas are not.
    Senator Moran. Let me then turn to Under Secretary Cohen.
    Mr. Cohen. So, to answer your question, the names of every 
human rights abuser who we apply sanctions against, that is on 
our Web site. It is on State's Web site. Financial institutions 
know that.
    Senator Moran. And the field of people, the 60, are not 
necessarily the same 60 that have visa restrictions versus 
those that you are posting?
    Mr. Cohen. That is right.
    Senator Moran. OK. And, finally, Iran's foreign currency 
reserves, at the rate that Iran is spending its reserves, at 
what point in time do they disappear?
    Mr. Cohen. I think that would be a great topic for the 
classified sessions that we are going to have.
    Senator Moran. OK. Thank you.
    Chairman Johnson. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    Ms. Sherman, I want to ask you about our sanctions 
strategy. This country is committed to making sure that Iran 
does not develop a nuclear weapon and to protecting our allies 
in the region, including Israel. As a country, there is a broad 
consensus that we should keep all options open and on the 
table, but that a negotiated solution is far superior to war.
    Now, a recent report from the bipartisan Iran Project, a 
group of former diplomats and national security experts, has 
identified how a system of sanctions works. They describe it as 
strong sanctions are a stick that gets the Iranians to the 
negotiating table, and once they come to the table and start 
negotiating, strong sanctions are a carrot--that is, we can 
remove those sanctions in exchange for Iran giving up a nuclear 
program.
    That means for our sanctions strategy to work, it has to be 
possible not only to put sanctions in place but also to take 
them away if the Iranians want to make a deal. If the sanctions 
cannot be easily reversed, that is, if they face sanctions no 
matter what, then the Iranians will not give up their nuclear 
program.
    So I support tough, strong sanctions because I think they 
are necessary to make the strategy work. But what I want to 
know, Ms. Sherman, is whether you are confident that the 
sanctions that are currently in place are structured so that 
the Administration can reverse those sanctions as part of 
reaching a negotiated agreement.
    Ms. Sherman. Thank you, Senator. It is a very--actually, a 
quite sophisticated and important question. We have spent a 
considerable amount of time in preparing for the P5+1 
negotiations to look at every single sanction and figure out 
what we would do and how we could indeed take them off. Some 
are easier than others. All of them could ultimately be removed 
either by Executive action or congressional action. But, of 
course, it is preferable that there be a way within the 
existing legislation or the existing EO to do so as opposed to 
having to pass new legislation to accomplish that.
    So your point is extremely well taken, and as Under 
Secretary Cohen said, in the last P5+1 negotiation, for the 
first time Iran was very, very vocal about its desire to have 
sanctions removed, particularly financial and oil sanctions, 
which are, of course, connected to each other in terms of 
viability. And we are not in any rush, of course, to remove any 
sanction until we see concrete, verifiable results that can be 
monitored and cannot be reversed.
    Senator Warren. Well, I very much appreciate that. I am 
sure you have seen the report from the International Crisis 
Group in which they had looked at sanctions, evaluated those 
sanctions in terms of how easy it would be to remove them on a 
scale of 1 to 4, and found that of the congressional, all nine 
of the laws we have passed are Category 4, 4 being the toughest 
to reverse; and that of the Executive orders, seven have been 
codified and are also now rated as a 4, very tough to reverse.
    I raise this because I think it is something we need to 
focus on. The goal is to keep Iran from developing nuclear 
weapons, and I support strong sanctions because I think they 
are necessary to make this strategy work. But if the Iranians 
see that the sanctions cannot be lifted, then they will be only 
more firmly entrenched in pursuing nuclear weapons. In other 
words, badly designed sanctions might actually increase the 
likelihood of Iran getting a nuclear weapon or increase the 
likelihood of war.
    We have broad consensus in this country that we would 
prefer a negotiated solution in the Middle East, and if badly 
designed sanctions are going to increase the likelihood of Iran 
developing a nuclear weapon, then we need to focus now on how 
to fix that. So thank you very much.
    I have one other area I want to ask about. Mr. Cohen, when 
you last appeared before the Committee, we had a discussion 
about the Government's enforcement against HSBC for laundering 
hundreds of millions of dollars over at least a 6-year period. 
They were helping drug lords, and they were also helping people 
who were evading the sanctions against Iran.
    Now, Treasury's response was to settle for a fine, a very 
big fine, over $1 billion. But some of us wondered why the 
Government did not take HSBC to trial or at least look at 
imposing stronger penalties, including closing down the bank in 
the U.S. for a period of time or banning certain HSBC employees 
and executives from banking.
    Last week, Public Citizen released some internal Treasury 
emails that it received in response to a FOIA request. The 
documents were heavily redacted, but there were a couple of 
things that were clear.
    First, in the fall of last year, Treasury officials were 
suddenly quite anxious to settle with HSBC. After years of 
violations, a Treasury working group was quickly set up to 
scour through the violations, and senior Treasury officials 
were assured that the enforcement officials ``were moving as 
quickly as possible to put together administrative penalty 
actions.''
    The second thing that is clear from the documents is that, 
at the same time, State officials of New York were starting to 
press forward with charges of their own against HSBC. The 
emails show that reporters began to contact Treasury about 
rumors that its senior officials had discouraged the Justice 
Department from leveling any criminal charges, and the emails 
show that Treasury official were suddenly talking about, in 
their words, ``atmospherics.''
    So I have a couple of questions, Mr. Cohen. Since you 
played a key role in the HSBC conversations, HSBC actions have 
been going on for years. Why all of a sudden was Treasury 
interested in enforcement only in the fall of 2012? Was it 
because of what Ben Lawsky, New York superintendent of banks, 
referred to last week as ``a dose of healthy competition among 
the regulators''? What was the sudden urgency? What was 
Treasury trying to get out in front of? And I will ask you to 
be brief because I know I am over my time, Mr. Chairman.
    Mr. Cohen. So, Senator, I think what you are reading into 
the emails is inaccurate. There was no special urgency that was 
first felt in the fall of last year to resolve the HSBC----
    Senator Warren. Well, let me just stop you there. The 
language in your own emails, from the small part that is left 
over that was not redacted, is that they are moving as quickly 
as possible to put together administrative actions, they seem 
to see the urgency, and they start talking about the 
atmospherics of a settlement? Can you just explain what that 
means?
    Mr. Cohen. So I do not believe any of these emails are 
mine, but I have looked at them, and I can tell you from my own 
experience being in the Department in the last year and over 
the last several years, the investigation of HSBC was 
proceeding. It had reached a conclusion. It was time to resolve 
the action, and that is what happened.
    Senator Warren. So you are saying that what was happening 
in New York had nothing to do with it, you were not trying to 
get in front of anything?
    Mr. Cohen. That is not my recollection.
    Senator Warren. And the word ``atmospherics'' means what in 
this context?
    Mr. Cohen. Senator, I do not know what you are reading 
from, so I cannot answer that question.
    Senator Warren. Well, I am not sure I know entirely what I 
am reading from because of how redacted it is. But it is clear 
that Treasury was talking back and forth about the atmospherics 
surrounding a settlement at this point.
    Mr. Cohen. I would be happy to take a look at the document. 
I do not have it front of me, so I would be at a loss trying to 
answer your question.
    Senator Warren. Well, I hope we both agree that the only 
thing that Treasury would be doing appropriately would be 
trying to enforce the law and making sure that the banks are 
enforcing these sanctions and not worrying about the 
atmospherics around that.
    Mr. Cohen. And as you noted, we have enforced these 
sanctions very vigorously in this case and in many others.
    Senator Warren. Well, I think we have agreed to disagree 
about how vigorous that is, but thank you.
    Chairman Johnson. Senator Kirk.
    Senator Kirk. Thank you, Mr. Chairman, for having this 
hearing. I would like to raise one--ask that you designate 
President Ahmadinejad and Supreme Leader Khomeini as human 
rights abusers, I think we ought to call a human rights abuser 
a human rights abuser. And let me introduce you to Neda. As you 
know, when you work the Iran account, you will know that she 
has become the next young martyr of the Green Movement, shot 
down on the streets of Tehran for protesting against an 
election which was about to be stolen.
    And the other case I would like to introduce you to is 
Nasrin Sotoudeh, who is someone that I will put forward to be a 
Nobel Prize winner. I hope that she is. She is a mother of two, 
and she has been in jail for 3 years now on the crime of 
representing human rights defendants. My hope is that we can 
call these guys for what they--what unites these two cases is 
that both Khomeini and Ahmadinejad ordered the actions which 
killed Neda and put Nasrin into Evin prison without her kids.
    Ms. Sherman. Thank you, Senator. I want to thank you first 
for being such a champion on human rights. I have known you for 
a very long time back when----
    Senator Kirk. You do.
    Ms. Sherman. ----we were both staffers here on Capitol 
Hill, and it has always been a passion of yours, and we are 
fortunate to have an advocate for the rights of people in their 
lives.
    We could not agree with you more that the human rights 
situation in Iran is deplorable. We continue to raise our 
concerns about human rights on numerous occasions, both 
bilaterally and in multilateral fora. For 10 consecutive years, 
we have supported a successful resolution at the U.N. General 
Assembly that condemns Iran's human rights practices. We help 
lead efforts in the Human Rights Council and did in 2011 to 
mandate a special rapporteur----
    Senator Kirk. Let me interrupt you. Are the Iranians still 
the Chair of the human rights arm of U.N.? Which was always the 
ultimate joke about the U.N.
    Ms. Sherman. Iran is not the ultimate chair of human rights 
at the United Nations, and we continue to call on the community 
to join us in calling for the release of not only Saeed Abedini 
but human rights defender Nasrin Sotoudeh and Christian Pastor 
Youcef Nadarkahni and others. We have gone after and condemned 
the reported torture of a blogger while in police custody, and 
it goes on and on. And as others on this Committee have said, 
we are about to witness an election on June 14th that is not 
what any of us would call free and fair.
    Senator Kirk. I would definitely ask you to confirm to the 
Committee, we have had several hundred people disqualified to 
run for President and that you must be approved by the Guardian 
Council to even run for President.
    I just have a joke to ask you. What is the definition of an 
Iranian moderate? It is an Iranian who is out of nuclear 
weapons.
    Ms. Sherman. I appreciate the humor, but I think you and I 
would agree that there is nothing humorous about the situation 
in Iran.
    Senator Kirk. Right. Thank you. I will send over the 
picture of Nasrin to your office so you see her and think about 
her all the time. Thanks.
    Thank you, Mr. Chairman.
    Chairman Johnson. Senator Heitkamp.
    Senator Heitkamp. Thank you so much, and thank you for your 
excellent work in this area. Unfortunately, we are an impatient 
country. We would like to see things happen a lot faster, and 
my concern about sanctions is really achieving the new normal 
in Iran. You know, as you take each one of your sanctions and 
each one of these activities, you end up kind of adjusting 
their economy accordingly. And it seems as if there is not a 
shock value, and maybe the most recent Executive order will 
achieve that shock value to the economy. But it seems like 
there has been this constant adaptation, and it is necessary--I 
will not disagree with that, that it is necessary to keep your 
coalition together. But by the same token, I think it results 
in an ineffective outcome.
    And so I have two questions and maybe one comment, a little 
self-serving comment, Ms. Sherman. One of the things that we 
can continue to do in this country is increase our domestic 
supply of oil. And as you were talking about equalizing the 
price and making sure that you do not have shock, we would 
certainly like to think that North Dakota has been a big part 
of helping you out in maintaining a rational, worldwide, global 
oil price. And, obviously, you know, without comment, because I 
know it is out of your area, I am looking forward to the State 
Department decision on Keystone. I think that development in 
North America will go a long way.
    But my main thrust of my questions is beyond what Senator 
Crapo has already said about increase, what more can we do. I 
want to know if there is something that we can do that has 
higher shock value.
    Ms. Sherman. Let me make a quick statement, and then my 
colleagues may want to add to it. I think that certainly when 
the EU passed its sanctions and immediately every EU country 
that imported oil stopped, it had shock value. I think that 
when the NDAA was passed here it had a shock value.
    I think some of the EOs that the President has signed, 
including, quite frankly, the one that we just did that allows 
mobile technology hardware and software to be sold right before 
the Iranian election, has a shock value. But the reality is 
that sanctions historically only have impact over time as they 
build, and particularly with oil markets, it takes time for 
some of those contracts to unwind, for the ships to never find 
their way to port, for insurance companies--quite frankly, on 
the oil sanctions, it was as much not being able to get 
secondary insurance for tankers that pulled back the oil 
shipments as much as the sanctions on oil in and of themselves. 
Getting through the financial assets of individuals and 
companies that is done out of Treasury has had a major impact.
    So it is really the cumulative effect, and I think we are 
seeing that cumulative effect, but we need to keep up and make 
sure that we keep the coalition together so we sustain that 
pressure, because it is having an impact. As I said in my 
opening comments, it is very interesting that all of the 
candidates for Presidential election, as unelected, unaccounted 
as the Senator has said it is, are talking about how horrific 
the economy is.
    Senator Heitkamp. And I guess we could get more response as 
we do the follow-up, but my second question is really about the 
election. We have not talked a lot about that. You have raised 
it now twice. What hope do you have coming out of this 
election, if any--you know, simply saying it has got an effect, 
so what? We would imagine that these sanctions, when you reduce 
their revenue by 50 percent, is having an effect. What is the 
political outcome or the political effect?
    Ms. Sherman. The reality, Senator, is that the nuclear file 
is held by the Supreme Leader of Iran, and so he is the sole 
decisionmaker--he is affected by others around him, but he is 
the sole decision maker when it comes to the strategic 
calculation about whether to really deal in these negotiations.
    We believe he will do that when he thinks there is a 
greater risk to him to not doing it than--to doing it than to 
not doing it. We do not think he has made that calculation yet. 
We think we are getting closer to the potential for him doing 
so. And the one other impact I will say, partly in humor, 
partly in reality, is one of the leading candidates is the lead 
negotiator for the P5+1, Saeed Jalili, and if he becomes 
President, we will have a new negotiator, and I do not know 
whether that will make any difference whatsoever.
    Chairman Johnson. Senator Schumer.
    Senator Schumer. Thank you, and I want to thank the three 
witnesses here today for their hard work here.
    I want to begin by applauding the Administration's recent 
announcement of new sanctions on any financial institutions 
that conduct significant transactions in Iranian currency. It 
is an important step that, as you know, Senators Kirk, 
Menendez, and I have been urging for years when we started with 
our central bank legislation. And so I am glad to see we are 
finally taking that step.
    Now, I hope that you will follow through and actually 
sanction firms who violate the sanctions. Despite U.S. and 
international interests, too many banks have ignored the 
sanctions and continue to do business with designated Iranian 
entities. To date, the Treasury Department has sanctioned just 
two non-Iranian foreign banks for conducting significant 
transactions with sanctioned banks. Treasury recently lifted 
the sanctions on one of these banks after it stopped the 
prohibited activities, but there is ample information 
indicating that other banks have violated U.S. laws by 
conducting such transactions.
    I believe the Administration has to start sanctioning 
foreign banks that continue to conduct significant financial 
transactions or provide significant financial services with the 
sanctioned Iranian banks or the Revolutionary Guard or the 
Central Bank of Iran; otherwise, there is no incentive to 
refrain from doing business with these entities. The banks are 
liable. You know the sections of the law. I will not cite them.
    And so my question is very simple. I guess it goes to Mr. 
Cohen. Can you state today that you are prepared to announce 
sanctions against specific non-Iranian banks in the near 
future?
    Mr. Cohen. Well, Senator, I do not have any announcements 
to make sitting here today, but I can tell you that we have 
been very aggressive in implementing the various legislations 
and Executive orders that create the sanctions framework. And 
as you noted, we have applied sanctions on two foreign banks 
for doing business with designated Iranian banks, and we have 
been watching very carefully at any evidence of other financial 
institutions engaged in that behavior.
    One of the remarkable results of the legislation that was 
enacted--and Senator Heitkamp's question about having sort of 
shock value effect--was the passage of CISADA in July of 2010, 
which gave us the authority to apply sanctions on foreign banks 
doing business with designated Iranian banks.
    Senator Schumer. Right.
    Mr. Cohen. We went around the world, made sure that the 
foreign financial institutions understood the import of that 
legislation and the business with Iran that had existed before 
CISADA fell off the cliff. So the reality is the financial 
institutions around the world do not misunderstand the 
seriousness of the Administration's applying sanctions.
    Senator Schumer. But let me just say, isn't it true that if 
even a few say, ``I will take up the slack when the others fall 
off,'' we will not accomplish our goal? So unless there is a 
clear, bright line--you start doing this, you are going to be 
sanctioned--we are not going to have the effect that we had, 
because just to have one bank replace another because they 
think they have some advantage--I have a list of banks here 
that are suspected of violating U.S. law that you have not 
sanctioned.
    Mr. Cohen. Well, Senator, I think that bright line is known 
to the financial community around the world, and I am happy to 
take a look at your list.
    Senator Schumer. But as you said, the law is from 2010. Two 
banks have been sanctioned. One had its sanctions removed as 
soon as it said, ``I will not do it again.'' It does not 
sound--if I were a bad bank, which I am not, let me state for 
the record, I would not be too worried here.
    Mr. Cohen. So, Senator, I think that the impact speaks to 
the effectiveness of the implementation, and implementation 
involves both sanctioning and deterring. If you look at the 
extent to which designated Iranian banks today have access to 
the foreign financial system, it is essentially nil, and that 
is because we have taken action and because the foreign 
financial institutions that had been doing business with 
designated Iranian banks exited that business.
    I am very interested in the list you have----
    Senator Schumer. OK. I will get it to you.
    Mr. Cohen. ----and we can follow up on that.
    Senator Schumer. OK. Thank you.
    And, finally, for Ms. Sherman--I know my time is running 
out--the President's meeting with the President of China--I can 
never remember who is a President and who is a Prime Minister.
    Ms. Sherman. President.
    Senator Schumer. President Xi of China, I take it that the 
issue of China's dealings with Iran will be high on the list, 
and we will be quite firm in how important this is to not only 
our interests but the interests of the world?
    Ms. Sherman. Absolutely, Senator. It is on the list. It is 
high on the list. And our pressure on China in this regard has 
had an impact. In the past year, all Chinese trade with Iran 
has declined by approximately 18 percent. We have sanctioned 
Chinese companies, including five Chinese foreign persons for 
nonproliferation activities as well.
    I will also say that in the P5+1 China has been a valuable 
partner. We have maintained unity in the P5+1. It is crucial 
that we maintain unity so that Iran cannot split us apart. They 
always look for divisions. They always look for wedges. And the 
Chinese have been part of the unity which we have presented. 
But there is no doubt that the President will be very clear, as 
he has been in the past with President Xi, that we will not 
permit Iran to have a nuclear weapon, period.
    Senator Schumer. Thank you.
    Chairman Johnson. I want to thank the witnesses for their 
testimony. This hearing was an important and useful oversight 
exercise to begin to identify some of the next steps that 
should be taken. I look forward to working with my colleagues 
in the coming months on this important issue.
    This hearing is adjourned.
    [Whereupon, at 11:38 a.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]

                  PREPARED STATEMENT OF WENDY SHERMAN
       Under Secretary for Political Affairs, Department of State
                              June 4, 2013

    Chairman Johnson, Ranking Member Crapo, distinguished Members of 
the Committee, thank you for inviting me here today to update you on 
our approach to one of our country's top national security priorities, 
Iran. The Administration confronts a range of challenges on Iran--its 
nuclear ambitions, its support for international terrorism and 
destabilizing activities in the region, and its human rights abuses at 
home. In confronting these challenges we have employed a range of 
diplomatic tools, from negotiations, to sanctions, initiatives in 
multilateral fora, and bilateral engagements; we have also strengthened 
our efforts to empower the Iranian people and promote their right to 
the basic freedoms.
    Around the world, countries have joined this effort because they 
share our grave concerns about Iran's activities. Just last week, 
Canada announced tough new measures to ban virtually all trade with 
Iran, just as we do. Today, Iran is under the toughest, most 
comprehensive sanctions regime ever. The breadth of these international 
sanctions has been unprecedented, targeting both specific individuals 
and entities, as well as entire sectors critical to the regime's 
illicit activities. Maintaining this coalition will be critical as we 
move forward.
    Over 4 years ago the President offered Iran a choice: fulfill your 
international obligations and assume your place among the community of 
Nations, or continue down a path of increasing isolation and pressure. 
In light of Iran's refusal to act responsibly, we remain resolved to 
sharpen that choice for Iran until it decides to change its behavior 
and resolve the international community's concerns about its nuclear 
program.

The Dual-Track Policy
    The United States is determined to prevent Iran from acquiring a 
nuclear weapon and committed to a dual-track approach of pressure and 
engagement to address the international community's concerns over 
Iran's nuclear activities. On the engagement track, we have worked 
within the P5+1--which include the five members of the U.N. Security 
Council plus Germany, and coordinated by the European Union--to pursue 
a diplomatic solution to address concerns over Iran's nuclear program. 
On February 26, 2013, the P5+1 met with Iranian representatives in 
Almaty, where we jointly presented Iran with an updated, balanced 
proposal that offered Iran a real opportunity to take steps toward 
reducing tensions and creating the time and space to negotiate a 
comprehensive solution to the nuclear issue.
    Yet, when on April 5, 2013, the P5+1 returned to Almaty, the 
Iranian response was disappointing. While the P5+1 had a substantive 
exchange of views with Iran during the talks, in the end, Iran's 
counterproposal to the P5+1 initiative sought to place little or no 
constraint on its current nuclear activities, while demanding that 
major sanctions be removed immediately. Given the significant gulf 
between the two sides, the P5+1 members did not believe scheduling 
another round was warranted at that time. On May 15, EU High 
Representative Catherine Ashton met with Iran's Chief Nuclear 
Negotiator Saeed Jalili. Consultations on next steps are still ongoing, 
however we have been clear that we expect to see concrete signs that 
Iran is prepared to substantively address all aspects of the proposal 
we discussed in Almaty. While we must give diplomacy every chance to 
succeed, our patience is not infinite. We have approached these 
negotiations realistically, conscious of our difficult history, and we 
will continue to seek concrete results in our talks, not empty 
promises. But the onus is on Iran.
    Simultaneous with our efforts to seek a diplomatic solution, we 
have bolstered our efforts on the second track of our policy--pressure. 
This track is robust and focuses on a range of Iranian activities. At 
international fora such as the United Nations and International Atomic 
Energy Agency, we have repeatedly highlighted Iran's activities, 
including its human rights violations, sponsorship of terrorism, and 
illicit nuclear program. In our daily interactions with foreign 
Governments around the world, we are making clear that actions 
constitute violations of international norms and are unacceptable. In 
our courts, we have brought Iranians involved in terrorist or 
proliferation activities to justice. And we continue to underscore 
directly to the Iranian people that we will assist their efforts to 
hold their Government accountable and exercise their universal human 
rights including the right to freedom of expression.
    Sanctions have also played a major role within this framework. It 
is important to remember that we impose sanctions not as an end in 
themselves, but because they are a valuable tool to increase pressure 
on the Iranian Government to address the international community's 
concerns over its nuclear program. Working through the United Nations 
and with our allies, we have built and led a global coalition to create 
the toughest, most comprehensive sanctions to date on the Iranian 
regime. Indeed, we believe the costs these sanctions are imposing on 
Iran are one of the reasons the regime decided to restart the 
negotiations.
    Today, our sanctions are having a real impact on the ground in 
Iran, exacerbated by the regime's own mismanagement of its economy. As 
a result of our implementation of sanctions under the National Defense 
Authorization Act for Fiscal Year 2012, Iran exports over 1 million 
fewer barrels of crude oil each day than it did in 2011, costing Iran 
between $3-$5 billion per month. All 20 importers of Iranian oil have 
either significantly reduced or eliminated oil purchases from Iran. 
Financial sanctions have crippled Iran's access to the international 
financial system and fueled the depreciation of the value of Iran's 
currency to less than half of what it was last year. Foreign direct 
investment into Iran has decreased dramatically as major oil companies 
and international firms as diverse as Ernst & Young, Daimler AG, 
Caterpillar, ENI, Total, and hundreds more have divested themselves 
from Iran. The International Monetary Fund projects the Iranian economy 
will contract in 2013, a significant decrease from the over 7 percent 
growth 6 years ago, and far below the performance of neighboring oil-
exporting countries. Put simply, the Iranian economy is in a downward 
spiral, with no prospect for near-term relief.
    We continue to increase the pressure through a range of actions. 
Iranian oil exports will continue to decline as we implement the law 
through our engagement with the last remaining six importers of Iranian 
oil. The exceptions to the sanctions under the FY12 NDAA that the State 
Department has granted the 20 importers are a measure of our success; 
those exceptions are what permitted us to achieve this monumental 
reduction in Iranian oil sales that has reverberated throughout the 
Iranian economy while maintaining stability in the global economy. 
Iran's currency will remain volatile as we block Iran's revenue streams 
and its access to funds held abroad. And we will continue to track, 
identify, and designate individuals and entities assisting Iran's 
proliferation efforts and attempting to evade sanctions on Iran. To 
give some recent examples, on May 31 the State Department imposed 
sanctions on Ferland Company Limited under the Iran Sanctions Act for 
knowingly concealing the origin of Iranian crude oil carried on a ship 
under its control, in conjunction with Treasury sanctions against 
Ferland the same day under its Foreign Sanctions Evader authorities. 
The same day, we also imposed sanctions on Jam Petrochemical Company 
and Niksima Food and Beverage JLT under Executive Order 13622 for 
knowingly engaging in transactions for the purchase or acquisition of 
petrochemicals from Iran. Finally, on July 1, the Iran Freedom and 
Counter-Proliferation Act of 2012 takes full effect, further increasing 
pressure on Iran by targeting an array of sectors and industries in 
Iran. Looking forward, as long as Iran continues on its current 
unproductive path, the Administration will continue to assess and 
implement additional sanctions on sectors and industries that can serve 
as pressure points.
    One of the keys to our success in ratcheting up the pressure on 
Iran is that we are not doing so alone. The European Union has enacted 
its own stringent sanctions regime, including an oil import ban in July 
2012 that resulted in all 27 EU member States banning oil purchases 
from Iran. Australia, Canada, Norway, South Korea, Japan, and others 
have enacted their own sets of domestic measures. And, even among 
partners who are frankly skeptical of sanctions, we have seen robust 
implementation of U.N. Security Council resolutions and cooperation on 
specific sanctions issues. As we move forward, it will be critical that 
we continue to move together and take no steps that undo the progress 
made so far. Such steps would signal divisions to Iran that it could 
and likely would exploit. Further, as the effect of our sanctions on 
Iran depends in part on the actions of our partners, we must ensure 
that our sanctions do not place an undue burden on those countries. It 
is not in our interest to create fissures within the international 
coalition facing Iran, as the impact of our pressure comes from the 
steps these countries take. So we look forward to continued strong 
collaboration with members of Congress to develop sanctions and other 
tools that are smart, effective, and increase pressure on the regime in 
a way that allows us to maintain the strong coalition we have built.
    Even as we significantly increase pressure on the Iranian regime, 
we remain committed to ensuring that legitimate, humanitarian trade can 
continue for the benefit of the Iranian people. We take no pleasure in 
any hardship our sanctions might cause the Iranian people in their 
everyday lives, and it is U.S. policy to not target Iranian imports of 
humanitarian items. We have worked hard to ensure U.S. regulations do 
not unduly interfere with transactions for the sale of agricultural 
commodities, food, medicine, or medical devices to Iran as long as the 
transactions do not involve a designated entity or otherwise proscribed 
conduct.

Human Rights and Support for the Iranian People
    In all our efforts on Iran, we have demonstrated that supporting 
the Iranian people and pressuring the policies of their Government are 
not mutually exclusive. Labeled by press advocacy group Reporters 
Without Borders as an ``enemy of the Internet,'' the Iranian regime 
filters online content, slows Internet speeds, and blocks access to the 
Internet to prevent Iranian people from freely acquiring information 
about their own country and the outside world. With that in mind, last 
week the Treasury and State Departments unveiled an initiative that 
will make communications technology that is safe and secure more 
accessible to the Iranian people. We issued a general license that will 
allow U.S. companies to export certain mass market, consumer personal 
communications devices such as smart phones, satellite phones, and 
basic computer equipment to Iran, as well as related services and 
software--such as the important security updates to software that make 
these products safer to use. The license also covers other essential 
tools to safely navigate the Internet, like antivirus software and 
virtual private network technology, so that the Iranian people have the 
latest tools to combat their own Government's efforts to envelope them 
with an ``electronic curtain'' that shuts them off from the world.
    In the same vein, last week the Administration designated one 
individual and two entities for their involvement in serious human 
rights abuses or censorship activities to curtail or penalize freedom 
of expression. This was just the latest example of how we are using our 
authorities to hold the Iranian Government accountable on its human 
rights violations. Indeed, over the last 3 years, we have imposed 
sanctions--including asset freezes and visa bans--on 30 Iranian 
individuals and entities for such abuses, including the Islamic 
Revolutionary Guard Corps (IRGC), the Ministry of Intelligence and 
Security (MOIS), Iran's Cyber Police, and the Islamic Republic of Iran 
Broadcasting. In addition, we have imposed separate visa restrictions 
on more than 100 Iranian officials involved in human rights abuses in 
Iran, and used Executive Order 13606 to target entities using 
technology to assist in or enable human rights abuses by the Iranian 
Government.
    Unfortunately, the Iranian Government continues to take actions 
that underscore how much it fears its own people. This campaign of 
repression has included the harassment and intimidation of family 
members of those who speak out for freedoms, the torture of political 
prisoners, and the limitation of freedom of expression and access to 
information. These acts of aggression have created a culture of fear in 
which few dare to voice dissent or challenge regime officials. 
Students, lawyers, journalists, and bloggers, ethnic and religious 
minorities, artists, and human rights activists are all targets for 
abuse, intimidation, or discrimination. This trend has only increased 
as Iran prepares for its June 14 presidential elections. We saw Iran's 
unelected and unaccountable Guardian Council disqualify hundreds of 
candidates based on vague criteria--and declare that women, who make up 
half of Iran's population, are barred from serving as president. While 
Iran's Supreme Leader called for an ``epic'' election to demonstrate 
Iran's strength, the regime's decisions are denying the Iranian people 
an electoral process that meets international standards.

Levinson, Abedini, and Hekmati Cases
    Just as we are concerned about Iran's treatment of its own 
citizens, we remain concerned about Iran's treatment of U.S. citizens 
detained and missing in Iran. The U.S. Government is fully dedicated to 
the return of American citizen Robert Levinson and U.S.-Iranian dual 
nationals Saeed Abedini and Amir Hekmati. Mr. Levinson went missing 
from Kish Island, Iran, on March 9, 2007, and his whereabouts remain 
unknown. We continue to call on the Iranian Government to make good on 
its promises to assist the U.S. Government in finding Mr. Levinson so 
that he can be reunited with his family. Mr. Hekmati, a former U.S. 
Marine who served with distinction in Iraq, has been detained in Iran 
since August 2011, and endured a closed-door trial with little regard 
for fairness or transparency. Mr. Abedini has been detained in Iran 
since September 2012 on charges related to his religious beliefs, and 
reportedly has suffered physical abuse by Iranian officials in prison. 
Despite our repeated requests, Iranian authorities have failed to 
provide them with adequate medical treatment or permit visits from our 
protecting power. We will continue to raise these cases directly and 
publicly as we also pursue all available options until all three of 
these Americans return home safely.

Support for Terrorism
    We also have grave concerns about Iran's destabilizing activities 
in the Middle East, particularly its support for Bashar Al Asad in 
Syria; its support for terrorist organizations like Hizballah; and its 
unacceptable attacks on innocent civilians worldwide.
    Iran is the world's foremost State sponsor of terrorism. Led by the 
IRGC-Qods Force and MOIS, the ``Iran Threat Network'' comprises an 
alliance of surrogates, proxies, and partners such as Hizballah, HAMAS, 
and Kata'ib Hizballah, among others. Iran funds, trains, and equips 
these terrorist organizations, in whole or in part, to use in attacks 
around the world. This clandestine threat network destabilizes 
countries throughout the Middle East and threatens regional security. 
Iran's leaders have aimed most of their threats at one of our closest 
allies, blatantly declaring their desire to see the destruction of the 
State of Israel. We have a moral obligation and strategic imperative to 
ensure that Iran never has the tools to make good on that threat.
    Israel is not Iran's only target, however. Iranian American Mansour 
Arbabsiar pled guilty last year to plotting with members of the Qods 
Force to murder the Saudi Arabian ambassador by bombing a crowded 
restaurant here in Washington, DC. The attempt to assassinate a foreign 
diplomat in our Nation's capital is an intolerable escalation of 
Iranian terrorist activity, and last week it was announced that he will 
serve 25 years in prison for his crimes.
    Iran has also sponsored and directed terrorist attacks against 
Israeli civilian and diplomatic targets worldwide. On February 13, 
2012, a magnetic bomb was placed under the vehicle of an Israeli 
diplomat's wife in New Delhi, India, seriously injuring her and three 
Indian nationals. The following day, a similar device was discovered 
under a vehicle belonging to the Israeli embassy in Tbilisi, Georgia, 
and safely defused. At the same time, Thai police arrested three 
Iranian nationals in Bangkok in connection with explosions at a private 
residence that subsequently revealed bomb-making materials and 
makeshift grenades intended for use in attacks against Israeli targets.
    In June 2012, Kenyan authorities arrested two Iranian members of 
the Qods Force. Armed with 33 pounds of military-grade plastic 
explosives, they planned deadly attacks on Western and Israeli targets. 
On May 6, a Kenyan court sentenced them to life imprisonment for 
terrorism-related offenses.
    Thwarted attacks involving Iranians and Iranian proxies like 
Hizballah in Cyprus, Thailand, and Kenya--to name a few examples--show 
a clear willingness on the part of our international partners to target 
and prosecute Iranian terrorist activity. As evidenced by these 
disruption and prosecution efforts across Africa, Asia, and Europe, we 
and our international partners have become increasingly effective at 
targeting Iranian support for terrorism.
    In Syria, Iran has made it clear that it fears losing its closest 
ally and fellow State sponsor of terrorism and will stop at no cost, 
borne by both the Syrian and Iranian people, to prop up the Asad 
regime. Today, Iran is training, arming, funding, aiding and abetting 
the Asad regime and its atrocious crackdown on its own people. It is 
coordinating its intervention in Syria with Hizballah, which is itself 
engaged in training pro-regime militants who attack Syrian civilians, 
and in direct fighting on behalf of the Asad regime against the Syrian 
people. Iran and Hizballah fighters are also directing the activities 
of Iraqi militia groups which have been enlisted to join in the Asad 
regime's war against the Syrian people. Iran has shown that it is 
willing to potentially destabilize an entire region if it means keeping 
the murderous Asad regime in place. Countering such efforts remains a 
key priority for the Administration and we are focused on preventing 
Iran from continuing to support the Syrian regime financially, 
materially, and logistically. The Administration has used its 
authorities in several Executive orders to highlight the role of Iran 
in the Asad regime's violation of human rights and hold accountable 
those responsible.

Conclusion
    In sum, what we see is that the Iranian regime's misplaced 
priorities, corruption, and mismanagement of their Government are 
detrimentally affecting the Iranian people. Instead of meeting its 
people's needs, the regime has chosen to spend enormous amounts of its 
money and resources to support the Asad regime as well as its militant 
proxies around the world, and to pursue the development of weapons of 
mass destruction. Instead of investing in its people, Iran continues to 
restrain their vast potential through censorship, oppression, and 
severe limitations on their social, political, and even academic 
freedoms.
    The Administration will continue to hold the Iranian Government 
accountable for its actions and increase pressure on the regime until 
it chooses to become a responsible member of the international 
community and give the Iranian people the opportunities they deserve. 
As the President said, we have no illusions about the difficulty of 
overcoming decades of mistrust. It will take a serious and sustained 
effort to resolve the many differences between Iran and the United 
States. But we believe that meeting this challenge is vital. We welcome 
your ideas and look forward to working together to sustain and expand 
our efforts. Thank you.
                                 ______
                                 
                  PREPARED STATEMENT OF DAVID S. COHEN
Under Secretary for Terrorism and Financial Intelligence, Department of 
                              the Treasury
                              June 4, 2013

Introduction
    Chairman Johnson, Ranking Member Crapo, and distinguished Members 
of the Committee, thank you for the opportunity to testify today on the 
Treasury Department's application of sanctions pressure as one part of 
the U.S. Government's effort, coordinated with counterparts around the 
world, to counter the threat posed by Iran's nuclear and ballistic 
missile program. Our continued close collaboration with this Committee 
and your colleagues in Congress is essential to our success in 
addressing this threat.
    As this Committee will appreciate, no issue is of greater concern 
or urgency than preventing Iran from obtaining a nuclear weapon. As the 
President recently warned, an Iran in possession of such a weapon would 
increase the risk of nuclear terrorism, undermine the global 
nonproliferation regime, trigger an arms race in the Middle East, and 
embolden a regime that has ruthlessly repressed its citizens.
    That is why this Administration, from its first days in office, has 
tenaciously pursued a dual-track strategy that offers Iran a path to 
reclaim its place among the community of Nations while making clear 
that we, along with our partners in the international community, would 
apply and enforce increasingly powerful and sophisticated sanctions on 
Iran if it continues to refuse to satisfy its international obligations 
with respect to its nuclear program. As we have repeatedly made clear, 
Tehran faces a choice: it can address the call of the international 
community to give up its nuclear ambitions and be permitted to 
reintegrate itself diplomatically, economically and financially into 
the world community, or it can continue down its current path and face 
ever-growing pressure and isolation.

Increasing Pressure on Iran
    Since my last appearance before this Committee, the scope, 
intensity, and impact of U.S. sanctions on Iran have expanded through 
the enactment of legislation, the adoption of Executive orders (E.O.s), 
and the energetic implementation and enforcement of the entire 
sanctions framework. These efforts have heightened the economic 
pressure and imposed a very significant strain on the Iranian regime.

Designating Iranian Banks and Their Financial Partners
    When I last appeared before the Committee, I described the 
Administration's extensive efforts to implement the Comprehensive Iran 
Sanctions, Accountability, and Divestment Act of 2010 (CISADA). CISADA 
calls for the exclusion from the U.S. financial system of any foreign 
financial institution that knowingly facilitates significant 
transactions or provides significant financial services for Iranian 
financial institutions designated in connection with Iran's nuclear or 
missile proliferation activity, or its support for international 
terrorism.
    The mere fact that we have CISADA at our disposal has been 
sufficient to drive the overwhelming majority of banks away from 
business with Iran's designated banks, isolating those Iranian banks 
from the global financial system. To date we have employed this 
authority against two foreign banks, China's Bank of Kunlun and Iraq's 
Elaf Islamic Bank, \1\ for facilitating millions of dollars' worth of 
transactions for several designated Iranian banks. Were there any 
question about our willingness to apply CISADA sanctions, these actions 
clearly demonstrated that we will target sanctionable activity, 
wherever it may occur.
---------------------------------------------------------------------------
     \1\ On May 17, 2013, Treasury removed sanctions on Elaf Islamic 
Bank following the bank's significant and demonstrated change in 
behavior, including an intensive course of action to stop the conduct 
that led to the CISADA sanction, freezing the designated Iranian bank 
EDBI's bank accounts, and reducing its overall exposure to the Iranian 
financial sector.
---------------------------------------------------------------------------
Targeting the Central Bank of Iran and Iran's Oil Revenues
    Just over a year later, in December 2011, the President signed into 
law the National Defense Authorization Act for Fiscal Year 2012 (NDAA), 
which threatens CISADA-like consequences--that is, terminating or 
restricting correspondent account access to the U.S.--for foreign 
financial institutions that transact with the Central Bank of Iran 
(CBI) in a way not authorized by U.S. law. Significantly, the NDAA also 
marked a new phase in our sanctions campaign by targeting Iran's 
economic lifeblood: its oil exports.
    The logic behind the measures in the NDAA is two-fold. First, it 
seeks to isolate the CBI from the international financial system--a 
process begun in November 2011 when we designated the entire 
jurisdiction of Iran as a ``primary money laundering concern'' under 
Section 311 of the USA PATRIOT Act. These actions undercut the CBI's 
ability to facilitate the conduct of designated Iranian banks and to 
support Iran's illicit activities within Iran and abroad.
    Second, because the CBI is the primary bank into which Iran 
receives oil payments, the NDAA intensifies economic pressure on the 
regime. To prevent Iran from benefiting from a spike in oil prices that 
might be caused by a rapid reduction of Iranian oil in the global 
market, the NDAA was designed to encourage Iran's oil customers to 
undertake significant but incremental reductions in their Iranian oil 
imports, giving customers and alternative suppliers a measure of time 
to adjust and accommodate this reduction. This law--working in tandem 
with our efforts targeting Iran's access to the international financial 
system--has had an enormous impact on Iran's oil revenues.

Locking Up Iran's Oil Revenues
    The impact of the NDAA was further enhanced by a powerful measure 
contained in the Iran Threat Reduction and Syria Human Rights Act of 
2012 (TRA) that entered into effect on February 6, 2013. Under Section 
504 of the TRA, any country that has received an NDAA ``significant 
reduction'' exception--meaning that its banks can pay Iran for its 
significantly reduced oil imports without risk of correspondent account 
sanctions--must now ensure that those revenues are used only to 
facilitate bilateral trade or humanitarian trade. Iranian oil-import 
revenue cannot be repatriated to Iran, transferred to a third country, 
or used to facilitate third-country trade, except for humanitarian 
purchases. This is a very powerful provision, as it effectively ``locks 
up'' Iranian revenues in the few countries that still buy Iranian oil 
and denies Iran the free use of its diminishing oil revenue.

Tightening the Sanctions Regime Through Executive Orders
    To further enhance the pressure on Iran, over the last year the 
President has issued a series of Executive orders (E.O.) targeting 
Iranian activity--including one yesterday that takes aim at Iran's 
currency and its automotive sector, and expands sanctions against those 
supporting the Government of Iran.
    With this order, the Treasury Department, in consultation with the 
State Department, is authorized to impose sanctions on foreign 
financial institutions that conduct certain significant transactions 
for trading in Iran's currency, the rial, or maintaining significant 
rial accounts outside Iran. We have seen that the value and stability 
of the rial is of great importance to the regime. This new measure will 
limit the use of the rial in international transactions; places 
additional restrictions on Iran's ability to gain access to its foreign 
reserves; and isolates Iran further from the international financial 
system and commercial markets.
    In addition, the Executive order targets another major sector of 
Iran's economy--its automotive sector. Iran's automotive industry is a 
significant contributor to its overall economic activity, generating 
funds that help prop up the rial and the regime. With this Executive 
order, we will be able to sanction persons and financial institutions 
that knowingly engage in transactions for the supply of significant 
goods or services used in connection with the automotive sector of 
Iran.
    This E.O. also positions us to target those who provide material 
support to the GOI. Now, subject to certain exceptions, anyone who 
materially assists, sponsors, or provides financial, material, or 
technological support to persons identified by Treasury as the GOI is 
exposed to potential sanctions.
    In addition to this action, I would like to highlight two Executive 
orders in particular that we have used to target Iran's sanctions 
evasion efforts and to put further pressure on its energy exports.
    In response to Iran's continued abuse of the financial sector, the 
President in February 2012 issued E.O. 13599. Among other things, E.O. 
13599 blocks all property of the Government of Iran, including the 
Central Bank of Iran, and allows us to identify for sanctions any 
person--Iranian or non-Iranian--who acts for or on behalf of the 
Iranian Government, regardless of the type of activity. Under this 
Executive order we recently identified a Greek businessman, Dmitris 
Cambis, and a group of front companies for using funds supplied by the 
Government of Iran to purchase oil tankers, and then disguising the 
origin of the Iranian oil transported on those vessels.
    In July 2012, the President issued E.O. 13622, which enhances the 
NDAA by authorizing sanctions on foreign banks and persons that 
facilitate the activities of, or provide material support to, the 
National Iranian Oil Company (NIOC) or its energy-trading subsidiary, 
the Naftiran Intertrade Company (NICO), or that facilitate the 
acquisition--from any party--of Iranian petroleum, petroleum products, 
or petrochemicals. This authority also gives us the ability to target 
those who provide material support to the Central Bank of Iran or who 
sell gold to the Government of Iran. My colleagues at the State 
Department imposed sanctions on two petrochemical companies last week 
under this order, and we have used this measure to important effect in 
our engagement with foreign partners, warning countries about the risk 
of undertaking this conduct and, we believe, deterring it.

Expanding Energy, Shipping, and Shipbuilding Sanctions
    Last, I would like to discuss a new authority, the Iran Freedom and 
Counter-Proliferation Act of 2012 (IFCA), which was enacted in January 
2013 and becomes fully effective on July 1, 2013. IFCA expands our 
existing sanctions by giving us new tools to target Iran's ports, 
energy, shipping, and shipbuilding sectors, as well as Iran's supply of 
certain metals and industrial materials. It also provides for 
additional sanctions on banks that transact with any designated Iranian 
entity, not just those designated for WMD proliferation, terrorism, or 
human rights abuses, as well as entities identified as the Government 
of Iran. To help ensure this new legislation has the greatest impact 
possible, we have conducted extensive outreach to foreign Governments 
and companies to explain the ever-increasing risks that business, and 
financial transactions incident to that business, with Iran poses.

Recent Administration Actions
    The pressure we have brought to bear on Iran is the result not only 
of the creation of additional authorities, but also the aggressive 
implementation and enforcement of those authorities. Since the 
beginning of 2012, Treasury, in consultation with our interagency 
partners, particularly the Department of State, has imposed sanctions 
on 38 individuals and 77 entities, and has added almost 200 aircraft 
and ships to the sanctions list. Within the past month alone, we have 
identified and sanctioned over 40 individuals and entities. I will 
briefly describe a few recent actions emblematic of our work to expose 
Iran's WMD proliferation activities, its sponsorship of international 
terrorism, its support to the brutal Assad regime, and its abuse of 
human rights.

WMD Proliferation
    Disrupting and disabling Iran's WMD procurement networks and 
proliferation activities through the use of the counter-proliferation 
Executive order, E.O. 13382, remains one of our primary objectives. 
Over the past 8 years we have taken hundreds of actions under E.O. 
13382. Building on this, less than 2 weeks ago, we took action against 
six individuals and entities for their roles in a support and 
procurement network for Iran Air, which we designated in June 2011 for 
providing services and support to the IRGC, Ministry of Defense and 
Armed Forces Logistics and Iran's Aerospace Industries Organization. At 
the same time we designated an additional eight companies and 
individuals for their connections to the IRGC and NIOC or Iran's 
nuclear or missile programs. Last month, we designated an Iranian 
financial institution--the Iranian Venezuelan Bi-National Bank--as 
engaging in financial transactions on behalf of a previously designated 
Iranian bank. That brought to 28 the number of Iranian financial 
institutions that have been designated under either E.O. 13382 or the 
counterterrorism Executive order, E.O. 13224. Notably, each of these 
designated Iranian-linked financial institutions can trigger CISADA 
sanctions, meaning that any foreign financial institution that 
knowingly facilitates significant transactions for any of these 28 
financial institutions risks losing its access to the U.S. financial 
system.
    This action follows the designations of some 15 entities in 
November and December of last year that targeted the international 
procurement operations of Iran's Atomic Energy Organization of Iran 
(AEOI), the Iran Centrifuge Technology Company (TESA), and Iran's 
uranium enrichment efforts.

Terrorism
    As we focus on Iran's WMD programs, we remain mindful that Iran is 
still the world's foremost State sponsor of international terrorism, in 
particular through its Islamic Revolutionary Guard Corps-Qods Force 
(IRGC-QF). Iran continues to provide financial and military support to 
several terrorist organizations, including Lebanese Hizballah, which is 
responsible for the bombing last summer of a tourist bus in Burgas, 
Bulgaria.
    In November 2012 we exposed a senior IRGC-QF officer and senior 
official of the Iraqi terrorist group Kata'ib Hizballah (KH), which is 
backed by the IRGC-QF and whose training has been coordinated with 
Lebanese Hizballah in Iran. KH is responsible for a rocket attack that 
killed two U.N. workers in Baghdad and for numerous other acts of 
violence in Iraq. Treasury also maintains vigilant watch over the 
activities of al-Qa'ida operatives working out of Iran in an effort to 
expose and isolate them. In October 2012, for example, we designated a 
key facilitator for al-Qa'ida, the latest in a series of actions 
exposing some half a dozen members of al-Qa'ida operating in Iran, 
under an agreement between Iran and al-Qa'ida.

Syria
    Iran's financial, material, and logistical support for the Assad 
regime's brutal campaign of violence against its own citizens also 
remains an area of intensive focus. Last year the President exposed the 
IRGC-QF for its support to the Syrian General Intelligence 
Directorate--a key instrument of Assad's repression--in the Annex to 
E.O. 13572, which targets those responsible for human rights abuses in 
Syria. We have also taken action under this authority against the IRGC-
QF's commander Qasem Soleimani and his deputy, as well as the Iranian 
Ministry of Intelligence and Security, Iran's primary intelligence 
organization. As part of the effort to expose Iran's role in abetting 
Assad's atrocities, Treasury has also targeted Iran's national police, 
the Law Enforcement Forces, along with its chief Ismail Ahmadi Moghadam 
and his deputy, which have also aided the Syrian regime's crackdown.
    Iran's support to the Assad regime also is clearly reflected in 
Hizballah's aid to the Assad regime. As we observed last year when we 
designated Hizballah and its leadership for providing support to the 
Government of Syria under E.O. 13582, Iran has long provided Hizballah 
with military, financial, and organizational assistance. Iran's IRGC-QF 
has led these efforts, working with Hizballah to train Syrian 
Government forces and establish and equip a pro-Assad militia in Syria 
that has filled critical gaps in Syria's military.
    We also continue to focus on Syria and Iran's ongoing proliferation 
activities. Last year, for instance, we sanctioned Iran's SAD Import 
Export Company under E.O. 13382 for acting on behalf of Iran's Defense 
Industries Organization, itself sanctioned under this authority, for 
shipping arms to the Syrian military and supplying goods for the 
production of mortars.

Human Rights
    The people of Syria are only the latest to suffer from Iran's 
wanton disregard for human rights. Its own citizens, as we have 
witnessed for decades, continue to bear the brunt of the regime's 
abuses. Under E.O. 13553, Treasury and State have the authority to 
sanction Iranian officials who are responsible for or complicit in 
serious human rights abuses against the people of Iran on or after June 
12, 2009. E.O. 13606, issued in April 2012, among other things targets 
serious human rights abuses against the Iranian people by or on behalf 
of the Government of Iran, recognizing these abuses may be facilitated 
by technology. These Executive orders complement other authorities in 
CISADA, the TRA, and E.O. 13628 that target persons who transfer goods 
or technology likely to be used by or on behalf of the Government of 
Iran in serious human rights abuses or that have engaged in censorship 
activities against the people of Iran.
    Last week we employed these authorities against one individual and 
two entities that had facilitated abuses of human rights of the Iranian 
people, including by denying the Iranian people free access to 
information. These actions included sanctions against the Committee to 
Determine Instances of Criminal Content (CDICC), which identifies sites 
that carry forbidden content and reports them for blocking, and another 
entity that sought to interfere with outside satellite programming. We 
further took action against the Supreme Leader's deputy chief of staff 
for his role in directing serious violations of human rights by the 
intelligence and security services. Under E.O. 13628, we have also 
sanctioned the Islamic Republic of Iran Broadcasting and its managing 
director, the Iranian Cyber Police, and nearly a dozen other entities 
and individuals for their involvement in abusing the human and 
democratic rights of Iran's citizens.
    At the same time we are working to ensure that the Iranian people 
can exercise their universal human rights. Last week the Treasury 
Department, in consultation with the State Department and subsequent to 
a waiver under the Iran Iraq Arms Non Proliferation Act, issued a 
General License authorizing the exportation from the U.S. or by U.S. 
persons of certain hardware, software, and related services. This 
license will allow U.S. companies to provide the Iranian people with 
more secure personal communications technology to connect with each 
other and with the outside world.
    We continue to keep close watch on events in Iran, especially as 
the upcoming presidential elections draw near, and will not hesitate to 
expose those who help the Iranian Government to deny Iranians their 
democratic and human rights.

Sanctions Evasion
    As Iran is turned away from reputable international financial 
institutions and partners, it increasingly relies on deception and 
concealment to evade international sanctions to meet its financial 
needs. We have worked tirelessly to expose those who aid these efforts. 
Just over 2 weeks ago, we identified for sanctions five senior leaders 
of NIOC and several of its overseas subsidiaries, including the head of 
NICO, Seifollah Jashnsaz. These individuals have been deeply involved 
in Iran's circumvention of international sanctions on behalf of its 
energy sector. Earlier last month we designated a UAE exchange house, 
Al Hilal Exchange, and a trading company, Al Fida International General 
Trading, for providing services to Iran's Bank Mellat, which we 
designated in 2007 for providing banking services to Iran's nuclear 
entities. These companies conspired to provide foreign exchange to Bank 
Mellat in a manner intended to obscure Mellat's involvement. Earlier 
last month the Central Bank of the UAE revoked the license of Al Hilal 
exchange for major regulatory and anti-money laundering compliance 
violations. And in April the Administration exposed a major network run 
by Iranian businessman Babak Zanjani, including banks in Malaysia and 
Tajikistan, that helped move billions of dollars on behalf of the 
Iranian regime, including tens of millions of dollars to an IRGC 
company.

Impacts on Iran
    The international sanctions regime--of which our sanctions are just 
one, albeit very important, part--has had a significant effect on key 
sectors of the Iranian economy, as well as on the Iranian economy as a 
whole. More importantly, these economic effects have had an impact on 
Iran's leadership. Perhaps the clearest evidence of this comes from the 
recent negotiating sessions in Almaty, Kazakhstan. During those 
meetings, the Iranian side sought sanctions relief in exchange for 
concessions on their nuclear program. They would not have done so had 
the impact of sanctions not affected their calculus.

Petroleum Sector Impacts
    U.S. and EU sanctions on Iran's petroleum sector have been 
particularly powerful. Of the more than 20 countries that imported oil 
when the NDAA went into full effect on June 30, 2012, only a handful 
continue to do so today. Iran's crude oil exports have dropped by over 
one million barrels per day, or some 50 percent, between the enactment 
of the NDAA and early 2013. The EU's decision to ban the import of oil 
into Europe, effective in mid-2012, contributed in no small part to 
this fall. These lost sales cost Iran between $3 billion and $5 billion 
a month.

Shipping Sector Impacts
    As our authorities have expanded to encompass Iran's petroleum 
sector, we have also used them to target Iran's ability to export its 
primary commodity. Under E.O. 13599, we identified Iran's primary crude 
shipper, the National Iranian Tanker Company (NITC), over two dozen of 
its affiliates and over 60 of its vessels. Like the Islamic Republic of 
Iran Shipping Lines (IRISL), which our sanctions have largely driven 
out of business, NITC has sought to deceive the world maritime 
community, by changing the names of its vessels, turning off its 
transponders and engaging in ship-to-ship transfers to obscure the 
origin of Iranian oil. While these evasion efforts may work for a short 
while, they are not sustainable and are eventually detected, as last 
month's action against the Cambis network's Sambouk Shipping FZC 
clearly demonstrates.

Economic Impacts
    As Iran finds it increasingly difficult to earn revenue from 
petroleum sales and to conduct international financial transactions, 
Iran's economy has been severely weakened. Iran's own economic 
mismanagement has only exacerbated these effects.
    Take, for instance, the broadest measure of Iran's economic 
activity, its gross domestic product (GDP). Treasury assesses that in 
2012 Iran's GDP fell by some 5 to 8 percent--the largest drop since 
1988, the final year of the Iran-Iraq war, and the first contraction in 
20 years. This decline has impacted the Government of Iran's budget, 
causing it to run in 2012 its largest deficit in 14 years, which could 
amount to some 3 percent of GDP. We believe Iran's GDP will continue to 
shrink in 2013 in the face of reduced Government and consumer spending 
and declining oil exports, as well as the ramping up of additional 
sanctions.
    Iran's economic contraction is manifest in its recent budget bill, 
which projects almost 40 percent less oil revenue than did the previous 
year's budget law. To help make up the shortfall, Iran's parliament is 
currently considering tax increases of some 38 percent. And in March, 
Iran's Supreme Audit Court released figures showing that for the first 
9 months of the Iranian year only 53 percent of projected budget 
revenues had been realized.
    We have also begun to see the impact of the bilateral trade 
restriction in Section 504 of the TRA, which went into effect in 
February. This measure has limited Iran's access to its foreign 
exchange reserves and impeded the Government of Iran's ability to 
support the rial. Supported by our extensive outreach efforts, this 
powerful provision is rendering Iran's reserves increasingly 
inaccessible.
    Iran's currency also has been hit hard. At the beginning of 2012, 
one U.S. dollar purchased 16,000 rials in the open market. As of April 
30 of this year, one dollar was worth about 36,000 rials (see , Chart 
1, appended). The open market value of the rial has lost over two-
thirds of its value in the last 2 years.
    Faced with a rapidly depreciating rial, in September 2012 the 
Central Bank of Iran established a Currency Trading Center (CTC) to 
allocate foreign exchange for certain preferred imports at a 
preferential rate of about 24,000 rials to the dollar. Apparently faced 
with dwindling supplies of hard currency, just a few weeks ago the CBI 
substantially limited the list of imported goods that qualified for the 
CTC's preferential rate.
    Inflation, partly due to the volatility and depreciation of the 
rial, is another telling metric. As of April 20, 2013, the official 
Statistics Center of Iran 12-month average inflation rate was 
approximately 30 percent, while the point-to-point inflation rate was 
nearly 39 percent. Independent analysis suggests the actual inflation 
rate is significantly higher.
    These figures become increasingly stark when we compare Iran to its 
neighbors or similarly situated countries. Compared to groupings of 
countries in the Middle East and Africa, Iran's stock of foreign 
capital, as measured by the Bank of International Settlements, is down 
57 percent for the 2-year period ending December 2012, representing a 
reduction in lending of some $9.5 billion. This figure contrasts with a 
13 percent increase in BIS banks' lending exposure to all developing 
countries (see, Chart 2, appended). This shortage of capital is at 
least one reason why Iran's automobile sector is now encountering 
significant difficulties, manufacturing at some 50 percent of nominal 
capacity and facing substantially reduced exports.

Next Steps
    Despite our success in increasing pressure on Iran, we have yet to 
see the regime change its fundamental strategic calculus regarding its 
nuclear program. Nonetheless, the Administration remains convinced that 
sanctions pressure has an important role to play in helping to bring 
about a negotiated resolution. Accordingly, our commitment to the dual-
track strategy--and to applying ever more effective and potent economic 
and financial pressure on Iran--has never been greater.
    We look forward to continuing to work with Congress on this 
endeavor. We have had productive discussions with this Committee on how 
to best proceed with respect to new legislation, and we support 
measures that will help us make meaningful progress toward enhancing 
pressure on the regime. I am confident that this Committee will remain 
actively engaged with the Administration in shaping a common approach 
to new legislation. As we move forward to sharpen the choice for the 
Iranian regime, we stand ready to work hand-in-hand with this Committee 
and the Congress.
    Let me briefly share with you some thoughts on where we go from 
here.

Increasing the Government of Iran's Isolation
    First, we will continue to identify ways to isolate Iran from the 
international financial system. We will do so by maintaining our 
aggressive campaign of applying sanctions against individuals and 
entities engaged in, or supporting, illicit Iranian activities and by 
engaging with the private sector and foreign Governments to amplify the 
impact of these measures. As part of this effort we will also target 
Iran's attempts to evade international sanctions through the use of 
nonbank financial institutions, such as exchange houses and money 
services businesses. And we will explore new measures to expand our 
ability to target Iran's remaining links to the global financial 
sector.
    In particular, we are looking carefully at actions that could 
increase pressure on the value of the rial. In that connection, we will 
continue to actively investigate any sale of gold to the Government of 
Iran, which can be used to prop up its currency and to compensate for 
the difficulty it faces in accessing its foreign reserves. We currently 
have authority under E.O. 13622 to target those who provide gold to the 
Iranian Government and, as of July 1, IFCA will expand that authority 
to target for sanctions the knowingly selling gold to or from anyone in 
Iran for any purpose.

Targeting Additional Sources of Revenue
    Second, we will continue to target Iran's primary sources of export 
revenue. In addition to oil and petroleum products, Iran exports 
substantial volumes of petrochemicals. Current authorities allow us to 
target those who purchase or acquire these commodities, as well as the 
financial institutions that facilitate these transactions. We believe 
targeting these actors, as well as those on the supply side of the 
equation in Iran, may offer a meaningful opportunity to gain additional 
leverage.

Engaging With International Partners
    Third, with State, we will maintain our robust engagement and 
outreach efforts to foreign Governments and the private sector. 
Treasury regularly meets with foreign officials and financial 
institutions to explain our sanctions, to warn them of the risks of 
doing business with Iran, and to encourage them to take complementary 
steps. In response, we have seen jurisdictions and companies the world 
over respond positively to these overtures, multiplying the force of 
our sanctions many times over. As we have for CISADA and the NDAA, we 
have already begun to engage with foreign countries, banks, and 
businesses on the implications of IFCA, and will continue to do so as 
we move forward in our implementation of this important legislation.

Aggressive Enforcement
    The Administration campaign to target Iran's proliferation 
networks, support for terrorism, sanctions evasion, abuse of human 
rights, and complicit financial institutions is without precedent. It 
will only continue and grow more robust as Iran's failure to meet its 
international obligations persists. As I believe we have amply 
demonstrated, we are relentless in pursuing those who facilitate Iran's 
illicit conduct or otherwise enable the regime. That will continue 
unabated.

Conclusion
    Despite our efforts to isolate and pressure Iran, we know there is 
far more to do.
    As Secretary Lew has said, ``We will exhaust all diplomatic and 
economic means we can.'' What remains to be seen, he noted, is whether 
this will ``change the mind of the regime so that it [is] ready to, in 
a diplomatic process, give up the pursuit of nuclear weapons. That is 
the goal.''
    I know this Committee shares this objective, and I look forward to 
working with you and your colleagues in the Congress to advance our 
efforts to achieve it.





                PREPARED STATEMENT OF ERIC L. HIRSCHHORN
   Under Secretary for Industry and Security, Department of Commerce
                              June 4, 2013

    Mr. Chairman, Senator Crapo, Members of the Committee, I welcome 
the opportunity to appear before the Committee today to discuss the 
Department of Commerce's role in administering and enforcing U.S. 
export control policies towards Iran. Commerce and its Export 
Administration Regulations (EAR) play an important role both in 
enforcing and administering U.S. export controls against Iran. We also 
work closely with our colleagues at the Departments of State, Homeland 
Security (DHS), Justice, and the Treasury, as well as other agencies, 
to implement and enforce the U.S. export restrictions on Iran 
effectively.
    Commerce investigates possible exports or re-exports to Iran in 
violation of the EAR. In most instances an export or re-export of an 
item subject to the EAR without Treasury authorization will constitute 
a violation of the EAR.
    The Bureau of Industry and Security's (BIS) Export Enforcement (EE) 
unit has approximately 100 Federal law enforcement agents in nine field 
offices throughout the United States supported by investigative and 
intelligence analysts at BIS headquarters. The field offices are 
located in Boston, New York, Miami, Chicago, Dallas, Los Angeles, San 
Jose, Houston, and the Washington, DC, area. EE is on the front lines 
of the effort to prevent illicit transfers of U.S.-origin items which 
would do us harm if they fell into the wrong hands. EE is the only 
Federal law enforcement body solely dedicated to investigating and 
enforcing violations of U.S. export controls.
    In addition, BIS has seven Export Control Officers (ECOs) stationed 
in six foreign locations--Abu Dhabi, Singapore, Beijing, Hong Kong, New 
Delhi, and Moscow. These ECOs are BIS enforcement agents temporarily 
assigned to the U.S. & Foreign Commercial Service. They have regional 
responsibility for end-use monitoring of U.S. exports in 28 countries. 
\1\ The ECOs conduct pre-license checks and post-shipment verifications 
to confirm that U.S.-origin items will be, or are being, lawfully used. 
The ECOs also confirm that the items have not been diverted to 
prohibited end users or end uses within the country or illegally 
transshipped to another country, such as Iran. In fiscal year 2012, BIS 
conducted 994 end-use monitoring visits in 53 countries based on 
concerns identified by Commerce and its interagency partners. The focus 
of these visits is to uncover unauthorized transshipments or re-exports 
to restricted destinations such as Iran. The end-use monitoring 
coverage provided by these ECOs is augmented by U.S. Embassy personnel 
in other overseas locations as well as targeted ``Sentinel Program'' 
visits led by domestically based BIS Special Agents. In addition, as 
part of the Export Control Reform effort to transfer less sensitive 
munitions items (e.g., certain parts and components of U.S. Munitions 
List (USML) end items) to the Commerce Control List (CCL), BIS and 
State, under its Blue Lantern program, are working together to 
coordinate end-use checks where USML and CCL items are colocated, so 
that both organizations can expand the number of overall end-use checks 
conducted by the U.S. Government.
---------------------------------------------------------------------------
     \1\ The 28 countries covered by BIS ECOs are: Bahrain, China, 
Cyprus, Egypt, India, Indonesia, Iraq, Israel, Jordan, Kuwait, Lebanon, 
Malta, Oman, Pakistan, Qatar, Malaysia, the Philippines, Russia, Saudi 
Arabia, Singapore, South Korea, Syria, Taiwan, Thailand, Turkey, the 
United Arab Emirates, Vietnam, and Yemen.
---------------------------------------------------------------------------
    When a foreign party is determined to be an unreliable recipient of 
U.S.-origin commodities and technology through end-use monitoring, BIS 
may take a variety of actions, such as screening future license 
applications involving that party, referring a lead for further 
investigation by EE field offices, or taking an administrative action, 
including designation on the Entity List or Unverified List. In FY2012, 
BIS's Office of Enforcement Analysis (OEA) issued 160 leads to Office 
of Export Enforcement (OEE) field offices (a 46 percent increase over 
FY2011) to identify suspect transactions and parties. More than 65 
percent of these leads focused on Iranian procurement efforts. OEA 
already has exceeded this number of leads in the first 7 months of 
FY2013. These leads, based on intelligence, export data, and other 
information available to EE, allow Special Agents to detect, prevent, 
interdict, and enforce illicit diversions by front companies.
    OEE agents investigate a variety of export violations and diversion 
of U.S.-origin items to Iran is a major focus. Iran continues to engage 
in widespread efforts to illegally acquire U.S.-origin commodities, 
software, and technology. In fact, 300 of the OEE's 749 open cases (40 
percent) involve Iran as the ultimate recipient of diverted items. Much 
of our enforcement activity and analysis is focused on stopping the 
diversion of such items to Iran via transshipment hubs in the Middle 
East and Southeast Asia.
    BIS aggressively investigates violations of the EAR involving Iran 
and employs a variety of tools to prevent and punish such violations, 
including criminal fines and imprisonment, civil penalties, temporary 
denial orders (TDOs), the BIS Entity List, and asset forfeitures.
    BIS is very concerned with the prohibited sale, export, re-export, 
supply, or diversion of U.S.-origin censorship and monitoring hardware 
to regimes such as Iran. BIS has launched a number of investigations 
related to this issue and many are still ongoing. On May 30, 2013, the 
U.S. Government issued a General License to authorize the export of a 
variety of personal communications equipment and software, as well as 
related services, from the United States or by U.S. persons to Iran. 
However, for activities that fall outside the purview of that General 
License or are contrary to its purpose to facilitate access to safer 
communication tools for Iranians, BIS has worked to prevent the 
diversion of U.S.-origin telecommunications and networking equipment to 
Iran, which may use such equipment to repress their citizens. While I 
cannot comment on any specific investigation, such investigations 
remain a priority for BIS.
    Another priority for BIS, and an area where my agency has 
effectively applied the full range of enforcement tools available, is 
the illicit diversion of U.S.-origin aircraft and components to Iran. 
For example, BIS has also made effective use of its authority to issue 
Temporary Denial Orders, or TDOs, to prevent diversion of U.S.-origin 
items to Iran. Temporary Denial Orders prohibit the participation of 
targeted parties in any export, re-export, or transfer involving items 
subject to Commerce's jurisdiction, and are issued for renewable 
periods of 180 days to prevent imminent export violations. In addition 
to TDOs, BIS may deny export privileges for longer periods of time in 
conjunction with other civil and administrative penalties.
    In 2012, BIS issued two notable TDOs to prevent illicit diversion 
to Iran. In April, BIS issued a TDO against Sayegh Aviation Group and 
related parties involved in the acquisition of Boeing 747 aircraft for 
use by Iranian entities. \2\ As a result of this action, BIS believes 
all aircraft involved are now located in the UAE and that Sayegh 
Aviation is complying with U.S. export regulations. In December, BIS 
issued a TDO against Delfin Group USA LLC and related parties to 
prevent the diversion to Iran of polymers and lubricating oils, 
including aviation engine lubricating oils.
---------------------------------------------------------------------------
     \2\ http://www.bis.doc.gov/news/2012/aban_air_TDO_04232012.pdf
---------------------------------------------------------------------------
    Another example of successful use of a TDO involved Mahan Air. In 
2008 BIS issued a TDO against Mahan Air, an Iranian airline sanctioned 
by the Treasury Department, for using its commercial aircraft to funnel 
weapons and personnel to Syria. Through the use of this TDO, which 
remains in effect today, BIS has prevented the delivery or use of over 
$100 million in aircraft, engines, and spare parts. Additionally, in 
2010 the United Kingdom-based Balli Group, which was involved in 
obtaining Boeing 747 aircraft for Mahan Air, received a $2 million 
criminal fine. Balli also entered into a civil settlement with BIS and 
OFAC involving a $13 million civil penalty, coupled with an additional 
$2 million suspended civil penalty. When Balli did not make a timely 
penalty payment, BIS revoked the suspension of the $2 million civil 
penalty, and the total civil penalty of $15 million--the largest civil 
penalty imposed under the EAR to date--has been collected in full.
    Another powerful tool BIS has employed to prevent the unauthorized 
export or re-export of U.S.-origin commodities and technology to Iran 
is the Entity List. The Entity List generally prohibits entities acting 
contrary to the national security or foreign policy interests of the 
United States from receiving items subject to the EAR. Because 
companies and banks worldwide screen against this list, publicly naming 
entities involved in illicit export activity helps prevent export 
violations by discouraging resellers and other parties from doing 
business with targeted entities and the procurement networks of which 
they are a part.
    Since October 2009, BIS has added 80 persons located in countries 
including Belarus, China, Germany, Hong Kong, Lebanon, Malaysia, 
Norway, Singapore, South Africa, and the United Arab Emirates to the 
Entity List based on evidence that they were involved in diversion of 
U.S.-origin items to Iran. For example, in September 2012, BIS added 
Seyed Mousavi and his company, Seyed Mousavi Trading, located in the 
UAE and Iran, to the BIS Entity List. Mousavi and his company knowingly 
acquired U.S.-origin items for transshipment to Iran through the UAE 
and Hong Kong. Further, the exports to Iran included shipments to a 
person on the Denied Persons List.
    Last year, BIS added a company to the Entity List that may be 
unlawfully diverting U.S.-origin items to Iran. As a result of this 
listing, BIS received an industry tip from a company that discovered 
through routine compliance screening that a proposed customer was 
possibly related to the listed entity. BIS is investigating this 
related company and has detained several shipments to prevent possible 
diversion to Iran. This example demonstrates the power of the Entity 
List in enlisting industry assistance to enforce the EAR and disrupt 
the transshipment of U.S.-origin items to Iran. BIS is also working to 
strengthen the Unverified List to increase U.S. Government insight into 
potential transactions of concern involving foreign parties whose bona 
fides (i.e., suitability and reliability as recipients of U.S. exports) 
BIS has been unable to verify. This action will provide more clarity to 
exporters on how to address ``red flags'' involving transactions with 
foreign parties where BIS has been unable to complete an end-use check.
    In addition, the EAR incorporate by reference certain persons on 
OFAC's restricted parties' lists. Examples include Weapons of Mass 
Destruction Proliferators and their Supporters, Specially Designated 
Terrorists, Specially Designated Global Terrorists and Foreign 
Terrorist Organizations. The EAR license requirements supplement those 
of the other U.S. Government agencies.
    BIS also maintains a consolidated list of persons sanctioned by the 
State Department and OFAC. The consolidated electronic list is free for 
exporters, re-exporters and transferors to use to ensure that 
transactions do not involve proscribed parties. The consolidated list 
now includes almost 27,000 entries. In 2012, the monthly average number 
of views on the Consolidated List Link on export.gov/ECR was 21,388. 
There were 256,600 views in CY2012. In addition, more than 12,000 
companies have signed up for free automatic email feeds whenever the 
consolidated list is updated.
    The consolidated list facilitates compliance, especially for small- 
and medium-sized companies who may lack the resources to stay current 
with all the lists. Moreover, this widely used list takes advantage of 
the automated name screening infrastructure that exists in banks, 
trading companies and manufacturing enterprises worldwide. This 
approach discourages resellers and other parties from doing business 
with targeted entities and the procurement networks they represent. It 
also prevents resellers and other parties from doing business with the 
targeted entities unless they seek a license from BIS, which in most 
cases will be denied.
    Finally, asset forfeitures are an important enforcement tool. For 
example, in October 2012 a BIS investigation resulted in the sentencing 
of Mohammad Reza ``Ray'' Hajian to 4 years in prison, 1 year of 
supervised release, and the forfeiture of $10 million. Between 2003 and 
2011, Hajian conspired with others to unlawfully export sophisticated, 
enterprise-level computers and related equipment from the U.S. to Iran. 
In fiscal year 2013 to date, BIS investigations, including joint 
investigations with other Federal agencies, have resulted in monetary 
forfeitures totaling over $600 million.
    Commerce implements the ``export sanction'' when chosen in the 
context of imposing sanctions pursuant to the Iran Sanctions Act of 
1996 (ISA), the missile sanctions law contained in the Arms Export 
Control Act (AECA) and Export Administration Act (EAA) of 1979, the 
Iran, North Korea, and Syria Nonproliferation Act (INKSNA), as amended, 
of 2006, amended. When the Secretary of State determines, in 
consultation with other agencies, that a person has engaged in 
sanctionable activities and decides to impose a ban on exports as a 
sanction, Commerce denies export license applications for items on the 
CCL to that person.
    Commerce also provides input to the Office of the Director of 
National Intelligence's (ODNI) annual report on countries of diversion 
concern mandated by CISADA Title III. If the President designated a 
country as a destination of diversion concern, BIS would require a 
license for the export, re-export, transit or transshipment of that 
category of items through the designated country. Any license 
application would almost certainly be denied.
    Additionally, Commerce cooperates closely with the Department of 
State to address diversion concerns in key transshipment hubs around 
the globe. In addition to leveraging national compliance and 
enforcement authorities to address the diversion of U.S.-origin 
commodities and technology to Iran, BIS engages with international 
partners, including important transshipment hubs, to secure bilateral 
trade.
    I would like to conclude by briefly addressing the Administration's 
efforts concerning Export Control Reform initiative, and how that will 
affect our Administration and enforcement of the export restrictions 
against Iran. As part of this initiative, the Administration has 
established the Information Triage Unit (ITU), which is housed at the 
Department of Commerce, with the participation of the Departments of 
State, Defense, Energy, Treasury, and ODNI. The ITU is responsible for 
assembling and disseminating relevant information, including classified 
information, from which licensing agencies can make informed decisions 
on proposed exports requiring a U.S. Government license. This multi-
agency screening unit coordinates the review of separate processes 
across the Government to ensure that all departments and agencies have 
a full data set from which to make decisions on license applications. 
In its first year, the ITU produced more than one thousand products 
supporting the most sensitive transactions, including those undergoing 
higher level interagency review. This ensures that licensing officers 
and policy makers are fully informed about the bona fides of proposed 
exports in deciding whether to approve license applications.
    Likewise, the Export Enforcement Coordination Center (E2C2), 
established by the President under Executive Order 13558, is a central 
element of the Export Control Reform initiative. A permanent center 
with dedicated staff, the E2C2 is responsible for enhanced information 
sharing and coordination among law enforcement and intelligence 
agencies regarding possible violations of U.S. export control laws. The 
E2C2 is housed in and led by the Department of Homeland Security with 
the participation of 18 Federal agency partners, and it enables these 
agencies to better deploy their resources without duplicating or 
undermining each other's efforts. The Director of the Center is from 
the Department of Homeland Security, and BIS and the Federal Bureau of 
Investigation (FBI) provide the E2C2's two Deputy Directors.
    Additional resources would increase BIS's operational 
effectiveness. The President's Fiscal Year 2014 budget requests $8.3 
million to augment BIS enforcement capabilities. These include 
additional analysts, Special Agents, and three new ECOs, two of which 
would be dedicated to conducting end-use checks in Turkey and the UAE, 
countries proximate to Iran.
    We stand ready to work with the Committee and the Senate to 
maintain an aggressive and effective export enforcement program.

        RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
                       FROM WENDY SHERMAN

Q.1. Some maintain that only when Iran's economy presents 
unacceptable risk to the political survival of the Supreme 
Leader might he decide to make the nuclear deal that needs to 
be made. Round after round of increasing and strengthening of 
sanctions has occurred without yet seeing any closure on the 
nuclear issue.
    As a matter of policy, then, instead of another 
``strengthening'' does the U.S. need to focus now on embargo to 
change the Supreme Leader's behavior more quickly?
    Do you have any support that this would actually harm our 
allies more than it would change the behavior of the Iranian 
regime?
    Which is harder for the world to live with, in your 
evaluation, an embargoed Iran in the short term, or the Supreme 
Leader with a nuclear weapon?

A.1. The United States will continue to increase the pressure 
on Iran as we seek a diplomatic solution to international 
concerns over Iran's nuclear program. We have built an 
international coalition to increase the economic and diplomatic 
pressure on Iran, and we will continue to use all existing 
authorities and pursue new measures to further isolate Iran.
    We are committed to aggressively enforcing our existing 
authorities, and are considering additional measures that will 
support our ultimate goal of finding a peaceful solution to our 
concerns about Iran's nuclear program. We robustly implement 
all sanctions legislation, and we are taking the necessary 
steps to implement the sanctions under the ``Iran Freedom and 
Counter Proliferation Act'' subtitle of NDAA 2013. These 
sanctions, which come into effect on July 1, 2013, will send a 
further message to Iran that sanctions will intensify without 
progress at the negotiating table.
    On February 6, 2013, amendments to section 1245 of NDAA 
2012 went into effect. One aspect of these amendments requires 
the few remaining countries that import Iranian crude oil to 
keep the payments for those imports in bank accounts in the 
importing country. These countries all have significant trade 
imbalances with Iran, meaning that Iran does not have access to 
a significant amount of hard currency derived from its energy 
sector. Iran's mismanagement of its economy, combined with 
sanctions' impact, has sparked severe inflation in Iran and 
continues to drain its foreign currency reserves. We continue 
to work with our partners around the world to target Iran's 
access to foreign currency and continue to pursue reductions in 
Iran's crude oil exports.
    U.S. sanctions have targeted the Iranian regime, not the 
Iranian people. It is important that we continue to show the 
Iranian people that our sanctions maintain important exceptions 
to benefit them. We want to make sure that our sanctions 
continue with their current approach of targeting Iran, not the 
partners in our international coalition. That is why we have 
supported measures like those Congress included in the Iran 
Freedom and Counterproliferation Act that build out sanctions 
on key Iranian sectors while still allowing some legitimate 
trade by private citizens and companies in Iran.

Q.2. The overall sanctions efforts imposed by the UN, the U.S., 
and its allies have not achieved the intended goal of reaching 
a sustained suspension of Iran's uranium enrichment activities. 
To the contrary, Iran has actually been seen to accelerate its 
enrichment processes.
    From your respective agency's perspective, why have the 
U.S. and allied economic sanctions imposed so far against Iran 
been less than successful in this respect?
    Do we need better implementation and enforcement of 
sanctions from the Administration or by our allies and 
partners?

A.2. This Administration has implemented sanctions against Iran 
more actively than any of its predecessors, taking full 
advantage of the laws passed by Congress and the regulations 
crafted by the Executive Branch to apply the maximum possible 
pressure on Iran. Our sanctions and pressure campaign takes 
many different forms, using all available authorities.
    The measure of sanctions effectiveness is not how many 
targets are subjected to penalties, though that is a major part 
of it. It is the pressure we place on the Iranian leadership by 
continuing to economically isolate them form the world. The 
Iranian nuclear program is a critical strategic interest to the 
Iranian Government.
    That our efforts have yet to succeed should not be taken to 
indicate that they will not eventually succeed. The effort to 
increase pressure and build partnerships has been invested to 
ensure that, as the effects of sanctions increase, so does 
international frustration with the Iranian regime.

Q.3. Ambassador Daniel Fried recently was named to a newly 
established position as ``sanctions coordinator'' at the State 
Department as an enforcement partner to Under Secretary Cohen.
    What set of issues contributed to creating the position and 
can you provide specific examples of how the coordinator is 
expected to improve or already has improved enforcement?

A.3. In conducting its first Quadrennial Diplomacy and 
Development Review, the Department determined that sanctions 
are an increasingly important tool in U.S. foreign policy, with 
serious implications for our conduct of diplomatic relations. 
The Department decided, therefore, to set up an office that to 
harmonize U.S. sanctions policies with our broader foreign 
policy, as well as coordinate the Department's internal work on 
sanctions issues.
    The Coordinator is tasked with enforcing and developing new 
sanctions, as well as ensuring that sanctions are used in a 
manner commensurate with U.S. policy interests. Working with 
the Department of Treasury and other offices in the Department 
of State, the Coordinator has already helped to organize our 
work on sanctions related issues around the world. The Office 
of the Coordinator will continue to consider ways to make 
sanctions decisions more efficient and effective.

Q.4. Sanctions must be fully and vigorously enforced, even as 
part of any ``engagement policy'' with Iran. There is concern 
that State is not fully implementing sanctions within its 
purview, particularly with regard to the repeated, almost 
automatic provision of exceptions to countries still buying 
Iranian crude.
    Are the exceptions actually working to ``enable'' the 
excepted countries' Iranian crude imports, are they even 
necessary anymore in the face of loosening oil markets?
    In your calculations, are these incremental reductions seen 
to have any impact on Iran's breakout capability for assembling 
a nuclear weapon?

A.4. At the outset, let me underscore that exceptions granted 
to our partners are benchmarks of the success of our sanctions, 
not a concession to our friends. They are the quid pro quo, 
created in statute, and have permitted our partners to take 
steps to reduce their purchases of Iranian oil.
    Since the enactment of the NDAA, more than 20 countries 
have reduced or eliminated crude oil purchases from Iran. Today 
only six countries still purchase Iranian crude oil and at 
levels far below where they were only 18 months ago. This 
represents the success of our diplomatic efforts--to deny 
export revenues to Iran, to build a coalition of partners, and 
to promote stability in international markets.
    These reductions have sharpened the choice for Iran's 
leadership between reintegration into the international 
community and increased isolation, pressure, and economic 
hardship.
    This administration shares your goal of maximizing pressure 
on Iran to encourage it to resolve our concerns with its 
nuclear program. In implementing the NDAA sanctions we have 
helped countries significantly reduce their crude oil purchases 
from Iran, and increase their own energy security by 
diversifying suppliers. We have made an impact here: Iran 
produces less oil--and exports are down by roughly 1 million 
barrels a day, shrinking revenues which could otherwise support 
Iran's nuclear program.
    Every country, by necessity, is focused on its energy 
security. Maximizing impact on Iran requires us to sustain our 
coalition. Coalition partners will do more as they have the 
confidence that their energy security can be assured.

Q.5. Under CISADA's stricter controls on trade with Iran, the 
President is authorized to designate countries for not making 
sufficient efforts to control diversion of certain materials to 
Iran. Licenses for exports of those materials to such 
``Destinations of Diversion Concern'' would be subject to a 
presumption of denial.
    Is there any heightened concern about possible diversion of 
authorized exports to unauthorized destinations or end-users 
raised by the Administration's policy shift to put ``higher 
fences around fewer items''?

A.5. You refer to the Administration's Export Control Reform 
initiative. The reform initiative will enhance, not ease, the 
prohibitions on destinations like Iran. All munitions items, 
regardless of their sensitivity and regardless of which list 
controls them, will continue to be subject to U.S. arms 
embargoes. In addition, military items currently controlled on 
the Commerce Control List in Export Control Classification 
Numbers (ECCNs) ending in ``-018'' will also become subject to 
these arms embargoes as well, resulting in a clearer, more 
comprehensive application of tightened U.S. embargoes.

Q.6. The UAE and China have each presented diversion and 
proliferation challenges.
    Can you briefly outline the nature and seriousness of the 
roles of China and the UAE in the proliferation threat, and 
U.S. efforts to assist in strengthening the controls there?
    Has any country yet been designated as a ``Possible 
Destination of Diversion Concern''? If not, what is the 
standard used to make such a determination?

A.6. China has improved its export control system in the past 
two decades. We continue to engage with China on the need to 
improve the enforcement and implementation of its export 
controls and to prevent Chinese entities from supplying 
proliferation-sensitive technology to programs of concern. We 
seek to cooperate to improve Chinese companies' internal 
compliance with export controls, as well as to build the 
Chinese Government's capabilities to consistently enforce its 
own export control laws. We engage China on a wide range of 
nonproliferation issues, from export controls and 
counterproliferation, to nuclear doctrine and strategy, to 
civil nuclear cooperation, to engagement in multilateral fora 
like the United Nations and control regimes like the Biological 
Weapons Convention and the Chemical Weapons Convention.
    The UAE takes seriously its international obligations to 
implement UN sanctions against Iran and is an active partner 
with the USG on sanctions enforcement and counterproliferation 
issues. To this end, it is active in disrupting or preventing 
transfers to Iran of items of proliferation concern and has 
been reporting these efforts to the UN. The UAE continues to 
make significant progress in its efforts to establish an export 
control system consistent with international standards and 
limit transshipments of proliferation concern. In August 2007 
the UAE passed comprehensive strategic trade control 
legislation providing the basis for an effective and 
enforceable export control system.
    The President has not publicly designated any Destinations 
of Diversion Concern, a determination that would be based on a 
report from the Office of the Director of National 
Intelligence. The Comprehensive Iran Sanctions, Accountability, 
and Divestment Act of 2010 (CISADA), Section 302, requires a 
report to Congress identifying countries that are (1) allowing 
the diversion of items that are prohibited for export to Iran 
under an UNSCR or of U.S.-origin items on the Commerce Control 
List or U.S. Munitions List that (2) would make a material 
contribution to Iran's development of WMD, ballistic missiles, 
advanced conventional weapons, or its support for international 
terrorism. Therefore, in order for a country to be named as a 
Destination of Diversion Concern, the President must determine 
that both elements of the reporting requirement must be met. 
These requirements have not been met to date.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                       FROM WENDY SHERMAN

Q.1. In order for sanctions to force the Iranian Government to 
change its nuclear policy in a positive direction, I believe 
the Government must be put in a position where they simply are 
unable to pay their bills. When Government workers don't get 
paid, when imports can't be financed, when subsidies' payments 
aren't made, that will be the point at which Iran may decide to 
change course. As I look at our sanctions implementation, I'm 
concerned that our policy is designed to bleed Iran slowly and 
not cause the economic crisis that would force Iran's hand. We 
appear to be on a path to cause economic collapse in Iran 2 
years from now when they may already have a nuclear weapon.
    Despite the success of our sanctions, Iran's oil revenues 
last year were still the fourth highest on record. Within the 
next 6 months to a year, is it possible to drive Iran into a 
situation in which it cannot pay its bills? If so, what will it 
take to achieve that policy goal?

A.1. Sanctions are essential to changing the Iranian regime's 
political calculus on its nuclear program. Iran's leaders admit 
publicly that sanctions are hurting their economy, especially 
targeted sectors such as energy and finance.
    International sanctions and Iran's own economic 
mismanagement are taking a toll on its economy, isolating Iran 
economically and politically.
    The Administration is implementing a number of measures to 
increase the economic pressure on Iran. On February 6, 2013, 
changes to the significant reductions required the few 
remaining countries that import Iranian crude oil to keep 
payments for those imports in bank accounts in the importing 
country. The funds kept in this restricted bank account may 
only be used to pay for permitted, bilateral trade between the 
importing country and Iran. Many of the remaining countries 
that import crude oil from Iran have a significant trade 
imbalance with Iran. This means that a significant amount of 
hard currency derived from its energy sector is now largely 
inaccessible to Iran, and may further sharpen the decision for 
Iran's leadership.

Q.2. In December, then-Secretary of State Clinton renewed an 
exemption to our Iran sanctions that targeted Chinese financial 
transactions with the Central Bank of Iran, citing a 
significant reduction in Beijing's purchases of Iranian oil. 
But the publicly available data showed no such reduction had 
taken place. That renewal expires this week.
    Do you expect that the exemption for China will be renewed?
    What standard is the State Department using to determine 
what qualifies as a ``significant reduction''?
    Will you provide the Committee with the data that supports 
the Department's exemption decisions?

A.2. The Secretary of State reviews a wide variety of 
classified and unclassified sources in evaluating whether an 
individual country has met the NDAA ``significant reduction'' 
threshold. Determinations are made taking into consideration 
the totality of the relevant circumstances. China's NDAA 
exception expires on June 5, 2013, and the Secretary will 
consider all relevant data in determining whether China has met 
the legal requirements for an extension.
    China and India are the two largest consumers of oil from 
Iran. Even a small percentage reduction from either country may 
result in a more significant reduction of Iran's oil revenue 
than a large percentage decrease from small importers, and may 
have a dramatic impact on Iran's bottom line.
    In a closed session, I am happy to brief further on how 
significant reductions are calculated.

Q.3. What are your expectations for the upcoming Iranian 
elections? Am I correct that we shouldn't expect any change in 
Tehran's nuclear policy as a result of these elections?

A.3. Iran's unelected Guardian Council, which is unaccountable 
to the Iranian people, has disqualified hundreds of potential 
candidates based on vague criteria in the run up to the June 14 
elections. The Council narrowed the list of almost 700 
potential candidates down to eight officials based solely on 
who the regime believes will represent its interests, rather 
than those of the Iranian people.
    The lack of transparency makes it unlikely that the slate 
of candidates represents the will of the Iranian people, who 
should be given every opportunity to choose a president who 
best embodies their views. We have called on authorities to 
abide by their international commitments and allow Iranians to 
exercise their universal rights and freedom of expression.
    The ultimate authority for the nuclear file rests with the 
Supreme Leader.
    Therefore, we hope Iranian authorities will be ready to 
engage in serious negotiations with the P5+1 regardless of the 
outcome of the elections.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR COBURN
                       FROM WENDY SHERMAN

Q.1. Are there any unintended impacts from the Iran sanctions 
on our economic development efforts in Afghanistan, such as 
negative impact to the value of the Afghani, impacts to the 
development of Afghan businesses from competition from cheap 
Iranian exports, such as cement and bricks, or the economic 
impact from the decline in remittances and need to absorb 
Afghan migrant workers expelled from Iran? What is the 
potential for destabilization of the Afghan economy to reverse 
security gains made over the past few years?

A.1. We have an ongoing dialogue with the Afghan Government on 
how it can best comply with Iran sanctions without undermining 
its economic development. While the sanctions regime shows no 
sign of destabilizing the Afghan economy as a whole, it does 
pose challenges for the Afghan business environment across a 
number of sectors, including banking, energy, the return of 
migrant workers, and the import of basic consumer goods via 
Iranian ports. The U.S. Government is working to help 
Afghanistan develop economic options by facilitating stronger 
economic and commercial relationships with other neighbors.
    The United States remains committed to our strategic 
partnership with Afghanistan, including the transition from a 
donor-driven to private sector-led economy. We are working to 
ensure the development gains of the last decade are maintained, 
and to support sustainable Afghan economic growth.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
                      FROM DAVID S. COHEN

Q.1. Some maintain that only when Iran's economy presents 
unacceptable risk to the political survival of the Supreme 
Leader might he decide to make the nuclear deal that needs to 
be made. Round after round of increasing and strengthening of 
sanctions has occurred without yet seeing any closure on the 
nuclear issue.
    As a matter of policy, then, instead of another 
``strengthening'' does the U.S. need to focus now on embargo to 
change the Supreme Leader's behavior more quickly?

A.1. The United States, working with its international 
partners, has imposed the world's most comprehensive and far-
reaching set of sanctions on Iran. These authorities target the 
key pillars of Iran's economy, including its financial, energy, 
petrochemical, shipping, and automotive sectors as well as its 
weapons development and proliferation activities. International 
sanctions on Iran have slashed its oil revenues, isolated it 
from the international financial system, and led to significant 
economic contraction. We believe our sanctions measures have 
been key to bringing Iran back to the negotiating table. Until 
Iran enters into meaningful commitments with respect to its 
nuclear program, we will continue to increase the pressure.

Q.2. Do you have any support that this would actually harm our 
allies more than it would change the behavior of the Iranian 
regime?

A.2. A critical element of making our sanctions on Iran 
effective is maintaining the coherence of our global partners' 
efforts, which we believe is necessary to influence Iran's 
calculus. As we regularly convey to countries around the world, 
any short term economic difficulties they may experience as a 
result of sanctions on Iran pales in comparison to the 
financial and security impacts of a nuclear-armed Iran.

Q.3. Which is harder for the world to live with, in your 
evaluation, an embargoed Iran in the short term, or the Supreme 
Leader with a nuclear weapon?

A.3. This Administration has consistently maintained that it is 
unacceptable for Iran to have a nuclear weapon. If Iran 
maintains its current posture and refuses to meaningfully 
address the international community's concerns regarding its 
nuclear program, we will pursue all available options to 
maximize the impact of our pressure strategy.

Q.4. The overall sanctions efforts imposed by the UN, the U.S., 
and its allies have not achieved the intended goal of reaching 
a sustained suspension of Iran's uranium enrichment activities. 
To the contrary, Iran has actually been seen to accelerate its 
enrichment processes.
    From your respective agency's perspective, why have the 
U.S. and allied economic sanctions imposed so far against Iran 
been less than successful in this respect?

A.4. Because of the efforts of the United States and our 
international partners, Iran today is more isolated that it has 
ever been and it is facing pressures in all directions, 
especially on the economic front. The President has made it 
clear that this Administration will not accept a nuclear Iran. 
Sanctions are an important tool in creating leverage for 
diplomacy and demonstrating to the Iranian regime that it has a 
clear choice--it can enjoy the benefits of inclusion in the 
international financial system that come from meeting its 
international obligations, or it will face isolation and 
increasingly powerful and painful sanctions by continuing to 
pursue a nuclear program. We will continue to implement 
economic sanctions on Iran as long as the Iranian regime fails 
to meet its obligations.

Q.5. Do we need better implementation and enforcement of 
sanctions from the Administration or by our allies and 
partners?

A.5. The implementation and enforcement of robust economic 
sanctions is critical to achieving our policy of denying Iran a 
nuclear weapon. The Administration takes very seriously its 
responsibility to implement and enforce U.S. sanctions on Iran 
and has not hesitated to act against those who violate or 
circumvent our sanctions.

Q.6. Ambassador Daniel Fried recently was named to a newly 
established position as ``sanctions coordinator'' at the State 
Department as an enforcement partner to Under Secretary Cohen.
    What set of issues contributed to creating the position and 
can you provide specific examples of how the coordinator is 
expected to improve or already has improved enforcement?

A.6. I defer to the State Department to explain the nature and 
genesis of this position. Treasury and State regularly confer 
on sanctions strategy and policy. We work closely with 
Ambassador Fried and his staff, and will continue to work 
collaboratively with State and our other interagency partners.

Q.7. The sanction imposed against the Bank of Kunlun was an 
important one for Treasury, and even though the Chinese bank 
had no correspondent relationship with the U.S., it may have 
had some ripple effects in China, maybe to some extent 
throughout Asia.
    Did the sanction have any practical effect against its 
unsanctioned parent, the China National Petroleum Corporation, 
which in fact does business with the United States, or by 
implication, might any other parent company interpret this as a 
permissible way of conducting business?

A.7. Bank of Kunlun was sanctioned for providing significant 
financial services to more than half a dozen Iranian banks that 
had been designated by the United States for ties to Iran's 
weapons of mass destruction programs or its support for 
international terrorism. This action had an impact within China 
and elsewhere where Kunlun had, but lost, correspondent 
relationships. We cannot speculate as to how this action was 
viewed by the China National Petroleum Corporation, but note 
that the United States Government aggressively targets any 
entity that violates our sanctions. To the extent other 
entities engage in similar sanctionable behavior, they will be 
exposed to U.S. sanctions.

Q.8. If the authority to sanction such parents were put in 
place, tomorrow, what effect would it have?

A.8. The United States Government currently has a number of 
authorities in place that allow us to target a wide range of 
activities. To the extent that a parent company is involved in 
sanctionable activity, the United States already has the 
ability to target and sanction that company.

Q.9. Since July 2012, when the Administration signed an 
Executive Order with respect to gold, Iran has received more 
than $6 billion, or about 10 percent of Iran's total oil 
exports for 2012, in gold. Gold exports to Iran, for the first 
quarter of this year amount to about 1.3 billion.
    What are the primary and other uses of this gold trade, 
particularly with respect to Turkey and China?

A.9. As a general matter, most gold investments serve as hedges 
against holdings of riskier assets. We suspect Iranian persons 
that have purchased gold during the past year may be looking 
for a store of value in response to the effect of sanctions, 
which have contributed to the significant devaluation of Iran's 
currency and the overall lack of foreign investment in Iran.
    Treasury has watched Iran's gold purchases very closely for 
any potential violations of Executive Order 13622, which from 
July 31, 2012, makes sanctionable the purchase or acquisition 
of precious metals, including gold, by the Government of Iran 
(GOI). Treasury has made very clear to Turkey, the UAE, and 
others involved in this trade our intention to pursue the 
financial networks and companies involved in selling or 
transferring gold to the GOI. As of July 1, 2013, under the 
Iran Freedom and Counter-Proliferation Act of 2012, persons 
that knowingly sell, supply, or transfer precious metals, 
including gold, to or from Iran, not just to the GOI, are 
exposed to sanctions. Treasury has a strong record of 
implementing our sanctions against Iran, and we will continue 
to aggressively target individuals, entities, or banks that 
engage in sanctionable activity, wherever they may be.

Q.10. In light of the Liberty Reserves money laundering case, 
is there any evidence of Iran, or North Korea, for that matter, 
using or having the ability to use virtual currencies to 
finance any of its trade or otherwise move money?

A.10. Money transmitters, including exchangers of virtual 
currencies and other new financial instruments and payment 
mechanisms, can be vulnerable to abuse by illicit actors in 
Iran, North Korea, and elsewhere, if not appropriately 
regulated. Treasury will continue to aggressively use its 
various authorities to combat and dissuade persons and 
companies from exploiting virtual currencies and other new 
payment mechanisms to conduct financial transactions on behalf 
of illicit actors.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                      FROM DAVID S. COHEN

Q.1. As you know, last year the Government settled an 
enforcement action against HSBC for laundering hundreds of 
millions of dollars over at least a 6-year period, helping drug 
lords and helping people who were trying to evade our sanctions 
against Iran. HSBC paid a very big fine, over a billion 
dollars, but some of us wondered why the Government didn't take 
HSBC to trial or at least look seriously at imposing stronger 
penalties, including closing down the bank in the U.S. for a 
period of time or banning certain HSBC executives from banking. 
As we discussed at the hearing, last week, Public Citizen 
released some internal Treasury emails it received in response 
to a FOIA request. The documents were heavily redacted, so the 
amount of information publicly available is quite limited, but 
a couple things seem clear. First, in the fall of last year, 
Treasury officials were quite anxious to settle with HSBC. A 
Treasury working group was set up to scour through the 
violations, and senior Treasury officials were assured that 
enforcement officials were ``moving as quickly as possible to 
put together administrative penalty actions.'' You expressed at 
the hearing that officials had been working on the HSBC matter 
for some time, but it is clear that the pace of activities 
among senior officials picked up last fall. The second thing 
that is clear from the documents is that, at the same time, 
State officials in New York were starting to press forward with 
charges of their own against HSBC. The emails also show that 
reporters began to contact Treasury about rumors that its 
senior officials had discouraged the Justice Department from 
leveling any criminal charges, and the emails show that 
Treasury officials were suddenly talking about, in their words, 
``atmospherics.''
    Why was Treasury motivated to quickly settle the HSBC case 
in the fall of 2012?

A.1. I testified at the hearing that the timing for Treasury's 
settlement of the HSBC matter was driven by the completion of 
our careful consideration of the facts and circumstances, in 
coordination with the appropriate Federal and local agencies 
involved in the case.

Q.2. Was it because of what Ben Lawsky, New York's 
Superintendent of Banks, referred to last week as a ``a dose of 
healthy competition among regulators''? Or was the urgency 
related to efforts to head off more aggressive actions by other 
regulators?

A.2. The New York Department of Financial Services was not 
involved in the HSBC case and had no bearing or impact on 
Treasury's investigation. Throughout the investigation of the 
HSBC case, Treasury worked cooperatively with the numerous 
Government entities involved in the case to reach a joint 
resolution.

Q.3. Treasury was clearly worried about ``atmospherics,'' but 
Treasury redacted a whole lot of material about what that 
meant. What atmospherics was Treasury worried about? I don't 
think Treasury officials should ever base their determinations 
relating to enforcement strategy on politics or so-called 
``atmospherics.'' Treasury lawyers should focus on enforcing 
the law and making sure that even the biggest and most powerful 
financial institutions are held accountable when they engage in 
money laundering--nothing more. So I am hoping to have a better 
sense of the context of the emails that were so heavily 
redacted.

A.3. As I testified at the hearing, the email you quote was 
neither written by me nor sent to me. Nonetheless, I agree that 
``atmospherics'' or politics should not drive enforcement 
decisions, and in my decision making at Treasury, they never 
have--and that includes the enforcement action against HSBC.
    More broadly, the Treasury Department supports vigorous 
enforcement of the law and believes that no individual or 
institution is above the law regardless of size or any other 
characteristic. Although Treasury does not have statutory 
authority to impose criminal penalties--the authority to seek 
Federal criminal charges rests exclusively with the Department 
of Justice--Treasury does have authority to investigate 
potential violations of U.S. economic sanctions, as well as 
certain anti-money laundering laws and regulations, and to 
impose civil penalties. Treasury has a clear record of 
aggressively pursuing investigations and enforcement actions 
against both U.S. and foreign financial institutions that 
violate those laws and regulations.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR COBURN
                      FROM DAVID S. COHEN

Q.1. What are the unintended consequences of driving Iran away 
from the official banking system to ``underground'' or non-
State actors, such as Hawalas or Hizbollah networks? Can we 
ever completely stop the flow of funds through these 
underground networks?

A.1. While nonbank financial institutions, including hawalas 
and exchange houses, are legitimate and accepted types of 
remitters, their exploitation by illicit actors, including 
Iran, is of continuing concern. Supervisory challenges in some 
jurisdictions can exacerbate this concern as nonbank financial 
institutions, absent effective supervision, may lack the robust 
controls necessary to detect and deter money laundering and 
terrorist financing. Treasury regularly engages with foreign 
jurisdictions to encourage them to enhance supervision of 
nonbanks and with foreign financial institutions to help them 
better understand the risks of exposure to Iranian finance.
    To confront the use of nonbank financial institutions by 
Iran, Treasury issued guidance to the financial sector on 
Iran's deceptive use of exchange houses in January 2013. Then 
in May 2013, Treasury imposed sanctions on two money transfer 
businesses in the UAE for providing financial services to 
previously designated Iranian banks. Treasury remains alert to 
Iran's attempts to circumvent sanctions and will continue to 
target individuals and entities that facilitate such activity.
    Treasury has also targeted Hizballah's abuse of exchange 
houses. In April 2013, Treasury identified two Lebanese 
exchange houses as financial institutions of ``primary money 
laundering concern'' under Section 311 of the USA PATRIOT Act, 
in part for providing financial services to Hizballah. Treasury 
will continue to employ its authorities to protect the 
integrity of the U.S. and international financial system from 
terrorist abuse.

Q.2. Does a further lack of transparency of cash flows pose 
long-term risks that should be taken into consideration?

A.2. As Iran is forced to resort to more deceptive means to 
gain access to much needed financial services, it will 
naturally face higher transaction costs, a diminished ability 
to finance trade, and may also be pushed to less transparent 
financial channels. For that reason, Treasury issued the 
guidance on Iran's abuse of exchange houses in January 2013. In 
May 2013, Treasury imposed sanctions on two money transfer 
businesses, UAE-based Al Hilal Exchange and Al Fida 
International General Trading, for providing financial services 
to previously designated Iranian banks. Treasury remains alert 
against any attempts by Iran to circumvent sanctions and will 
continue to target individuals and entities that facilitate 
such activity.

Q.3. How can we impact the increased use of barter trade, such 
as the potential for Iran to trade oil for North Korean nuclear 
technology or Indian agricultural products?

A.3. The U.S. Government has a number of tools in its arsenal 
to target those involved in facilitating sanctionable trade 
with Iran, regardless of the form of exchange. Many of our 
sanctions apply to the supply of certain goods to Iran, such as 
gold, or to goods intended for its energy, shipping, and auto 
sectors, whether Iran barters for or buys them. Treasury will 
robustly enforce these new sectoral sanctions, which came into 
effect July 1, 2013.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
                    FROM ERIC L. HIRSCHHORN

Q.1. Under CISADA's stricter controls on trade with Iran, the 
President is authorized to designate countries for not making 
sufficient efforts to control diversion of certain materials to 
Iran. Licenses for exports of those materials to such 
``Destinations of Diversion Concern'' would be subject to a 
presumption of denial.
    Is there any heightened concern about possible diversion of 
authorized exports to unauthorized destinations or end-users 
raised by the Administration's policy shift to put ``higher 
fences around fewer items''?

A.1. Export control reform is meant to deal directly with 
diversion efforts by focusing U.S. Government resources on 
higher risk transactions. This is accomplished by increasing 
the number of dedicated enforcement officials that monitor dual 
use and munitions exports. These include the addition of Export 
Enforcement Special Agents, analysts, and Export Control 
Officers to the existing cadre of Department of Homeland 
Security and Federal Bureau of Investigation officials that 
have complementary enforcement authorities. In addition, the 
Department of Commerce brings unique administrative authorities 
that address diversion (e.g., fines, temporary denial orders, 
Entity List, and Unverified List designations). Moreover, where 
items are permitted to be exported to close allies and partners 
under License Exception Strategic Trade Authorization, new 
chain of custody safeguards have been established along with 
reexport controls to provide Commerce with the ability to 
effectively monitor and enforce compliance.

Q.2. The UAE and China have each presented diversion and 
proliferation challenges.
    Can you briefly outline the nature and seriousness of the 
roles of China and the UAE in the proliferation threat, and 
U.S. efforts to assist in strengthening the controls there?
    Has any country yet been designated as a ``Possible 
Destination of Diversion Concern''? If not, what is the 
standard used to make such a determination?

A.2. [Pursuant to 302 and 303 of P.L. 111-195 (CISADA), the 
Office of the Director for National Intelligence and the 
Department of State are the appropriate agencies to respond.]
    To date, the Secretary of State has not announced any 
designations of countries as destinations of diversion concern.
    Title III, Section 303 of CISADA requires the President to 
submit to Congress a report that designates as destinations of 
diversion concern countries whose Governments the President has 
determined have allowed substantial diversion of certain 
enumerated goods, services, or technologies to Iranian end-
users or Iranian intermediaries. The President has delegated 
this designation-making authority to the Secretary of State. In 
determining whether to make such designations, the Secretary of 
State may draw on a report provided by the Director of National 
Intelligence (DNI) to the President, the Secretaries of 
Commerce, Defense, and Treasury, and the appropriate 
congressional committees pursuant to Title III, 302 of CISADA 
on an annual basis. We defer to the DNI to describe its report 
and to State to provide information on how it utilizes the 
report and any other sources in making designations.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR COBURN
                    FROM ERIC L. HIRSCHHORN

Q.1. How effective were the end-use monitoring visits conducted 
by your agency in 2012? What percentage of total export 
licenses granted does the 994 reported visits represent, and 
how many of these visits uncovered unauthorized transshipments 
or reexports to Iran?

A.1. BIS considers its end-use check (EUC) program to be a key 
part of an effective enforcement strategy to safeguard U.S. 
exports from unauthorized diversion. This strategy, in addition 
to end-use checks, includes outreach and education, including 
visits to exporters by Export Enforcement (EE) Special Agents, 
EE review of license applications, including Information Triage 
Unit development and review of bona fides reports on foreign 
transaction parties utilizing intelligence information, audits 
of exporters, evaluation of export transactions, and 
investigations. Unfavorable outcomes from the EUC program 
result in enforcement and other actions (e.g., criminal and 
administrative penalties, including Unverified List 
designations, heightened scrutiny of transaction parties, 
detentions). In FY12, approximately 75 checks uncovered 
unauthorized reexports to Iran. The checks, however, are 
purposely not all geared toward licensed exports given the 
amount of scrutiny that license applications undergo through 
the interagency process, and therefore, BIS does not utilize a 
ratio of checks to licenses as an enforcement metric. In FY12, 
approximately 50 percent of end-use checks were conducted on 
U.S. items exported without a license to identify diversion to 
countries like Iran, to which almost all controlled and 
uncontrolled items are prohibited for export or reexport. When 
taken as part of its broad enforcement strategy, BIS considers 
the end-use check program to be an effective inhibitor and 
identifier of unauthorized exports as it allows the U.S. 
Government to identify unreliable recipients of U.S. exports 
and take enforcement and other actions, including, where 
warranted, publicizing bad actors (e.g., via the Entity List) 
to inform the exporting public.
