[Senate Hearing 113-48]
[From the U.S. Government Publishing Office]
S. Hrg. 113-48
IRAN SANCTIONS: ENSURING ROBUST ENFORCEMENT AND ASSESSING NEXT STEPS
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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
__________
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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
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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
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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.
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\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.
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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.