[Senate Hearing 113-546]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-546
 
                 NEGOTIATIONS ON IRAN'S NUCLEAR PROGRAM

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

                                HEARING

                               BEFORE THE



                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 4, 2014

                               __________

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                COMMITTEE ON FOREIGN RELATIONS         

             ROBERT MENENDEZ, New Jersey, Chairman        
BARBARA BOXER, California            BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
JEANNE SHAHEEN, New Hampshire        MARCO RUBIO, Florida
CHRISTOPHER A. COONS, Delaware       RON JOHNSON, Wisconsin
RICHARD J. DURBIN, Illinois          JEFF FLAKE, Arizona
TOM UDALL, New Mexico                JOHN McCAIN, Arizona
CHRISTOPHER MURPHY, Connecticut      JOHN BARRASSO, Wyoming
TIM KAINE, Virginia                  RAND PAUL, Kentucky
EDWARD J. MARKEY, Massachusetts
               Daniel E. O'Brien, Staff Director        
        Lester E. Munson III, Republican Staff Director        

                              (ii)        

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Albright, David, president, Institute for Science and 
  International Security, Washington, DC.........................    42
    Prepared statement...........................................    43
Cohen, Hon. David S., Under Secretary for Terrorism and 
  Financing, U.S. Department of Treasury, Washington, DC.........    11
    Prepared statement...........................................    13
    Responses to questions submitted for the record by Senator 
      Bob Corker.................................................    80
Corker, Hon. Bob, U.S. Senator from Tennessee, opening statement.     3
Dubowitz, Mark, executive director, Foundation for Defense of 
  Democracies, Washington, DC....................................    51
    Prepared statement...........................................    52
Menendez, Hon. Robert, U.S. Senator from New Jersey, opening 
  statement......................................................     1
Sherman, Hon. Wendy, Under Secretary for Political Affairs, U.S. 
  Department of State, Washington, DC............................     4
    Prepared statement...........................................     7
    Responses to questions submitted for the record by the 
      following Senators:
        Robert Menendez..........................................    77
        Bob Corker...............................................    78
        Jeff Flake...............................................    83

                                 (iii)

  


                        NEGOTIATIONS ON IRAN'S 
                            NUCLEAR PROGRAM

                              ----------                              


                       TUESDAY, FEBRUARY 4, 2014

                                       U.S. Senate.
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:02 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Robert 
Menendez (chairman of the committee) presiding.
    Present: Senators Menendez, Shaheen, Coons, Durbin, Murphy, 
Kaine, Markey, Corker, Rubio, Flake, and Paul.

          OPENING STATEMENT OF HON. ROBERT MENENDEZ, 
                  U.S. SENATOR FROM NEW JERSEY

    The Chairman. This hearing will come to order.
    Let me begin by welcoming our panelists. Today, we have two 
panels. On the first panel is Wendy Sherman, Under Secretary of 
State for Political Affairs. Under Secretary Sherman is joined 
this morning by David Cohen, the Under Secretary of Treasury 
for Terrorism and Financing.
    And we thank you both for being here.
    Let me say, at the outset, that I support the 
administration's diplomatic efforts. I have always supported a 
two-track policy of diplomacy and sanctions. At the same time, 
I am convinced that we should only relieve pressure on Iran in 
exchange for verifiable concessions that will fundamentally 
dismantle Iran's nuclear program--not by a month or two, but by 
a year or more--and that it be done in such a way that alarm 
bells will sound from Vienna to Washington, should Iran restart 
its program anytime in the next 20 to 30 years. Any deal the 
administration reaches with Iran must be verifiable, effective, 
and prevent Iran from ever developing even one nuclear weapon. 
In my view, based on the parameters described in the Joint Plan 
of Action and Iranian comments in the days that have followed, 
I am very concerned about Iran's willingness to reach such an 
agreement.
    This is not a nothing-ventured-nothing-gained enterprise. 
We have placed our incredibly effective international sanctions 
regime on the line without clearly defining the parameters of 
what we expect in a final agreement. As Ali Akbar Salehi, the 
head of Iran's nuclear agency, said last week on Iranian state 
television about the agreement, ``The iceberg of sanctions is 
melting while our centrifuges are also still working. This is 
our greatest achievement.'' Well, frankly, it is my greatest 
fear.
    Salehi may be correct; the iceberg of sanctions may melt 
before we have an agreement in place. That may, in fact, be the 
Iranian endgame. They understand that once the international 
community ceases backing sanctions, that they will have won, 
regardless of whether or not we have a deal.
    At the end of the day, any final deal must require Iran to 
dismantle large portions of its nuclear infrastructure. Any 
final deal must address Iran's advanced centrifuge research-
and-development activities that allow to more quickly and more 
efficiently enrich uranium. It must eliminate the vast majority 
of Iran's 20,000 centrifuges, close the Fordow facility, and 
stop the heavy water reactor at Arak from ever coming online. 
And it must address Iran's weaponization activities at Parchin 
and possibly elsewhere, something not directly dealt with by 
the Joint Plan of Action.
    Experts, including David Albright, who will be on our 
second panel, have said that for Iran to move from an interim 
to a final agreement, it would have to close the Fordow 
facility and remove between 15- and 16,000 of its 20,000 
centrifuges. And, even then, we are looking at potential 
breakout time of between 6 and 8 months, depending on whether 
Iran has access to uranium enriched to just 3.5 percent or 
access to 20-reconverted-percent enriched uranium. A final 
agreement should move back the timeline for breakout to beyond 
a year or more and insist on a long-term, 20-year-plus, regime 
of monitoring and verification.
    Now, in the light of that testimony that we are going to 
hear today, President Rouhani, in an interview with Fareed 
Zakaria on CNN, said, in response to the question, ``So, there 
will be no destruction of centrifuges, of existing 
centrifuges?'' President Rouhani's answer was, ``No, no, not at 
all.'' So, that causes concern for those of us who are 
concerned about what this final agreement looks like.
    A final agreement that mothballs Iran's infrastructure, or 
fundamentally preserves their ability to easily break out, is 
not a final agreement I can support. If all we achieve is the 
essence of an early warning system of Iran's future breakout 
ability, and the sanctions regime has collapsed, and the only 
options for this or any future President will be to accept a 
nuclear-armed Iran or a military option, in my view that is not 
in the national security interests of the United States. I know 
that is not anyone's goal or plan, but I also think we need to 
guard against wanting a deal so much that we concede more than 
we gain.
    At the end of the day, Iran can no longer be a nuclear-
weapons-threshold state. I have made my position quite clear, 
and will continue to do so.
    I have specific questions, for all of our panelists, that I 
hope you will be able to answer to help assure us that this is, 
in fact, ultimately, if achievable at all, the type of deal 
that we can all embrace.
    With that, let me recognize the distinguished ranking 
Republican member, Senator Corker.

             OPENING STATEMENT OF HON. BOB CORKER, 
                  U.S. SENATOR FROM TENNESSEE

    Senator Corker. Well, thank you, Mr. Chairman. And thank 
you for those opening comments and your leadership on this 
issue for many years. I think the efforts that you have put 
forth in the past with Senator Kirk and others, candidly, 
helped put us in the place that we are today. And so, I applaud 
you for that, and appreciate the position you have taken.
    I welcome our administration witnesses. And after reading, 
Mr. Chairman, the testimony by the witnesses that are going to 
come on the second panel, in many ways I wish we had that 
testimony first so that we could then talk with the 
administration about what neutral observers are saying about 
the interim deal that has been proposed.
    I want to also say--and I--but, I thank you for your 
service. David, I think you have done a good job at carrying 
out the sanctions that have been put in place. I do want to 
talk to you a little bit about the Turkish issue and our 
knowledge of that, possibly, and why we allowed that to occur, 
and is the same thing getting ready to happen in Russia with 
our acquiescence. I do not know, we will find out, I guess, 
during this hearing.
    And, Ms. Sherman, again, I thank you for your efforts and 
want to say that, generally speaking, I have been disappointed 
in the rhetoric from the administration about Congress' 
involvement. On one hand, I think that you would readily admit 
that the position that Congress has taken through the years has 
helped you be in the place that you are. But, somehow, because 
Congress wants to ensure that we end up with a proper end 
state--been a lot of unfortunate things that have been said. 
And I, too, as the chairman mentioned, support very much the 
administration's effort to ensure that Iran does not have 
nuclear weapons and we are able to resolve this in a peaceful 
manner. Very much support that. I just think all of us have 
legitimate--many of us have legitimate concerns about what has 
happened.
    As a matter of fact, I just want to say, relative to 
Congress, I think all of us would like to work cooperatively 
with the administration. And, in many ways, I think what has 
happened is, the rhetoric around the sanctions piece has 
actually sort of become a red herring; it has sort of been a 
place where the administration can say, ``Well, sanctions will 
end up keeping this deal from happening.'' Congress can keep 
saying, ``Oh, we are trying to do something about it.'' And I 
think it avoids the topic of you, candidly, clearly laying out 
to us what the end state is that you are trying to negotiate. 
And I hope today you will clearly--I just got your testimony; I 
have not seen it--just came in 5 minutes ago--I hope that you 
will clearly lay out what the end state is, because I think 
that is what so many of us are concerned about, that this 
interim deal becomes the permanent deal.
    You know, if you look at Iran, they are savvy, and they 
have a lot of people that are educated in our country. They 
understand us, in many ways better than we understand them. And 
if you look at what they are doing and what they have done in 
the past is, they become--they perfect something and then they 
pause. They perfect something and then they pause. And so, what 
we have right now is, they have perfected--no question--the 
centrifuge capabilities. I think people would say that if they 
want to be a nuclear state, they can be that very quickly. And 
so, we have this pause, where we have an interim agreement that 
does not address all the other areas that they have the ability 
to perfect over this next year. Administration officials are 
already saying, ``This is not going to happen in 6 months, this 
is probably going to take much longer.'' In your own 
agreement--I know Carl Levin tried to limit it to 6 months in 
some meetings that we had privately at the White House. But, 
no, we end up with a 1-year agreement.
    So, basically, we have an agreement that allows them--they 
stop in an area that they have already perfected--that allows 
them to continue on in other areas to be able to deliver 
nuclear weapons that is not even addressed by this interim 
deal. So, you can understand there is a lot of concern.
    So, I hope today you will lay out clearly what the 
administration will accept as the end state. I hope that you 
will talk with us about it. And I hope that we will figure out 
a way to cooperatively work together. Maybe what Congress 
should do is pass a piece of legislation that lays out clearly 
the only thing we will accept at the end. Because, again, I 
think that there are concerns that members of the 
administration are negotiating toward rolling interim 
agreements--basically, the agreement we have now, where we have 
the ability to monitor, and yet they dismantle something--as 
actually the end state that some of the people and some within 
the administration would wish to achieve. So, I hope you are 
clear today.
    I thank the chairman for having this hearing. I appreciate 
him letting me talk a little bit about this on the front end. 
And I look forward to both testimony and questions, and thank 
you both for your service.
    The Chairman. Thank you, Senator Corker.
    We will start off with Secretary Sherman--your full 
statements will be included in the record, without objection. 
We would ask you to summarize it in 5 or so minutes so that we 
can enter into a dialogue with you.
    And, Secretary Sherman, you are recognized.

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

    Ms. Sherman. Thank you. Thank you, Chairman Menendez, 
Ranking Member Corker, distinguished members of the committee.
    And I would say, to both of you, we all have concerns, and 
I very much appreciate this dialogue and our continued work 
together on this most serious issue. I provide the opportunity 
to provide you, today, with an update on the P5+1 and the 
European Union's negotiations with Iran, which, as you know, 
are coordinated by the High Representative of the European 
Union. I also look forward to discussing where we are on other 
important parts of our Iran policy.
    I come here confident that we, as you both said, share the 
same goal with regard to Iran, a goal that the President 
reaffirmed just last week: to prevent Iran from obtaining a 
nuclear weapon. And, thanks to a combination of what I believe 
is tough diplomacy and the most comprehensive targeted 
sanctions regime ever imposed on a country, with enormous 
leadership here on Capitol Hill, I am certain that we are 
closer today to that goal than we were just a few weeks ago. We 
are not at that goal, but we have taken a first step toward it.
    Over the next few minutes, I hope to explain why that is, 
as well as where we will be heading in the coming months.
    On November 24, 2013, we and our partners agreed with Iran 
on a Joint Plan of Action. This was an important first step in 
our efforts to resolve the international community's concerns 
with Iran's nuclear program.
    On January 20, the Joint Plan went into effect. As the 
President noted, the implementation of the Joint Plan marked 
the first time in a decade that Iran agreed to specific actions 
that halt progress on its nuclear program and roll it back in 
key respects. Indeed, the Joint Plan was explicitly designed 
this way to create space for further negotiations over a long-
term comprehensive solution.
    Specifically, the International Atomic Energy Agency 
verified, on January 20, that, among other things, Iran stopped 
producing near-20-percent enriched uranium; disabled the 
configuration of the centrifuge cascades Iran has been using to 
produce it; began diluting its existing stockpile of near-20-
percent enriched uranium; continued to convert near-20-percent 
enriched uranium at a rate consistent with past practices; had 
not installed additional centrifuges at the Natanz or Fordow 
facilities; had not installed new components at the Arak 
facility.
    Moreover, on transparency and monitoring, the IAEA stated 
that Iran has begun providing some of the information required 
by the Joint Plan, and is working with the IAEA on arrangements 
for increased access to its nuclear facilities.
    In order to carry out its responsibilities under the Joint 
Plan, the IAEA will roughly double the size of its inspection 
team and install additional monitoring equipment. The size of 
the team and the access afforded under the Joint Plan mean the 
international community's insight into Iran's nuclear program 
will be significantly enhanced.
    This was an important first step. And over the next 6 
months, Iran has committed itself to further actions that will 
provide much more timely warning of a breakout of Iran's 
declared enrichment facilities. They also add new checks 
against the diversion of equipment and material for any 
potential covert enrichment program.
    You have rightfully asked why we should trust Iran to live 
up to these commitments. As the President said, these 
negotiations do not rely on trust. Any long-term deal we agree 
to must be based on verifiable action that convinces us and the 
international community that Iran is not building a nuclear 
bomb. As my colleague, Under Secretary Cohen, will further 
outline in his testimony, the United States and the EU have 
also taken a series of actions to implement the targeted, 
limited, and temporary sanctions relief we committed to as part 
of the Joint Plan.
    But, let me be clear. The Joint Plan of Action represents 
merely the first step of the comprehensive solution we seek to 
reach, and we seek to reach it within a 6-month timeframe.
    In 2 weeks, the P5+1 political directors and the EU High 
Representative and her Deputy will meet with Iran in Vienna to 
begin discussions on that comprehensive solution. Our goal is 
to reach a mutually agreed long-term comprehensive solution 
that would ensure Iran's program will be exclusively peaceful. 
This comprehensive solution will build on the initial steps we 
have already begun to take.
    Ultimately, the comprehensive solution would be one under 
which we would verifiably be assured that Iran's nuclear 
program is peaceful and that Iran will not acquire a nuclear 
weapon.
    So, what would a solution look like?--as you asked, Senator 
Corker. Well, as the President said, we know that Iran does not 
need to have an underground fortified enrichment facility like 
Fordow in order to have a peaceful nuclear program. They do not 
need a heavy water reactor at Arak in order to have a peaceful 
nuclear program.
    The JPOA also lays out basic elements of the comprehensive 
solution--if I may take another minute to finish. Thank you, 
Mr. Chairman.
    Among other elements, the final step of a comprehensive 
solution would have a specified quite-long-term duration to be 
agreed upon, and it would reflect the rights and obligations of 
parties to the Non-Proliferation Treaty and IAEA Safeguards 
Agreement. Under the terms of the Joint Plan, Iran has also 
committed itself to a number of steps before we finalize a 
comprehensive solution, including, among other things, 
addressing the relevant U.N. Security Council Resolutions, with 
a view toward bringing the Security Council's consideration of 
this matter to a satisfactory conclusion. Iran has committed to 
implement agreed transparency measures and enhanced monitoring. 
The Joint Commission, set up between Iran, the P5+1, and the EU 
to oversee the implementation, will also serve as a forum for 
discussion to facilitate the IAEA's resolution of past and 
present issues of concern, which all parties understand means 
the possible military dimensions of Iran's nuclear program.
    Indeed, just this weekend, on the margins of the Munich 
Security Conference, Secretary Kerry reiterated to Foreign 
Minister Zarif the importance of Iran abiding by its 
commitments under the Joint Plan, and Iran and the P5+1 
countries must begin the comprehensive negotiations with good 
faith. He also made clear that the United States will continue 
to enforce existing sanctions.
    One final issue to keep in mind with regard to the 
comprehensive solution, is that under the terms of the Joint 
Plan, we have agreed with Iran that the comprehensive solution 
will be part of an integrated whole, where nothing is agreed 
until everything is agreed. What is also important to 
understand is that we remain in control over whether to accept 
the terms of a final deal, or not. We have made it clear to 
Iran that, if it fails to live up to its commitments, or if we 
are unable to reach agreement on a comprehensive solution, we 
would ask Congress to ramp up new sanctions immediately.
    But, moving forward on new sanctions now, as you know, we 
believe would derail the promising diplomacy I have just 
outlined, alienate us from our allies, and risk unraveling the 
international cohesion that has proven so essential to ensuring 
that our sanctions have the intended effect.
    Before I conclude, let me briefly note that our focus on 
Iran's nuclear program has not deterred us from holding Iran 
accountable for its human rights abuses, support for terrorism, 
and interference across the region. My written testimony 
includes further explanation of what we are doing on these 
issues.
    And I also want to emphasize that we remain committed to 
bringing Robert Levinson, Saeed Abedini, and Amir Hekmati home. 
This was another set of concerns that Secretary Kerry raised 
this weekend directly with Foreign Minister Zarif in Munich. I 
have also personally raised these cases with Iran, as did the 
President in his phone call with President Rouhani in 
September. We will continue to do so and use every avenue at 
our disposal until these men are back home with their families 
where they belong.
    In sum and to finalize my statement, Mr. Chairman and 
members, the P5+1's negotiations with Iran underscore that it 
is possible not only to make progress on the nuclear issue, but 
with Iran. We are not blind, however, to the more than 30 years 
of difficult history between the United States and Iran, or 
Iran's past actions and past behavior, as well as its current 
behavior. But, it is crucial that we give diplomacy a chance to 
succeed.
    If Iran lives up to its commitments, then the world will 
become a safer place. If it does not, then we retain all 
options to ensure that Iran can never, and will never, obtain a 
nuclear weapon. The coming months will be a test of Iran's 
intentions and of the possibility of a peaceful resolution to 
the crisis. We look forward to continuing to work closely with 
the Congress to ensure that U.S. national security interests 
are advanced.
    Thank you.
    [The prepared statement of Ms. Sherman follows:]

          Prepared Statement of Under Secretary Wendy Sherman

    Good morning, Chairman Menendez, Ranking Member Corker, 
distinguished members of the committee. I appreciate this opportunity 
to provide you with an update on the P5+1's negotiations with Iran over 
its nuclear program. I come here confident that we share the same goal 
with regard to Iran: to prevent Iran from obtaining a nuclear weapon. 
Thanks to a combination of tough diplomacy and the most comprehensive 
targeted sanctions regime ever imposed on a country, I am certain that 
we are closer today to that goal than we were just a few weeks ago.
    Over the next few minutes I hope to explain why that is, as well as 
where we believe we will be heading in the coming months. I will also 
update you on efforts that have not been part of the P5+1 negotiations 
but are similarly important: our efforts to hold Iran accountable for 
its human rights abuses, support for terrorism, and destabilizing 
activities abroad.
                           negotiation update
    We have long recognized that the Iranian nuclear program 
constitutes one of the most serious threats to U.S. national security 
and our interests in the Middle East. An Iranian regime armed with 
nuclear weapons would destabilize the Middle East, put our allies and 
partners in the region at risk, and undermine the global 
nonproliferation regime. Fully aware of the seriousness of this 
challenge, the P5+1 (China, France, Russia, the U.K., United States, 
and Germany, coordinated by EU High Representative Catherine Ashton) 
has engaged over the past months in sustained negotiations with Iran 
over its nuclear program. On November 24, 2013, the P5+1 took an 
important first step as part of that diplomatic push by agreeing with 
Iran on a Joint Plan of Action (JPOA). This joint plan is sequenced 
over the next 6 months to explicitly block near-term Iranian pathways 
to a nuclear weapon, while creating space for further negotiations to 
reach a long-term comprehensive solution.
    A little more than 2 weeks ago, on January 20, 2014, the JPOA went 
into effect. As the President noted, the implementation of the JPOA 
marked the first time in a decade that Iran agreed to specific actions 
that halt progress on its nuclear program and roll it back in key 
respects. Specifically, the International Atomic Energy Agency (IAEA) 
verified on January 20 that, among other things, Iran: has stopped 
producing near-20 percent enriched uranium (UF6); disabled the 
configuration of the centrifuge cascades that Iran has been using to 
produce it; begun diluting its existing stockpile of near-20 percent 
enriched uranium and continued to convert near-20 percent enriched 
uranium to oxide for fuel plates at a rate consistent with past 
practices so that it will have eliminated its entire near-20 percent 
enriched uranium stockpile at the end of 6 months; had stopped 
installing additional centrifuges at the Natanz or Fordow facilities; 
and had not installed additional reactor components at the Arak 
facility. Moreover, on transparency and monitoring, the IAEA stated 
that Iran has begun providing some of the information required by the 
JPOA and is working with the IAEA on arrangements for increased access 
to its nuclear facilities. In order to carry out its responsibilities 
under the JPOA, the IAEA will roughly double the size of its inspection 
team and install additional monitoring equipment. The size of the team 
and the access afforded under the JPOA mean the international 
community's insight into Iran's nuclear program will be significantly 
enhanced.
    This was an important first step, and over the next 6 months, Iran 
has committed itself to further actions that will provide much more 
timely warning of a breakout at Iran's declared enrichment facilities 
and will add new checks against the diversion of equipment and material 
for any potential covert enrichment program. Some have rightfully asked 
why we should trust Iran to live up to these commitments. As the 
President said in his State of the Union speech, these negotiations do 
not rely on trust; any long-term deal we agree to must be based on 
verifiable actions and constraints that convince us and the 
international community that Iran is not building a nuclear bomb.
    As my colleague Under Secretary Cohen will further outline in his 
testimony, the United States and the EU also took a series of actions 
on January 20 to implement the limited, temporary, and reversible 
sanctions relief we committed to as part of the JPOA, including: the 
necessary steps to pause efforts to further reduce Iranian crude oil 
exports, allowing the six current customers of Iranian oil to maintain 
their purchases at current reduced levels for the duration of the JPOA; 
and issuing the necessary waivers to suspend for the duration of the 
JPOA sanctions on non-U.S. persons engaged in transactions related to 
the export of petrochemical products from Iran, certain trade in gold 
and precious metals to or from Iran, and the provision of goods and 
services to Iran's automotive sector. In addition, the EU increased the 
size of financial transfers to and from Iran that are permissible by 
the EU without prior authorization.
    As part of the JPOA, the administration is working with its 
partners and Iran to establish a mechanism to further facilitate 
payments for humanitarian transactions and to enable Iran to make 
payments for medical expenses--which are already explicitly exempt from 
congressional sanctions--as well as, university tuition payments for 
Iranian students studying abroad, and its U.N. obligations. The United 
States has also committed to license transactions for spare parts, 
inspections, and associated services in Iran necessary for safety of 
flight for Iran Air and nondesignated commercial Iranian airlines.
    Finally, on February 1, the U.S. Government facilitated the 
repatriation of $550 million in Iranian funds restricted overseas. This 
transaction was part of the agreement to allow Iran to access--in 
monthly installments through July 20--$4.2 billion of its own 
restricted funds contingent on Iran fulfilling its commitments under 
the JPOA.
    Before moving on to what we expect in our next round of 
negotiations with Iran, I would like to make a couple of points. First, 
a number of observers have criticized the JPOA, arguing that we should 
have negotiated a comprehensive solution with Iran over its nuclear 
program from the outset. If we believed we could have negotiated a 
comprehensive solution from the outset in a short period of time, we 
would have done so. But it became apparent that such a negotiation was 
going to take some time, and we wanted to make sure that during the 
intervening period Iran did not move forward on the most worrisome 
parts of its nuclear program. Had we not agreed on the JPOA, Iran's 
stockpile of near-20 percent enriched uranium would have continued to 
grow, Iran would have continued to install faster and more advanced 
centrifuges, and Iran would have made progress on the Arak reactor. The 
JPOA has instead committed Iran to stop the advance of its program, 
roll it back in some key areas, and give us time and space to negotiate 
a long-term comprehensive solution that will address our concerns in an 
enduring manner.
    Second, some have argued that the JPOA will weaken the 
unprecedented sanctions regime we have worked with Congress to build, 
and that it will give the Iranian economy enough breathing room so that 
it does not feel pressure to negotiate a comprehensive solution. We 
disagree. The core sanctions architecture remains firmly in place and 
the relief that Iran was granted through the JPOA was explicitly and 
intentionally tailored to maintain pressure and our ability to 
negotiate the comprehensive solution. Our analysis indicates that the 
JPOA appears unlikely to provide Iran any significant economic 
benefits, especially any that could resolve the Iranian economy's many 
problems. While Iran's currency appreciated after Iranian President 
Rouhani's election and just after the JPOA was announced, it now stands 
at about the same level as where it was at the time the JPOA was rolled 
out, perhaps reflecting a more sober assessment by the market of the 
limited relief it will provide. Iran's oil exports will still be 
constrained at levels that are down over 60 percent since 2011. This 
means that Iran will continue to lose $4-5 billion per month while the 
JPOA is in effect compared to 2011. The $4.2 billion being repatriated 
over the 6 months is a modest fraction of Iran's $100 billion in 
foreign exchange holdings, the vast majority of which are restricted or 
inaccessible. And the 6-month time frame will make it difficult for any 
long-term business to take place even in the sectors for which we have 
provided relief.
    There is no doubt that companies are keeping an eye on Iran. We 
have always said Iran and its people hold vast potential. But we--the 
State Department and Treasury Department--have made, are making, and 
will continue to make, very clear to countries and companies around the 
world that we will vigorously enforce the vast set of sanctions that 
remain in place. Indeed, on December 12, 2013, we sanctioned a number 
of entities and individuals involved in the proliferation of WMD-
related material and attempts to evade U.S. sanctions against Iran. We 
will remain vigilant. It is this vigilance that will keep the various 
trade delegations that we have seen going to Iran aspirational rather 
than practical.
                         comprehensive solution
    Later this month, the P5+1 Political Directors will meet with Iran 
to begin discussions regarding a comprehensive solution on Iran's 
nuclear program. As stated in the JPOA, our goal for these negotiations 
is to reach a mutually agreed long-term comprehensive solution that 
would ensure Iran's nuclear program will be exclusively peaceful. Let 
me be clear, the JPOA represents merely the first step of the 
comprehensive solution we seek to reach. This comprehensive solution 
would build on the initial steps we have already begun to take. 
Ultimately, the comprehensive solution would be one under which we 
would be verifiably assured that Iran's nuclear program is peaceful and 
that Iran will not acquire a nuclear weapon.
    As to specifics of what we envision, the President and Secretary 
have recently laid down certain aspects that are indicative of what we 
envision. As the President said at the Saban Forum on December 7, 2013, 
we know that Iran does not need to have an underground, fortified 
enrichment facility like Fordow in order to have a peaceful nuclear 
program. They do not need a heavy-water reactor at Arak in order to 
have a peaceful nuclear program.
    The JPOA also lays out basic elements of the comprehensive 
solution. Among other elements, the final step of a comprehensive 
solution would have a specified long-term duration to be agreed upon 
and reflect the rights and obligations of parties to the Non-
Proliferation Treaty and IAEA Safeguards Agreements. Moreover, under 
the terms of the JPOA, Iran has committed itself to address the U.N. 
Security Council resolutions with a view toward bringing to a 
satisfactory conclusion the U.N. Security Council's consideration of 
this matter. In addition, Iran has committed to implement agreed 
transparency measures and enhanced monitoring. The Joint Commission set 
up between Iran, the P5+1 and the EU to oversee the implementation of 
the JPOA will also serve as a forum for discussion to facilitate the 
IAEA's resolution of ``past and present issues of concern''--which all 
parties understand means the possible military dimensions of Iran's 
nuclear program.
    One final issue to keep in mind with regard to the comprehensive 
solution is that, under the terms of the JPOA, we have agreed with Iran 
that the comprehensive solution will be part of an integrated whole 
where nothing is agreed until everything is agreed. What is also 
important to understand is that we remain in control over whether to 
accept the terms of a final deal or not. We have made it clear to Iran 
that, if it fails to live up to its commitments, or if we are unable to 
reach agreement on a comprehensive solution, we would ask the Congress 
to ramp up new sanctions. In that situation, we would be well-
positioned to maximize the impact of any new sanctions because 
following a strong diplomatic effort we would likely have the support 
of the international community, which is essential for any increased 
pressure to work.
    In comparison, moving forward on new sanctions now would derail the 
promising diplomacy I have just outlined, alienate us from our allies, 
and risk unraveling the international cohesion that has proven so 
essential to ensuring that our sanctions have the intended effect.
             terrorism, human rights and regional meddling
    Even as we pursue negotiations of a comprehensive solution on 
Iran's nuclear program, we will not relax our efforts to hold Iran 
accountable for its human rights violations and abuses, support for 
terrorism, and interference across the region.
    We remain deeply concerned with Iran's destabilizing activities 
across the region, which threaten the security of partners such as 
Israel and our Gulf allies. Iran continues to fund, arm, train, and 
send troops to fight alongside the Assad regime in Syria, fueling 
sectarian violence and extremism. Iran also continues to arm and train 
militants in Lebanon, Gaza, Iraq, Afghanistan, Yemen, and Bahrain. And 
Iran and Lebanese Hezbollah continue to pursue terrorist activity 
around the globe.
    We are committed to working with our allies and partners to counter 
this destabilizing behavior. Due in part to our efforts, we have seen 
an encouraging trend in the past 2 years of increasingly firm responses 
from governments around the world to stand up to Iran's and Lebanese 
Hezbollah's aggressive actions. Much of this cooperation remains 
sensitive and must be reserved for a classified setting, but let me 
cite a few examples for you.
    Together with our allies and partners, we have repeatedly 
intercepted Iranian shipments of weapons to militants in Yemen, 
Afghanistan, and Gaza. Just over 1 month ago, Bahraini authorities 
seized a boat filled with Iranian explosives and arrested a dozen 
militants meant to receive the smuggled cargo.
    We have assisted the Governments of Georgia, India, Thailand, 
Kenya, Nigeria, and Bulgaria in investigating Iranian and Lebanese 
Hezbollah-directed terrorist attacks and plots. Wherever possible, we 
have pushed these countries and their neighbors to hold Iran and 
Hezbollah accountable for these egregious acts. Our diplomatic efforts 
resulted in the EU's 2013 designation of Hezbollah's military wing as a 
terrorist organization and the Gulf Cooperation Council's blacklisting 
of Hezbollah. And here at home, in May 2013, Mansour Arbabsiar, the man 
recruited by the IRGC's Quds Force to assassinate the Saudi Ambassador 
to the United States, was sentenced to 25 years in prison.
    Finally, we have expanded our own sanctions against Iran and its 
proxies. In February 2013, under the Iran Threat Reduction and Syria 
Human Rights Act, we designated 15 senior Iranian officials for 
involvement in illicit nuclear activities, support for terrorism, or 
human rights abuses. On January 23 of this year, we designated the 
Deputy Secretary General of the Palestinian Islamic Jihad (PIJ), Ziyad 
al-Nakhalah, as a Global Terrorist. Furthermore, the U.S. Government 
has identified the Lebanese Canadian Bank and two Lebanese exchange 
houses as financial institutions of primary money laundering concern, 
because their activities facilitated the money laundering activities of 
narcotics traffickers and provided support to the terrorist group 
Lebanese Hezbollah.
                              human rights
    We also continue to hold Iran accountable for its deplorable human 
rights record. In her December Human Rights Day speech, National 
Security Advisor Susan Rice said our support for the human rights of 
all Iranians will continue, even as we test the potential for a 
diplomatic resolution to the nuclear issue. With our allies, we will 
continue to highlight Iran's ongoing human rights violations and 
abuses.
    As part of this work, the United States partnered with 85 other 
countries to support and pass this year's U.N. General Assembly third 
committee resolution condemning Iran's poor human rights record. We are 
now working to build support for a Human Rights Council resolution to 
be voted on in March to extend the mandate of the U.N. Special 
Rapporteur on the Situation of Human Rights in Iran, and we will 
continue to urge the international community to press Iran to allow him 
to visit the country and directly observe its human rights conditions.
    Every week on the Virtual Embassy Tehran Web site and in our social 
media, we highlight human rights violations and abuses in Iran. We were 
heartened by the September and October releases of more than 40 
prisoners of conscience, including human rights lawyer Nasrin 
Sotoudeh--whom we had highlighted on the Virtual Embassy and commended 
publicly following her receipt of the EU Sakharov Prize in 2012. We 
call on Iran to release all of its political prisoners, including Green 
Movement leaders Mir Hossein Mousavi and Mehdi Karroubi, who are 
approaching 3 years under house arrest with no formal charges. We will 
also continue to document Iran's human rights violations and abuses in 
our annual Human Rights and International Religious Freedom Reports, 
drawing attention to the government's treatment of its people. We too 
hear the promises of President Rouhani to his people and we will 
continue to support Iranians as they call on him to fulfill these 
promises and to ensure Iran meets its international human rights 
obligations.
                   american citizens detained in iran
    We also continue to call on Iran to release Saeed Abedini and Amir 
Hekmati and support our efforts to bring Robert Levinson home. We 
welcome Foreign Minister Zarif's comments that clemency may be possible 
for Mr. Abedini and Mr. Hekmati and look forward to hearing more from 
Iran about this option. We repeatedly have asked the Iranian Government 
for assistance in locating Mr. Levinson, and for Iranian authorities to 
permit a visit by officials of the Swiss Embassy in Tehran to determine 
the well-being of Mr. Hekmati and Mr. Abedini and to release them. We 
are aware of the transfer of Mr. Abedini to Rajai Shahr prison and have 
concerns about his medical condition. We have asked the Iranian 
authorities to address our concerns about his health and prison 
conditions and transfer him back to Evin.
    The President raised the three cases with Iranian President Rouhani 
during their September 27 call. The Secretary has raised the issue 
directly with Iranian Foreign Minister Zarif, including just this 
weekend. On the sidelines of our negotiations in Geneva, I raised the 
three cases with Iranian officials and urged them to address our 
concerns. We have raised the issue with our international partners to 
request they raise the cases directly with Iran and we will continue to 
do so until they return home. They remain a top priority of the U.S. 
Government and we will continue to press the Iranian Government to take 
actions to allow them to reunite with their families.
                               conclusion
    In sum, our policy and approach to Iran remains multipronged, yet 
we seek one ultimate goal: an Iran that respects its international 
obligations and commitments, that respect the rights of its citizens 
and neighbors, and that plays a constructive role in the region. The 
P5+1's negotiations with Iran underscore that it is possible to begin 
making progress on this effort. We are not blind to the more than 30 
years of difficult history between the United States and Iran or Iran's 
past actions, but it is important that we give diplomacy a chance to 
succeed. If Iran lives up to its commitments then the world will become 
a safer place. If it does not, then we retain all options to ensure 
that Iran cannot obtain a nuclear weapon. The coming months will be a 
test of Iranian intentions, and of the possibility for a peaceful 
resolution to this challenge to peace and international security.
    We look forward to working closely with the Congress to advance 
U.S. national security interests and prevent a nuclear-armed Iran.

    The Chairman. Secretary Cohen.

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

    Mr. Cohen. Chairman Menendez, Ranking Member Corker, 
distinguished members of the committee, thank you for the 
opportunity to appear before you today to discuss the 
implementation of the Joint Plan of Action.
    In my testimony this morning, I will address the 
administration's steps to deliver the limited, temporary, and 
reversible relief in the Joint Plan, as well as our critically 
important ongoing efforts to implement and enforce the vast 
majority of the sanctions that remain in place.
    The pressure on Iran from sanctions, sanctions built 
through the collaborative efforts of Congress and the 
administration along with many of our partners in the 
international community, was instrumental in bringing about the 
Joint Plan of Action. We are committed to ensuring that we 
maintain this same pressure on Iran throughout the 6-month term 
of the Joint Plan as our negotiators explore the possibility of 
a long-term comprehensive solution that verifiably ensures that 
Iran will not acquire a nuclear weapon.
    The Joint Plan went into effect on January 20. On that day, 
we issued guidance that temporarily suspended sanctions on 
transactions related to the export of petrochemical products 
from Iran, the provision of goods and services to Iran's 
automotive sector, and certain trade in gold and other precious 
metals to or from Iran. In this guidance, we made clear that 
transactions associated with this relief must be initiated and 
completed entirely during the 6-month period of the Joint Plan; 
that is, to avoid sanctions, full performance, from contract to 
delivery to payment, must begin no earlier than January 20 and 
end no later than July 20.
    We have also paused efforts for the next 6 months to 
reduce, further, Iran's exports of crude oil to the six 
jurisdictions still purchasing from Iran and began taking steps 
to allow Iran to access, in eight installments spread over the 
span of 6 months, $4.2 billion of its own funds currently 
restricted in accounts overseas.
    And finally, we are working to further facilitate 
humanitarian transactions.
    Notably, all of this relief is reversible. If Iran fails to 
meet its commitments under the Joint Plan, we can revoke this 
limited sanctions relief and, at a minimum, reinstate the 
suspended sanctions.
    Viewed in light of the depths to which Iran's economy has 
sunk, the approximately $7 billion in relief offered by the 
Joint Plan will not materially improve Iran's economy. For the 
first time in 20 years, Iran will be in a recession for 2 
consecutive years. It will continue to have limited or no 
access to almost $100 billion in foreign exchange holdings. Its 
budget deficit will remain sizable. Its currency will remain 
significantly devalued; and its inflation rate, significantly 
elevated.
    Over the 6-month duration of the Joint Plan, Iran's 
struggling economy will continue to be buffeted by sanctions, 
as the core sanctions architecture remains firmly in place. We 
are continuing to implement and enforce our oil sanctions, 
which have driven down Iran's oil exports by more than 60 
percent over the last 2 years; our financial sanctions, which 
have locked up much of Iran's overseas assets; our banking 
sanctions, which have largely cut off the Iranian banking 
sector from the international financial system; our sanctions 
on significant investment in Iran's energy sector, which has 
impaired Iran's oil and gas production; and the broad trade 
embargo between the United States and Iran.
    Because these potent sanctions remain firmly in place, Iran 
will continue to struggle to finance its imports, to fund its 
government operations, and to defend the value of its currency. 
In short, the continuing impact of our sanctions, and the 
cumulative impact of those sanctions, means that the Iranian 
economy will continue to massively underperform for the 
foreseeable future.
    So, while we remain committed to providing, in good faith, 
all the relief agreed to under the Joint Plan, we also remain 
hard at work implementing and enforcing a sanctions regime of 
unprecedented force and scope. The reason is simple: We know 
that intense sanctions pressure helped bring about the Joint 
Plan and, likewise, will be a critical component in the 
negotiations to come.
    To ensure the sanctions pressure continues, we are actively 
engaging with foreign banks, businesses, and governmental 
counterparts. Secretary Lew, Secretary Kerry, and many others 
from the administration, have reaffirmed this point, that the 
sanctions relief in the Joint Plan is narrow, the sanctions 
that remain in place are broad, and that we intend to enforce 
our sanctions vigorously. As part of this effort, over the last 
6 weeks I have traveled to the United Kingdom, Germany, Italy, 
Austria, Turkey, and the United Arab Emirates, carrying this 
message: Iran is not open for business.
    In all of these engagements, we have made clear that we 
will continue to respond to Iran's efforts to evade our 
sanctions wherever they may occur. We will continue to detect, 
disrupt, and disable those facilitating Iran's nuclear and 
missile programs. And we will continue to target Iran's support 
for terrorism and its human rights abuses.
    And I say to this committee and to other observers, stay 
tuned. We are poised to deploy our tools against anyone 
anywhere who violates our sanctions, just as we have always 
done.
    Thank you.
    [The prepared statement of Mr. Cohen follows:]

          Prepared Statement of Under Secretary David S. Cohen

                              introduction
    Chairman Menendez, Ranking Member Corker, and distinguished members 
of the Committee, thank you for the opportunity to appear before you 
today to discuss the implementation of the Joint Plan of Action (JPOA).
    In my testimony this morning, I will address the administration's 
steps to deliver the limited, temporary, and reversible relief in the 
JPOA, as well as our critically important ongoing efforts to implement 
and enforce the vast majority of the sanctions that remain in place. As 
this committee knows, the pressure on Iran from sanctions--sanctions 
built through the collaborative efforts of Congress and the 
administration, along with many of our partners in the international 
community--was instrumental in bringing about the JPOA. This 
administration is committed to ensuring that we maintain this same 
pressure on Iran throughout the 6-month term of the JPOA, as our 
negotiators explore the possibility of a long-term, comprehensive 
solution that verifiably ensures that Iran's nuclear program is 
peaceful and that Iran will not acquire a nuclear weapon.
                         implementation of jpoa
    As my colleague, Under Secretary Sherman, describes in her 
testimony, the JPOA marks the first time in a decade that Iran has 
committed to stop the advance of its nuclear program and roll back some 
of its key elements. Iran has also committed to allow international 
inspectors significant access to its various nuclear facilities. In 
exchange for these steps, the P5+1 committed to limited, temporary and 
reversible relief that we estimate, in total, will be worth $7 billion 
to Iran.
    The JPOA went into effect on January 20, when the International 
Atomic Energy Agency (IAEA) confirmed that Iran had implemented its 
initial nuclear-related commitments and we took steps to fulfill our 
commitments under the JPOA.
    In particular, on January 20, we issued guidance temporarily 
suspending secondary sanctions on non-U.S. persons engaged in 
transactions related to the export of petrochemical products from Iran, 
certain trade in gold and other precious metals to, or from Iran, and 
the provision of goods and services to Iran's automotive sector. We 
also issued a statement indicating a favorable licensing policy for 
transactions for repairs related to the safe operation of certain 
Iranian commercial passenger aircraft.
    Along with these steps, we have made clear that in order to qualify 
for any of this sanctions relief the relevant transaction must be 
initiated and completed entirely during the JPOA period. That is, to 
avoid sanctions, the contract for the sale of petrochemicals, the 
import of automotive parts, or the trade in precious metals must 
commence no earlier than January 20, and full performance--including 
delivery and payment--must occur no later than July 20. When the JPOA 
period expires, so does the relief.
    Pursuant to the JPOA, we also have paused efforts for the next 6 
months to reduce further Iran's exports of crude oil to the six 
jurisdictions still purchasing from Iran. Those six jurisdictions--and 
only those six--will be permitted to continue to import Iranian oil at 
current levels, far less than the approximately 2.5 million barrels per 
day Iran was exporting 2 years ago.
    And we are taking steps to allow Iran to access $4.2 billion of its 
own funds currently restricted in accounts overseas. We have agreed to 
a schedule that provides Iran access to these funds in eight 
installments spread over the span of 6 months, with access to a portion 
linked to Iran's progress in completing its dilution of near-20 percent 
enriched uranium. The final installment is slated to occur on the last 
day of the JPOA, July 20. Access to any of these funds, moreover, is 
contingent on Iran fulfilling its commitments under the JPOA.
    Lastly, we are working with our partners and Iran to establish a 
mechanism to further facilitate payments for humanitarian transactions 
and to enable Iran to make payments for medical expenses, university 
tuition assistance for Iranian students studying abroad, and its U.N. 
obligations.
    All of this relief however, is reversible. It is contingent upon 
Iran's continuing adherence to the nuclear steps outlined in the JPOA. 
If we determine that Iran has failed to meet its commitments, we can 
revoke this limited sanctions relief and, at a minimum, reinstate the 
suspended sanctions.
                      maintaining pressure on iran
    Viewed in light of the depths to which Iran's economy has sunk--
brought about in large part by the sanctions that continue to remain in 
place--the approximately $7 billion in relief that Iran stands to 
receive over the next 6 months will not materially affect its economy. 
To the contrary, because of our ongoing active efforts to implement and 
enforce the manifold U.S. and international sanctions that remain in 
place, we expect the economic pressure on Iran will continue unabated 
during the pendency of the JPOA.
    For the first time in 20 years, Iran will be in a recession for two 
consecutive years: its economy contracted 6 percent in the Iranian 
fiscal year ending in March 2013, and we assess that it will contract 
again this fiscal year. Iran will continue to have limited or no access 
to almost $100 billion in foreign exchange holdings in accounts 
overseas. Its budget deficit reached about 5 percent of GDP last year 
and will remain sizable in the current budget year. And Iran's 
currency, the rial, has lost around 60 percent of its value against the 
dollar since 2011 while the official inflation rate is around 38 
percent.
    Going forward over the 6-month duration of the JPOA, Iran's economy 
will continue to be buffeted by sanctions, as the core architecture of 
U.S. sanctions remains firmly in place.
    For example, we are continuing to implement and enforce our oil 
sanctions, which have driven down Iran's oil exports by more than 60 
percent over the last 2 years. These sanctions also preclude the 
purchase of Iranian oil by any country other than Iran's six remaining 
oil customers, who may not exceed their current purchase levels as 
outlined in the JPOA and our sanctions relief. During the period of the 
JPOA, the oil sanctions alone will cost Iran approximately $30 billion 
in sales it cannot make.
    We are continuing to implement and enforce our financial sanctions, 
which require the payment for oil imported from Iran by the six current 
customers to be paid into accounts that can be used only to facilitate 
humanitarian transactions or bilateral trade between the importing 
country and Iran. This Iranian oil revenue can neither be brought back 
to Iran nor moved to third countries, except to facilitate humanitarian 
trade. And since the accounts that receive the oil revenue already hold 
more funds than Iran chooses to spend, the effective value of those oil 
sales to Iran is far less than 100 cents on the dollar.
    We are continuing to implement and enforce our banking sanctions, 
which call for the exclusion from the U.S. financial system of any 
foreign bank that knowingly engages in significant transactions with 
designated Iranian banks. The EU is also continuing to implement and 
enforce its banking sanctions, which have led to the termination of 
SWIFT access for most Iranian banks. Altogether, these banking 
sanctions--which all remain fully in force--have largely cut off the 
Iranian banking sector from the international financial system.
    We are continuing to implement and enforce the vast majority of our 
sanctions on Iran's energy sector. That includes, among other things, 
sanctions on significant investment in Iran's energy sector and on the 
sale of significant goods or services that could be used in Iran's 
energy sector.
    And we are continuing to implement and enforce the broad trade 
embargo between the U.S. and Iran. Outside of transactions involving 
humanitarian goods, U.S. banks and businesses, including their overseas 
subsidiaries, are largely forbidden from engaging in any transactions 
with Iran.
    Now, to be sure, since the election of President Rouhani in June, 
there has been some improvement in a few economic indicators, such as 
the value of the rial and the inflation rate. None of that improvement, 
however, is attributable to the limited sanctions relief in the JPOA 
which, of course, went into effect only 2 weeks ago. Indeed, these 
indicators are largely unchanged over the past few months. Instead, 
much of the uptick in these metrics occurred over the summer following 
the election of President Rouhani in June; they appear to be due 
largely to public optimism that the Rouhani administration would put in 
place competent economic managers and obtain comprehensive sanctions 
relief
    While President Rouhani did, in fact, replace many of those 
responsible for mismanaging the Iranian economy during President 
Ahmadinejad's tenure, the JPOA does not deliver comprehensive sanctions 
relief To the contrary, because the most potent sanctions remain firmly 
in place, Iran's economy will remain under pressure. Most importantly, 
its oil revenues will remain significantly depressed and the vast 
majority of its foreign reserves will remain restricted or 
inaccessible. As a result, Iran will continue to straggle to finance 
its imports, to fund its govemment operations, and to defend the value 
of the rial.
    Even with a slight uptick here or there in some economic 
indicators, the continuing impact of our core oil, banking, financial, 
and energy sector sanctions--and the cumulative impact of those 
sanctions--means that the Iranian economy is operating at significantly 
reduced levels and will continue to massively underperform for the 
foreseeable future. To get out of the hole that it is in, Iran needs 
better economic management and substantial, structural economic relief 
that can come only from lifting the broad sanctions that remain in 
place--something the JPOA does not contemplate, but the promise of 
which we assess will motivate Iran to negotiate a serious and 
comprehensive solution to our concerns with Iran's nuclear program in 
the next phase.
      engagement with foreign counterparts and the private sector
    So while we remain committed to providing, in good faith, the 
relief agreed to under the JPOA, we also remain hard at work 
implementing and enforcing a sanctions regime left largely intact by 
the JPOA--a sanctions regime of unprecedented force and scope. The 
reason is simple: We know that intense sanctions pressure helped bring 
about the JPOA, and likewise will be a critical component in the 
negotiations to come.
    To ensure the force and scope of our sanctions, we are continuing 
our longstanding efforts to work with our international counterparts in 
the application and enforcement of our sanctions. This has been a 
whole-of-government effort, involving officials at all levels of the 
administration. Secretary Lew, for example, has met with many of his 
counterparts in Europe and with literally hundreds of business and 
banking executives to drive home the point that the sanctions relief in 
the JPOA is narrow, that the sanctions that remain in place are broad, 
and that we intend to enforce our sanctions vigorously. And over the 
last 6 weeks. I have traveled to the U.K., Germany, Italy, Austria, 
Turkey, and the United Arab Emirates carrying the same message: Iran is 
not open for business.
    In meetings with banks, businesses, and trade promotion 
authorities, as well as with our governmental counterparts, I have 
explained that complex, robust, and broad sanctions remain in effect. 
This means, of course, that substantial legal risk remains for anyone 
attempting to do business with Iran. I have pointed out in particular 
that all of our banking sanctions, and all of the EU's banking 
sanctions, remain in place, which means that any business looking to 
get paid for delivering goods to Iran will continue to confront an 
Iranian financial sector largely cut off from the SWIFT network and 
mostly unable to transact internationally.
    And I have also emphasized that anyone doing business with Iran 
continues to incur significant reputational risk. For years, we have 
exposed the complexity and sophistication of Iran's deceptive attempts 
to evade sanctions to acquire material for its nuclear program--hiding 
behind false front companies, deleting identifying information from 
contracts and payment messages, and disguising the origin of its oil. 
The line between licit and illicit Iranian business has always been 
blurry at best, and that has not changed.
               continued robust enforcement of sanctions
    Now, we recognize that most businesspersons and bankers do not set 
out intentionally to engage in sanctionable transactions. And I would 
also strongly encourage anyone, anywhere who thinks now might be a good 
time to test the boundaries and challenge our resolve to think again.
    As President Obama has made clear, we will continue to vigorously 
enforce the vast array of sanctions that are not suspended by the 
JPOA--sanctions that reach Iran's energy, banking, and trade sectors, 
along with its access to the international financial system. We also 
will continue to target Iran's support for terrorism and human rights 
abuses. And we will continue--in the days, weeks, and months ahead--to 
respond to Iran's efforts to evade our sanctions, wherever they may 
occur.
    We know that some companies are talking to the Iranians. While 
there is nothing necessarily sanctionable about just talking, if those 
conversations turn into deals that exceed the narrow bounds of the 
relief agreed to in the JPOA and involve sanctionable activity, we will 
not hesitate to respond. Indeed, the JPOA implementation understandings 
themselves explicitly recognize that we will enforce existing 
sanctions.
    And we are doing so. Just last week, for example. Treasury reached 
a $9.5 million settlement with the Bank of Moscow to settle potential 
civil liability for 69 transfers it sent to, or through, U.S. banks 
that were for, or on behalf of, Bank Melli Iran ZAO, a sanctioned 
Iranian entity. None of the payment messages Bank of Moscow sent 
included direct references to Bank Melli Iran ZAO. Instead, the Iranian 
bank was identified through the use of abbreviations while the Bank of 
Moscow avoided using terms such as ``Melli,'' ``Iran,'' or the bank's 
SWIFT Business Identifier Code. This settlement follows a string of 
Iran-related enforcement actions we have taken over the past few weeks 
and months.
    Two weeks ago, we announced a landmark $152 million settlement 
agreement with Clearstream Banking S.A., of Luxembourg, to settle its 
potential civil liability for providing Iran with substantial and 
unauthorized access to the U.S. financial system. Specifically, 
Clearstream served as the intermediary through which the Central Bank 
of Iran was able to maintain a beneficial ownership interest in 
securities held in custody in the United States.
    And before that, we reached a $33 million settlement with the Royal 
Bank of Scotland and a $91 million settlement with Weatherford 
International, Ltd. Both settlements involved investigations of 
apparent violations of our sanctions on Iran; the latter was Treasury's 
largest-ever settlement outside of the banking industry.
    At the end of last year, we designated more than a dozen targets 
located inside Iran and around the world--from Cyprus to Singapore--
involved in efforts to help Iran or its military procure goods and 
technology for Iran's nuclear or defense sectors through front 
companies and deceptive financial transactions.
    And we will continue to detect, disrupt, and disable those 
facilitating Iran's nuclear and missile programs by identifying front 
companies, evaders, and violators and sanctioning them. We have done so 
more than 600 times before and we will continue to do so during the 
next 6 months.
    The message should be clear: The United States is watching, and the 
administration is poised to deploy our tools against anyone, anywhere, 
who violates our sanctions.
                               conclusion
    The Joint Plan of Action has created the space, over the next 6 
months, to explore the possibility of a long-term, comprehensive 
solution to concerns with Iran's nuclear program. Achieving that goal 
will require, among many other things, that we deliver on our 
commitments to provide the specific, limited relief contemplated by the 
JPOA while maintaining significant pressure on Iran. And that is 
precisely what we intend to do.

    The Chairman. Thank you.
    Secretary Sherman, so--maybe you can just answer this 
``yes'' or ``no''--a final agreement would include closing the 
Fordow facility.
    Ms. Sherman. In all of these questions today, I am going to 
be thoughtful about what I say, Senator, not because I do not 
want to be direct, but I do not want to negotiate with Iran in 
public so that they know what our positions are going to be at 
the negotiating table. So, I will be as forthcoming as I can 
be----
    The Chairman. Well, some of these are so obvious. You said 
in your own testimony----
    Ms. Sherman. I am going to say it. I am going to answer 
your question. But, I am making a statement, just in general 
terms, because I do not want to frustrate the members--and be 
glad to have further conversation, in a private setting, in 
greater detail.
    But, where Fordow is concerned, as I said in my testimony, 
we see no reason for Fordow to remain an enrichment facility.
    The Chairman. All right, thank you.
    With reference to the Arak heavy water reactor, I would 
assume that that would not be permitted to go online.
    Ms. Sherman. We do not believe there is any reason for a 
heavy water reactor at all in a civil nuclear program of the 
type that Iran is interested in.
    The Chairman. With reference to the centrifuges that 
exist--which our understanding is about 20,000, at least by 
published reports and other reports, David Albright, who is on 
our second panel, and others, have suggested that, for a final 
agreement, in addition to closing the Fordow facility, there 
would be a need to remove between 15- and 16,000 of its 20,000 
centrifuges. Do you agree with that estimate?
    Ms. Sherman. I am not going to get into a specific number 
in this setting, Senator. What I will say is, there is no doubt 
that the number of centrifuges needs to be addressed.
    The Chairman. Okay. And, by that, we mean that there needs 
to be a reduction.
    Ms. Sherman. Yes.
    The Chairman. Okay.
    Now, with reference--so, you will not give us a number, but 
when President Rouhani says, ``No, we are not going to destroy 
any centrifuges,'' you just think that is domestic consumption.
    Ms. Sherman. I believe that is domestic consumption in an 
opening maximalist negotiating position, and I would not expect 
any less. What I will care about, what we will all care about, 
what we all should care about, is what Iran does, what 
commitments they make and which of those commitments can be 
verified have actually taken place.
    The Chairman. With reference to an area that was not frozen 
in the interim deal with Iran, which is Iran's Centrifuge 
Research and Development Program, which, basically, Iran can 
continue its development of its more advanced centrifuges 
during this whole period of time at the Natanz Pilot Program, 
under the loophole in the interim agreement. And challenging, 
because Iran is able to measure the enrichment level of the 
product before it re-mixes it. So, at the end of the interim 
period, Iran is likely to be far better positioned to deploy 
reliable IR-2m centrifuges on a mass scale at its enrichment 
plants, and this gain would allow Iran to make up for time 
lost, very quickly. Is significantly or dramatically drawing 
back on their research-and-development plans on centrifuges a 
critical element of a final agreement?
    Ms. Sherman. No doubt, there will be very difficult 
discussions around R&D because of its significant--but, I would 
say one thing, Senator. In fact, Mr. Chairman, their R&D 
program was frozen, where centrifuge development is concerned, 
in a couple of important ways, in the Joint Plan. First of all, 
they cannot work on any advanced centrifuges that are not 
listed in the November 14 IAEA report. That is really the 
baseline for any continued work. So, it was frozen at the 
November 14 setting. In terms of replacing any damaged 
centrifuges in Fordow or Natanz, they can only do it with same-
type, not-more-advanced, centrifuges, and they cannot install 
any new advanced centrifuges into the Natanz research facility.
    The Chairman. Yes. But, that is not on the point that I 
raised with you. So, let me read directly to you from David 
Albright's testimony, which we will hear in the second panel. 
``An area that was not frozen in the interim deal is Iran's 
Centrifuge Research and Development Program. Iran can continue 
its development of the IR-2m centrifuges at the Natanz Pilot 
Plant under this loophole in the interim deal. It can enrich 
uranium in a production-scale cascade of 164 IR-2m centrifuges. 
And since it re-mixes the enriched uranium product with the 
waste, obtaining natural uranium, no enriched uranium is 
deposited into the product tanks. This re-mixing meets the 
letter of the deal. However, Iran is able to measure the 
enrichment level of the product before re-mixing it; thus, it 
can further develop these centrifuges while hiding any results 
of its progress from the IAEA, which has access only to the 
product tank or the natural uranium, and does not see the 
enrichment measurements. At the end of the interim period, Iran 
is likely to be far better positioned to deploy reliable IR-2m 
centrifuges on a mass scale at its enrichment plants. This gain 
would allow Iran to make up for time lost more quickly.'' That 
is--do you dispute that?
    Ms. Sherman. What I would say, Senator, is, I would quite 
agree with you that R&D is an area of concern. Their research 
and development on advanced centrifuges is an area of concern, 
and it will be something that we will be quite focused on in 
the final comprehensive agreement. I am not an expert of the 
quality of Dr. Albright, and I have great regard for his 
assessments, and I would be glad to have our experts sit down 
with you or your staff and go over the specifics of that----
    The Chairman. Okay, I appreciate that.
    What about Parchin? Why is Parchin--why was Parchin--
Parchin being so incredibly important for the framework under 
which you are negotiating. Parchin, the world believes, is 
where Iran was weaponizing its nuclear efforts; yet, in this 
agreement, and the interim, the Joint Plan of Action, we have 
no access to Parchin. Now, Parchin has already gone under mass 
excavation by the Iranians, when the world became aware of it, 
as a way, I believe, to ultimately try to cover up their 
weaponization program. But, obviously, if we were negotiating 
with access to Parchin, which I believe and others believe 
would prove their efforts to weaponization, the framework under 
which we would be negotiating would be much different, versus--
you know, a supposition versus a reality.
    So, is access to Parchin, why you did not achieve it--I do 
not know if you even raised it in the interim Joint Plan of 
Action--is access to Parchin a critical element of your final 
deal?
    Ms. Sherman. Senator, we, in fact, did raise Parchin. We 
raised possible military dimensions. And, in fact, in the Joint 
Plan of Action, we have required that Iran come clean on its 
past actions as part of any comprehensive agreement, in three 
very critical ways.
    First, the Joint Plan of Action says that we will work with 
the IAEA to facilitate resolution of past and present issues of 
concern. And that is a formula used by the IAEA in addressing 
possible military dimensions, including Parchin. So, we expect, 
indeed, Parchin to be resolved.
    Secondly, the plan says: before the final step, there would 
be additional steps in between the initial measures and the 
final step, including addressing the U.N. Security Council 
Resolutions, which require, in fact, dealing with issues of 
past concerns.
    And third, all the sanctions on over 600 individuals and 
entities targeted for supporting Iran's nuclear and ballistic 
missile program will remain in effect until those concerns are 
addressed.
    So, to summarize, yes, we have raised it----
    The Chairman. And they rejected----
    Ms. Sherman [continuing]. Second, they must be resolved.
    The Chairman [continuing]. They rejected any access to 
Parchin----
    Ms. Sherman. They have not rejected it.
    The Chairman. In the interim--in your Joint Plan of Action, 
they rejected, during this period of time, access to it.
    Ms. Sherman. No, they have not rejected it; they know it 
has to be addressed, whether it--I hope it is addressed within 
the 6 months while we are addressing the comprehensive 
agreement. And, as you know, the IAEA will be meeting with Iran 
on February 8, and these specific issues of their possible 
military dimensions are very key and central to the agenda. So, 
I hope, and I would urge, Iran to address Parchin during these 
6 months while we are negotiating the comprehensive agreement, 
because it will increase the confidence that we will actually 
get to a final and comprehensive resolution.
    The Chairman. Two final questions. Reuters has a report 
this morning that the IAEA is exploring with Iran its 
productions of polonium, which is a material that can trigger 
an atomic explosion. Is this a new development or is this 
something that you raised with the Iranians during your interim 
negotiations?
    Ms. Sherman. I am not aware of that Reuters report, so I 
would have to take a look at it, Senator.
    The Chairman. Well, I would ask you to respond to the 
committee, look at the report----
    Ms. Sherman. Sure.
    The Chairman [continuing]. And respond to the committee. 
One final----
    Ms. Sherman. Be glad to.
    The Chairman [continuing]. Question, for you, Secretary 
Cohen. All of the sanctions that I have offered with Senator 
Kirk, and members have supported, they always have to have at 
least a 6-month period of time in order to give countries and 
companies the notice required and the time for you to do the 
regulations necessary to precede them. Is that a fair 
statement?
    Mr. Cohen. I assume so, Senator. I have not----
    The Chairman. Well, you are enforcing them, and you have 
had to pursue them. Have you had less than 6 months to be able 
to pursue any of the sanctions that we have passed?
    Mr. Cohen. Senator, I, sitting here right now, do not 
recall every piece of legislation, whether any of them were 
immediately effective or there was a phase-in for all of them. 
We have, you know, of course, implemented the sanctions that 
Congress passes as promptly as possible.
    The Chairman. Well, I think it is pretty well--one can take 
judicial notice of the legislation. The legislation that became 
law always had a very long lead time, and then, after that, you 
went to work to try to pursue it. And the problem is, to 
suggest that we can quickly pass sanctions is to not recognize 
that, when we pass sanctions, there are 6 months from the date 
of signing before it ever goes into effect, and then, after 
that, there is the whole period of time for you actually to 
pursue enforcement.
    So, in reality, the only effect that we have is over time. 
When the Iranians, based upon testimony that has been received 
and will be received today, looking at 6 to 8 weeks or 2 months 
or so of their potential breakout period if a deal does not 
come through, sanctions will--to enforce sanctions then will be 
far beyond the scope of the window and will not be a calculus 
for them. And so, that is part of the problem with suggesting 
that, yes, we can pass sanctions at any time. Not simply about 
passing sanctions, it is about the timeframe necessary to have 
them be effective and ultimately to take effect. And that is 
way beyond the window.
    Senator Corker.
    Senator Corker. Thank you, Mr. Chairman.
    And I would just--Ms. Sherman, I appreciate, again, your 
testimony. I think you know that, again, all of us want to see 
a negotiated settlement. We want to see a peaceful end to this. 
But, all of us are concerned--I do not know if you want to 
continue on or--concerned about the way this interim deal has 
been struck.
    I made reference, in my opening comments, about Iran's 
ability to perfect things, and pause, and then perfect other 
things. Just curious, why did you all not, in this agreement, 
in any way address the delivery mechanisms, the military 
components of nuclear arms? Why was that left off? Since they 
have reached a threshold that everyone acknowledges, they can 
build a bomb. We know that. They know that. They have advanced 
centrifuges. We have a major loophole in the research-and-
development area, that everyone acknowledges. And yet, we are 
going to allow them, over this next year, to continue to 
perfect the other piece of this, which is the delivery 
mechanism. Why did we do that?
    Ms. Sherman. Senator, first of all, and I should have said 
this when the chairman asked the question--you know, we see 
this as a first step, so we do not consider the gaps that exist 
``loopholes,'' because this is not a final agreement; this is a 
first step.
    Senator Corker. Catherine Ashton has said that it would 
take a year--she said it would take 6 months just to write up 
technical documents to begin discussing. She is one of your 
four partners, I know. So, we probably have a period longer 
than 6 months where they can continue on. I mean, again, I just 
do not understand why an interim deal would not address them 
stopping the perfecting of those things that allow what they 
have already perfected to be delivered.
    Ms. Sherman. I would say a couple of things.
    First of all, the Joint Plan of Action does address the 
fact that their ballistic missiles that could be used as a 
delivery mechanism for nuclear weapons must be addressed as 
part of a comprehensive solution, because it is part of the 
U.N. Security Council resolutions. So, it is true that, in 
these first 6 months, we have not shut down all of their 
production of any ballistic missile that could have anything to 
do with delivery of a nuclear weapon. But, that is, indeed, 
going to be part of something that has to be addressed as part 
of a comprehensive agreement.
    Secondly, I would say to you, Senator, that if we are 
successful in assuring ourselves and the world community that 
Iran cannot obtain a nuclear weapon--cannot obtain a nuclear 
weapon--then them not having a nuclear weapon makes delivery 
systems almost--not entirely, but almost irrelevant.
    Senator Corker. Well, so let me ask you this question. I 
think most neutral observers would state that all we have 
really done, since they are not dismantling as you know, both 
their President and Foreign Minister has made that real clear--
they are not dismantling--so, in essence, what you have done in 
this interim deal is, you have given us 30 days additional time 
for breakout. Thirty days. And yet, they have got a year; a 
year to probably--probably longer, candidly--to develop these 
delivery mechanisms.
    Now, I will say--I mean, some people may debate about what 
their enrichment is for. I do not think many people on this 
committee think that what they have been doing is solely for 
civil purposes. But, there is no debate on delivery mechanisms. 
And I am just curious, why would you negotiate a deal that 
allows that to continue? I do not get it. Why would you say 
that would be a part of the next deal, since they have already 
perfected the first part? It seems to me that being able to 
deliver it is an important aspect, but apparently not so, in 
your case.
    Ms. Sherman. Well, Senator, you and I disagree about the 
conclusion of the Joint Plan of Action. We believe that it has 
set out a framework for a comprehensive agreement to ensure 
that Iran does not obtain a nuclear weapon. We are not to that 
comprehensive solution yet. We agreed on a 6-month program that 
freezes where they are and rolls back their program in 
significant ways to obtain that nuclear weapon. And, in return, 
we have given very limited, temporary, and targeted sanctions 
relief.
    Quite frankly, if we could have negotiated a comprehensive 
agreement, which you would prefer and many people would prefer, 
we would have done it.
    Senator Corker. Yes.
    Ms. Sherman. But, quite frankly, that was impossible to do 
in a short period of time. And had we, in fact, tried to 
negotiate a comprehensive agreement that would have dealt with 
everything that is of concern to all of us, they would have 
used that time to march forward much more rapidly in their 
ability to both develop a nuclear weapon and to develop the 
delivery system for that nuclear weapon.
    Senator Corker. Yes.
    Ms. Sherman. So, this is not perfect.
    Senator Corker. No, it is not.
    Ms. Sherman. But, this does freeze and roll back their 
program in significant ways and give us time on the clock to, 
in fact, negotiate that comprehensive agreement. And, as you, 
yourself, said, we can discuss what the breakout times are, in 
a classified setting. It has added, relative to where we were, 
some time on that clock, as well.
    Senator Corker. Some time.
    If I could ask just two more questions. I know this is a 
topic we all care about.
    Mr. Cohen, since this negotiation has begun, do you agree 
that Iran's inflation rate is way down, that their currency is 
way up, and that economic projections within the country are 
way up, and that there are people from all over the world who 
are clamoring to do business with Iran? I know you have 
traveled around the world, talking to folks about what might 
happen to them, but is there any question that just the 
discussions have hugely uplifted the Iranian economy? Is that 
correct?
    Mr. Cohen. Well, Senator, I think what we have seen, in 
terms of the metrics in Iran's economy, is that there was an 
uptick immediately after the election of President Rouhani, in 
June. And so, the value of the rial has increased somewhat 
since the election of President Rouhani. Inflation has come 
down since his election.
    There has been, essentially, no change at all in the 
inflation rate or the value of the rial since the Joint Plan of 
Action was agreed to, in November----
    Senator Corker. But, everybody knew those discussions were 
underway.
    Do you understand why there is a concern, here, that we are 
alleviating sanctions? You all say 7 billion; I think no 
rational person believes that that is the only effect, because, 
in a market, there are expectations. I mean, that is why the 
Fed, you know, buys securities and gives, you know, its 
expectations. And so, people are expecting--and you can 
understand why the chairman would be concerned--that what is 
going to happen is, at a minimum, a series of rolling interim 
deals. And I think there are many of us rightly concerned that, 
at a point--especially if it takes as long as Catherine Ashton 
is saying, a minimum of a year--at a point, we lose all 
leverage, if you will, to really do this. Some people have even 
said, ``Well, what we really ought to do is pass a resolution 
on the Senate floor that says, if we do not come to a 
resolution, there is a trade embargo or something that is much 
stronger--not binding, but indicates that we will do 
something.''
    Do you understand why we have those concerns? And do you 
have a way of Congress addressing those in an appropriate way, 
since we put the sanctions in place in the first place?
    Mr. Cohen. I certainly understand where those concerns come 
from, but what I can tell you from my travels around the 
world--and my colleagues report the same in their dealings--is 
that the limited nature of the relief in the Joint Plan of 
Action, and the sanctions that remain in place, when we explain 
that and make sure that the business community, the banking 
community, our governmental counterparts understand that a deal 
that would be permissible under the Joint Plan has to be 
commenced and concluded within this 6-month period, that anyone 
shipping goods to Iran is still facing an Iranian banking 
sector that is largely cut off from the international financial 
sector, that investment in Iran's energy sector is still 
sanctionable--when we walk through the very narrow scope of the 
sanctions that have been relieved and the extensive sanctions 
that remain in place, what we hear back is that there is 
interest down the road, potentially, if there is a 
comprehensive deal and substantial sanctions relief in the 
Iranian market, but, for this period--for this 6-month period--
the interest in trying to take advantage of the narrow 
suspensions of sanctions in just a few economic areas that have 
been agreed to is relatively tame. So, you see these 
delegations going to Tehran, but I think you also see, 
importantly, the reflection that those conversations are about 
what may come in the future, not what is available today.
    And I should say, we are as crystal clear as possible, in 
all of our engagements, that if these talks turn into something 
more, if these talks turn into deals that violate the elaborate 
sanctions that remain in place, that we will take action.
    The Chairman. Senator Coons.
    Senator Coons. Thank you, Chairman Menendez, for chairing 
this hearing.
    And I would like to thank Under Secretaries Sherman and 
Cohen for your work and for appearing before the committee.
    As you have said in your testimony, and as I agree, a 
strong 
and crippling sanctions regime imposed on Iran--in large part, 
passed by this Congress and enforced by this administration-- 
have brought Iran, at last, to the negotiating table. And I 
remain strongly supportive of their ongoing implementation and 
enforcement. I am encouraged by your characterization of these 
sanctions--enforcement and the relief in the Joint Plan of 
Action--as being temporary, limited, and reversible, but intend 
to be intensely engaged in ensuring that that is, in fact, the 
case. As a cosponsor of the Menendez bill, I believe it is 
important for us to continue to maintain the threat of stronger 
and more additional sanctions in order to send a clear message 
to Iran of the ramifications of noncompliance.
    I have a number of concerns and unanswered questions about 
the Joint Plan of Action. I will just reiterate, I share, I 
think, the goal, of everyone on this committee and the 
administration, of reaching an agreement that verifiably and 
irrefutably denies Iran the capability to acquire a nuclear 
weapons capability. I do hope a final deal can be achieved in 
the next 6 months that includes the most comprehensive 
inspection and verification regime possible. And I have a 
number of questions I would like to ask, following up on that, 
if I might.
    First, as to the IAEA, I sent a letter to the President, 
along with several other Senators--Mikulski, Warner, 
Gillibrand, Markey--asking a number of questions, and, in 
particular, focusing on what the administration will need from 
Congress in the way of financial support, what the actions will 
be with the IAEA, and pressing on whether there is any 
progress, in terms of establishing a field office, the scope 
and reach of the inspections, and what kinds of capability, 
staffing, and funding it may require, so that we can have some 
certainty about these allegedly novel inspection regimes. We 
have very disconcerting previous examples in other countries, 
where inspections failed to uncover clandestine actions, as has 
previously been the case in Iran. So, I would be interested, 
Under Secretary Sherman, first, on: When am I going to get an 
answer to my letter? And what can we be doing to work with you 
in strengthening the IAEA in their inspections?
    Ms. Sherman. Thank you very much, Senator, and thank you 
for your support. And thank you, along with all the members of 
this committee, for leadership on supporting our efforts to 
make sure that Iran cannot obtain a nuclear weapon, which, I 
quite agree, is an objective we all share.
    In terms of monitoring and verification, I will find out 
where that letter is, and we will get it to you, tout suite, 
Senator. I am sorry it is not up here before this hearing 
today, and I apologize for that.
    The IAEA is going to double its staff. It will have a field 
office. As you note, the Joint Plan of Action gives us 
unprecedented access. Before, at Natanz and Fordow, inspectors 
went about once a week; now they will have daily access. On 
days in which they might otherwise not be there, there will be 
surveillance cameras and other monitoring techniques that will 
be available that are being worked out with the IAEA. Arak, 
they used to visit maybe once every 3 months; they now will 
have monthly access to Arak. They are getting the DIQ--the 
plans in essence--for Arak. They are getting access to 
centrifuge production facilities, rotor production facilities, 
to uranium mines and mills. So, it is quite an unprecedented 
verification and monitoring regime.
    The Director General has said there will be some increased 
cost. We have increased the amount that we will make available 
out of our budgeted funds to the IAEA. Other countries have 
come forward, and we greatly appreciate your willingness for 
Congress to take a look and ensure that the inspection, 
monitoring, and verification activities can go forward, because 
they are quite critical, as you point out, to verify that Iran 
does what it is committed to do and, in a comprehensive 
agreement, will be even more crucial.
    Senator Coons. Let me ask one more question with my 
remaining time. And, first, in your opening testimony, you 
highlighted efforts to hold Iran accountable for its ongoing 
human rights violations, public executions, support for the 
Assad regime, for Hezbollah, for terrorism. And I appreciate 
and salute your hard work in holding Iran accountable. This is 
a regime we cannot trust. One of the most important 
accomplishments, I think, of this interim Joint Plan is the 
commitment to dilute the 20-percent highly enriched uranium. 
And apparently, Tehran will take these steps when it has 
completed necessary facilities improvements and a conversion 
line. When is this scheduled to be completed? And what steps 
are being taken to ensure the Iranians are not dragging their 
feet or are not using this as a way to covertly enrich in some 
other vehicle and in some other location?
    Ms. Sherman. Couple of comments. First, on human rights, we 
completely agree with you, and, in the coming weeks, the Human 
Rights Report will come out, and we will detail, as clearly as 
we possibly can, how we view Iran's human rights abuses, which 
you have decidedly and rightly pointed out are of grave concern 
to us.
    In terms of the dilution and conversion, both on the 20-
percent and ensuring that the 5-percent stockpile does not get 
larger than the amount agreed to by the end of the 6-month 
period, the IAEA will be monitoring all of these actions. And, 
on the dilution--the conversion will take all 6 months to 
accomplish, because the technology only allows it to move that 
quickly, but the IAEA will provide a report, on a monthly 
basis, of all monitoring and verification activities, that they 
will share with the Joint Commission, and we will be glad to 
come up and brief the Hill, in classified session, about those 
monthly reports. And so, that will be one way that we will 
verify it.
    The second is that, on the dilution, two of the payments of 
repatriated frozen funds are tied to the dilution schedule--the 
first on March 1, the second on April 15. So, Iran will not get 
the funds unless the dilution is completed on the schedule 
agreed to.
    Senator Coons. Thank you. I very much look forward to those 
classified briefings and to an answer to my letter. Thank you, 
Under Secretary.
    The Chairman. Senator Risch.
    Senator Risch. Thank you, Mr. Chairman.
    Ms. Sherman, your thank you to Senator Coons implied, I 
think, when you said that you thanked us for supporting the--
this committee for supporting the efforts of the administration 
in this regard--do not put me in that column. I do not want to 
be thanked, because I do not support what has been done. I 
think this thing is a disaster. I was stunned when I saw what 
the agreement was. I have been disgusted as we have gone 
forward. And I hope you will prove me dead wrong, but I do not 
think I will, given the history of these people.
    But, in any event, I want to focus on just a couple of 
aspects.
    Number one, Pastor Saeed Abedini is a constituent of mine. 
He is held in jail in Iran. His only crime is being a 
Christian. You know, last week I see where we showered the 
Iranians with, what, $500 million. Why can we not get this guy 
out of jail? You said that Secretary Kerry had a conversation 
with Foreign Minister Zarif this weekend at the meeting in 
Munich. Can you tell us what the substance of that conversation 
was?
    Ms. Sherman. Certainly, Senator.
    First of all, we completely agree with you. Saeed Abedini, 
Amir Hekmati, and Robert Levinson should all be home with their 
families. And nothing I can say today, because they are not yet 
home, will be satisfactory to you or to their families. And I 
would agree with them and agree with you in that regard.
    Secretary Kerry raised these situations with the Foreign 
Minister, insisted that these be addressed as quickly as 
possible, that there was no basis for any of the three of them 
to be held. And, indeed, we are doing whatever we can, in 
whatever channel we can, to bring them home as quickly as 
possible.
    Senator Risch. Well, Ms. Sherman, you know, that is not 
good enough. Those are just words. Somebody needs to look these 
people in the eye and tell them they are not getting another 
penny, and they are not getting anything, until they do a very 
simple act of letting three absolutely innocent Americans go 
free. I hope you will convey that to the Foreign Minister, and 
I would hope Secretary Kerry would convey that to the Foreign 
Minister. This is absolutely outrageous, for everything we have 
given to the Iranians, and them still to hold this. I mean, 
this is absolute nonsense.
    Let me change horses here for just a second. I keep reading 
in the media about--now that the sanctions have been relaxed--
and this has been something that has been a concern of mine 
from the beginning, that, now that they have been relaxed, our 
partners--most, if not all, of whom were unwilling partners--
are now flooding in there with businesspeople--the French, the 
Italian, the Irish, the Canadians. You have got political 
people, you have got businesspeople flooding in there, ready to 
do business, going back to business as usual with the Iranians. 
Whose job is it going to be to put the genie back in the bottle 
when this thing fails? Who is going to do this?
    Ms. Sherman. Well, let me make one comment and then turn it 
to Under Secretary Cohen.
    A couple of things. As the Under Secretary said, every 
single member--key member of our administration talks with 
every country with whom we meet about enforcing and keeping the 
sanctions in place and on board. And indeed, I believe, based 
on the conversations I have had with many, including the 
French--and Secretary Kerry has talked directly to Foreign 
Minister Fabius about the trade delegation that went; it was a 
private business delegation, it was not a government 
delegation--about how this is not helpful in this regard, to 
ensure that, in fact, it is not business as usual; as Under 
Secretary Cohen said, Tehran is not open for business, because 
our sanctions relief is quite temporary, quite limited, and 
quite targeted--that, in fact, most of these delegations that 
are going, because we talk to them all, we tell them what are 
the limits of what they can do, that we will, in fact, go after 
them, that we will sanction them. Does not matter whether the 
countries are friend or foe; if they evade our sanctions, we 
will sanction them. We have all delivered that message, not 
just Treasury, but every department in our administration, in 
the executive branch, that, indeed, most of these delegations 
appear to be going to get themselves in line for the day that, 
in fact, a comprehensive agreement is reached, if it is 
reached. And we have told them all that they are putting their 
reputations, themselves, and their business enterprises at risk 
if they jump the gun.
    Senator Risch. Well, this is exactly why those of us who 
were critical of this at the beginning were so critical. The 
optics of this are such that the rest of the world says, ``It 
is back to business as usual.'' You can tell them what you want 
to tell them, but their acts indicate that they believe it is 
back to business as usual. That is the problem.
    Mr. Cohen.
    Mr. Cohen. I completely agree with Under Secretary Sherman, 
in terms of how we have been making certain that our partners 
around the world understand that whatever interest they may 
have in the Iranian market someday, that is not the market 
today; that what is available today in this Joint Plan of 
Action is extraordinarily narrow. It is limited, as I said, to 
petrochemical exports, to sale of goods to the auto sector, and 
some trade in precious metals. But, even that is substantially 
constrained. There is very limited economic potential today in 
the Iranian business sector. That is the point that we make 
over and over again in these engagements.
    That point, I believe, is getting through. We have not seen 
deals being done. But, even more importantly, what we have been 
absolutely clear about is that we will continue to enforce our 
sanctions. The implementation agreement on the Joint Plan of 
Action explicitly recognizes that we have the right and that we 
will fully enforce existing sanctions. And I think that message 
is one that we have communicated, over the years and more 
recently, in a pretty credible fashion.
    Senator Risch. Well, I understand that that is the message 
you are giving them. But, it sure does not look like they 
believe it, because they are acting entirely differently than 
what the message that you are giving them.
    Thank you, Mr. Chairman. My time is up.
    The Chairman. Thank you.
    Senator Murphy.
    Senator Murphy. Thank you, Mr. Chairman. Thank you both for 
being here today.
    I want to, frankly, associate myself with the opening 
comments of Senator Coons. It has been the robust pursuit of 
sanctions by this administration that has led us to a point 
today in which we have an opportunity, a chance, to achieve a 
peaceful resolution to this crisis.
    Under Secretary Sherman, as you know, I was in Munich this 
weekend, sat on a panel with Foreign Minister Zarif, and he 
made the laughable contention that Iran was at the table today 
for reasons having nothing to do with the sanctions policy. 
That being said, though no one in the audience believed it, 
there was a discussion there about the different trade 
missions, mainly of a private nature, that have gone to Tehran. 
And Secretary Kerry was there, pushing hard, as you mentioned, 
back on our partners to make sure that those were simply 
missions connected to potential future activities rather than 
undermining of these sanctions.
    And let me give you, just, my impression, and you tell me 
if I am wrong.
    The fact that there are groups going to Tehran or thinking 
about their potential future opportunities seems to me to have 
nothing to do with the interim agreement. To me, if we were to 
have entered into negotiations right away on a final 
settlement, the same thing would have happened. Once there was 
a window into potential normalized trade relations with Iran, 
there are going to be private entities that are going to start 
having those discussions. And so, the idea that there are some 
conversations happening about future trade opportunities seems 
to be a consequence of a negotiation beginning, whether or not 
there is an interim trade agreement in place. And I just want 
to, from both of you, understand if that is your impression.
    Mr. Cohen. I think that is exactly right, and it is--as I 
was saying earlier--it is what we have been hearing from these 
various trade promotion agencies, governments, the private 
industries that we have been talking to, is that they are not 
there, looking to do business today; what they are there for is 
to see what might come in the future, because there is some 
hope that these negotiations will produce a comprehensive 
agreement that brings with it substantial sanctions relief. 
But, that is down the road; that is not today.
    Ms. Sherman. I would agree with the Under Secretary and add 
one other thing which is a little counterintuitive. We hope 
people do not go to Tehran. That is our preference. But, those 
who go raise hopes that the Rouhani administration is going to 
have to deliver on. And the only way they can deliver on those 
hopes is a comprehensive agreement that we will agree to. And 
that means a verifiable assurance that they are not developing, 
creating, will have, obtaining a nuclear weapon. And so, 
although we do not want people to go, because we think it does 
send the wrong message, if they do go, it puts pressure, 
perversely, on the Rouhani administration, because, as far as 
we have seen today, there are not deals getting done, but, 
rather, people getting first in line, in the hope that someday 
there will be a deal.
    Senator Murphy. And to the extent that there is enormous 
economic opportunity in that country today, it is because of 
the crippling nature of the sanctions that have so gravely 
undermined the economy that there is such room for improvement, 
should the sanctions be partially or fully lifted.
    Under Secretary Sherman, just one additional question. We 
do have to pay attention to the internal political dynamics in 
the country, because it dictates whether or not they are 
actually going to be able to get a deal. Is there any new 
information about the length of the leash that Zarif and 
Rouhani have been given by the Supreme Leader? Is there any 
evidence that the hardliners, since the interim agreement have 
been signed, are winning or losing the internal battle to be 
able to allow for there to be domestic political support for a 
deal that is amenable to the United States to be achieved in 
this negotiation?
    Ms. Sherman. We constantly ask our intelligence community 
to update their assessment, and that is certainly an assessment 
we should share, and will share, with you all on an ongoing 
basis.
    I think there is no doubt that there are hardliners in 
Tehran. Sometimes that is overstated, for negotiating effect. 
But, it is real and substantial. And so, I think Zarif walks a 
fairly fine line.
    One of the things I think we all try to be conscious of is 
not to increase the space for the hardliners, while, at the 
same time, not allowing Tehran to overstate the politics they 
have to deal with.
    Senator Murphy. Thank you, Mr. Chairman.
    The Chairman. Senator Rubio.
    Senator Rubio. Thank you.
    So, let me describe what I think the leash is. And I do not 
think this takes a tremendous amount of any secret intelligence 
to arrive at it. I think the leash is--and I have stated this 
in our meetings before--go and see what sanctions relief you 
can get without giving up what we believe--Iranians believe is 
their inherent right to enrich. Because if they can keep that 
infrastructure in place, they are always one or two, three 
steps away from being a nuclear-armed power.
    So, here is where I am--need some clarification. Okay? 
According to the administration, we have not--as part of this 
Joint Plan of Action, have not recognized the right to enrich 
for the Iranian Government, nor do we intend to. The document 
does not say anything about recognizing a right to enrich 
uranium. But, in the letter from President Rouhani to the 
Supreme Leader, he states that the agreement includes, ``the 
formal recognition of the nuclear rights of Iran,'' implying 
that this acknowledges their right to enrich. He has said, 
``Under no circumstances''--Rouhani has said this publicly--
``Under no circumstances will there ever be a deal in which we 
agree to dismantle our enrichment capabilities.'' That is the 
line in the sand that he has drawn on the enrichment issue.
    Do we have a line in the sand on the enrichment issue?
    Ms. Sherman. Our line in the sand on the enrichment issue 
is that any comprehensive agreement should give us full 
confidence and assurance, in a verifiable manner, that Iran 
cannot obtain a nuclear weapon.
    Senator Rubio. Well, so then my question is, Is a 
capability to enrich, is that not, in and of itself, a 
significant--just the fact that you have the infrastructure to 
enrich at any level, is that not a critical capacity for a 
country that has a plan to have the option of going nuclear-
armed one day?
    Ms. Sherman. Every country has the potential for that 
capability, and if we dismantle--and I would hope we can; I do 
not know whether we will be able to--every piece of the 
infrastructure that Iran has, they would still have the 
knowledge. They cannot unlearn what they know. So, they would 
be able to reconstitute an enrichment program, they would be 
able to reconstitute their research and development, because 
their scientists cannot unlearn what they have learned how to 
do.
    So, what we are trying to do, Senator, in a comprehensive 
agreement, is to put in place the elements that will give us a 
verifiable assurance that they cannot obtain a nuclear weapon. 
And there are many paths to that end.
    Senator Rubio. You know, I understand their scientists will 
know how to do it, but you still need the infrastructure, you--
--
    Ms. Sherman. Sure.
    Senator Rubio [continuing]. Still need the facilities to--
--
    Ms. Sherman. Sure.
    Senator Rubio [continuing]. Enrich. And many countries have 
scientists that know how to do it, but they do not do it, 
including many of our allies. And so, we are now--potentially, 
the concern is, we are going to leave in place any sort of 
facilities that, when the world is distracted in 5 years on 
some other thing, they can move fairly quickly.
    Let me point something else out. Multiple countries have 
the ability to enrich, but they do not, because they obtain it 
from elsewhere, because they do not have these designs. And few 
countries that enrich also have a ballistic missiles program.
    So, let me ask you this question. U.N. Security Council 
Resolution 1929 contains a provision referring to their 
ballistic missile program. It prohibits them from acquiring an 
interest in any commercial activity in another state involving 
technology related to ballistic missiles, which you only build 
for the purposes of delivering a nuclear warhead, that level of 
expense that it brings. How is that going to be addressed? 
Because is that not a key component? In essence, if they retain 
a right and an infrastructure to enrich at 5 percent, but they 
are building ballistic missiles, then the only thing missing 
here is a quick ramp-up of the enrichment capability, and now 
they are a nuclear power.
    Ms. Sherman. Senator, I hope that Tehran listened very 
carefully to what you said, because we agree, it would be 
better for Iran to--if they want a civil nuclear program, to, 
in fact, bring the fuel in from the outside and not have an 
indigenous enrichment program. They would get better nuclear 
cooperation, they would probably get better price, lots of 
things might be better for them. And that will absolutely be on 
the table in the negotiations we have with them. Because you 
are quite right, there are plenty of countries who do this, who 
have dignity and pride and scientists and everything else they 
need for scientific and technological advancement. But, we have 
said, in the Joint Plan of Action, that, depending upon where 
we get in the comprehensive agreement, we are willing to 
consider a very limited, very intrusive, very heavily 
monitored, small, limited enrichment program, if it becomes a 
necessity. But, nothing is agreed----
    Senator Rubio. Right.
    Ms. Sherman [continuing]. Until everything is agreed.
    Senator Rubio. Well, then----
    Ms. Sherman. And on your point about ballistic missiles, 
indeed we have said that the U.N. Security Council resolution 
has to be addressed, and ballistic missiles capable of 
delivering a nuclear weapon are part of that consideration.
    And the last point I would make is, if we can get--and I do 
not know yet whether we will be successful--but, if we can get 
to the verifiable assurance that they cannot obtain a nuclear 
weapon, if we know they cannot have a nuclear weapon, then a 
delivery mechanism, important as it is, is less important.
    The Chairman. Senator Kaine.
    Senator Kaine. Thank you, Mr. Chair.
    When the interim deal was announced in November, it was 
timed in an interesting way. It was the same weekend where 
America was commemorating the 50th anniversary of the death of 
President Kennedy. And I was with many of my colleagues at a 
security conference in Nova Scotia when the deal was announced. 
And a great speech of Senator Kennedy's was running through 
many of our minds that weekend as television was discussing his 
career. It was the graduation speech he gave at American 
University a few months before he died, in the spring of 1963. 
He had started aggressive diplomatic efforts to try to reduce 
nuclear weapons and the nuclear competition between the United 
States and the Soviet Union, and he was heavily criticized as 
naive, foolish, a dupe, et cetera, for doing that. And he made 
a very aggressive case for the fact that part of American 
strength is strong diplomacy. And one of the phrases that he 
used in that speech--and I would recommend the speech to 
anyone, because it is a very interesting one that reads as if 
it was written today--is that, with all appropriate 
skepticism--and this is a direct quote--``we can still reduce 
tension without relaxing our guard.'' Aggressive diplomacy is 
needed to reduce tension, and aggressive diplomacy is needed to 
solve thorny problems, but we do not have to relax our guard.
    And I see what we are trying to do with Iran in that 
spirit. We all want exactly the same thing. We want Iran not to 
have nuclear weapons. We all will prefer if we can get to that 
end diplomatically rather than having to use military force. As 
a member of this committee, I recently cast a vote to use 
military force to enforce what I thought was a very important 
international norm. Iran should not have a nuclear weapon, and 
I will cast a vote to use military force, should that be 
necessary. But, everyone--everyone in this body, every one of 
our allies, every one of the P5, everyone throughout the 
world--would desire, if there is a diplomatic alternative, a 
diplomatic path to a nonnuclear Iran, that we pursue that 
path--whatever the chances of success, that we pursue that 
path.
    While we both want these things--a nonnuclear Iran and a 
preferred diplomatic resolution to this thorny question, rather 
than a military one--we have differences in tactics. And that 
is to be understood. And they are good-faith differences. They 
are good-faith differences. We are debating about a current 
piece of legislation, and some in this body support it, and 
some do not, in terms of the timing. Those who support it are 
not pro-war, those who oppose it are not soft on Iran or anti-
Israel. We have a difference in tactic about what is the right 
way to attain a diplomatic solution to a very thorny problem, 
the diplomatic solution that is the preferred solution.
    I am very clear-eyed about the Iranian threat, not only the 
nuclear threat, and not only the history of past events, but 
current events--human rights violations, as have been 
mentioned, and current practices that are bellicose and 
destabilizing of other governments in the region and beyond.
    And it is the case that the sanctions that Congress has put 
in place in so many--I have not been part of that legislation. 
I came here after the legislation was passed, but I can praise 
those who have been here for putting tough sanctions in place. 
The vote in 2011 was 100-to-nothing in this body, and the 
administration has been able to utilize sanctions to bring Iran 
to the table, because it has crippled their economy and 
isolated them in the international community.
    But, the sanctions are not enough to stop an Iranian 
nuclear program. And the one thing that I think you would say 
if you looked at the history is that the sanctions has crippled 
the economy, but, if anything, it has also, by making Iran 
isolated, accelerated their path to try to develop nuclear 
technology, for whatever purpose. And so, if we are going to 
stop that nuclear program and that quest for nuclear weapons, 
we have to either do it diplomatically or do it militarily.
    I support the sanctions, and I will easily and gladly vote 
for more if we cannot find an agreement. And I have some ideas 
about additional ones I want to raise, either with this panel 
or the second one.
    But, I do think that this Joint Plan of Action and the 
diplomatic efforts of the administration give us an historic 
opportunity that we cannot afford to put a crosswind into the 
middle of. The Joint Plan of Action and the interim agreement, 
in my view, from analyzing it and reading analysis done by many 
who are much smarter about me on this, slows and even reverses 
aspects--not all aspects, but critical aspects of the Iranian 
nuclear program, which sanctions alone has not been able to do. 
And it also provides this country and our partners and all of 
our allies and the entire world a better early-warning system 
about whether Iran is cheating. We get more time on the clock 
and a better early-warning system because of this deal.
    We have to give diplomacy a chance. We have to. I think 
aggressive diplomacy has been an underexercised American muscle 
in the last 15 years. We have to return to the kind of 
aggressive diplomacy that the Nation embraced when President 
Roosevelt--Teddy Roosevelt brokered the end of the Russo-
Japanese war, won a Nobel Peace Prize for doing so. Since that 
time, our strength has been measured, not just by our military 
strength, not just by our economic strength, but the strength 
of our moral example and the strength of our diplomat effort.
    And we can be appropriately skeptical. The President has 
been very candid, in talking to all of us, that it is maybe 50-
50 or whether we will find a deal that we will think would be 
sufficient. And, if we do not, of course there will be greater 
sanctions that we will put in place and that we will support. 
But, we have got to give diplomacy a chance, not only in this 
instance, but we have got to return to the tradition of 
aggressive American diplomacy that has been one of the very 
core elements of our power in the world. It has been 
underexercised, and I am glad to see we are getting back to it.
    And the last thing I will say, just quickly. There may be a 
day, when this deal does not work, that we do have to 
contemplate military action to stop Iran from getting a nuclear 
weapon. I do not think it is that hard to contemplate that we 
might be at that day at some point in the future. And, as I 
have said, I will state on the record right now, if there is no 
other way to stop Iran from getting a nuclear weapon than for 
us to engage in military action, hopefully with others, I am 
going to vote yes on that.
    But, in order for us to vote yes on that, we have got to be 
able to look our allies and our citizens, and especially the 
men and women that we would ask to fight that battle--we would 
have to be able to look them in the eye and tell them that we 
had exhausted every diplomatic effort prior to undertaking that 
significant step. We may have to undertake that significant 
step, but we should not do it if we leave diplomatic avenues 
unexplored.
    Let us make this negotiation about Iran's good faith, let 
us not make it about our good faith. Let us demonstrate our 
good faith and put them to the test of whether they are serious 
about ending their nuclear weapons program.
    The Chairman. Let me thank the Senator for his thoughtful 
comments. And maybe the administration can be enlightened to 
understand the difference between tactics and warmongering and 
fearmongering.
    Senator Flake.
    Senator Flake. I thank the Chair.
    And I appreciate the comments of my colleague from 
Virginia, and I share many of those sentiments. I have not 
signed on to the new sanctions bill, here. I believe that, if 
diplomacy can work, we ought to allow it to work.
    I have not appreciated some of the comments from the 
administration describing those who are in favor of a sanctions 
bill. They are implying that they are warmongering or that they 
have anything but the best motives. I think that everyone here 
wants the same thing. And, for the administration or others to 
describe people who have a different view, I think is unfair.
    But, for myself, I hope that these negotiations will work. 
There are some concerns that I have, just in terms of the 
specifics. One of the criticisms of the Joint Plan of Action, 
Ms. Sherman, is that it deals with known nuclear facilities in 
Iran, but it is a little bit unclear as to what will happen if 
we discover other facilities that were not known prior to this. 
How are they covered? Are they--would the term ``any new 
nuclear facility''--is that a new one or newly discovered? And 
what means do we have to try to find other facilities out 
there?
    Ms. Sherman. Thank you very much, Senator, and thank you 
for your comments.
    And, Senator Kaine, thank you very much for yours.
    And let me say, for the record, I do not believe any of 
you, and any Senator, any Member of the House, are warmongers. 
I do not believe that anyone prefers war. I understand how, as 
Senator Kaine described, as Jeffrey Goldberg, in his excellent 
piece, ``An Iran Hawk's Case Against New Iran Sanctions,'' 
describing how one gets to military action and the concerns 
that we have that tactical considerations may lead us to that 
choice. But, that is an issue of tactics, as you have pointed 
out, not an issue of intent, and not a characterization of any 
individual. So, I quite agree with that.
    In terms of new nuclear facilities, we meant exactly what 
the Joint Plan of Action says: There can be no nuclear 
facilities, either declared or undeclared. And if we find 
undeclared new nuclear facilities, then that is a cause of 
grave concern to all of us, because it would be against the 
compliance that is required for the Joint Plan of Action. I 
cannot today tell you what our response would be, but I would 
imagine it would be quite, quite concerning, and we would have 
to respond in a very forceful way.
    Senator Flake. All right.
    Do you have concerns that, if we were to impose new 
sanctions, that our partners, the P5+1, would strike their own 
deal and leave us out? Is that a possibility? Is that a concern 
that the administration has?
    Ms. Sherman. I think that is a possibility, of course. I 
think, more broadly, Senator, where our allies and partners in 
the world are concerned, one of the reasons the sanctions 
regime has been as effective as it has been is because people 
have climbed on board with us, particularly in our unilateral 
sanctions. Even when they do not believe in unilateral 
sanctions, and tell us so at every opportunity, they have, in 
fact, followed them, because dealing with the American banking 
system is so crucial to the economy of virtually every country 
in the world that they have complied even though they do not 
like them.
    And so, if we, in fact, do not give negotiations a chance, 
they have less of an incentive to stay onboard with that 
sanctions regime, and we could unwittingly create a rupture in 
that sanctions enforcement and sanctions regime, which is 
crucial to the kind of aggressive diplomacy that Senator Kaine 
was outlining.
    Senator Flake. Well, thank you. That has always been my 
feeling. Unilateral sanctions rarely work. There are certain 
areas, central bank sanctions on the financial sector, where we 
can certainly lead there, but we always run the risk of getting 
ahead of our allies or partners, somewhere where they will not 
go, and then the sanctions regime will unravel. Anybody who 
thinks that unilateral sanctions work very well, I would give 
you Cuba as Exhibit A for a long time of unilateral sanctions 
that simply have not produced the desired outcome. We need our 
P5+1 partners, and others, to participate with us here. And the 
stakes are obviously much higher in this regard.
    So, thank you for your testimony.
    The Chairman. Senator Durbin.
    Senator Durbin. Thank you very much.
    And I want to associate myself with the remarks of my 
colleague from Virginia. I thought he articulated my point of 
view in terms of the importance of these negotiations.
    Let me ask you a specific question. On the issue of 
enrichment capacity, it appears, at least at the outset, there 
is a divergent point of view, in terms of whether or not Iran 
can retain the enrichment capacity at the end of a successful 
negotiation process. Any enrichment capacity--not at weapons-
grade level, but any enrichment capacity. Would you address 
that?
    Ms. Sherman. Sure, Senator.
    There is no question it would be far preferable if Iran did 
not have an indigenous enrichment capability. They will always 
have the capability, because, as I said earlier, they cannot 
unlearn what they know, but in terms of actually having a 
program, it would be preferable if they got any fuel that they 
needed from outside sources--bought it on the open market, had 
international cooperation, international consortia. These would 
always be preferable routes to go.
    But, it may be that, at the end of a comprehensive 
agreement, we have allowed for consideration of a very small, 
limited enrichment program to meet practical needs, that would 
be highly monitored, highly verified, with intrusive 
inspections over a very long duration of time, as--potentially 
as part of a comprehensive agreement.
    But, what is very critical in the Joint Plan of Action is, 
nothing is agreed to until everything is agreed to. So, there 
is no prospect that Iran could even have such a small, limited, 
and highly monitored program without us agreeing to all of that 
verification, monitoring, and all of the other aspects that 
would be necessary for a comprehensive agreement, including 
addressing the U.N. Security Council resolution.
    So, we have a long way to go, here.
    Senator Durbin. Going back to Ronald Reagan's famous 
``trust, but verify,'' the verification process here involves 
IEAE inspectors now currently on the ground. And I believe you 
testified, before I arrived, that the reports coming back are 
at least encouraging, in terms of their access. Can you 
elaborate on that a bit? There are those who say there are 
things going on they will never be able to see and they will 
never be told about. And those things could be the most 
dangerous and threatening.
    Ms. Sherman. There will be no way, even with military 
action, to ensure that we know everything that there might be 
to know. That is true in any country. Both with IAEA 
inspectors, our national technical means, and other ways, we 
work to know as much as we possibly can know. And the 
verification and monitoring that we have put in place with the 
Joint Plan of Action increases our ability to know whether 
there are covert activities going on that we may not have been 
aware of, not only because we have greater access, daily to 
Natanz and Fordow, greater access to Arak, at least monthly, 
their plans for Arak, access to uranium mines and mills, access 
to their centrifuge production, all of which provide clues as 
to whether something is going on somewhere else, when we can 
look at the guts of all of these facilities.
    So, I think we have greatly increased our ability to know 
if there is something that is covert that is going on, but I am 
not going to kid this panel, this committee, or the world, to 
know that there is any way, ever, that any country can give you 
100-percent guarantee that we know everything.
    Senator Durbin. Thank you.
    Mr. Chairman, since my colleague from Illinois, Senator 
Kirk, has been part of the effort on enhanced sanctions, along 
with Senator Menendez, I want to join in the chorus that you 
have joined in, Ms. Sherman. I do not question for a moment the 
motives of anyone engaged in this. We all have the same goal: 
stop a nuclear Iran, keep Israel safe, stabilize and bring 
peace to the Middle East. I mean, these are goals we all share. 
And the approaches may be different.
    I have not signed on to this bill. My feeling is that, if 
these negotiations fail, there are two grim alternatives: a 
nuclear Iran, or war, or perhaps both. And I want to be able to 
say, at the end of the day, that we have exhausted every, every 
reasonable opportunity to negotiate an alternative, short of 
those two outcomes.
    I would also say that those of us on this committee may 
have a better appreciation for the public sentiment in America 
on this subject. The most. It was not that long ago that 
Senator Menendez convened us to discuss President Obama's 
request for military authority when we believed, and 
subsequently learned to be true, that there were massive stores 
of chemical weapons in Syria. I recall that debate, and I 
recall the public reaction to the suggestion that the President 
would even have the authority--not boots on the ground, but the 
authority to use any military action. The public sentiment was 
overwhelmingly negative. The vote on this committee was 10 to 
7. It was never brought to the floor, for obvious reasons.
    And I will just kind of back up Senator Kaine's comments 
earlier. If we believe, God forbid, that we are going to reach 
some awful alternatives in the future, and want the American 
people to stand by us, or even listen to us, we have to 
convince them that we have exhausted every available, 
reasonable opportunity to avoid conflict and avoid war. And I 
think that is why many of us believe we should give these 
negotiations an opportunity, even with the President's 
admonition that it is a longshot, or at least a 50-50 shot, of 
success.
    I thank you for your work.
    Thanks, Mr. Chairman.
    The Chairman. Let me thank the Senator for his remarks.
    And just a comment on the Syria vote, which I think was one 
of the finest moments of the committee. I will say that it is 
an example of having given the President authorization that 
gave him the power to go to Russia and negotiate an agreement 
to end the chemical weapons for which he had--in Syria--for 
which he had devised a redline. And, but from a position of 
strength, that likely would not have happened. And so, I think 
it is important to recognize that moment in history and what it 
teaches us.
    Senator Paul.
    Senator Paul. Thank you for your testimony.
    Ms. Sherman, does the administration consider itself bound 
to the comprehensive Iran sanctions of 2010 and 2012?
    Ms. Sherman. If you are talking about legislation that is 
been passed and signed by the President, of course.
    Senator Paul. In those sanctions, they allow for 
termination of sanctions once Iran has verifiably dismantled 
its military, nuclear, biological, chemical, ballistic missile, 
and ballistic missile launch technologies, as well as no longer 
being a state sponsor of terrorism. I would consider the 
administration bound, also, but realize that these are 
parameters. Even though you are asking to waive these acts, the 
waiver is 120 days, and you can keep asking. But, I would 
expect, though, that--and would hope--that that is not going to 
be the conclusion, that you just keep asking to waive these 
sanctions and do whatever you want, and that you are working--I 
am all for negotiation, but you are working on negotiation 
within the parameters of legislation that has been passed.
    My concern is--and this is a concern for the way 
legislation is written, and has been written, for many things--
is that we carve out exceptions and waivers for the Presidency, 
thinking, ``Oh, that is the only reasonable thing to do,'' but 
these waivers become so large that you can drive a truck 
through them, and they end up having no teeth, and we lose all 
teeth in any legislation.
    For example, I would give you Egypt. You know, we said, 
``Well, we are not going to give them aid unless they are a 
democracy.'' Well, turns out they are not very close to a 
democracy, but the administration stamps them as a democracy. 
And this happened before the coup, when it was not much of a 
democracy, and it is not much of a democracy now. We had 
legislation saying, ``You cannot get money when there is a 
military coup,'' and we passed legislation basically expanding 
that waiver to make it really have no teeth at all. And then, 
in the Omnibus, we ended up passing something that has no 
restrictions at all, basically, on continuing military aid 
after a coup.
    So, I think, really, that this is a big question, and it 
should be a big legislative question, when we consider how we 
write legislation and grant waivers, because I fully believe 
that, no matter what the testimony is, that the administration 
has shown the propensity just to do what they want, and that we 
may well go through waiver after waiver after waiver; in the 
end, we may get a negotiated settlement that really does not 
comply with the sanctions that have been written. So, if we 
want sanctions to have teeth, we want legislation to have 
teeth, I think we need to be concerned about how wide and 
expansive we make these waivers. And that is just a point I 
would like to make.
    But, I do like your comment that you say you do feel bound 
by legislation, and I hope that will continue to be true.
    The Chairman. Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman.
    And thank you both for being here.
    Under Secretary Cohen, recently you said that Iran is not 
open for business, pointing out that the majority of the 
sanctions remain in place. But yet, we have seen, as I think 
people have alluded to here, a great deal of interest on the 
part of some of our European partners in opening trade 
delegations with Iran. I sent a letter last week to Cathy 
Ashton, the U.N. High Representative, and to ambassadors of all 
of those countries which had expressed an interest in trade 
delegations, expressing my concern about the kind of message 
that that sends to Iran about where the international community 
is, relative to the lessening of sanctions. And I wonder if you 
could speak to whether these trade delegations actually do risk 
undermining our international sanctions regime. And is the 
appetite in Europe waning to continue to enforce the sanctions 
that we have in place?
    Mr. Cohen. Well, Senator, I have seen your letter, quite 
appreciate your letter, and completely agree with your letter. 
I think encouraging our counterparts in Europe--and elsewhere, 
for that matter--to show restraint, to recognize that the 
sanctions that remain in place are so comprehensive, so 
preclusive of doing real business with Iran today that it is 
not worth the effort to go to Iran to explore business deals 
now.
    Now, we see, of course, that some of these trade 
delegations are going. What we have seen is that they are 
exploring the possibility of deals if a long-term agreement is 
reached and there is substantial sanctions relief that comes as 
part of that.
    What we have been very clear about with our partners is 
that our preference is that businesses, trade delegations, 
trade promotion authorities, governments show restraint right 
now, that, in all events, no deals are struck now that violate 
the sanctions, and that if any of that occurs, we will respond 
vigorously in enforcing our sanctions.
    Senator Shaheen. Excuse me for interrupting, but can you 
also speak to what kind of a message it sends to Iran, these 
trade delegations, and whether that lessens their interest in 
continuing to negotiate at the bargaining table?
    Mr. Cohen. Well, I am wary of trying to get inside the 
psyche of the Iranians, but I will say that I think there is, 
perhaps, a mixed message that gets to the Iranians on this. On 
the one hand, it shows that there is an interest in the world 
in doing business, and for sure the Iranians are trying to 
elicit that interest. On the other hand, to the extent that 
these trade delegations convey the message that they are 
interested in business in the future, that--not today, but if 
there is a comprehensive deal--I would cite the remarks of the 
CEO of the Italian energy company, Eni, who, before he met with 
President Rouhani in Davos, made a statement that, he said, 
``The best way for sanctions to be lifted is for sanctions to 
be applied now, and that we are not doing business in Iran now, 
that we are looking, potentially, at the future, when there is 
a comprehensive deal.''
    I think that can create within Iran a dynamic, where the 
Iranian business community, which is desperate to re-engage 
with the world--they have been cut off from the world. I think 
Senator Murphy made a good point, that part of the interest, in 
Europe and elsewhere, in doing business with Iran is that the 
Iranian economy is performing so far below its capacity right 
now, because of sanctions, that there is a pent-up demand. And 
that demand----
    Senator Shaheen. Excuse me again for interrupting; I just 
want to get in a final question, which is about Russia and the 
suggestion that they would do an oil-for-goods deal with Iran, 
and what we are doing to try to and discourage that, and to 
discourage other potential countries who might be looking at 
that same kind of a deal.
    Mr. Cohen. We are, across the administration, working 
extraordinarily hard to ensure that there is no such deal that 
occurs.
    And Under Secretary Sherman wants to add----
    Ms. Sherman. If I may, Senator.
    On the Russia-for-oil, oil-for-bartered-goods deal that was 
in the newspapers, at all levels of our government, including 
at the highest level, we have raised our concerns quite 
directly with Russia about this, and Secretary Kerry has raised 
this, as have I, quite directly with Iran. And my own sense of 
this is, after a fair amount of clarity about this matter, that 
nothing will move forward at this time.
    We are very crystal clear that anything like such an 
agreement between Russia and Iran might have potential 
sanctionable action and would likely create tremendous rifts 
within the P5+1, which would make coming to a comprehensive 
agreement all the more difficult, if not impossible.
    So, we have been very clear. My own sense is, that is not 
moving forward at this time. And I think that if that is indeed 
the case, that we can continue to verify is the fact, that is a 
very good decision.
    Senator Shaheen. Thank you.
    The Chairman. Senator Markey.
    Senator Markey. Thank you, Mr. Chairman, very much.
    I understand that, during the 6-month period that began 
January 20, the IAEA plans to issue reports each month on 
Iran's compliance. I recall that, during the months leading up 
to the 2003 war in Iraq, inspectors reported on their 
activities much more frequently, sometimes as often as daily. 
Is it possible for you to request the IAEA to provide public 
updates on all activities within Iran at least on a weekly 
basis, which I think would give everyone a lot more confidence 
that there is no deception taking place on the part of the 
Iranian Government?
    Ms. Sherman. Thank you very much, Senator.
    We will certainly discuss your request with the IAEA. This 
is a very different circumstance than Iraq, in terms of the 
extent of the program and the particulars of this situation. 
The IAEA, as I said, will have daily access to Fordow and 
Natanz, as well as other surveillance means that are available 
to them, as well as at least monthly access to Arak and access 
to uranium mines and mills, centrifuge production, and rotor 
production plants. So, I think they will have great increased 
visibility, way beyond anything we have had, to date. But, we 
will certainly convey your thoughts.
    Senator Markey. I just think it would be very important for 
confidence-building, in the United States and around the world, 
that it be much more frequent than the IAEA has already 
announced it intends on making public. I think we all have a 
right to know that, since we are running the risk and the IAEA 
works for us and the world on this agreement. And I think we 
should have that information, on an ongoing basis. I think it 
would be very helpful.
    If the IAEA determines that there are compliance concerns, 
will you ensure such concerns are reported promptly to the 
American people and to Congress?
    Ms. Sherman. We will certainly take our responsibilities 
quite seriously of your oversight.
    Senator Markey. So, you will report----
    Ms. Sherman. We will make you--we will--as I said earlier, 
in the monthly reports we get, we will be glad to come up and 
do classified briefings.
    Senator Markey. So, I understand that weekly updates might 
not be comprehensive, but I think it is important that we get 
much more frequent briefings.
    The interim deal allows Iran to produce centrifuges for the 
purpose of replacing broken ones. Will inspectors be able to 
verify that particular centrifuges are, in fact, broken? Will 
the broken centrifuges be removed from the facilities and 
provided to IAEA inspectors for examination to confirm that 
they are actually no longer functioning?
    Ms. Sherman. I do not know the exact mechanism, Senator, 
and I will have our experts come up and give you a briefing on 
what exactly the IAEA will do. But, since, indeed, one of the 
details of the agreement is, they can only replace damaged 
centrifuges with centrifuges of the same kind, we have asked 
the IAEA to verify that is, indeed, what has occurred.
    Senator Markey. Yes. I think it is important that the ratio 
stay one-to-one, so the confiscation of the old centrifuges 
ensure that they just not go to a garage, get fixed 
immediately, and are now being installed----
    Ms. Sherman. We agree.
    Senator Markey [continuing]. In other places. I think it is 
very important for us to know that.
    The interim deal indicated that, in a final agreement, 
Iran's enrichment program would be restricted to mutually 
agreed parameters consistent with practical needs. Judging what 
Iran's practical needs are, of course, is in the eye of the 
beholder. One of their ministers has recently announced that 
they need many, many, many new nuclear power plants to generate 
electricity in their country. So, you were talking about the 
practical needs of the Iranians, earlier. A country that flares 
off 13 nuclear power plants equivalents of natural gas each 
year obviously does not have many practical needs for multiple 
new nuclear power plants to generate electricity. So, how are 
you going to determine that, what is practical? Because, 
obviously, there is a very high prevarication coefficient, 
historically, in Iran, and if they plan on building 10 to 20 
new nuclear power plants, their practical needs are going to be 
a vastly expanded nuclear enrichment program in their country, 
even if it is under tight safeguards.
    Ms. Sherman. Your point is very well taken, Senator. And, 
as I said, nothing is agreed until everything is agreed. So, 
their practical needs are certainly an element of consideration 
in a comprehensive agreement, but so are our concerns about 
their ability to have a nuclear weapon, which is primary, that 
they not obtain a nuclear weapon. And so, whatever the final 
agreement is, that is the assurance that is most of concern to 
us.
    Senator Markey. I appreciate that. But, again, if they 
build 10 new nuclear power plants, it would be a vast 
enrichment program they would have to have. And just the 
complications of monitoring such a program would be 
exponentially greater. And I just think that we have to keep 
that in our mind as we are going forward, because that is how 
they would actually crack this inspections regime in the years 
ahead, even if we got the comprehensive agreement.
    And finally, since the November agreement, have you seen 
signs of an uptick in Iran's support for proxies and allies 
around the Middle East? Do you have reason to believe that 
Iranians feel they now have greater leeway to intervene more 
aggressively in the region because of the agreement that has 
been reached on the nuclear program on an interim basis?
    Ms. Sherman. I think it would probably be valuable to have 
our intelligence community give you their assessment of exactly 
that question, because we have asked that question.
    I would point out that there was concern by many that they 
would take the first payment of $550 million and cycle that 
into support for Hezbollah in Syria. That does not appear to be 
the case, and we would be glad to give you the briefing on 
that.
    But, more importantly, I think you have seen in the news 
that Iran has visibly just provided food to those in their 
society that are poor, as a way of demonstrating quite directly 
that this limited, targeted, and temporary sanctions relief has 
a direct impact on the people in the country, which is what 
President Rouhani promised. He did not promise that money would 
be used for other purposes.
    Senator Markey. So, Senator Shaheen and others have raised 
this issue. A hundred French executives traveled to Iran 
yesterday to explore new economic openings. And the same is 
true for Russia, Germany, China, down the line. I just think it 
is very important for our administration to say to each of 
these countries that, if there is no comprehensive agreement, 
that, not only is the window going to be shut on this trade, 
and that the United States is going to sanction any of the 
businessmen who think they are going to cut deals, but that 
additional sanctions will be put in place, and that additional 
action will also, perhaps, have to be taken in order to make 
sure there is no nuclear program. And I think a clear, explicit 
statement of that would be very reassuring to people, just to 
know that there will be no games that are going to be allowed 
by any of these businessmen, and that they will be punished by 
the U.S. Government.
    Mr. Cohen. Senator Markey, I would just briefly say, that 
is precisely the message that has been conveyed in the 
engagements that we have had over the last several weeks, that, 
you know, there will be no sort of wavering in the enforcement 
of the sanctions. And also, if we have made the point that if a 
comprehensive deal is not reached, if, for instance, Iran feels 
that it does not need to reach a comprehensive deal because 
they can get sanctions relief through other means, through 
evasion or through trying to develop these sorts of business 
activities, that the net consequence of that to all of these 
businesses is going to be to their detriment. It will be much 
worse than what they face today. And I think that message is 
getting across.
    The Chairman. Let me thank you both for your testimony and 
engagement.
    I will have a series of questions for the record, including 
my understanding that, on the relief on oil purchases, 
countries may, in fact, purchase more than their last reduced 
amount. I would like to understand how we are working on that. 
And, Secretary Cohen, I will be watching to see your 
enforcement actions.
    With that, and with the thanks of the committee, you are 
both excused.
    Let me call up, as our panelists leave, our next panel: 
David Albright, who is the founder and president of the 
Institute for Science and International Security, and Mark 
Dubowitz, who is the executive director of the Foundation for 
the Defense of Democracies.
    As we have our witnesses depart and our new witnesses join 
us, let me say that both of your statements will fully be 
included in the record, and we would ask you to summarize them 
in 5 minutes or so, so that we could enter into a discussion 
with you.
    I would ask those who are leaving to please do so quietly 
so that the hearing can continue.
    It is the intention of the Chair to listen to this 
testimony, which I think is incredibly important to inform the 
committee's judgments as we move forward, and then to briefly 
recess to do our business meeting, which is held at 12 o'clock, 
and then come back, for those who want to ask questions.
    So, with that, Mr. Albright, please, you will start off.

 STATEMENT OF DAVID ALBRIGHT, PRESIDENT, INSTITUTE FOR SCIENCE 
           AND INTERNATIONAL SECURITY, WASHINGTON, DC

    Mr. Albright. Mr. Chairman, thank you, Ranking Member 
Corker and other members of the committee. Thank you again for 
inviting me.
    I think it is been made clear that the Joint Plan of Action 
has some significant benefits in the short run, but its success 
remains uncertain, pending the negotiation of long-term 
arrangements. And finally, the test of this Joint Plan of 
Action will be in negotiating these long-term arrangements, a 
process President Obama gives a 50-50 chance of success. And I 
think it has been made clear, although I would like to state it 
again, that a final agreement must create long-term, meaningful 
limits on Iran's nuclear program, combined with adequate 
verification sufficient to ensure that any attempt by Iran to 
build nuclear weapons would be detected in a timely manner and 
provide adequate time for an international response.
    I would like to, first, briefly say some of the things--or 
say two things about the interim agreement. One is, I do not 
think it is--I would like to at least say that it does 
accomplish certain things. I mean, one of the benefits of it is 
that it avoids a situation that was becoming very dangerous; 
namely, Iran moving toward very, very short breakout times. And 
it also adds to the clock, as others have mentioned, but I 
think it is the combination of those two things that needs to 
be pointed out.
    But, as others have stated, the agreement does have gaps. 
And I think one has been mentioned, on the centrifuge R&D. And 
thank you for mentioning that earlier, Chairman.
    Another one I would like to mention is that Iran can 
continue its illicit procurement activities. It is very 
dependent on outside supply for its centrifuge program, for the 
Arak reactor; and those efforts can continue; and that it is 
just essentially, a gap in the deal that cannot be avoided. And 
there are other problems with it.
    So, it really is just a short-term deal, that it should not 
be looked upon as something that should be extended. If it is 
extended beyond 6 months, Iran should demonstrate that it has 
made significant concessions by that point, that it is not 
just, in a sense, letting the clock run, and that they reach 6 
months and then it is just automatically extended.
    I think I will skip over the discussion on the 
weaponization. I think this committee understands, probably 
better than most, the absolute need for Iran to address the 
IAEA's concerns about past and possibly ongoing nuclear weapons 
programs. And I think that it is very important that the 
administration continue to stick to a clear policy that there 
will be no comprehensive solution if those concerns are not 
addressed in a very significant way.
    Now, on the comprehensive solution itself, there are two 
issues involved. One is adequate--or quick detection--or 
detection before Iran builds a nuclear weapon. But, I think, 
post the debate on Syria, there has to be enough time for an 
international response, whatever that is going to be.
    And I would add to that, 4 or 5 years from now, one cannot 
expect any administration to, in a sense, have their finger on 
the trigger, that whatever is put in place in the comprehensive 
solution has to provide adequate warning so military options by 
the United States are not necessary, that there has to be 
enough time so there truly can be an international response 
that would stop Iran, and, if the international response 
includes military actions, that that start through--as it was 
in the lead-up to the Iraq war in 1991. The United States was 
not having to act unilaterally.
    Now, in such a comprehensive solution, I think it is--we 
have talked a lot about the breakout times. I mean, at ISIS, we 
have recently put out a model comprehensive solution, which is 
available on our Web site, where we think the breakout times 
have to be at least 6 to 12 months. But, there are many other 
parts of this that need to be done. One is that its stockpile--
Iran's stockpile of low-enriched uranium, whatever form it is 
in--is much too large for a comprehensive solution, that having 
it up to what would be 300 kilograms equivalent of near-20-
percent low enriched uranium hexafluoride is not good, even if 
all that hexafluoride material has been turned into oxide. It 
can be reconverted.
    It is very important to block Iran's plutonium route to 
nuclear weapons. I think there is much greater agreement on 
that, that the Arak reactor needs to shut down--we would say, 
be upgraded to a modern, white water reactor. But, Iran has not 
accepted that at all.
    We also believe that there is a lot of work needed to 
develop constraints or provisions to limit or reduce Iran's 
ability to build secret facilities to enrich uranium or 
separate plutonium. Also, that Iran needs to commit to stopping 
its illicit procurements of goods for its nuclear programs, 
that that is often shuttled aside, as it was in the interim 
agreement, but I think it is critical, in a comprehensive 
solution, that Iran commit to do that, and that that be 
verified.
    And again, I think we believe that the duration of these 
constraints needs to be 20 years. Others have suggested even 
longer.
    And also, we would argue that the additional protocol, by 
itself, is not sufficient, that the term we use, that there has 
to be additional protocol-plus, which adds in several actions. 
And some of these actions were used by the IAEA in 2003 and 
2004, during the period of the suspension, to really get to the 
bottom of some of the duplicity of Iran.
    And also, I would like to point out that even the 
comprehensive solution, there is some work that needs to be 
done when the constraints end. I mean, let us say it is 20 
years. After 20 years, is all the constraints just removed and 
Iran is free, as Senator Markey mentioned, to pursue an 
enrichment program that would outfit 20 large commercial power 
reactors? I mean, are we going to feel comfortable, even then? 
So, I think that is a hole in it.
    And I would point out that if such a program, at least in 
some crude calculations that we have done at ISIS, would 
involve 2 million IR-1 centrifuges. So, I think there is a need 
to, as a last comment--and I apologize for going over--for the 
United States to be very clear about--that it wants a very 
limited program, and that it--and that, while it is talking 
about 20 years, the constraints would only come off if a set of 
criteria were met that guarantee Iran will not build nuclear 
weapons after that time.
    Thank you very much.
    [The prepared statement of Mr. Albright follows:]

                  Prepared Statement of David Albright

    The Joint Plan of Action (JPOA) negotiated between Iran and the 
United States and its partners in the P5+1 accomplishes a great deal in 
the short run, but its success remains uncertain, pending the 
negotiation of long-term arrangements. The JPOA's interim steps, which 
began on January 20, 2014, are technically sound and lengthen Iran's 
breakout time to make enough weapon-grade uranium for nuclear weapons, 
establish transparency over many previously opaque Iranian nuclear 
activities, and freeze and even temporarily reverse key portions of the 
nuclear program. The JPOA, however, leaves many key issues unsettled 
regarding a long-term, comprehensive solution.
    The test of the JPOA lies in negotiating these long-term 
arrangements, a process President Obama gives a 50-50 chance of 
succeeding. A final agreement must create long-term, meaningful limits 
on Iran's nuclear program combined with adequate verification 
sufficient to ensure that any attempt by Iran to build nuclear weapons 
would be detected in a timely manner and provide adequate time for an 
international response.
    To improve the chances of success, the United States needs to 
clearly state its goals and be willing to walk away from a bad deal, 
particularly also if the administration judges that a deal is unlikely 
in the face of Iranian delays and unreasonable demands. If a 
comprehensive solution cannot be negotiated by the end of the interim 
period, the United States should increase economic sanctions on Iran 
and move to further its political isolation, while avoiding military 
strikes. Given the relatively low chances of success, the United States 
would be prudent to plan for such a possibility today. Doing so would 
also reinforce a critical message to the international business 
community and other governments that this crisis is not over and 
sanctions have a 50-50 chance of being reapplied and strengthened.
                          limited interim deal
    For 6 months, Iran has pledged to halt advances in major parts of 
its gas centrifuge program and its Arak reactor. An important 
accomplishment is that Iran is committed to eliminating its most 
readily nuclear weapons-usable stock of near 20 percent low enriched 
uranium through dilution or conversion into oxide form. Iran has 
committed not to make, install, or stockpile centrifuges during the 6-
month period. It will not enrich in any of its approximately 1,000 
installed advanced IR-2m centrifuges at the Natanz Fuel Enrichment 
Plant. The IR-2m centrifuges are particularly problematic because they 
can enrich three to five times faster than Iran's first generation IR-1 
centrifuges, meaning far fewer are needed to make weapon-grade uranium 
for nuclear weapons. The International Atomic Energy Agency (IAEA) will 
have greater access to Iran's nuclear sites and information; overall 
transparency will increase significantly. All these conditions mean 
Iran's nuclear program will pose fewer risks in the short term.
    In particular, Iran would take longer to break out, namely divert 
its low enriched uranium and further enrich it to weapon-grade in 
sufficient quantities for a bomb. Once all the near 20-percent low 
enriched uranium is diluted or converted into oxide, the breakout 
times, if Iran used its currently installed centrifuges, would lengthen 
from at least 1 to 1.6 months to at least 1.9 to 2.2 months. This may 
seem a small increase but with IAEA inspectors visiting daily the 
Natanz and Fordow enrichment sites, this increase in breakout times 
would be significant and allow the United States and its allies more 
time to respond to stop Iran before it produces enough weapon-grade 
uranium for a bomb. For the first time since Iran's capability to break 
out began approaching dangerous levels this year, breakout times would 
lengthen rather than shorten.
    While the interim steps remain in place, Iran will be unable to 
reach the point where it has sufficient centrifuges and near 20 percent 
enriched uranium to break out and produce enough weapon-grade uranium 
for a bomb without being detected. ISIS calls this dangerous threshold 
``critical capability,'' and estimates that, absent a deal, Iran could 
achieve this capability in mid-2014. The interim deal, by eliminating 
Iran's stock of near 20 percent enriched uranium hexafluoride, will 
delay by many months Iran from achieving this destabilizing threshold, 
even if the constraints imposed by the deal end after 6 months.
    But the interim steps are not without problems. They are limited in 
nature and are all reversible. So, if no long-term comprehensive 
solution is reached, Iran could resume making near 20 percent low 
enriched uranium and installing more centrifuges. The IAEA monitoring, 
while improved, falls far short of what is necessary for a long-term 
agreement. Moreover, the increase in breakout times expected at the end 
of the 6-month period may be helpful but is woefully inadequate for the 
long term and must be lengthened significantly in any comprehensive 
solution.
    Iran can make progress on its nuclear programs during the interim 
period. An area that was not frozen in the interim deal is Iran's 
centrifuge research and development (R&D) program. The interim steps 
are not expected to seriously affect Iran's centrifuge research and 
development program. These steps may delay the final development of new 
centrifuges that have not yet used uranium hexafluoride at the Natanz 
Pilot Fuel Enrichment Plant. However, Iran can continue development of 
several existing types of advanced centrifuges, including the IR-2m, 
the IR-4, IR-6 and IR-6s.
    In particular, Iran can continue its development of the IR-2m 
centrifuges at the Natanz pilot plant under this loophole in the 
interim deal. It can enrich uranium in a production-scale cascade of 
164 IR-2m centrifuges. Since it remixes the enriched uranium product 
with the waste or ``tails,'' obtaining natural uranium, no enriched 
uranium is deposited into the product tanks. This remixing meets the 
``letter of the deal.'' However, Iran is able to measure the enrichment 
level of the product before remixing it. Thus, it can further develop 
the IR-2m centrifuge while hiding any results of its progress from the 
IAEA, which has access only to the product tank or the natural uranium 
and does not see the enrichment measurements. At the end of the interim 
period, Iran is likely to be far better positioned to deploy reliable 
IR-2m centrifuges on a mass-scale at its enrichment plants. This gain 
would allow Iran to make up for time lost more quickly.
    The weakness of the interim deal on centrifuge R&D needs to be 
fixed in the comprehensive solution. Any long-term deal needs to limit 
significantly Iran's centrifuge R&D program. An unlimited program would 
pose unacceptable challenges to a comprehensive solution. A centrifuge 
five to ten times more capable than the IR-1 centrifuge would require 
five to ten times fewer centrifuges to make the same amount of weapon-
grade uranium for nuclear weapons, allowing for much smaller 
facilities, fewer personnel, and procurement of less material. 
Centrifuge R&D could also lead to breakthroughs in materials or methods 
that would further strengthen a secret breakout effort and make both 
the implementation and verification of a comprehensive solution 
extremely difficult. More significant limitations on Iran's centrifuge 
R&D combined with greater transparency of this program need to be 
included in the final step of a comprehensive solution, given that 
Iran's development of more advanced centrifuges would greatly ease its 
ability to conduct a secret breakout to nuclear weapons.
    Another area not addressed in the interim deal is Iran's illicit 
procurement of goods from overseas for its centrifuge program, Arak 
reactor, and other nuclear programs. Iran remains highly dependent on 
acquiring from abroad a range of goods needed in its nuclear programs, 
such as carbon fiber, maraging steel, vacuum equipment, pumps, and 
valve-related goods, among many others. ISIS's illicit nuclear trade 
case studies contain many examples of this dependency and the smuggling 
methods Iran uses to obtain these goods. The studies also document many 
U.S. and allies' efforts to detect and stop these illegal procurements. 
During the interim period, particularly with weakening sanctions, Iran 
can focus on building up its supply of essential goods and alleviating 
bottlenecks in certain key goods, allowing for a much more rapid 
expansion of its programs at the end of the interim period.
    These problems will grow the longer the interim period lasts. As a 
result, the limitations of the interim deal require it to be viewed as 
only temporary. It is not a substitute for a long-term solution. This 
finite limit is essential to the integrity of the JPOA. By no means 
should the interim steps be seen as sufficient for a long-term 
resolution of the nuclear issue.
    The interim deal is intended as a 6-month measure. It can with 
mutual consent be extended for an additional 6-months for a total of 1 
year. But this extension should be avoided unless Iran has demonstrated 
significant progress on resolving core U.S. concerns. Delay works more 
in the favor of Iran than it does of the United States and its allies.
        addressing the iaea's concerns about military dimensions
    One issue that needs to be resolved before the finalization of a 
comprehensive solution is settling the IAEA's concerns about Iran's 
past and possibly on-going work on nuclear weapons and other alleged 
military nuclear activities. Iran has stalled on doing this for years. 
U.S. officials have stated that unless Iran satisfies all the IAEA's 
concerns there will be no comprehensive deal.
    During the last several months, Iranian officials, including 
President Hassan Rouhani and Foreign Minister Mohammad Javad Zarif have 
emphasized that Iran has never pursued or sought a nuclear bomb. 
Unfortunately, the available evidence provides little reason to believe 
them.

   The IAEA has considerable evidence of Iranian work on 
        nuclear weapons prior to 2004 and some evidence suggesting that 
        some of that work continued afterward and may continue today. 
        In its November 2011 safeguards report, the IAEA provided 
        evidence of Iran's pre- and post-2003 nuclear weaponization 
        efforts. The IAEA found, ``The information indicates that prior 
        to the end of 2003 [the activities] took place under a 
        structured programme. There are also indications that some 
        activities relevant to the development of a nuclear explosive 
        device continued after 2003, and that some may still be 
        ongoing.''
   Western intelligence agencies are united in assessing with 
        high confidence that Iran had a nuclear weapon program prior to 
        2004. They are less united about any such work after 2004. 
        Nonetheless, important allies Britain, France, and Germany all 
        assessed that nuclear weapons relevant work continued after 
        2003, albeit on a reduced scale.
   Few doubt that Iran is capable of making a crude nuclear 
        explosive today for use in a nuclear test, although doubts 
        remain that it can mount a reliable one on a ballistic missile.
   There is general agreement that the Iranian regime has not 
        made a decision to build a nuclear weapon. There is less 
        agreement whether Iran will refrain from building a nuclear 
        weapon in the future.

    The IAEA is scheduled to meet Iran on February 8, 2014, to discuss 
the next steps for Iran addressing the outstanding issues. Iran will 
need to allow the IAEA to visit several sites and interview a range of 
experts and officials in order to address its concerns.
    The IAEA has identified several sites to Iran, but so far Iran has 
refused the IAEA's requests to visit these particular sites. The most 
prominent is a site at the Parchin military complex that is alleged to 
have been involved in undertaking high explosive tests related to the 
development of nuclear weapons. After the IAEA asked to visit this site 
in early 2012, Iran undertook extensive excavation and reconstruction 
at this site, compromising the IAEA's ability to settle this issue. 
Iran will need to address the Parchin issue to the satisfaction of the 
IAEA, which will inevitably involve more than simply allowing a visit. 
Other sites include workshops that were involved in making mockups of 
missile reentry vehicles suitable to hold a nuclear warhead. An 
upcoming test of Iran's intentions will be whether it soon allows the 
IAEA to visit Parchin and conduct followup visits and interviews at 
other sites.
    If Iran is unwilling to detail its past efforts to build nuclear 
weapons, or at the very least acknowledge the existence of a program, 
it will undermine the credibility of statements about its present-day 
nuclear activities and intentions. If Iran wants the world to believe 
it will not hide its nuclear activities or build nuclear weapons in the 
future, the Iranian Government should reconsider its denials of ever 
seeking nuclear weapons in the past.
    The Iranian Government may reason that if it comes clean about its 
past activities, it will be punished by the international community. 
But other cases, such as South Africa, Brazil, and Libya, argue against 
such a response. The key is admitting these past activities as part of 
a process of placing strategic limitations on its nuclear programs and 
instituting far greater transparency. The IAEA and other governments 
can then develop confidence that Iran is not seeking nuclear weapons. 
But if Iran seeks to continue to hide its past military nuclear 
efforts, it may find that no amount of limitations and transparency on 
its current programs is enough to reassure the international community. 
Significant questions about its motives, such as a desire to maintain a 
latent breakout capability, will likely remain. The IAEA will be 
unlikely to be able to ever find that Iran is in compliance with its 
safeguards obligations, which remains a key criteria at the heart of 
the justification for international and regional sanctions.
    The Joint Plan of Action is structured to require Iran to satisfy 
the IAEA's concerns about the possible military dimensions of its 
nuclear programs prior to achieving a comprehensive solution. If Iran 
does not, then U.N. Security Council (UNSC) and U.S. economic sanctions 
should not be removed. In the case of UNSC sanctions, only one member 
state of the P5 need veto a resolution to prevent removing them, and 
this state would be fully justified since the IAEA's concerns about 
possible Iranian military nuclear programs are central to UNSC 
resolutions.
                         comprehensive solution
    In parallel to Iran/IAEA negotiations, the P5+1 will soon start 
negotiating the provisions of the comprehensive solution. The U.S. 
negotiators will face very tough resistance from Iran as they seek to 
achieve a long-term comprehensive agreement that will limit Iran's most 
dangerous nuclear programs and ensure adequate verification.
    The over-riding goal of the negotiations of a comprehensive 
solution is to establish a set of provisions, and associated 
verification measures, which if Iran agreed to them would protect the 
national security interests of the United States and its allies. The 
resulting limited nuclear programs and extensive verification measures 
would eliminate the risk of Iran breaking out to nuclear weapons at 
declared or covert nuclear sites without that effort being detected in 
a timely manner and without adequate time for U.S. and international 
responses that would prevent Iran from succeeding in that effort. This 
approach depends on the United States remaining ready for many years to 
take the steps necessary to prevent Iran from obtaining nuclear 
weapons.
    However, the need to depend on unilateral military options to deter 
or prevent breakout would not bode well for the acceptability of a 
comprehensive solution. Although such options are currently threatened 
as part of a U.S. policy to prevent Iran from gaining nuclear weapons, 
such a policy is not realistic or preferable as a long-term solution. 
Thus, there is a requirement for meaningful limits on Iran's nuclear 
capabilities that provide timely warning of any move by Iran to build 
nuclear weapons and greater assurances that Iran's nuclear program will 
be exclusively peaceful.
    The Joint Plan of Action does not grant Iran the right to enrich 
uranium, but it accepts that in a comprehensive agreement Iran will 
maintain a centrifuge program. However, Iran conceded that for a period 
to be agreed upon, any such program would be subject to limitations on 
the number of centrifuges, the location of any centrifuge plants, the 
level of enrichment, and the size of stocks of enriched uranium. It 
also agreed that the program must be consistent with ``practical 
needs'' within ``mutually agreed parameters.''
    In negotiating limitations on Iran's centrifuge and other nuclear 
programs and adequate verification requirements, the United States 
should be guided by several key principles, including:

   Extending breakout times significantly to at least 6-12 
        months, reflecting the numbers and types of centrifuges and 
        stocks of low enriched uranium under a comprehensive solution. 
        This requires that Iran remove over 14,000 centrifuges at the 
        Natanz and Fordow enrichment sites. In the longer term, a 
        fraction of these centrifuges would be stored or dismantled for 
        use as spares and the rest would be destroyed;
   Reducing and limiting Iran's stockpiles of enriched uranium 
        and natural uranium. In the case of near 20 percent low 
        enriched uranium, these stocks would need to be further reduced 
        from the level expected at the end of the interim period;
   Blocking Iran's plutonium route to nuclear weapons;
   Reducing significantly Iran's ability to build secret 
        facilities to enrich uranium or separate plutonium;
   Ensuring that Iran commits to stopping its illicit 
        procurements of goods for its nuclear programs;
   Achieving that any limits on Iran's nuclear programs have a 
        duration of at least 20 years
   Implementing adequate verification that goes beyond the 
        Additional Protocol; and
   Conditioning any end to U.N. Security Council and U.S. 
        economic sanctions on Iran addressing all of the IAEA's 
        concerns, in particular those about Iran's past and possibly 
        on-going nuclear weapons efforts.

    The following are a list of provisions that would meet the above 
principles and form the basis of a comprehensive solution able to 
protect adequately national security interests. For more detail, the 
reader is referred to a recent ISIS report on the necessary elements of 
a comprehensive solution. For background information, the reader is 
referred to the main ISIS Web site and its Iran-specific Web site.
                 conditions without a defined duration
   The Arak reactor complex will be upgraded to a light water 
        reactor using low enriched uranium fuel.
   Iran will not reprocess any irradiated fuel or build a 
        facility capable of reprocessing.
   Iran will not enrich above 5 percent in the isotope uranium 
        235, and will not produce stocks of enriched uranium that 
        exceed in quantity the needs of its civilian program, noting 
        that it has long term LEU fuel delivery agreements with Russia 
        and would be expected to have additional ones with foreign 
        reactor vendors after the conclusion of a comprehensive 
        solution.
   Iran will commit not to procure goods for its nuclear 
        programs abroad in a manner that is considered illicit 
        (``illicit nuclear trafficking or trade'').
     conditions and parameters with a defined duration of 20 years
   Iran will have only one enrichment site, the one at Natanz. 
        The Fordow site will be shut down or converted into a non-
        centrifuge-related site.
   Centrifuge research and development will only be conducted 
        at the one enrichment site. All centrifuge testing, with or 
        without nuclear material, will occur at this site. Centrifuge 
        research and development will be limited to centrifuges with 
        the theoretical equivalent enrichment output of no more than 
        five separative work units in kilograms uranium (swu) per year. 
        This is about the level of the IR-2m centrifuge.
   Major centrifuge component manufacturing and storage 
        locations will be limited in number and identified.
   Centrifuge assembly will occur only at the one enrichment 
        site.
   The number and type of centrifuges will be limited to ensure 
        that breakout times are measured in many months and will be a 
        minimum of 6 to 12 months at all times.
   In order to define a cap in practical terms, it is necessary 
        to first consider the case where only IR-1 centrifuges are 
        enriching at the Natanz Fuel Enrichment Plant. In the case of a 
        6-month breakout time, a cap on total number of IR-1 
        centrifuges at the Natanz site is derived from the condition of 
        the historical IR-1 centrifuge operations at the Natanz Fuel 
        Enrichment Plant and the size of Iran's residual stock of 3.5 
        and near 20 percent LEU. The estimated cap is about 4,000 IR-1 
        centrifuges in the case of a breakout estimate of 6 months and 
        fewer centrifuges in the case of a 12-month breakout estimate.
   Because Iran may seek to replace the IR-1 centrifuges with 
        more capable ones, a more general enrichment cap is derived 
        from the cap on IR-1 centrifuges developed above and is 
        approximately 3,600 swu/year. This value serves as a general 
        enrichment cap regardless of the actual enrichment capacity of 
        any centrifuge that would replace the IR-1 centrifuge in the 
        future. If Iran deployed IR-2m centrifuges, for example, the 
        parties would need to agree upon an average centrifuge 
        enrichment value before deriving the number of IR-2m 
        centrifuges needed to produce 3,600 swu/yr. For example, if an 
        IR-2m centrifuge has an average enrichment output of 4 swu per 
        year, then the cap would be 900 IR-2m centrifuges. If Iran 
        deploys any other enrichment technology, such as laser 
        enrichment, it and any centrifuge plant would need to have a 
        total enrichment output at this cap or below.
   In the case of the IR-1 centrifuges, centrifuge 
        manufacturing would be limited to the replacement of broken 
        centrifuges, if no spares exist (see below). For example, in 
        the case of IR-1 centrifuges, a stock of many thousands of 
        uninstalled centrifuges would be stored and then drawn upon to 
        replace broken ones. Thus, Iran would agree not to build any 
        IR-1 centrifuges until this stock is exhausted.\1\ Centrifuge 
        manufacturing of new centrifuges in the case of the IR-2m 
        centrifuge, if used for enrichment at the Natanz Fuel 
        Enrichment Plant, would be unnecessary, at least initially, 
        because any broken ones could be drawn from a surplus stock of 
        them. In the case of new centrifuges, Iran will not build more 
        centrifuges than allowed to be installed under the above 
        enrichment cap of 3,600 swu/year and would build more only to 
        replace broken ones.
---------------------------------------------------------------------------
    \1\ Broken centrifuges will be replaced with centrifuges of the 
same type. This should mean, for example, that an installed IR-1 
centrifuge would be replaced with an IR-1 centrifuge of the same design 
and enrichment capability as the one removed. A broken centrifuge is 
defined as one that has a rotor assembly incapable of spinning under 
power and cannot be repaired.
---------------------------------------------------------------------------
   When the long-term agreement takes effect, centrifuges and 
        all associated cascade equipment in excess of the cap would be 
        turned off, so that no centrifuges are operating and the 
        cascades are not under vacuum. Centrifuges would be turned off 
        in a controlled manner so as to limit centrifuge damage.
   Right after the comprehensive solution is implemented, 
        excess centrifuges and the cascades containing them would be 
        disabled in a manner so as to require at least one month to 
        restart any disabled cascades.
   Excess centrifuges and associated cascade piping and 
        equipment will be scheduled for removal from Natanz and Fordow 
        and stored under IAEA monitoring. These centrifuges and 
        associated cascade items will be stored at an agreed-upon site 
        under IAEA monitoring, pending their use as replacements of 
        broken centrifuges and cascades or their destruction under 
        monitoring.
   Iran will not build any conversion lines that can convert 
        enriched uranium oxide into hexafluoride form.
   LEU stocks will be limited, based on a realistic civil 
        justification.

        With regard to near 20 percent LEU, Iran will not possess 
            any such LEU in hexafluoride form and its total stock in 
            unirradiated oxide form including in fresh fuel elements 
            and assemblies, will be less than the equivalent of 100 kg 
            of near 20 percent LEU hexafluoride soon after the start of 
            the implementation of the comprehensive solution. It has 
            the equivalent of approximately 310 kg near 20 percent LEU 
            hexafluoride, ignoring additional production in the last 
            few months. A priority is achieving a reduction of the 
            stock soon after the start of the implementation of the 
            comprehensive solution to no more than the equivalent of 
            100 kg of near 20 percent LEU hexafluoride. During the 
            implementation period, this stock will be reduced further 
            to below the equivalent of 50 kg of near 20 percent LEU 
            hexafluoride.
        Iran will not possess more than the equivalent of 20 
            tonnes of unirradiated, less than 5 percent LEU 
            hexafluoride, almost all of which should be in oxide form. 
            Of this total LEU inventory, Iran will possess no more than 
            1.5 tonnes LEU hexafluoride at any one time; in essence 
            this cap requires Iran to convert LEU hexafluoride into 
            oxide form.
        LEU in excess of these caps will be blended down to 
            natural uranium or shipped abroad for storage or fuel 
            manufacturing. In practice, this step is likely to be 
            necessary only if Iran does not find a way to use this LEU 
            in reactors during the next decade.

   Uranium mining, milling, and conversion facilities will be 
        limited in throughput to the actual need for enrichment or 
        other mutually agreed upon use.
   At the beginning of the period of the comprehensive 
        solution, a procurement channel will be established for items 
        needed in Iran's nuclear programs. The list of items will be 
        established by mutual agreement and will include major nuclear 
        facilities, nuclear components, nuclear and nuclear-related 
        dual-use goods, and other sensitive items such as those on 
        watch lists. Procurements of listed items outside this channel 
        will be banned and considered illicit nuclear trade. This 
        condition will also have the benefit of more clearly 
        identifying procurements from North Korea to Iran as illicit. 
        Iran will declare to the IAEA the key exports received and 
        these items will be subject to IAEA verification.
   Iran will not export or otherwise transfer nuclear 
        materials, reactors, centrifuges, reprocessing equipment, other 
        nuclear facilities or equipment, or the means to make such 
        equipment or facilities to any state, company, or other entity. 
        \2\
---------------------------------------------------------------------------
    \2\ A model condition developed by ISIS: The state of concern 
agrees not to transfer to any state or entity whatsoever, or in any way 
help a state or entity obtain, nuclear weapons or explosive devices, or 
components of such weapons; nuclear material; nuclear know-how or 
technology; or equipment, material, goods, technology designed for, 
prepared for, or that can contribute to the processing, use, or 
production of nuclear materials for nuclear weapons or in sanctioned 
nuclear programs.
---------------------------------------------------------------------------
   By the end of the period in which the comprehensive solution 
        will be in force, Iran will implement an export control system 
        in line with the requirements of the four main export control 
        regimes (lists and guidance) and submit a comprehensive report 
        to the 1540 Committee on Iran's implementation of the 
        resolution. Iran will also commit not to export or otherwise 
        transfer reprocessing or enrichment technologies or goods to 
        any state or nonstate actor after the comprehensive solution 
        period ends.
                         adequate verification
    The provisions in a comprehensive solution require intrusive 
verification of Iran's nuclear program aimed at ensuring that Iran's 
declarations are correct and complete and developing confidence in the 
absence of undeclared nuclear facilities and materials. The latter 
condition must include sufficient verification measures to detect the 
construction and operation of secret gas centrifuge plants, a daunting 
task in the best of circumstances.
    Certain key aspects of the verification arrangements are already 
clear. One overriding condition that will need to be accepted by Iran 
is what is commonly called the ``Additional Protocol Plus'' or ``AP 
Plus.'' This condition recognizes that, despite its central importance, 
the Additional Protocol (AP) by itself is necessary but not sufficient 
to verify any comprehensive solution. The other elements that would 
comprise the ``Plus'' need to be further developed, but some have been 
identified in general. One element is the verification of centrifuge 
manufacturing, including the declaration and verification of key raw 
materials and components. The declaration needs to include the origin 
and amounts of key raw materials and the total number of major 
components, including the number held in stock, the number manufactured 
or procured, and their fate. Another element is the verification of 
uranium obtained abroad and produced domestically; e.g. in uranium 
mines and mills. A third area is the verification of any key 
facilities, materials, and components associated with the former 
military dimensions of Iran's nuclear programs. This step, once put in 
place, would depend on Iran already having satisfied the IAEA's 
concerns about the military dimensions of its nuclear programs. A 
fourth step is that Iran would agree to provide the IAEA with details 
of past and future imports, exports, and uses of key items listed under 
INFCIRC 254 part 1 and 2 and other critical goods that are used in 
Iran's nuclear programs.
             goal of negotiations of comprehensive solution
    As I have underlined, the over-riding goal of the negotiations of a 
comprehensive solution is eliminate the risk of Iran breaking out to 
nuclear weapons at declared or covert nuclear sites without that effort 
being detected in a timely manner and without adequate time for U.S. 
and international responses that would prevent Iran from succeeding in 
that effort. In return for these concessions and adequate verification, 
the United Nations Security Council, the United States, and allied 
countries should in a phased and reversible manner lift the economic 
sanctions currently in place against Iran.
    An adequate comprehensive solution will depend on the United States 
and its allies now making clear to Iran what is required of it. Thus, 
this is indeed a pivotal moment. If the two sides are not able to 
negotiate an agreement, the P5+1 needs to be prepared to reestablish 
and increase economic sanctions on Iran. That eventuality needs to be 
prepared for today.




    The Chairman. Thank you. I look forward to your testimony, 
which I have fully read, is very important, and I look forward 
to the Q&A to flush out the nature of what such a long-term 
agreement would be.
    Mr. Dubowitz.

STATEMENT OF MARK DUBOWITZ, EXECUTIVE DIRECTOR, FOUNDATION FOR 
             DEFENSE OF DEMOCRACIES, WASHINGTON, DC

    Mr. Dubowitz. Great. Well, thank you, Chairman Menendez, 
Ranking Member Corker, members of the committee. Thank you for 
inviting me to testify. It is an honor, also, to be testifying 
alongside David Albright.
    We have heard the argument, administration officials have 
said very clearly, Iran is not open for business. Meanwhile, 
the Iranian President, the head of the nuclear program, Salehi, 
are sending the opposite message, including at Davos, most 
recently. Now, the administration is confident that this 
sanctions architecture that you have put in place is not going 
to erode. And President Obama claims, ``It is not going to be 
hard for us to turn the dials back or strengthen sanctions even 
further.''
    Who is right? Well, regrettably, I think the administration 
may be miscalculating. We are already seeing the early stages 
of an in-term shift in market sentiment. This is something that 
has been unintentionally but, I think, predictably triggered. 
The JPOA package, estimated by the administration at $7 
billion, may not sound like a lot, but, prior to the agreement, 
it is important to understand, Iran had fully accessible 
overseas cash reserves of only $20 billion. That $7 billion 
infusion, therefore, represents a 35-percent increase in Iran's 
reserves. Moreover, the $7 billion number does not account for 
the psychological impact on market sentiment. Sanctions are 
predicated upon a strategy of escalation, where an ever-
expanding web of restrictions spook foreign businesses. Fear 
triumphed over greed as companies viewed Iran as literally an 
economic minefield.
    But, the tide is slowly starting to turn. While the 
administration blocks new sanctions in waiting legislation, it 
provides sanctions relief in key sectors of the Iranian 
economy, like energy, automotive, petrochemical, precious 
metals, and aviation. And this unwittingly sends a message that 
Iran's economy is opening up.
    These changes have sparked the beginnings of a modest, 
tentative, albeit fragile, recovery, as demonstrated by key 
economic indicators. And facts are stubborn things. So, let us 
review this.
    Iran's GDP dropped by over 4\1/2\ percent in 2012-2013, 
when the toughest sanctions hit. The IMF and World Bank now 
estimate that GDP will increase by about 5 percent from 2014 to 
2016.
    Iran's currency, a weathervane for the health of the 
Iranian economy, dropped by almost 75 percent between 2010 and 
2012. But, actually, it has increased by 46 percent since 
Rouhani's election, and it has increased 18 percent since the 
announcement of the JPOA.
    There has been a dramatic drop in inflation, from an 
official rate of 40 percent and an unofficial rate of over 60 
percent in 2012 to a much more manageable rate of 20 percent, 
and falling. The Tehran stock exchange, which reflects investor 
confidence, has almost doubled since Rouhani's election. And we 
have talked about all the trade delegations that have gone from 
Europe. In fact, the New York Times says there have been more 
in the first 2 weeks of 2014 than all of 2013.
    Turkey's Prime Minister was just in Iran, and he recently 
pledged to increase bilateral trade with Iran to $30 billion by 
2015. And foreign companies already are flocking back to the 
Iranian auto sector. That is the object of some relief. That 
sector, in 2011, before sanctions hammered the industry, 
contributed 700,000 jobs and almost $50 billion to Iran's 
economy. It is the second-largest sector in Iran, after energy.
    Petrochemical sanctions relief opens up even greater 
opportunity for a sector that, before the JPOA, accounted for 
the largest source of Iran's nonoil exports. And, Chairman 
Menendez, you mentioned this earlier. The suspension of oil 
export reductions is taking pressure off Iran's oil sector, 
which was in danger of irreparable losses from the forced 
closure of oil fields. Iran, in fact, is going to save over $14 
billion in oil, fuel oil, and condensate revenues that it 
otherwise would have lost over the next 6 months.
    Now, already the White House and the administration is 
being challenged by our partners. We have talked about the 
Russian-Iran deal. Senator Shaheen, you are right, it is an $18 
billion oil-for-goods deal. And that arrangement, which the 
White House acknowledges as sanctionable, tests Washington's 
will to enforce sanctions. And it may be worth even more than 
$18 billion if it is exploited as an illicit finance scheme.
    And we have precedent for this. The Turkey-Iran gas-for-
gold scheme, which occurred between 2012 and 2013 without 
adequate administration enforcement, allowed Iran to reportedly 
gain access to over $100 billion. I am also hearing from 
sources that Iran may be using gold to actually finance the war 
in Syria. This may be, again, an unintended consequence of 
relaxing precious metals sanctions. Now, if Washington cannot 
stop this Russia-Iran deal after failing to crack down on the 
massive Turkish scheme, what signal does it send to others?
    The administration is further cementing the impression of 
an Iranian economy open for business by blocking S. 1881, 
which, if passed, would have leant credibility to the 
administration's message and to have helped reverse market 
psychology.
    However, my concern, that even these tough sanctions in 
waiting that would have worked today, may be insufficient in 6 
to 12 months if Iran is on pace for a sustained economic 
recovery, if it has made progress on nuclear weapon and 
ballistic missile development, and if Iran's leaders are 
unwilling to conclude an acceptable deal. Then President Obama 
may discover he cannot turn sanctions on and off like a dial. 
Then the administration and Congress will need to impose a 
comprehensive financial and trade embargo, within weeks, or 
risk losing all economic leverage to stop Iran's nuclear-
weapons breakout capability. Congress needs to prevent Iran 
from engaging in endless negotiations and legislate clear 
parameters and a strict timeline for such a nuclear deal. That 
work needs to begin immediately with the administration.
    Thank you very much for inviting me to testify.
    [The prepared statement of Mr. Dubowitz follows:]

                  Prepared Statement of Mark Dubowitz

    Chairman Menendez, Ranking Member Corker, members of the committee, 
on behalf of the Foundation for Defense of Democracies (FDD), thank you 
for inviting me to testify today on the implementation of the Joint 
Plan of Action with Iran and the impact of sanctions relief on the 
negotiations over Iran's illicit nuclear program. I am honored to be 
testifying alongside David Albright, whose work I hold in the highest 
regard.
                              introduction
    Following the announcement of the Joint Plan of Action (JPOA) and 
the signing of the implementation agreement, Obama administration 
officials have repeatedly stated that, despite the ``limited, 
temporary, and reversible'' sanctions relief,\1\ Iran is ``not open for 
business,'' \2\ that the United States is not significantly easing 
sanctions on Iran,\3\ and that existing sanctions will be enforced in a 
``very aggressive manner.'' \4\
    At the same time, Iranian President Hassan Rouhani has been 
aggressively courting foreign companies, including at a recent 
appearance before the global business and political elite in Davos, 
Switzerland.\5\ Iran's nuclear chief, Ali Akbar Salehi, has boasted, 
``The iceberg of sanctions is melting while our centrifuges are also 
still working.'' \6\
    Despite this, the Obama administration and its European allies are 
confident that, with the Geneva agreement that addresses Iran's illicit 
nuclear program having been implemented on January 20, 2014, their 
carefully constructed Iran sanctions' architecture will not be eroded--
that is, until they decide to lift the toughest sanctions in exchange 
for a final nuclear agreement.
    Their argument is this: Should Iran renege on the deal, the limited 
concessions the United States and other world powers are offering Iran 
in exchange for the dismantling of its illicit nuclear program are 
easily reversible. They are also adamant that the total value of 
sanctions relief is only $7 billion. ``It's not going to be hard for us 
to turn the dials back or strengthen sanctions even further,'' 
President Obama claims, adding that he would ``work with Members of 
Congress to put even more pressure on Iran, but there's no reason to do 
it right now.'' \7\
    Regrettably, the administration and its allies may be 
miscalculating on these fronts as my testimony outlines. Bijan 
Khajehpour, a Vienna-based Iranian investment manager close to the 
Iranian Government, noted ``the beginnings of a `gold rush' mood in 
Tehran.'' \8\ Whether or not that view is yet fully justified, he has 
correctly identified the early stages of a shift in market sentiment 
that the interim agreement unintentionally but predictably 
triggered.\9\
    Although the Obama administration is correct that most sanctions 
measures remain in place, recent macroeconomic trends, changes in 
market sentiment, economic gains in specific sectors subject to 
sanctions relief, and worrying signals of large-scale sanctions-busting 
by U.S. partners indicate that economic pressure on the Iranian 
Government is diminishing. If Iran's economy recovers, the pressure on 
Iran's leaders to follow through on a nuclear deal lessens. At that 
point, President Obama may discover that he has lost negotiating 
leverage and can't turn sanctions off-and-on like a ``dial.''
    The Obama administration has already dispatched Treasury's top 
sanctions official, David Cohen, to global capitals to convey the 
message to policymakers and the business community that nobody should 
rush to Tehran just yet.\10\ There are no more able and committed 
public officials than Under Secretary Cohen and his sanctions 
enforcement team. But can they restore fear in the international 
markets and prevent a psychological shift, both inside and outside 
Iran, which weakens American negotiating leverage?
    The Obama administration is further cementing the impression of an 
Iranian economy that is open for business by blocking the Nuclear 
Weapon Free Iran Act, legislation cosponsored by 59 Democratic and 
Republican Senators and a House bill that passed in July 2013 by a vote 
of 400-20.\11\ Senators have tried to strengthen the administration's 
hand by introducing ``sanctions-in-waiting'' legislation to keep a 
Sword of Damocles over international markets, to enforce Iranian 
nuclear compliance, and to impose an economic cost on Tehran if its 
continues its terrorist and ballistic missile activities.
    The proposed legislation would lend credibility to the 
administration's message--that this is the wrong time for companies to 
go streaming back into Iran. It would also impose a heavy price on 
sanctions-busters who bet prematurely that Iran will comply with its 
Geneva nuclear commitments, not launch or support terrorist attacks 
directly or by its proxies against Americans, not test intermediate-
range or long-range ballistic missiles that threaten America and our 
allies, and meet the international community's requirements for an 
acceptable deal within 12 months.
    With the White House committed to blocking any new congressional 
measures, the Obama administration is making a bet that it can prevent 
the unraveling of the sanctions regime and maintain a strong 
negotiating hand to peacefully resolve the Iranian nuclear crisis. That 
is a dangerous bet, particularly when miscalculation could mean the 
most dangerous state sponsor of terrorism in the world getting its 
hands on the world's most lethal weapon.
              the dollar value of direct sanctions relief
    The Obama administration values the Geneva sanctions relief package 
at approximately $7 billion. The relief package allows for the release 
of $4.2 billion in cash from frozen oil revenues; sanctions relief on 
Iran's auto sector, petrochemicals sector and precious metals trade 
(valued by the administration at $1.5 billion); civilian aircraft parts 
relief; $400 million in Iranian Government tuition assistance for 
Iranian students studying abroad; and the opening of financial channels 
to facilitate humanitarian transactions.\12\ The package also includes 
the suspension of congressionally mandated significant reductions in 
crude oil purchases during the interim period.
    An infusion of $7 billion into Iran's troubled economy might not 
sound like a lot in today's world. Indeed, the administration has 
argued that this direct sanctions relief is small and of little 
importance for a country with an economy of $1 trillion (GDP in 
purchasing power parity terms; under $500 billion in nominal GDP) and 
foreign reserves worth $100 billion.\13\
    These numbers, however, do not accurately reflect the full value of 
the actual sanctions relief. Prior to the agreement, Iran had fully 
accessible overseas cash reserves of only $20 billion.\14\ The 
remainder of the $100 billion was tied up in frozen or semiaccessible 
escrow accounts. As a result, the $7 billion infusion into Iran's 
economy represents a 35 percent increase in Iran's fully accessible 
foreign exchange reserves.
                   the psychology of sanctions relief
    The $7 billion in sanctions relief also does not account for the 
psychological impact that the Geneva deal and sanctions relief is 
having on markets, business, and investors. The impact of sanctions has 
always been as much psychological as it has been legal. The efficacy of 
sanctions is predicated upon a strategy of escalation, and a perception 
of high risk, where an ever-expanding web of restrictions effectively 
spooked foreign business from investing in, or trading with, Iran. Fear 
triumphed over greed as companies viewed Iran as an economic minefield.
    Before November 24, 2013, when the framework agreement was signed 
in Geneva, even those who could conduct legitimate business with 
Iranian counterparts were hesitant to do so. Driven by fear of economic 
loss and legal sanctions, they viewed the risks as too high.
    But the tide is now turning. Though many legal restrictions remain 
in place, greed is starting to overcome fear. Sanctions barriers, in 
key sectors of Iran's economy like energy, automotive, petrochemical, 
and aviation, have been significantly reduced or suspended. The White 
House has blocked new congressional sanctions legislation, sending a 
signal that it is no longer pursuing a strategy of sanctions 
escalation, at least for now. This creates a general impression abroad 
that the White House's resolve is waning, and that the risks of doing 
business with Iran are diminishing.
    This impression has already improved the economic climate, 
resulting in some illegitimate deals as companies test the waters.\15\ 
With the expectation of further sanctions relief soon, others 
businesses might now take risks they would not even contemplate as 
recently as 3 months ago. I discuss examples of both below.
    The message from Washington is muddled: on the one hand the United 
States is releasing billions of dollars and lifting sanctions on key 
Iranian economic sectors. On the other hand, it is telling the business 
community that no one should rush back to Iran since the limited 
sanctions relief on offer is only for 6 months.\16\ Despite these 
warnings, the JPOA itself contemplates a 12-month negotiating period. 
It also is not unreasonable to assume that, if more time is needed, the 
Obama administration could agree to further extend the diplomatic 
process for additional 6-month periods and offer additional sanctions 
relief to keep the Iranian Government at the table. As a result of this 
muddled message, businesses are looking to get back into the Iranian 
market ahead of their competitors in ways that may ultimately undermine 
the sanctions regime.
    As a result of the current confusing environment created by the 
administration's policies, in order to maintain the efficacy of 
existing sanctions, Washington will have to sanction foreign sanctions-
busters, even from P5+1 partners like Russia and China, our European 
allies, or key Middle Eastern countries such as Turkey. Already, as 
discussed below, companies from some these countries have challenged 
Washington's will to enforce existing sanctions.
                  market recovery and investor outlook
    There has been an undeniable shift in market psychology, both among 
Iranian businesses and those companies looking to do business with 
Iran. The change in Iranian consumer and investor sentiment is 
reflected in Iran's economic performance as reflected in modest GDP 
growth, a marked increase in the value of Iran's currency, a 
significant drop in inflation, and a sharp increase in the value of 
Iran's stock exchange.
    The Iranian economy has shown signs of modest growth and 
stabilization since Rouhani's election in June 2013. Indeed, Iran has 
been on a modest recovery path since its annus horribilis of 2012 and 
the first half of 2013, when the Iranian economy was hit with an 
asymmetric shock from sanctions targeting the Central Bank of Iran, 
Iranian oil exports, access to the SWIFT international banking system, 
the National Iranian Oil Company, shipping and insurance, key sectors 
of the Iranian economy, and precious metals, amongst others. The poor 
economic management of the Iranian economy by the Mahmoud Ahmadinejad 
government further exacerbated these sanctions-induced shocks.
    Key economic indicators of Iran's economic malaise and their 
subsequent recovery are discussed below.
Gross Domestic Product
    Iran's economy was hammered by tough sanctions measures through 
2012 and early 2013. The World Bank estimates that Iran's GDP shrunk by 
2.9 percent in 2012 and 1.5 percent in 2013.\17\ Iran's current account 
balance as a percentage of GDP also dropped steeply from 2.8 percent to 
-0.9 percent as its oil revenues fell sharply.\18\
    The Institute of International Finance, which draws on data 
released by the Central Bank of Iran, estimates that real Iranian GDP 
contracted 5.6 percent between April 2012 and March 2013, and nominal 
GDP fell to as low as $381 billion.\19\
    But, Iran's economy is starting to recover as the most significant 
effects of the sanctions imposed in 2012 and early 2013 have been 
absorbed. Although Iran's economy remains weak, it has begun to 
stabilize and adjust rather than deteriorate further. According to the 
World Bank's ``Global Economic Prospects'' report, Iran's real GDP is 
expected to grow by 1 percent in 2014, 1.8 percent in 2015, and another 
2 percent in 2016.\20\ Similarly, the International Monetary Fund 
estimates Iran's economy will grow by 1.28 percent and 1.98 percent in 
2014 and 2015, respectively.\21\
    While it is likely that a more competent economic team under 
Rouhani would have mitigated the severity of the impact of further 
sanctions, the new Iranian President and his team have benefited from a 
less difficult sanctions environment than their predecessor. Sanctions 
are de-escalating, direct sanctions relief is flowing, and new 
sanctions, at least for the next 12 months through the Geneva interim 
period, seem unlikely.
Exchange Rate
    A key indicator of the economic climate in Iran, and overall 
investor and consumer confidence, is the value of the rial. The black-
market rial exchange rate experienced a 3-year free fall from 10,440 to 
the dollar in January 2010 to a rate of 41,000 in October 2012, 
representing a loss of almost 75 percent. Since Rouhani's election, 
however, the black-market exchange rate increased from 36,300 on June 
15, 2013 (election day) to 24,865 (as of January 29, 2014).\22\ This 
represents a more than 46 percent increase in the value of the Iranian 
currency since Rouhani's election.
    Since the announcement of the JPOA on November 24, 2013, the black-
market exchange rate has increased from 29,300 to 24,865 (as of January 
29, 2014), representing a 18 percent increase in value. Some experts, 
who see the rial as an important ``weather vane'' for the health of the 
Iranian economy, have now taken the rial off their list of ``troubled 
currencies,'' while acknowledging, ``Rouhani's economic progress in 
Iran is tentative and likely quite fragile.'' \23\
Inflation
    Rouhani claims that his administration has brought down the 
inflation rate from 43 percent to 28.8 percent.\24\ The Statistical 
Center of Iran recently announced that the official inflation rate for 
the 2013 calendar year was 35 percent,\25\ down from the 40 percent 
official year-on-year inflation rate that Iran faced before the Geneva 
talks in November,\26\ and a sharp drop from Iran's estimated 62 
percent unofficial monthly inflation rate in October 2012.\27\ On a 
quarterly annualized basis, inflation now has fallen to about 20 
percent as a result of the stabilization in the rial.\28\ The 
significant reduction in Iran's punishing inflation rate is further 
evidence that Iran's economy may be stabilizing from the deep recession 
of 2012.\29\
Tehran Stock Exchange
    Since Rouhani's election, there has also been a surge in the Tehran 
Stock Exchange (TSE), representing renewed investor confidence. The TSE 
index almost doubled from 45,000 to over 80,000 points.\30\ After 
peaking at 89,000 at the beginning of January, the index has lost 7 
percent and fallen to 81,905 by January 26,\31\ although it appears too 
early to tell whether this drop indicates a renewed decline in investor 
confidence, a minor correction, or fear of corruption and insider 
trading. Another possible explanation for the modest drop is that the 
recent loosening of financial restrictions is providing Iranians with 
more investment opportunities, and so they are diversifying their 
portfolios and moving money elsewhere.\32\
Trade Delegations and Future Investments
    As the market psychology shifts from fear to greed, companies that 
previously shied away from Iran are eyeing possible openings and re-
openings. Companies that were afraid of the financial and reputational 
risks associated with doing business in Iran are reevaluating.
    Since December 2013, Tehran has received trade delegations \33\ and 
parliamentary missions from more than a dozen countries, all expressing 
interest in business opportunities in Iran. According to The New York 
Times, Iran hosted more European delegations in the first 2 weeks of 
2014 than in all of 2013.\34\ German companies, which exported around 
$2 billion in goods to Iran in 2013, are looking to ramp up their 
Iranian activities along with their Dutch, Austrian, Italian, French, 
and other European competitors.\35\ And on a visit to Tehran at the end 
of January, Turkish Prime Minister Recep Tayyip Erdogan pledged to 
increase bilateral trade to $30 billion by 2015,\36\ with a particular 
emphasis on increasing Turkish exports to rebalance a Turkish trade 
deficit with Iran valued at $4 billion in the 12 months ending August 
2013.
    The Director General of Iran's Trade Promotion Organization, 
Mehrdad Jalalipour, noted a 70 percent increase in participation in 
trade fairs in October and November compared to the previous year.\37\ 
Hotels throughout Tehran are reportedly ``fully booked by businessmen 
from Germany, the U.K., [and] other European countries,'' \38\ notes 
Sarosh Zaiwalla, the London-based lawyer who represented Bank Mellat in 
its judicial challenge against EU sanctions. Chambers of Commerce are 
organizing seminars to help make connections and advance business with 
Iran.\39\ While it will take some time for these activities to generate 
significant economic activity, they are paving the way for future 
Iranian growth.
Sanctions Relief Case Study #1: Iran's Auto Sector
    The JPOA grants sanctions relief to Iran's embattled auto sector, 
the second-largest sector of the Iranian economy after energy. Prior to 
the imposition of U.S. sanctions, Iran's auto sector was a major source 
of export earnings, industrial production and assembly, employment, and 
GDP. Specifically, the auto sector employed some 700,000 Iranians, or 4 
percent of the total Iranian workforce,\40\ and accounted for about 10 
percent of Iran's GDP,\41\ or about $50 billion.\42\
    The U.S. imposed sanctions on the Iranian auto sector on June 3, 
2013,\43\ because of the dominant role played by Iran's Islamic 
Revolutionary Guard Corps (IRGC) in its control of Iran's major auto 
companies, Khodro, Saipa, and Bahman.\44\ At the time, according to CBS 
News, Obama administration officials identified the auto sector as an 
important source of both revenues and dual-use equipment for the 
Iranian regime and its IRGC-controlled nuclear and ballistic missile 
programs.\45\
    White House spokesman Jay Carney described the auto sanctions and 
other measures as, ``part of President Obama's commitment to prevent 
Iran from acquiring a nuclear weapon, by raising the cost of Iran's 
defiance of the international community.'' \46\
    The impact of these sanctions was significant. The imposition of 
automotive sanctions, the rapid increase in inflation, and the 
financial and economic sanctions that had already taken their toll, 
further hammered the sector. According to the Washington Post, auto 
production dropped by 40 percent, after its global ranking had already 
fallen from 13th to 21st in just 2 years.\47\
    The decline was so dramatic that Iranian-born economist Mehrdad 
Emadi of the U.K.-based Betamatrix International Consultancy stated 
that the ``sector has really been close to collapse because they 
haven't been able to import the latest capital equipment.'' \48\
    Sanctions relief afforded by the JPOA could now reverse this rapid 
decline in both Iranian auto production and exports, alleviating 
pressure on the Iranian regime and the IRGC.
    American sanctions on ``Iran's auto industry, as well as sanctions 
on associated services,'' like insurance, transportation, and financial 
services, are being suspended, according to the JPOA.\49\ The White 
House estimates that easing auto industry sanctions will yield Iran 
only $500 million over the 6-month interim period.\50\
    The $500 million valuation appears to be derived from expected 
revenue from exports of Iranian cars. However, it does not account for 
the total impact of a revived auto sector on the Iranian economy, 
including cars produced for the domestic market, wages paid, and other 
economic activity.
    Automotive sanctions have impacted much more than just Iranian 
export revenue. According to the Associated Press, these sanctions have 
led to ``some 100,000 Iranian auto workers'' being laid off, and plants 
running ``at less than half their capacity.'' \51\ With Iranian auto 
companies reportedly unable to receive parts from their foreign 
suppliers, the Financial Times reported that Iran's two largest state-
run carmakers, Iran Khodro and Saipa, were ``suffering from 
overstaffing--or `hidden unemployment,' as the domestic media call it--
due to the decline in output.'' \52\ In July 2013, an Iranian 
automotive representative noted that production units had been forced 
to lay off between 30 percent and 50 percent of their workforce.\53\
    Sanctions relief, then, is likely to generate direct economic value 
for the Iranian economy and billions in earnings for the blacklisted 
Revolutionary Guards. Any recovery in such a critical sector that 
recently generated about $50 billion annually for Iran's economy will 
have a multiplier effect on recovered jobs, wages paid, GDP growth, and 
improved investor and consumer confidence. Indeed, employment in the 
auto sector could prove to be the most politically visible form of 
sanctions relief for Rouhani, who has promised to revive Iran's 
struggling economy.
    The projected growth of the domestic Iranian auto sector is 
attracting significant interest from global auto manufacturers in 
returning to partnerships with Iranian auto companies. Shortly after 
the signing of the JPOA, Iran held an international automotive 
conference attended by representatives from German, Indian, Japanese, 
and South Korean auto companies.\54\ As a result of the JPOA, press 
reports indicated that this conference garnered great interest.\55\
    Global auto companies are now poised to reenter Iran and renew 
business relationships.\56\ Major auto manufacturers that formerly 
invested in the Iranian auto sector, such as France's PSA Peugeot 
Citroen and Renault SA, have expressed optimism that they will be able 
to reap significant benefits in the coming months. Indeed, Renault has 
already resumed shipments to Iran's domestic auto company Iran Khodro, 
while both Renault and Peugeot Citroen are reportedly interested in 
resuming vehicle assembly and sales with local Iranian partners.\57\
    These companies understand that Iran's auto sector is poised to 
experience even greater growth on the horizon. An October study by the 
Boston Consulting Group assessed that Iran had the ``theoretical 
potential to attain an impressive 1.5 million in new-vehicle sales by 
2020, which would make it the third-largest Beyond BRIC market.'' \58\ 
Such production would be ``on par with Canada's 2012 car sales and well 
ahead of Italy's,'' according to Canada's Globe and Mail.\59\
    The White House could be correct that Iran's auto sector will only 
generate $500 million in revenue over the next 6 months. Export revenue 
growth may be limited by the existing sanctions that complicate 
international transactions. Growth could be further hindered by the 
slow ramp-up required in domestic production. And loopholes on 
insurance, transportation, and banking transactions could be closed by 
rigorous enforcement. More broadly, given the depreciation of the 
overall Iranian economy, it is highly unlikely that the auto sector 
could return soon to its peak levels, when it was contributing about 
$50 billion in annual GDP to Iran's overall economy.
    But the suspension of automotive sanctions will undoubtedly 
generate additional economic benefits for Iran, beyond what was 
stipulated in the JPOA. It is inconceivable that the Iranian automotive 
sector will fail to contribute to increased GDP over the next 6 months 
through production, domestic sales, wages paid, and other economic 
activity beyond the administration's estimate of $500 million in export 
revenue.
    Even if Iran's auto sector contributed only 10 percent of the 
sector's previous $50 billion annual contribution in GDP to Iran's 
overall economy, that would be worth $2.5 billion in additional 
economic activity over the next 6 months. In this way, Washington may 
end up providing far greater economic benefits to the Iranian 
Government, and to the IRGC, than has been asserted.
Sanctions Relief Case Study #2: Iran's Petrochemical Sector
    The JPOA provides sanctions relief to Iran's petrochemical sector. 
According to an August 2013 ``Business Monitor International'' report, 
Iran exported $11.2 billion last year in petrochemical products, and it 
projects an increase of another $1 billion next year.\60\ With the 
lifting of petrochemical sanctions, there is already renewed confidence 
in the sector. Since October 1, 2013, the market value of companies in 
this sector surged from $25 billion to $34 billion due to the gains on 
the Tehran Stock Exchange, the rial appreciation, and the suspension of 
U.S. sanctions.\61\ Between the middle of October and the beginning of 
December, the sector grew nearly 40 percent, with a significant spike 
occurring after November 17 when the P5+1 first appeared to be close to 
signing an interim deal with Iran.\62\
    While an increase in the market valuations of these companies 
doesn't necessarily mean an increase in real economic activity, and 
they could face reversals, it does suggest increased investor and 
consumer confidence in a sector that, by the volume of total 
production, grew by 22 percent for 2 years in a row between 2011 and 
2013 and is projected to grow by almost 10 percent between 2013 and 
2014 and by 10.6 percent between 2014 and 2015.\63\ In fact Iranian 
customs data shows that even before the JPOA, petrochemicals were the 
largest of Iran's nonoil exports in dollar terms.
    Growth in Iran's petrochemical sector is particularly problematic 
because the largest companies in the industry are owned or controlled 
by Iran's Islamic Revolutionary Guards Corps (IRGC), the Iran 
Government, and the Supreme Leader.\64\ In fact, of the 14 
petrochemical companies that had been sanctioned but are now permitted 
to do business abroad, Iran's Supreme Leader Ali Khamenei controls 
three through his Setad business empire.\65\ The IRGC is the second-
largest shareholder in the industry after the Iranian Government 
itself.\66\
Sanctions Relief Case Study #3: Iran's Oil Exports
    Iran's oil exports have rebounded nearly 60 percent from historic 
lows of 761,000 bpd in October 2013, to 1.2 million bpd in January 
2014.\67\ This should be of particular concern to this committee, given 
its involvement in congressionally mandated oil market sanctions 
against Iran.
    The JPOA suspended U.S. oil sanctions, which required current Iran 
customers to significantly reduce their Iranian oil purchases to 
qualify for an exception to sanctions. Instead, the JPOA allows oil 
sales at current levels, which had already flatlined at around1 to 1.2 
million barrels per day (bpd). This suspension is taking pressure off 
Iran's oil sector, which had been close to running out of storage 
capacity for its production surplus and was in danger of incurring 
irreparable losses stemming from the forced closure of oil fields if 
further reductions were enforced.
    The $7 billion in sanctions relief valuation does not include the 
value of this suspension of U.S. oil sanctions over the next 6 months. 
FDD estimates that this concession is worth between $4.5 and $5 billion 
in oil revenue that Iran would have otherwise lost had the significant 
reduction sanctions continued to be enforced.\68\
    Technically, this money would be required to be paid into largely 
restricted escrow accounts, only available to Tehran to fund bilateral 
trade with its oil buyers. However, recent revelations from Turkey 
raise questions about how airtight these restrictions really are. The 
Turkey-Iran ``gas-for-gold scandal'' (discussed below) revealed how 
Iran was able to circumvent these restrictions to access billions of 
dollars through middlemen and allegedly corrupt Turkish officials.
    The $4.5 to $5 billion in projected oil revenue noted above also 
does not include the real possibility that Iran will successfully 
circumvent the remaining oil sanctions by selling additional crude 
under the table. In fact, Rouhani's 2014 budget, which he recently 
submitted to Iran's Parliament, is based on the assumption that Iran 
will sell 1.5 million bpd or approximately twice October 2013 
levels.\69\
    Additionally, Iran is likely to benefit from sanctions relief in 
related sectors. Under the Geneva agreement, Iran also benefits from 
regaining access to affordable insurance policies for the 
transportation of its oil and other goods.\70\ Insurance premiums on 
legal shipments will not only go down, but there also is a reasonable 
chance that Iran will manage to insure more than it is allowed to 
export.
    The reduced transaction costs may lead to additional boosts in 
exports, or at least reduce the oil price discount that Iran had to 
offer and the insurance premiums that Iran had to pay to sell its 
crude. The suspension of shipping and insurance sanctions also means 
that Iran now can cease to rely on foreign-owned vessels to transport 
goods, freeing up shipping capacity to deliver its oil.
Sanctions Relief Case Study #4: Iran's Financial Sector
    The JPOA's relaxation of specific sanctions related to specific 
financial services is of particular value to Iran. Although this 
provision of the JPOA is supposed to benefit only ``specified foreign 
banks and nondesignated Iranian banks,'' \71\ the IRGC, Supreme Leader 
Ali Khamenei, and the Iranian Government own at least 70 percent of the 
banking sector.\72\ Sanctioned entities own many of the smaller banks 
not traded on the Tehran Stock Exchange.\73\ This banking channel not 
only is likely to boost trade, but also reopens a window into the 
international financial system that Iran had been denied through U.S., 
European, and U.N. sanctions.
    Furthermore, the EU has authorized a tenfold increase in its 
authorized threshold--from =40,000 to =400,000--for transactions with 
banks in Iran.\74\ Vigorous enforcement by the European Union as well 
as by the U.S. Treasury will be necessary to ensure that Iran does not 
exploit loopholes--as Tehran appears to have done with Turkey's state-
owned bank Halkbank, Turkish gold traders, and middlemen to access more 
than $100 billion in an elaborate ``gas-for-gold'' scheme.\75\
A Case Study in Sanction Enforcement Failure: Gas-for-Gold \76\
    Turkey's Islamist government is being rocked by the most sweeping 
corruption scandal of its tenure. Roughly two dozen figures, including 
well-connected business tycoons and the sons of top government 
ministers, have been charged with a wide range of financial crimes. The 
charges ballooned into a full-blown crisis on December 25 when three 
ministers implicated in the scandal resigned,\77\ with one making a 
dramatic call for Prime Minister Recep Tayyip Erdogan to step down.\78\
    The drama surrounding two personalities was particularly notable: 
Police reportedly discovered shoeboxes containing $4.5 million in the 
home of Suleyman Aslan,\79\ the CEO of state-owned Halkbank. 
Authorities also arrested Reza Zarrab,\80\ an Iranian businessman who 
primarily deals in the gold trade, and who allegedly oversaw deals 
worth almost $10 billion last year alone.\81\
    The gold trade has long been at the center of controversial 
financial ties between Halkbank and Iran. Research conducted in May 
2013 by the Foundation for Defense of Democracies and Roubini Global 
Economics revealed the bank exploited a ``golden loophole'' in the 
U.S.-led financial sanctions regime designed to curb Iran's nuclear 
ambitions.\82\
    The scheme was elaborate, yet straightforward. The Turks exported 
some $13 billion of gold to Tehran directly, or through the UAE, 
between March 2012 and July 2013. In return, the Turks received Iranian 
natural gas and oil. But because sanctions prevented Iran from getting 
paid in dollars or euros, the Turks allowed Tehran to buy gold with 
their Turkish lira--and that gold found its way back to Iranian 
coffers.
    This ``gas-for-gold'' scheme allowed the Iranians to replenish 
their dwindling foreign exchange reserves, which had been hit hard by 
the international sanctions placed on their banking system. It was 
puzzling that Ankara allowed this to continue: The Turks--NATO allies 
who have assured Washington that they oppose Iran's military-nuclear 
program--brazenly conducted these massive gold transactions even after 
the Obama administration tightened sanctions on Iran's precious metals 
trade in July 2012.\83\
    Turkey, however, chose to exploit a loophole that technically 
permitted the transfer of billions of dollars of gold to so-called 
``private'' entities in Iran. Iranian Ambassador to Turkey Ali Reza 
Bikdeli recently praised Halkbank for its ``smart management decisions 
in recent years [that] have played an important role in Iranian-Turkish 
relations.'' \84\ Halkbank insists that its role in these transactions 
was entirely legal.\85\
    The U.S. Congress and President Obama closed this ``golden 
loophole'' in January 2013.\86\ At the time, the Obama administration 
could have taken action against Halkbank, which processed these 
sanctions-busting transactions, using the sanctions already in place to 
cut the bank off from the U.S. financial system. Instead, the 
administration lobbied Congress to make sure the legislation that 
closed this loophole did not take effect for 6 months--effectively 
ensuring that the gold transactions continued apace until July 1. That 
helped Iran accrue billions of dollars more in gold, further 
undermining the sanctions regime.
    In defending its decision not to enforce its own sanctions, the 
Obama administration insisted that Turkey only transferred gold to 
private Iranian citizens.\87\ The administration argued that, as a 
result, this wasn't an explicit violation of its Executive order.
    In the 1-year period between July 2012, when the Executive order 
was issued, and July 2013, when the ``golden loophole'' was finally 
closed, the Obama administration's nonenforcement of its own sanctions 
reportedly provided Iran with $6 billion worth of gold. That windfall 
may have been an American olive branch to Iran--extended via Turkey--to 
persuade its leaders to continue backchannel negotiations \88\ with the 
United States, which reportedly began as early as July 2012.\89\ It 
could also have been a significant sweetener to the interim nuclear 
deal eventually reached at Geneva, which provided Iran with another $7 
billion in sanctions relief.
    Indeed, why else would the administration have allowed the Turkish 
gold trade to continue for an extra 6 months, when Congress made clear 
its intent to shut it down? The ongoing corruption investigation in 
Turkey could provide a window into some nagging questions about the 
gas-for-gold scheme. Indeed, it could help explain why the Turkish 
Government allowed Iran to stock up on gold while it was defiantly 
pursuing its illicit nuclear program--and whether or not the Obama 
administration could have done more to prevent it.
Case Study on Sanctions Enforcement Challenge: Russian-Iranian Oil-for-
        Goods Deal
    With gas-for-gold in the rear view mirror, Moscow is now posing a 
similar challenge to the U.S. sanctions regime. Reuters recently 
revealed a lucrative and illegal oil-for-goods deal between Russia and 
Iran. The proposed deal, worth possibly $1.5 billion per month or $18 
billion annually, would include Russian purchases of up to 500,000 bpd 
of Iranian oil--boosting Iranian exports by as much as 50 percent--in 
exchange for Russian equipment and goods.\90\ The deal would ease 
further pressure on Iran's battered energy sector and at least 
partially restore Iran's access to oil customers with Russian help. And 
those sums don't include the potential for further Iranian-Russian 
illicit finance and sanction-busting schemes that the deal could 
provide, including the transfer of sanctioned nuclear, ballistic 
missile, and other military equipment to Tehran, and the establishment 
of Russian-Iranian financial channels to facilitate other illicit 
transactions.
    The administration has denounced the proposed deal as contrary to 
the interim agreement and a violation of U.S. sanctions,\91\ but will 
President Obama take on Vladimir Putin, on whom U.S. policy now depends 
to get both Tehran and Damascus to abandon their WMD programs? If 
Washington can't stop this deal, it could serve as a signal to other 
countries that the United States won't risk major diplomatic disputes 
at the expense of the sanctions regime.
    As international companies test the waters in an environment of de-
escalating sanctions pressure, the Obama administration may find itself 
facing the difficult choice of permitting sanctions-violations from 
Russia, China, Turkey, and other key partners and watching the 
sanctions' architecture unravel, or sanctioning companies from these 
countries, including our P5+1 partners, with the potential for severe 
diplomatic blowback.
     the impact of iran's economic recovery on nuclear negotiations
    The administration's dual policy of sanctions and negotiations with 
Iran has always been based on the idea that economic sanctions can 
provide leverage to get Iran to the negotiating table to reach a 
comprehensive nuclear deal that stops Iran's illicit military-nuclear 
program. Indeed, Secretary of State Kerry has attributed Iran's 
willingness to negotiate at Geneva to the intense pressure of 
international sanctions.\92\
    It is a credit to the members of this committee and your colleagues 
in the House that the United States has the kind of strong, 
comprehensive sanctions in place that have persuaded Iran to come to 
the table. Over the objections of the Obama administration and others 
who argued that the sanctions against the Central Bank of Iran, 
measures to reduce Iran's crude oil exports, and sanctions to force 
SWIFT to expel Iranian banks, amongst others, were either unlikely to 
have an effect on Iran or were too drastic to consider, you and your 
colleagues understood that there was a smart way to craft these 
sanctions to provide Washington with enhanced negotiating leverage.
    Yet, now there is significant evidence that Iran's economy is 
showing signs of stabilization and modest recovery. Whether due to the 
overall global economic recovery, better economic management by the 
Rouhani administration as compared to the Ahmadinejad administration, 
and/or changing market psychology because of sanctions relief, the 
result is that the United States may be losing the very leverage that 
brought Iran to the table.
    I am concerned that the P5+1 sanctions relief in exchange for 
reversible nuclear concessions by Tehran will improve Iran's 
negotiating position and therefore lessen the pressure on the regime to 
come to a long-term, enforceable, negotiated solution. This increases 
the likelihood of a deal that does not adequately address Iran's 
illicit military-nuclear program, leaving Iran with the option, at a 
time of its choosing, to develop an Iranian nuclear weapon, or 
requiring the U.S. President or Israeli Prime Minister to use military 
force to forestall that possibility.
                         policy recommendations
    In order to preserve our negotiating leverage, the Obama 
administration will need to convince global companies that it is 
willing to defend the sanctions' architecture against violators and 
impose punitive measures, even against key allies and partners. This 
could quickly devolve into an untenable situation--putting stress on 
our alliances, which could erode the leverage we hope to use to 
convince Iran to make significant reductions in its nuclear program.
    Congress can support the administration's efforts to shore up our 
economic sanctions and our negotiating leverage by passing the Nuclear 
Weapon Free Iran Act ``sanctions-in-waiting'' legislation, which many 
members of this committee already support. The purpose of this 
legislation is to buttress the argument that Iran is not open for 
businesses, to clearly outline the conditions under which Iran will 
lose existing sanctions relief (and be hit with additional sanctions) 
during the interim period, and to establish broad parameters for what 
constitutes an acceptable nuclear deal.
    The legislation is important to pass now, rather than after a 
collapse of talks, because it dangles a Sword of Damocles over 
international companies considering a return to Iran. It is a crucial 
instrument in preventing the shift in market psychology that already is 
beginning to create economic benefits for Iran. It lays down a clear 
deadline of 12 months for nuclear negotiations so that Iran does not 
endlessly prolong the negotiations while reaping further economic 
benefits as the passage of time weakens the existing sanctions regime 
and makes companies more confident to enter the Iranian market. And it 
lays down important parameters by Congress to govern what constitutes 
an acceptable final deal, including precluding Iran from achieving a 
nuclear weapons breakout capability and prevented it from pursuing both 
uranium and plutonium pathways to a nuclear weapon.
    While Iran's Foreign Minister Javad Zarif has threatened to walk 
away from the table if Congress passes new legislation,\93\ it is 
important to note that such a move would come with steep economic costs 
for Iran. A recent economic analysis by FDD and Roubini Global 
Economics estimates that new sanctions could precipitate a major 
economic shock that leads to a significant depreciation of Iran's 
currency, which will fuel inflation and asset bubbles, force fiscal 
austerity, and send Iran back into a deep recession.\94\
    Iran's economy would risk further deterioration in the following 
areas:

    (1) Iran would lose all of the sanctions relief promised under the 
JPOA, which is worth significantly more than $7 billion.
    (2) Oil exports would fall to 500,000 bpd, which would be a 
reduction of approximately 500,000 bpd from current levels, or a loss 
of about $9 billion in revenues over 6 months.
    (3) New sanctions would also hit Iran's fuel oil, natural gas, and 
condensates exports, which are valued at about $1.6 billion per month 
as of May 2013.\95\ This would be a further loss of $9.6 billion in 
revenues.
    (4) The accelerated depletion of revenues and reserves would likely 
precipitate another currency devaluation, as Iran runs out of reserves. 
This would fuel inflation, with recurrent asset bubbles and busts 
destabilizing the economy further.
    (5) Wages would fall sharply in real terms as housing and cost of 
living expenditures continue to rise.
    (6) A new recession would be likely. As output falls and the 
government cannot support further economic expansion, Tehran would need 
to cut government spending.
    (7) Across-the-board cuts would become necessary in the development 
budget, just as Tehran implemented in 2012 in nonsalary current 
spending. Subsidy cuts would be likely in the top three high-income 
deciles of the Iranian economy.
    (8) Oil income would remain limited to only bilateral arrangements, 
with most oil revenues effectively locked up by sanctions.
    (9) Deficit funding through internal loans would be likely, as well 
as an attempt to use foreign exchange reserves and to loosen monetary 
policy, particularly if other deficit abatement tools don't work.
    (10) With sanctions relief negated, there would be an estimated 50 
percent decrease in annual petrochemical exports from about $12 billion 
to $6 billion. At minimum, Iran would lose the $1 billion based on what 
the administration estimates Iran will earn in petrochemical sanctions 
relief over 6 months under the JPOA.
    (11) Iran would also lose potential automotive sector sanctions 
relief, with a failure to make gains in exports, production, wages, 
GDP, and other key indicators. This includes a loss of the 
administration's projected $500 million increase from auto sanctions 
relief over the next 6 months. As noted earlier, it could be far 
greater than that.
    (12) Other strategic sectors would suffer as a result of new 
sanctions legislation. This includes engineering, construction, mining 
sectors, and others.
    (13) Imports would decrease to $25-$30 billion from about $40 
billion, given budget and hard currency restrictions.

    In other words, walking away from the negotiating table would carry 
significant costs for the Iranian regime. And the longer Iran stays 
away, the higher the economic costs. Zarif might walk away for show, 
but unless he and Rouhani believe that they can rescue the economy 
through nuclear escalation, their no-deal option is still less 
attractive economically than a negotiated settlement.
    With the Obama administration opposing the new Senate and House 
legislation, Senators need to find some way to signal to markets and to 
Iran that Congress will not accept endless negotiations, the unraveling 
of the sanctions regime that took so long to establish, and a nuclear 
deal that does not stop Iran's nuclear weapons breakout capability. 
While the current legislation could be effective in reversing market 
psychology if the sanctions-in-waiting provisions were passed today, 
these sanctions may be insufficient in 6 to 12 months time if there is 
no conclusive nuclear agreement and if Iran is on the path to a 
sustained economic recovery.
    There needs to be a serious and public discussion about what type 
of sanctions will be required at that point especially since, in areas 
not adequately addressed by the JPOA, Iran could gain 6 to 12 more 
months to advance the military-nuclear elements of its program through 
nuclear-weapon and ballistic missile research and development.\96\ If 
there is no final agreement, and Tehran successfully uses the interim 
period to advance this work, it could move more quickly to a nuclear 
weapons breakout and Washington will have lost critical economic 
leverage.
    At that point, we will need a complete financial and trade embargo 
implemented within weeks since Iranian nuclear physics will have far 
outpaced Western economic pressure.
    As Robert Einhorn and Ken Pollack have argued, ``we need to prepare 
for the possibility that no agreement will be reached and Iran will 
attempt to turn that eventuality to their advantage.'' \97\ Congress 
needs to work with the Obama administration to develop that strategy. 
And those consultations need to begin immediately.

----------------
End Notes

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Angeles Times, January 20, 2014.
    \7\ Josh Gerstein, ``Obama Speaks Out Against More Iran 
Sanctions,'' Politico, December 20, 2013.
    \8\ Paul Taylor, ``Rouhani to Woo Business in Davos but Iran 
Hurdles Abound,'' Reuters, January 17, 2014.
    \9\ Mark Dubowitz & Reuel Marc Gerecht, ``The Case for Stronger 
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    \11\ Statements from the Chairman and Ranking Member of the House 
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Fund, October 2013.
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Nuclear Deal,'' NPR, November 25, 2013.
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Cato Institute, November 25, 2013.
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Terrorism, Nonproliferation, and Trade Subcommittees, January 28, 2014, 
page 6.
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    \32\ Meir Javedanfar, ``Tehran Stock Exchange Plunges, Baffling 
Investors,'' Al-Monitor, January 28, 2014.
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Flock to Iran,'' FDD Policy Brief, January 13, 2014.
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Trading Partners,'' The New York Times, January 17, 2014.
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Rises,'' Reuters, January 16, 2014.
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Washington Post, October 14, 2013.
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(Iran), November 30, 2012.
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Sanctions Relief to Iran,'' FDD Iran Sanctions Analysis, December 10, 
2013.
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Implementation of Certain Sanctions Set Forth in the Iran Freedom and 
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To Iran,'' June 3, 2013.
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2013.
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Iran,'' June 3, 2013.
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Businesses Look To Iran,'' Radio Free Europe/Radio Liberty, January 20, 
2014.
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Carmakers,'' Associated Press, November 30, 2013.
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Carmakers,'' Associated Press, November 30, 2013.
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Plan of Action and Iran's Petrochemical Sector,'' FDD Policy Brief, 
December 9, 2013.
    \63\ Data is available upon request.
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Plan of Action and Iran's Petrochemical Sector,'' FDD Policy Brief, 
December 9, 2013.
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Business Empire Gains from Iran Sanctions Relief,'' Reuters, January 
22, 2014.
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Plan of Action and Iran's Petrochemical Sector,'' FDD Policy Brief, 
December 9, 2013.
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Tracker,'' accessed January 29, 2014.
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Windfall,'' National Post, January 3, 2014.
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Windfall,'' National Post, January 3, 2014.
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May Help Oil Sales,'' Reuters, November 24, 2013.
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Provisions in the Joint Plan of Action Between Iran and the P5+1,'' FDD 
Policy Brief, January 10, 2014.
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Provisions in the Joint Plan of Action Between Iran and the P5+1,'' FDD 
Policy Brief, January 10, 2014.
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Iran: Terms of the Agreement on a Joint Plan of Action, Including 
Measures to be Undertaken by the European Union,'' January 17, 2014, 
page 3.
    \75\ Jonathan Schanzer & Mark Dubowitz, ``Iran's Turkish Gold 
Rush,'' Foreign Policy, December 26, 2013.
    \76\ For more on this, see: Jonathan Schanzer & Mark Dubowitz, 
``Iran's Turkish Gold Rush,'' Foreign Policy, December 26, 2013.
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Resignations, Turk PM Names New Ministers,'' Reuters, December 25, 
2013.
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Resignations, Turk PM Names New Ministers,'' Reuters, December 25, 
2013.
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Boxes In Bank Chief's Home: Report,'' Associated Press, December 18, 
2013.
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Scandal,'' Al-Monitor, December 20, 2013.
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CEO Arrest,'' Bloomberg, December 23, 2013.
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Loophole,'' Roubini Global Economics and Foundation for Defense of 
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Respect to Iran,'' Government Printing Office, July 30, 2012.
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Affairs, May 15, 2013.
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Meetings,'' Los Angeles Times, November 24, 2013.
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Reemerges As Iran Policy Player,'' Associated Press, December 23, 2013.
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Negotiating Big Oil-For-Goods Deal,'' Reuters, January 10, 2014.
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In Washington,'' Christian Science Monitor, January 15, 2014.
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Sales,'' UPI, November 29, 2013.
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Sanctions Would Kill Nuclear Deal,'' TIME, December 9, 2013.
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Money?'' Foundation for Defense of Democracies and Roubini Global 
Economics, October 2, 2013.
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Loophole,'' Roubini Global Economics and Foundation for Defense of 
Democracies, May 13, 2013.
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Get Worse,'' The Wall Street Journal, November 24, 2013.
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Fail'' Brookings Institution's Big Bets & Black Swans--Memorandum to 
the President, January 23, 2014.

    The Chairman. Thank you, Mr. Dubowitz. I look forward to 
exploring with you both the value and the consequences of the 
sanction relief that I read in your testimony.
    The committee will stand briefly in recess to conduct a 
business meeting in S-116, and then we will return immediately 
afterward.
    And I thank this panel for their patience. It is an 
incredibly important topic, a lot of interest for the 
committee, and your testimony is incredibly important as part 
of the record.
    So, the committee stands in recess, subject to the call of 
the Chair.

[Recess from 12:06 p.m. until 12:40 p.m.]

    The Chairman. This hearing is reconvened.
    Let me thank you both for your forbearance, and we 
appreciate your willingness to hang in there with us.
    Let me start with you, Mr. Albright. You have a lot in your 
testimony that--I hope people will read the testimony. Some of 
it is technical in nature, and I plowed through it, you know, 
and--not an expert, but I plowed through it, made----
    Mr. Albright. I apologize.
    The Chairman. No, no, not at all. On the contrary, I think 
it is incredibly important to understand. Because what a deal 
ends up being that we can support depends upon what it is.
    So, let me ask you some questions to further elucidate the 
record and your testimony. Is there a way to significantly set 
the clock backward, using a metaphor, on Iran's nuclear weapons 
capability without closing Fordow or without significantly 
dismantling Iran's centrifuges?
    Mr. Albright. I do not believe so. I think it--at the heart 
of this is a need to significantly reduce their centrifuge 
program. And I think, with the Arak reactor being part of a 
plutonium route, you are really confronted with the need to 
shut that down. And again, it can be converted to something 
else, but it--the way it is designed, according to early 
Iranian declarations--I mean, we do not know the final detailed 
design; they have not provided that to the International Atomic 
Energy Agency yet. But, it is best configured to make weapon-
grade plutonium, and you do not want Iran to have such a 
reactor.
    The Chairman. And Iran could only have one enrichment site, 
the one at Natanz.
    Mr. Albright. Yes. And I think that--from our analysis, it 
eases the verification, and it removes a site that is not 
invincible, but gives Iran a sense that they can withstand a 
military strike 
and not have its--some number of centrifuges down that hole 
destroyed.
    The Chairman. I had questioned why you would bury, deep in 
the mountain, an enrichment site if your purpose is for 
civilian nuclear energy.
    Mr. Albright. That is right. No, and there is a lot of 
suspicion that it was originally designed to be a site to make 
weapon-grade uranium.
    The Chairman. Now, I spent some time with Secretary Sherman 
going over the elements of your testimony, and maybe you could 
help--for those who do not have all the nuances, help make, in 
laymen's terms, the--what you describe as the loophole for--I 
think, as your testimony describes--on Iran's ability to 
continue the development of these IR-2 centrifuges. What 
exactly does that mean, and why is that consequential?
    Mr. Albright. Well, one is--is that it is--the IR-2m is a 
centrifuge that is much more capable than the ones they have 
deployed, the IR-1--anywhere from three to five times more 
effective, and also it is more reliable. It is based on a 
German-designed centrifuge that went via Pakistan to Iran, and 
then Iran modified it. But, it is--at its heart, it is a more 
reliable one than the 
IR-1. And so, during the interim deal, they are still able to 
run a production-scale cascade at the pilot plant at Natanz, 
and they can just learn to operate it better, work on its 
reliability, to further improve that, to gain confidence in 
running it in this cascade.
    They will still need to deploy it in large numbers, and 
they have started to do that at the underground site. There are 
1,000 deployed in six cascades. And they would still need to do 
that. So, they cannot finish, but they can make significant 
progress on continuing to develop this machine.
    The Chairman. And one of the things you said in your 
testimony, it can further develop this particularly advanced 
centrifuge while hiding any results of its progress from the 
IAEA.
    Mr. Albright. Yes, and it is--a year or two ago, Iran told 
the IAEA it was going to start enriching in that machine, and 
depositing the enriched product into the product tanks, and the 
IAEA would--and everyone else--would know how well the machine 
works. They decided--they then, subsequently, announced they 
were not going to do that. And so, the IAEA is left, in a 
sense, somewhat blind about the capabilities of this machine. I 
mean, is it truly that great, or is it having problems? And so, 
the IAEA just does not know. I mean, I think the worry is that 
they are hiding the capability from the IAEA, so we just--no 
one knows, and that it is actually making progress.
    The Chairman. Now, one of the--the importance of this 
element of the centrifuge is--is that, you say in your 
testimony, ``At the end of the interim period, Iran is likely 
to be far better positioned to deploy reliable IR-2m 
centrifuges, which is this more advanced centrifuges, on a mass 
scale at its enrichment plants. And this gain, if there was to 
be no agreement, would allow Iran to make up for time lost more 
quickly.'' You go on to say, ``A centrifuge five to ten times 
more capable than the IR-1 centrifuge''--I assume those are the 
ones that they are using now--``would require five to ten times 
fewer centrifuges to make the same amount of weapon-grade 
uranium for nuclear weapons, allowing for much smaller 
facilities, fewer personnel, and procurement of less material. 
Centrifuge research and development could also lead to 
breakthroughs in materials or methods that would further 
strengthen a secret breakout effort and make both the 
implementation and verification of a comprehensive solution 
extremely difficult.''
    Mr. Albright. Yes. I mean, and when I say ``five to ten 
times,'' that is beyond the IR-2m, but they are working on such 
machines. At least they have stated that, in the past, to the 
international inspectors. And so, they want to have a machine 
that is up to ten times--ten times the output of the current-
generation one. And those machines pose particular difficulties 
for verification. If you do, as you have stated, need far fewer 
of them, then you can get by with a much smaller facility. And 
particularly if you are developing the skill to make them and 
operate them, then you do have to worry about them. And it 
would be better that they not be developed. And I think that is 
our recommendation----
    The Chairman. And your final conclusion of that is that, 
``Development of more advanced centrifuges would greatly ease 
its ability''--meaning Iran--``to conduct a secret breakout to 
nuclear weapons.''
    Mr. Albright. That is right. If you only need, let us say, 
1,000 of them to have the capability to enrich up to weapon-
grade uranium, then you can use a much smaller facility. I 
mean, Fordow, the underground one, is sized for about 3,000 
centrifuges. So, if you can reduce the number--and another 
thing that happens, as you learn to operate these more 
sophisticated machines, you are actually advancing your skills 
quite considerably, both in manufacturing and in operation. And 
so, the--and one of the problems the Iranians have faced with 
the IR-1s is just getting them to operate at a minimal level, 
and they have faced many breakages and had troubles getting the 
enriched uranium output up.
    The Chairman. Now, two final questions to you. ``During the 
interim period,'' you state, ``particularly with weakening 
sanctions, Iran can focus on building up its supply of 
essential goods and alleviating bottlenecks in certain key 
goods, allowing for a much more rapid expansion of its programs 
at the end of the interim period. These problems will grow the 
longer the interim period lasts.'' And then you go on to say, 
``Delay works more in the favor of Iran than it does of the 
United States and its allies.'' Can you explain why that is the 
case?
    Mr. Albright. Well, if--as they--they do need to go out and 
buy things. Examples would be carbon fiber. They need to buy 
pumps for the Arak reactor. They need to find maraging steel. 
There is a--and there is all kinds of vacuum-related equipment 
that they need to buy. And they now have an opportunity to 
continue that buying.
    And again, sanctions and laws are designed to try to stop 
them, but they have proven to be less effective than, I think, 
we at ISIS thought they would be. I mean, Iranians are very 
good at smuggling, and they--and while their--many of their 
efforts are stopped--there is interdictions of their goods--
things are getting through. And now they have this additional 
period to continue this, and it is one of the--and what they 
can do is develop a stockpile of materials that then would 
allow them to build many more machines. That is the bottom 
line, is if they can stockpile, they can then, if the deal 
breaks down, build a lot more. And it is also why we think, in 
recommending the--in the comprehensive solution, that Iran 
commit not to do this anymore, that they have to give up these 
smuggling operations that they have mounted so effectively.
    The Chairman. Mr. Dubowitz, I have questions for you, but I 
am going to turn to Senator Corker, because I know he has time 
constraints, and then I will come back.
    Senator Corker. I want to thank you both. And I agree with 
the chairman, I think your testimony today is--both in written 
form and orally--is outstanding. I wish everybody on the 
committee could hear it and, candidly, help the administration, 
as someone paying attention.
    But, Mr. Albright, I will start with you, since you 
testified first. What is our current capability to detect if 
Iran is enriching in a warehouse someplace that we are unaware 
of?
    Mr. Albright. Well, the U.S. intelligence, despite some 
recent reports in the media, is pretty good on Iran. I mean, it 
has found the Fordow site, and it--with its allies. I mean, it 
is a combined effort. It identified sites in the early 2000. 
And so, it is--and it has been willing to work with the 
international inspectors, so you can have people on the ground 
using intelligence information. And so, it is pretty good. But, 
it is not perfect, and there is worry that, if Iran built a 
secret centrifuge site, it could go undetected. And the current 
arrangement with the inspectors right now, while better, is not 
enough in order for the IAEA to say they can tell you that they 
can find a secret site. So, there remains a risk. And that is 
another reason why you want the interim deal to be short-lived 
and to try to get a comprehensive solution, where the 
verification arrangements are put in place that, combined with 
Western intelligence, can provide much greater assurance that 
there is no secret nuclear site.
    Senator Corker. And based on the way these negotiations 
have begun, and looking at the public comments that the P5+1 
and Iran are making, and just looking through what has 
occurred, what do you think is, today, the likely outcome on 
July the 20th?
    Mr. Albright. Well, I think it--after we released our 
report, a couple of weeks ago, I must say that I cannot be very 
optimistic. Iranian statements are pretty clear. I think you 
quoted some of them. They appear unwilling to accept the deep 
cuts in their centrifuge program that I think are necessary. I 
mean, maybe they will give up or allow the Arak reactor to be 
converted into another type. Maybe they will even shut down 
Fordow. But, I think getting them to reduce the number of 
centrifuges is going to be very tough.
    I think the military-dimension side of this is going to be 
tough. Iran has--resisting greatly allowing the inspectors to 
go to Parchin, and they--and, in a sense, Iran has dug itself a 
very deep hole. And so, I think that is going to be a tough 
issue to surmount. And I think, in that case--I did appreciate, 
in the legislation that you produced, that there was a 
condition put in that Iran is going to have to satisfy the 
IAEA's concern on past and possibly ongoing military issues. I 
think the administration has said, in private settings, that 
there will be no comprehensive solution unless they satisfy--
Iran satisfies the IAEA. But, one would like to see that as a 
firm written statement from the administration.
    Senator Corker. And do you agree with Mr. Dubowitz that, as 
we move along and the economy improves and the indicators that 
we now see there makes it even more difficult for us to have 
leverage to cause them to--to cause us, as a country, and many 
others, to overcome where they are? Do you agree with that?
    Mr. Dubowitz. I do.
    Senator Corker. Mr. Albright.
    Mr. Dubowitz. Oh, I am sorry.
    Senator Corker. Yes.
    Do you agree with the comments your colleague has made 
relative to----
    Mr. Albright. On the----
    Senator Corker. That is right.
    Mr. Albright. Yes. I certainly worry that--another reason, 
in my mind, where you want an interim period--is as short as 
possible, with clear consequences on Iran if that period 
elapses. So, I think the--now, we will have to see. I mean, I--
again, we are not--at ISIS, we are not economics specialists, 
by any means, we are not sanctions experts. So, I am just 
offering that.
    Senator Corker. Mr. Dubowitz, you have talked, both orally 
today, written testimony--I know we had a long meeting with you 
yesterday. What do you think the effect of passing the 
legislation Menendez and Kirk have offered, and many have 
signed on to--what would the effect of that be, relative to 
their economy today?
    Mr. Dubowitz. Well, Senator Corker, I think the legislation 
had, as its intent, to send a credible threat, to international 
markets, that it is premature to go back into Iran, and that if 
Iran does not satisfy the interim conditions, if it cheats on 
the JPOA, if it fires off long-range ballistic missiles, if it 
launches terrorist attacks against America, that all that 
sanctions relief would be gone, and new sanctions would be 
imposed on Iran.
    And I think--most importantly, I think it sent a very clear 
message that this will not be a endless process of 
negotiations, that there is a 12-month clock on this. And at 
the end of those 12 months, Iran has got to come to a 
comprehensive nuclear deal that satisfies very clear parameters 
and principles that were laid out in the legislation. Not deal 
terms. It does not specify how many centrifuges Iran should be 
left with. But, it has very clear end-state parameters.
    And I think that is an important message to send to the 
international business community and to the investors and 
consumers in Iran, that, at the end of the 12-month period, if 
there is no comprehensive, conclusive deal, then the sanctions 
will be imposed. I think that had the legislation been passed, 
that it would have given a lot of credibility to that threat.
    My fear is--as expressed in my testimony, is, without that 
credible threat, we are going to start to see the macroeconomic 
data shifting in Iran's favor. And I think it already has. It 
is modest. It is fragile. But, it is also real. And, by the end 
of 12 months, if that economic recovery has become much more 
substantial, then I think there is far less pressure on Iran to 
negotiate. And then, my ultimate fear is raised, which is, I 
think both the administration and Iran want to actually keep 
perpetually rolling over this deal for additional 6- to 12-
month periods. I think it satisfies, potentially, objectives on 
both sides. And I think there is a great risk in doing that, 
because I think the Iranians will then gain even more economic 
leverage as their recovery increases.
    Senator Corker. Mr. Chairman, my staff is about to have a 
heart attack because I need to be someplace else. But, if I 
could ask a question that----
    The Chairman. Of course.
    Senator Corker [continuing]. He can answer for the record, 
I would appreciate it.
    You know, we have seen what happened in Turkey with the 
gold-for-oil situation. We now see, it looks like, almost a 
copycat kind of effort taking place or being proposed by Russia 
right now. Is it your sense that the Treasury Department--that 
this was an oversight? Or, do you think this was an 
accommodation, relative to the negotiations that were taking 
place?
    Mr. Dubowitz. Well, Senator Corker, I have the absolute 
greatest respect for Under Secretary Cohen and his sanctions 
team at Treasury. I think they have done, you know, herculean 
work in helping to enforce the sanctions that Congress has put 
in place. I think that there were, potentially, other 
considerations--considerations that the State Department and 
the White House had--in not cracking down on what was clearly 
an illicit financial money-laundering scheme, that it has--it, 
purportedly, has yielded Iran over $100 billion. And, you know, 
it is a long and complicated saga, about what happened and how 
the administration responded and provided ``Golden Loopholes'' 
that were ultimately not closed until Congress finally closed 
it, and then the administration insisted that there be an 
additional 6 months before those precious-metals sanctions came 
into effect. I think it had a lot to do with the secret 
negotiations that were taking place with Iran. It had a lot to 
do with having gold sanctions relief on the table at ALMATY in 
February and April.
    But, the conclusion of the long saga is that Iran was able 
to exploit a significant ``Golden Loophole,'' was able to get 
about $13 billion in gold and over $100 billion in illicit 
financial transfers, and ultimately blow a major hole in the 
international financial sanctions regime. I think we did not 
crack down on Turkey, and perhaps that is because of President 
Obama's partnership with Prime Minister Erdogan.
    My fear is that, on the Iran-Russia deal, we are going to 
face the same situation. And, despite Under Secretary Sherman's 
assurances that everybody has read the riot act to Vladimir 
Putin, I am a little concerned that Putin is not necessarily 
deterred by administration riot acts.
    Senator Corker. Not to be too pejorative, but I think it is 
pretty understood that the administration has tied its future, 
so many areas, to its relationship with Russia that it really 
is difficult to sense, or even feel, that they would crack down 
on this in the appropriate way. But, I hope they will. And I 
appreciate your testimony.
    Mr. Chairman, thank you for this great hearing today.
    The Chairman. Thank you, Senator Corker, for your work and 
your participation in helping us prepare it.
    Let me just finish off with you, Mr. Albright, to help us 
define, for the record, what a verifiable, long-term deal--the 
elements of that--what it would be to ensure that Iran does not 
have nuclear-weapon capability.
    Mr. Albright. Well, it--I think it is a fairly long list of 
provisions, so let me try to summarize.
    The--talked about the Arak reactor needs to shut down. 
There are also--I think, even before that, there--you have to 
have commitments from Iran not to reprocess or separate 
plutonium, and not to build facilities capable of doing that. 
So, it is--even if the reactors--Arak reactor is shut down, 
that is not enough, by itself.
    You also do not want to Iran ever again enriching above 5 
percent, that it would just be--it would be limited to the 
types of fuel used in civil nuclear reactors or power reactors.
    I have mentioned the one about procurement of goods 
illicitly. The centrifuge--and also the one site--enrichment 
site. I mean, centrifuge R&D is going to be important in the--
again, these would be conditions imposed for a certain 
duration. We are recommending 20 years. But, you would want to 
limit centrifuge R&D to, essentially, models no greater than 
the IR-2m. I think you would not want to stop that one, 
necessarily.
    You need to limit centrifuge component manufacturing. And 
so, if you reduce the size of the centrifuge program 
significantly, you are going to have a lot of spares. I mean, 
some would be set aside and stored, and then could be used 
later as spares. So, Iran would not need to make any more of 
these IR-1 centrifuges ever again. And even on the IR-2m, if 
they then subsequently deployed those under this cap of an--on 
the size of enrichment, they would even have some spares there. 
And so, you would limit that part of the program.
    One of the issues is the size of the low-enriched uranium 
stockpiles, that one of the things the interim deal does is, it 
moves, let us say, near-20-percent LEU hexafluoride into 
another chemical form, and puts it in a different category, the 
oxide form. And under the interim deal, that is seen as okay. 
But, the problem is, in the long-term deal, you can take that 
material and reconvert it into fluorine, and so, you do not 
want Iran holding very significant stocks of that type of LEU. 
And so, you would also want to cap that, and Iran would give 
up, blend down, send out of country, or whatever, a significant 
part of its near-20-percent LEU oxide stockpile.
    You also want to get, in terms of their--you want to have 
more controls over the uranium mining and milling operations, 
where the--again, this is more verification, but the--Iran 
would be much more open about how much is made very year, and 
where it goes.
    And then, in addition to verification, you would impose a 
cap that--you do not want Iran mining more uranium than it 
could possibly use. And so, the limits on the uranium mining 
would be consistent with the centrifuge program that is 
allowed.
    You need conditions from Iran not to proliferate. I mean, 
there are worries about Iran working with North Korea to bypass 
some of these caps. And so, you would want to have some 
commitments by Iran not to do that.
    And then--and let me just end on the verification. The 
additional protocols is a marvelous improvement in verification 
for the International Atomic Energy Agency. It does not change 
their rights, but it gives them many more tools, and gets 
upfront agreements from the nations to allow things. But, it 
has been learned, in the case of Iran, that it is just not 
enough. With a country that has successfully deceived the IAEA 
for many years, has refused to cooperate, that many more 
conditions, or several more conditions, are going to be needed 
to be imposed. And some of those would be that they--the IAEA 
would have greater access to the centrifuge manufacturing 
complex that remained, that the--right now, it--under the 
interim deal, it can see the--where rotors are made, rotor 
tubes are made, and where centrifuges are assembled. You would 
want that. But, even in that case, you would want to know how 
many rotor tubes have been made, how many raw materials have 
been procured for those----
    The Chairman. So, it is a pretty and extensive and invasive 
list of----
    Mr. Albright. Yes, it has to be. I think that is--that is 
the lesson of the suspension period.
    The Chairman. What drives me to concern is the gulf between 
the list that you and the Institute have devised and others 
have also said--Dennis Ross, in his article, for example--and 
the gulf between that and everything that we hear in Iran, in 
which President Rouhani says, ``No, we are not going to destroy 
it.'' Now, maybe that is a maximalist position, as Secretary 
Sherman said, but there is a huge difference between where 
these two parties are at. And certainly, what--from the West's 
perspective--P5+1--will be absolutely necessary to have a deal 
that is verifiable and that can be embraced.
    Mr. Albright. No, that is right. And the--and it also--I 
think it--I think we have to plan for the deal not working or 
the negotiations to fail. I mean, President Obama gave it--50-
50 chance. The Iranians gave it less of a chance. I mean, 
administration officials below the President have given it 
pretty low chance of success. So, I think--if that is the true 
picture, then I think we do have to start putting in place some 
real plans for failure. And what will happen then--and it may 
turn out that it will incentivize--or give the Iranians an 
incentive to compromise more.
    The Chairman. Well, that brings me to you, finally, Mr. 
Dubowitz. And I appreciated your work and your insights over 
time.
    You know, first of all, let us talk about the real value of 
the sanctions relief that is being pursued under the Joint Plan 
of Action. You have suggested, both in your oral and further in 
your--extensively in your written testimony--that it is beyond 
$7 billion. Talk a little bit about the $7 billion in the 
context of what was Iran's actual available cash reserve, 
versus its ultimate cash reserve.
    Mr. Dubowitz. Well, thank you, Chairman Menendez.
    I mean, I think, first of all, the $7 billion is not 
insignificant. I mentioned that, according to our sources, Iran 
only had $20 billion in fully accessible foreign exchange 
reserves, and much of the money was available--was actually 
locked up or was in escrow accounts, but they had $20 billion 
that they could fully access. So, you are infusing $7 billion 
into 20. You are increasing their fully accessible reserves by 
35 percent.
    The second issue--and it has really been puzzling for me--I 
have not understood why the administration came out and refused 
to acknowledge that there would be some shift in market 
psychology, that investor and consumer sentiment may increase, 
that there may be some illicit deals done with Russia or Turkey 
or other countries, and that the sanctions relief may be more 
than $7 billion, based on a shift in economic activity, market 
sentiment. I think that the administration could easily have 
acknowledged that, could easily have said to Congress, ``Look, 
it is possible this is more than $7 billion; it may be actually 
significantly more than $7 billion. We will do our best to 
ensure that it is as little as possible.''
    What it leads me to believe--and this is where I get 
worried--is that the administration actually understands the 
sanctions relief was significantly more than $7 billion, but 
that their theory of the case is that they are trying to get 
President Rouhani hooked on cash. And what I mean by that is 
that they are trying to create an economic incentive for 
Rouhani to compromise, and that they believe that the Iranian 
people will demand it, that we will strengthen Rouhani's hand, 
and that, therefore, he will have more leverage with the 
Supreme Leader to negotiate a deal within 6 to 12 months; and 
that when we start to see the macroeconomic indicators begin to 
turn in Iran's favor--and they already are turning in Iran's 
favor--that the administration will come back to you, in 3 to 6 
months, and say, ``Chairman Menendez, we actually think it is a 
good thing. We understand that the inflation rate is down, that 
the rial-dollar exchange rate is to Iran's advantage, that the 
GDP is starting to increase, that the auto sector is starting 
to recover. All of that, we did not anticipate, but now we 
acknowledge. And actually, that is a good thing, because it is 
now incentivizing Iran to do a deal.''
    The Chairman. Yes. We heard a little bit of that also in, I 
think, Secretary Sherman's response to--I think it was Senator 
Murphy--that she called it, ``In a perverse sense, that these 
trade missions actually incentivize the regime''----
    Mr. Dubowitz. Right.
    The Chairman [continuing]. ``To think about what could 
be.''
    I look at two sectors that you talked about extensively in 
your testimony, the automotive sector and the petrochemical 
sector. It is interesting that relief to the petrochemical 
sector actually helps the Ayatollah receive money directly 
through his control of Setad, which is a conglomerate totally 
controlled by the Ayatollah and for which they have several 
investments in petrochemical sites. Is that a fair statement?
    Mr. Dubowitz. Yes. I mean, perhaps we are trying to get the 
Supreme Leader hooked on cash, as well, because if--maybe if 
his holdings in the petrochemical companies that are trading on 
the Tehran stock exchange increase in value, then he will start 
to see economic benefit.
    I mean, what I find puzzling about the sanctions relief 
that has been provided is that what we have done is, we have 
provided relief on key sectors of the Iranian economy. You 
know, I and others had recommended that, if we were going to 
provide any relief, it should have been strictly through the 
return of some frozen oil revenues, not to Iran, but to be put 
in other accounts, where the Iranians could spend that money in 
Europe, for example. But, instead, what the administration has 
done is that they have lifted sanctions on some of the most 
lucrative sectors of Iran's economy, including sectors, as you 
have acknowledged, controlled by the Ayatollah, controlled by 
the Revolutionary Guards.
    The Chairman. And, in doing so, obviously, to the extent 
that they are opening those sectors, it is legitimate for the 
private sector to say, ``Well, at least for this period of 
time, we can be engaged in these sectors, because they are now 
no longer subject to sanction.'' And is it not fair to say 
that, when the administration has tried to quantify the value, 
that presumes 6 months of relief for value based upon what 
those sectors provided prior to the sanctions, not an 
enlargement? If I were Iran, I would put the pedal to the metal 
and try to maximize the petrochemical and auto sector during 
this period of time so that I could actually get better 
benefits and increase the parts available to me, so that, in 
fact, I can move the ball forward, should an agreement not be 
achieved. Is that a fair----
    Mr. Dubowitz. Well, that is exactly right. I mean--and I 
think--you know, again, what I find puzzling is that--let us 
take the auto sector. The administration values the auto sector 
relief of $500 million, on the assumption that Iran will now be 
able to sell $500 million more cars--export $500 million more 
in cars. Well, if you look at the Iranian auto sector in 2011, 
it represented about 10 percent of Iran's total GDP, and it 
contributed $50 billion to Iran's economy. Because the secret 
about Iran's auto sector is not--it is not a--it does not have 
huge export potential; it has huge domestic potential. It is a 
country of 75 million people who want to replace their cars. 
And Peugeot and Renault and major international and--auto 
companies, who, by the way, were in Tehran 2 days after the 
Geneva agreement was signed, recognize that enormous potential 
for the auto sector.
    And so, what I believe Rouhani has done is, he has bought 
himself not only something that has tremendous economic 
potency, but political potency, as well, where he can represent 
himself as the man who saved the Iranian auto sector. And if 
you look at the potential for domestic auto production, for 
wages paid, for GDP actually generated, you have, over the next 
6 to 12 months, more significant potential in the auto sector 
than I believe the administration is acknowledging.
    The other, I think, concern that I have is--you heard Under 
Secretary Cohen say that they have essentially said to 
international businesses, ``You have got to have your deal done 
in 6 months--goods delivered, payment made within 6 months.'' 
And yet, you have Catherine Ashton acknowledging that this is 
actually going to be a 12-month deal. And the JPOA actually 
acknowledges that this can be renewed for an additional 6 
months. So, if you are an international CEO, and you want to go 
back into Iran's auto sector, you are not thinking of this as a 
6-month deal, you are thinking of this as a 12-month deal. You 
also are thinking you have got to get ahead of your 
competitors, so you need to get back in there. And so, you are 
starting to make those investment and business decisions, not 
only even based on a 6-month window or 12-month window, but you 
are probably assuming that the administration is going to renew 
this interim agreement for further periods of 6 or 12 months. 
And so, you have got the auto sanctions relief, and now your 
opportunity to exploit a market that the Boston Consulting 
Group says is the world's third most promising auto sector, 
after Indonesia and Mexico.
    So, this is significant sanctions relief. Again, for 
nuclear concessions that is--as David Albright has said, may be 
important, but are also reversible and may not get to the heart 
of Iran's military nuclear program.
    The Chairman. And finally, on oil relief, it seems to me--
and one of the reasons that I did not want to continue, because 
I wanted to get to both of you--is that my understanding of the 
oil relief is that, actually, there can be a permission to 
purchase more than the latest reduction. Because what is going 
to happen is, there is going to be an averaging out or a means 
of the overall reductions over time. If that is the case, then 
not only is the amount of money underestimated by forgoing the 
additional 6 months of reductions that the law presently calls 
for, which are foregone, but you also have an increase in the 
amount of purchase that would be permissible for those 
countries that have received exceptions. Because if you average 
it out, the lowest point being the present point, but a higher 
point at a different time, that means you are going to rise the 
amount of oil that you can purchase.
    Mr. Dubowitz. Well, that is exactly right. I mean, there 
are some interesting indicators on where the oil issue may be 
going. First of all, President Rouhani has assumed, in his 
budget, that Iran will be exporting 1.5 million barrels per 
day. So, on the assumption that President Rouhani, if he is a 
better economic manager than his predecessor, is being 
conservative, you would assume that he has some expectation 
that, over the next 12 months, he is going to be able to export 
1.5 million barrels per day.
    The second interesting economic indicator is that Iran's 
oil exports in October were actually down to about 760,000 
barrels a day. They have now recovered, in January, to about 
1.2 million. And so, you are starting to see the ``Geneva 
effect'' already on Iran's oil exports as they begin to recover 
from 700,000 to over a million barrels.
    And a third----
    The Chairman. And do you----
    Mr. Dubowitz [continuing]. The third issue, if I could 
just----
    The Chairman. Go ahead.
    Mr. Dubowitz [continuing]. Just quickly finish on this--and 
that is that, you know, your legislation closed a very 
important loophole that the Iranians have been exploiting, 
which allowed them to export $1.6 billion a month in fuel oil 
and condensates. So, over the 6-month period of the Geneva 
agreement, because the legislation has not come into effect, 
Iran will earn $9.6 billion in fuel oil and condensate revenue, 
in addition to what they are earning on the oil side.
    So, in total, you have got an oil sector that I believe the 
Iranians have estimated is going to start to recover. These 
barrels are going to start to flow. And I think the net effect 
of this--and just to tie this into Dr. Albright's testimony, 
is--if we even get a comprehensive deal with Iran, what 
leverage do we have left to ensure verification and enforcement 
of that deal? We are putting a lot of faith in the IAEA, and 
even in the additional protocol.
    You know, if you read the Pentagon's Defense Science Board 
report that was recently released, you see that our history of 
detection of breakout is not good. And the question is, Even if 
we do detect Iranian breakout, how do we enforce it? When the 
Iranians engage in what they always do, which is, they engage 
in incremental cheating on their nuclear program, are we going 
to have the tough sanctions still in place so that we can lower 
the economic boom in order to force them back into compliance? 
Or will we have traded away all our economic leverage so that 
we will have no enforcement mechanism left, beyond threatening 
military strikes every time the inspectors are not allowed into 
a facility? And I worry about that the administration has not 
done enough thinking, post deal, on what kind of enforcement 
mechanism we are going to retain to ensure that the Iranians 
continue to comply with their responsibilities.
    The Chairman. And I think that is a critical question. When 
I looked at Director of Intelligence Clappers' statement 
before-- 
I guess it was, the Intelligence Committee that he made the 
statement--that, in fact, Iran possesses, as we heard here, 
Secretary Sherman say, `` We have all the knowledge.'' The 
question is, Have they made the decision to finally move 
forward toward nuclear weapons? Everything else is intact. So, 
if you have knowledge intact, and then if you have nuclear 
infrastructure intact, you are just steps away from when you 
make that decision of moving forward.
    And, to the extent that Iran has arrested, if it has, 
itself for making that decision, it is only because of the 
consequences of sanctions that have been levied and enforced 
that have the Ayatollah thinking about regime change, not from 
without, but from within.
    And, to the extent that that equation goes by the wayside, 
that there is no economic pressure to have the Ayatollah be 
concerned about regime change, which is his primary purpose--to 
preserve the regime, not to have it changed--then it changes, 
it seems to me, the Iranian equation as to their drive to 
strike the type of deal that we have defined here would be 
necessary. And that is a real concern.
    And ultimately, if we do not have the extensive list that 
Dr. Albright has listed, and that I think others would agree 
to, then we will fall short the regime's--the sanctions regime 
will evaporate, and the only question for a future American 
President, if Iran, having still a infrastructure that is 
largely, I will say, mothballed--having the knowledge and then 
making the decision, there will be no sanctions--no time to 
enforce--to create--re-create an international order and have 
sanctions be able to be pursued. So, that equation will be off 
the table, and the only thing left for any President will be, 
``Do I accept a nuclear-armed Iran, and what that means to the 
whole--that whole part of the world, or do I have a military 
strike?'' That is an unenviable position to be in when, in 
fact, we could be in a much better position.
    I see, Dr. Albright, you were leaning to try to make a 
remark. I am not eliciting one, but if you have one, I am happy 
to entertain it.
    Mr. Albright. No, I agree with you. I am thinking about 
what you were saying. And I think the--I mean, it reinforces 
the need to both cut down the size of the program dramatically 
and increase the verification. And I think, in the cases that 
we have, that, when you have those two combinations, you can 
verify it. I mean, U.S. intelligence may fail. But, again, I 
would argue, it is Western intelligence, working together, and 
combined with the cutback and the very intrusive verification, 
can give you enough of a warning to provide sufficient time to 
mount a new effort. But, if in your case, you do not cut it 
back enough, then I would agree that that could be what a 
future President faces: accept it or go to war.
    Mr. Dubowitz. But, Chairman Menendez, I mean, I think, to 
your point, you know, my concern is that the verification could 
be perfect, the detection could be perfect, but if you actually 
no longer have an option, beyond a military strike, then you 
are in exactly the situation you have described, which is a 
President--a future President who is in the position to choose 
between nuclear breakout or a military response. I think what 
you have done, what your committee has done, what I think you 
are attempting to do with S. 1881, is, you are attempting to 
retain important economic leverage, which provides for a 
peaceful response to detection. It sends a message to the 
Supreme Leader that, ``If you do try and cheat, and every time 
you do cheat, we are going to lower the economic hammer on you, 
and that is going to create the kind of domestic discontent 
that you are going to have to wrestle with and that may be a 
threat to your regime's survival.''
    Again, my fear is that, despite the best work of David 
Cohen and, you know, Peter Harrell and Amos Hochstein and all 
the folks at Treasury and State who are dedicated public 
servants who have done a tremendous job, that the market 
dynamics are shifting, that market psychology is changing, and 
that Rouhani and the Supreme Leader understand that they can 
continue to diminish the efficacy of our sanctions. Because, 
ultimately, greed drives markets. And if greed overrides fear, 
every company armed with a battery of lawyers, or an army of 
lawyers, is going to find a way back into Iran, despite the 
best assurances of David Cohen and others.
    The Chairman. Well, with the thanks of the committee for 
both of your testimony and your work, we look forward to 
continuing to engage with you as we review the progress, or 
lack thereof, made in the days ahead.
    The record will remain open until the close of business on 
Thursday.
    And this hearing is adjourned.
    [Whereupon, at 1:22 p.m., the hearing was adjourned.]
                              ----------                              


              Additional Material Submitted for the Record


        Responses of Under Secretary Wendy Sherman to Questions 
                  Submitted by Senator Robert Menendez

    Question. Does the administration have an objective for re-setting 
the break-out clock for Iran's nuclear program? What specific steps are 
necessary to increase Iran's break-out time to 6 months? To 1 year? 
More than 1 year? Would Iran have to close the Fordow enrichment site? 
How many centrifuges would Iran need to dismantle?

    Answer. We are focused on achieving a long-term comprehensive 
solution that resolves fully the international community's concerns 
regarding Iran's nuclear program, and verifiably ensures that Iran's 
nuclear program is exclusively peaceful and that Iran does not acquire 
a nuclear weapon. We have always been clear in our discussions with 
Iran that, as part of a comprehensive solution, Iran will be expected 
to place strict limits and constraints on its nuclear program. In 
particular, the JPOA specifies that the comprehensive solution would 
involve a ``mutually defined enrichment programme with practical limits 
and transparency measures to ensure the peaceful nature of the 
programme.'' Moreover, addressing the long-term status of Fordow will 
be a priority in the negotiations for the long-term comprehensive 
solution. Under a comprehensive solution, Iran would also be subject to 
enhanced verification and monitoring measures to verify the exclusively 
peaceful nature of its nuclear program.

    Question. What duration is necessary for the long-term monitoring 
and verification regime of any final comprehensive agreement? Given the 
extensive history of Iran's nuclear program isn't a minimum of 20 years 
necessary to assure the world Iran has given up its nuclear ambitions?

    Answer. Any comprehensive solution would have to be of a long-term 
duration, address fully the international community's concerns 
regarding Iran's nuclear program, and ensure that Iran does not acquire 
a nuclear weapon. Iran would also be subject to enhanced verification 
and monitoring measures for the duration of the comprehensive solution, 
which would provide verifiable assurances to the international 
community that Iran's nuclear activities will be exclusively peaceful.

    Question. What proliferation risks remain if Arak is transformed 
into a light-water reactor? Is it possible to produce weapon-grade 
plutonium with a light water reactor? Over the last 30 years, we have 
seen a significant decline in the U.S share of the market and in our 
ability to promote national security objectives through peaceful 
nuclear cooperation. What are the principal reasons behind this 
decline?

    Answer. The current design for the Arak heavy water research 
reactor raises a number of proliferation concerns. The reactor is 
designed to use natural uranium fuel, which the use of a heavy water 
moderator makes possible. This design is well-suited to the production 
of significant quantities of weapon-grade plutonium, and poorly suited 
to the reactor's stated purpose of producing medical isotopes. This is 
why the Joint Plan of Action requires that Iran make no further 
advances on the Arak reactor.
    A light water research reactor fueled with low-enriched uranium 
will be more efficient for isotope production and less capable of 
producing weapons-grade plutonium. While any reactor can in principle 
be used to produce weapon-grade plutonium, a light-water reactor can be 
designed to make it harder to misuse the reactor to produce weapon-
grade plutonium, and effective International Atomic Energy Agency 
safeguards can make such misuse relatively easy to detect.
    In his April 2009 Prague address, President Obama said that we must 
develop ``a new framework for civil nuclear cooperation, including an 
international fuel bank, so that countries can access peaceful power 
without increasing the risks of proliferation.'' Our commitment to that 
vision remains steadfast today. While we have seen a decline of the 
U.S. share in the global nuclear market, particularly given the 
emergence of several new suppliers, the United States is working to 
reinvigorate our nuclear industry to develop a new generation of safe, 
clean nuclear power plants in the United States. At the same time, we 
are working with our international partners to ensure that all 
countries in compliance with their international nuclear obligations 
can access nuclear energy for peaceful purposes in accordance with the 
highest standards of safety, security, and nonproliferation.
                                 ______
                                 

        Responses of Under Secretary Wendy Sherman to Questions 
                    Submitted by Senator Bob Corker

    Question. Both you and President Obama have hinted at an endgame 
for negotiations that would leave Iran with a limited domestic 
enrichment capability, but as you describe it ``with staggering 
constraints, monitoring, and verification,'' so that they cannot 
achieve nuclear breakout without detection.

   Please explain your goal for this final round of 
        negotiations and what it means in terms of number of 
        centrifuges, stockpiles, underground facilities and 
        weaponization activities. In other words, what are the minimum 
        criteria for success in this final round?
   What is your strategy to negotiate an endgame that brings 
        Iran into compliance with six U.N. Security Council 
        resolutions, which not only demand full and sustained 
        suspension of enrichment but also prohibit Iran from 
        undertaking ``any activity related to ballistic missiles 
        capable of delivering nuclear weapons, including launches using 
        ballistic missile technology''? Would you accept anything less 
        in a final deal?

    Answer. We are focused on achieving a long-term comprehensive 
solution that resolves fully the international community's concerns 
regarding Iran's nuclear program and verifiably ensures that Iran's 
nuclear program is exclusively peaceful. We have always been clear in 
our discussions with Iran that, as part of a comprehensive solution, 
Iran will be expected to place strict limits and constraints on its 
nuclear program. Under a comprehensive solution, Iran would also be 
subject to enhanced verification and monitoring measures to verify the 
exclusively peaceful nature of its nuclear program.
    Furthermore, as we prepare to begin negotiations on a long-term 
comprehensive solution, we have been clear Iran must address the United 
Nations Security Council (UNSC) resolutions related to its nuclear 
program as part of a comprehensive solution. Among the measures imposed 
on Iran, UNSC Resolution 1929 bans launches of ballistic missiles 
capable of delivering nuclear weapons, and thus this will be among the 
issues that must be dealt with in negotiations on a comprehensive 
solution.

    Question. Some observers have commented that the administration's 
strategy is to get Rouhani ``hooked on cash,'' so to speak, through 
sanctions relief, in order to entice him toward a final deal. Is this 
part of the administration's strategy? Please explain what evidence and 
logic supports this theory.

    Answer. Over the past several years, U.S. and international 
sanctions have added substantial pressure on Iran's economy, which has 
also been buffeted by the Iranian Government's mismanaged economic 
policies. It is clear that sanctions incentivized Iran to come to the 
table and commit to important nuclear steps under the Joint Plan of 
Action (JPOA). Given that the sanctions relief we are providing is both 
modest and reversible--and unlikely to be sufficient to revitalize 
Iran's economy--the Iranians may be eager for more sanctions relief 
soon. After all, the $7 billion of estimated relief is a drop in the 
bucket compared with what remains blocked around the world, what Iran 
needs each year to fund its imports, and what Iran needs to close its 
budget deficit.
    If Iran is prepared to take the necessary steps that give us 
confidence that its nuclear program is entirely peaceful, then we are 
prepared, in consultation with Congress, to offer additional sanctions 
relief. But if the Iranians are unwilling to negotiate credibly toward 
a comprehensive solution, we will work with Congress to increase 
pressure.

    Question. We all respect the enormous diplomatic challenge facing 
you and your team. Your EU counterpart, Catherine Ashton, said 
yesterday that you will take the necessary time to seal what will be an 
``extremely difficult'' deal, even if that means extending the 6-month 
timeline.

   1. Explain to us exactly what will happen in 6 months, on 
        July 21, 2014, if you have not reached a comprehensive 
        agreement.
   2. If you renew the interim agreement by ``mutual 
        consent,'' what types of sanctions relief will you have to 
        provide in order to keep Iran at the negotiating table, beyond 
        what has already been granted?

    Answer. The Joint Plan of Action expires 6 months from the January 
20 implementation date. There is no automatic renewal or extension of 
the relief the P5+1 is providing to Iran. The plan can only be renewed 
by mutual consent. If the P5+1 agree to renew it, we would have to 
decide whether, and if, to provide additional relief. We want to ensure 
that the first step does not become the status quo, hence the tight 
timeline.

    Question. The JPA describes a comprehensive agreement that will 
``comprehensively lift U.N. Security Council, multilateral and national 
nuclear-related sanctions.''

   What is your definition of a nuclear-related sanction vs. a 
        non-nuclear-related sanction?
   Given that you have exercised waivers of statutory 
        sanctions to implement the interim deal, in order to 
        comprehensively lift sanctions as part of a final deal, do you 
        intend to come to Congress for legislative action vs. 
        continually renewing your waivers?

    Answer. We and our P5+1 partners are just beginning negotiations 
with Iran on a comprehensive solution. Thus it is premature at this 
stage to describe in detail the scope, timing, and nature of the 
sanctions relief that might be part of the comprehensive solution. The 
JPOA envisions comprehensive relief from nuclear-related sanctions, the 
context of which will be subject to negotiations. We have made clear 
that, for example, sanctions arising from Iran's designation as a state 
sponsor of international terrorism are not on the table. We are 
committed to remaining in touch with Congress as our approach to this 
matter develops.

    Question. This weekend, the Iranian Supreme Leader's representative 
at the Islamic Revolution Guards Corps (IRGC), Ali Saeedi, boasted that 
Iran's borders now ``have stretched to the Mediterranean coasts.'' How 
would a comprehensive nuclear agreement affect Iran's broader ambitions 
and the balance of power in the region?

    Answer. Iran's senior military leadership frequently makes boastful 
statements about Iran's military capabilities and claims on territorial 
boundaries. We believe this to be one of them. The Joint Plan of Action 
does not alter our commitment to regional security, nor the security of 
our allies in the region. We entered these discussions clear-eyed about 
Iran's history and destabilizing activities in the region, and will 
continue to be vigilant going forward.
    Per the Joint Plan of Action, Iran must address the U.N. Security 
Council resolutions related to its nuclear program before a 
comprehensive resolution can be reached. Among other things, U.N. 
Security Council Resolution 1929 prohibits all activities involving 
ballistic missiles capable of delivering nuclear weapons.

    Question. The JPOA ``lays out basic elements of the comprehensive 
solution. Among other elements, the final step of a comprehensive 
solution would have a specified long-term duration to be agreed upon 
and reflect the rights and obligations of parties to the Non-
Proliferation Treaty and IAEA Safeguards Agreements.'' Some have 
suggested this amounts to a sunset clause for the comprehensive deal 
you are pursuing, after which point the Iranians will be able to expand 
the scope and size of their nuclear program.

   What is the ``long-term duration'' you are pursuing? In 
        other words, how long will you demand that the Iranians abide 
        by the terms of the comprehensive agreement?
   If nuclear expert David Albright has testified that the 
        comprehensive solution should have conditions without a defined 
        duration, and conditions that last at least 20 years, can the 
        administration assure us that their ``long-term duration'' will 
        meet these minimum criteria?

    Answer. Any comprehensive solution would have to be of a long-term 
duration, address fully the international community's concerns 
regarding Iran's nuclear program, and ensure that Iran does not acquire 
a nuclear weapon. Iran would also be subject to enhanced verification 
and monitoring measures, which would provide verifiable assurances to 
the international community that Iran's nuclear activities will be 
exclusively peaceful.
                                 ______
                                 

         Responses of Under Secretary David Cohen to Questions 
                    Submitted by Senator Bob Corker

    Question. The World Bank projects that, in addition to significant 
drops in inflation, Iran's real GDP is expected to grow by 1.0 percent 
in 2014, 1.8 percent in 2015, and another 2.0 percent in 2016. This is 
in sharp contrast to the last 2 years where the Iranian GDP contracted 
by 1.5 percent in 2013 and 2.9 percent drop in 2012.

   a. How will Iran's economic improvement affect the 
        negotiations?

    Answer. During the period covered by Joint Plan of Action (JPOA) 
between the P5+1 and Iran, the United States and its allies have 
retained negotiating leverage, because the vast majority of our 
sanctions have remained in place and Iran's economy has not improved 
enough to quench Iran's desire for further sanctions relief.
    Although Iran has seen a slight improvement in a few economic 
indicators, the cumulative impact of sanctions on Iran's oil, banking, 
financial, and energy sectors continue to place significant strains on 
the Iranian economy. Although the JPOA provided limited, temporary, and 
reversible relief, the most potent sanctions remain firmly in place and 
Iran's economy remains under enormous pressure. Because of the 
continued economic pressure, revenues have remained significantly 
depressed and Iran has continued to struggle to finance its imports, 
fund government operations, and defend the value of its currency. The 
burden of our sanctions is a central factor motivating Iran to 
negotiate a serious and comprehensive solution to our concerns over 
their nuclear program. I remain firmly committed to vigorously 
enforcing these powerful sanctions as we attempt to negotiate a 
comprehensive solution with Iran.
    Although the World Bank projects slight growth in the Iranian 
economy in coming years, it is important to put this into context. Iran 
is digging itself out of an economic hole because of international 
sanctions and the Iranian Government's economic mismanagement. The 
Central Bank of Iran itself claimed that the Iranian economy contracted 
by nearly 7 percent during the Persian year ending in March 2013 and it 
contracted more than 3 percent in the first 9 months of the most recent 
Persian year. Any growth in the Iranian economy in future years will be 
from a greatly diminished base and will largely depend on the Iranian 
Government's ability to weather the existing sanctions that remain in 
place, which is not certain.

   b. How are you measuring the effect of sanctions relief on 
        Iran's economic recovery?

    Answer. We estimate that the sanctions relief contained in the JPOA 
would be about $6 billion to $7 billion. This includes (1) the $4.2 
billion in restricted Iranian funds that we are allowing Iran to access 
in installments until July; (2) the modest additional revenue Iran 
could get from exporting petrochemicals or autos during the JPOA 
period, although Iran has found it difficult to initiate new contracts 
given the short duration of the JPOA; and (3) the $400 million we are 
enabling Iran to access from restricted funds for tuition payments.
    Consistent with commitments in the JPOA, the United States has 
suspended efforts to press the few remaining countries that buy Iranian 
crude to further reduce their imports, and we continue to monitor 
Iran's oil exports to ensure that they do not increase. The funds that 
Iran is earning as a result of the pause on further reductions continue 
to be paid into accounts restricted by our sanctions, so it has not 
provided additional economic benefit to Iran.
    Iran's purchase or sale of gold carries little economic value 
because we have not allowed Iran to buy gold using funds that remain 
restricted by our sanctions in overseas accounts. If Iran decides to 
use its much more limited accessible reserves to buy gold, this will 
simply represent the trading of one liquid asset for another, less 
liquid one.
    Finally, the P5+1 has facilitated humanitarian transactions, 
medical payments incurred by Iranians abroad, and U.N. obligations. We 
have also expedited the processing of licenses for spare parts, safety 
inspections, and repairs for the safety of flight of Iranian civil 
passenger aircraft. Many of these activities, particularly humanitarian 
transactions, are already permitted by most United States and EU 
sanctions, so we expect the economic benefit to Iran is minimal.
    Perhaps most importantly, the JPOA leaves the core architecture of 
our sanctions in place and does not deliver comprehensive relief. With 
our most potent sanctions intact, the United States is committed to 
enforcing existing sanctions on Iran's oil, banking, financial, and 
energy sectors as we pursue a comprehensive solution. The pressure we 
have put in place has caused the Iranian economy to massively 
underperform, and we will not ease up until a comprehensive solution is 
reached. Maintaining pressure on Iran helped bring about the JPOA and 
has been a critical component in the negotiations with Iran.

    Question. Secretary Kerry has recently expressed his concern to 
Russian officials about reports that Iran and Russia are negotiating an 
oil-for-goods swap worth $1.5 billion a month. You and your team are at 
the vanguard of holding the current sanctions regime together.

   a. Please describe in detail your efforts to prevent this 
        deal as well as the message you are sending to foreign business 
        delegations that are exploring business opportunities in Iran.

    Answer. The administration has conveyed to the Russian Government 
at the highest levels and in the strongest possible terms our 
opposition to any potential commercial or financial activity that 
triggers our sanctions and falls outside the scope of the limited 
sanctions relief contemplated in the JPOA. We have also told the 
Russian Government that an oil-for-goods swap could trigger U.S. 
sanctions against any Russian company or financial institution 
connected with this proposed deal.
    More broadly, my colleagues and I have traveled the world to send 
the message to foreign companies that Iran is not open for business. 
Our message to foreign companies and financial institutions is simple: 
We are prepared to act against anyone, anywhere, who engages in 
sanctionable economic activity outside of the scope of relief provided 
pursuant to the JPOA. As President Obama said on February 11, we will 
fully enforce our existing sanctions for the duration of the JPOA and 
will ``come down like a ton of bricks'' on those that engage in 
sanctionable economic activity outside the confines of the JPOA.

   b. Will you commit to enforcing sanctions on Russia should 
        this deal come to fruition?

    Answer. No country or entity is off limits for sanctions 
enforcement. The administration has told the Russian Government at the 
highest levels that we are prepared to act against those involved in 
sanctionable conduct. We demonstrated our resolve to act against 
entities in Russia that violate our sanctions when we reached a $9.5 
million settlement with the Bank of Moscow in January to settle 
potential civil liability for transfers it sent to or through U.S. 
banks for, or on behalf of, Bank Melli Iran ZAO, a sanctioned entity. 
Our enforcement actions and designations against those that engage in 
sanctionable conduct clearly signal our willingness to take action and 
should deter Russian and other entities from engaging in sanctionable 
activities.

    Question. How much economic value would you assign to changing 
market expectations in Iran? Do you consider the following evidence of 
increasing market optimism--businesses flooding into Tehran, reports of 
foreign companies exploring the Iranian market, Renault resuming 
shipments to Iran for vehicle assembly, agreements made between Iran 
and Turkey on economic, cultural, political, trade, banking, and 
customs cooperation?

    Answer. Positive market sentiment in Iran will be short-lived and 
of negligible value absent further sanctions relief, which we will not 
provide unless Iran reaches a comprehensive solution with the P5+1 that 
ensures its nuclear program is exclusively peaceful.
    Any improvement in the market expectations for Iran--which predated 
the JPOA and likely stemmed from the election of President Rouhani--
will not fix the fundamentals of the Iranian economy. Iran is in a deep 
economic hole because of our sanctions and its government's economic 
mismanagement. The continuing impact of the sanctions that remain in 
place is powerful. Pursuant to the JPOA, Iran will only receive limited 
sanctions relief estimated to be worth about $6 billion to $7 billion. 
With Iran's economy valued at about $480 billion, and the overwhelming 
majority of sanctions remaining in place, this relief will not provide 
the boost Iran needs to achieve significant economic growth.
    The Iranian Government is intensely focused on changing the 
narrative about the risks associated with doing business in Iran. To 
counteract Iran's attempts to derive economic gains by attracting 
foreign investment and new commercial opportunities, I have traveled 
the world to convey the message that Iran is not open for business. 
Throughout the JPOA's duration, I have explained to government 
counterparts and private sector executives in the U.K., Germany, Italy, 
Austria, Turkey, and the United Arab Emirates that we will identify, 
target, and take action against those that trigger our complex and 
robust sanctions that continue in effect under the JPOA. My colleagues 
across the U.S. Government have carried the same message to 
interlocutors in France, Russia, China, Japan, and South Korea, and 
elsewhere.

    Question. In February 2012, the Wall Street Journal reported that 
Turkey's state-owned bank, Halkbank, was processing ``payments for 
Indian refiners unable to pay Tehran for imported oil through their own 
banking system for fear of retribution from Washington,'' and that the 
Turkish bank was responsible for Turkey's ``gas-for-gold'' transactions 
with Iran despite an Executive order issued by the Obama administration 
prohibiting gold payments to the Government of Iran. As Turkey's Deputy 
Prime Minister Ali Babacan frankly admitted, Turkey's ``gold exports 
[to Iran] end up like payments for our natural gas purchases.''

   a. Why did the Treasury Department fail to crack down on 
        gas-for-gold scheme before it was reported by the Wall Street 
        Journal?

    Answer. The Wall Street Journal's November 2012 report on the 
``gas-for-gold'' scheme came after the issuance of Executive Order 
(E.O.) 13622, on July 30, 2012, which for the first time made 
sanctionable the purchase or acquisition of precious metals, including 
gold, by the Government of Iran. After E.O. 13622 was issued, and in 
response to U.S. engagement with the Turkish Government and private 
sector actors, Turkey's gold exports to Iran plummeted by more than 90 
percent, according to Turkish customs statistics.
    Treasury has a strong record of aggressively pursuing Iran's 
financial networks and implementing sanctions against Iran and those 
individuals and entities that violate our sanctions, though I cannot 
comment on possible enforcement investigations. In the case of gold, we 
quickly cracked down Iran's gold purchases when Iran's sudden increase 
in gold purchases gave rise to concerns that Iran could use gold to 
evade our sanctions.

   b. And once it became publicly clear this activity was 
        ongoing, why did the administration request that the sanctions 
        used to plug this loophole be delayed another 6 months, thereby 
        granting Turkey and other countries a 6-month exemption from 
        the tougher gold sanctions?

    Answer. Iran's ability to pay for gold imports from Turkey from the 
funds generated by its oil and gas exports to Turkey was largely 
restricted after the issuance of E.O. 13622. As noted above, Turkey's 
gold exports to Iran plummeted by more than 90 percent, according to 
Turkish customs statistics, in the months after E.O. 13622 was issued.
    Congress, working jointly with the administration, ultimately 
decided that a 
6-month delayed implementation date was the best approach for nearly 
all of the financial provisions in the Iran Freedom and Counter-
Proliferation Act of 2012 (``IFCA'')--not only the gold-related 
sanctions. IFCA was introduced on the heels of the Iran Threat 
Reduction and Syria Human Rights Act of 2012 (the ``TRA''). At that 
time, many portions of the TRA had yet to be implemented--including 
section 504 of the TRA, a cornerstone provision that restricted access 
to Iranian oil proceeds except for qualifying bilateral or humanitarian 
trade. Congress recognized that implementing a new round of sanctions 
in IFCA before we had finished implementing the TRA would have posed 
challenges, such as the ability to garner international support and 
dedicate sufficient resources for effective implementation.

   c. This loophole allowed Iran to receive over $100 billion, 
        and $1.3 billion in gold payments in the first quarter of 2013 
        alone. Was this loophole maintained to grease the secret 
        discussions with Iranian officials in Oman at that time?

    Answer. The claim that Iran has been able to access more than $100 
billion in a ``gas-for-gold'' scheme cannot possibly be true. This is 
inconsistent with the weak macroeconomic indicators we are seeing in 
Iran today and inconsistent with all-source intelligence reporting. The 
cited $100 billion represents more than twice the value of Iranian oil 
exports last year and is approximately the same value as Iran's total 
foreign currency holdings, which are mostly restricted or inaccessible.
    The $1.3 billion in Iranian gold purchases from Turkey during the 
first 6 months of 2013 were largely the product of Iranian individuals 
and companies attempting to find a stable store of value while facing 
the depreciating value of the rial. This search for other assets is 
largely what contributed to the steep decline in the rial's value in 
2012 and early 2013.
    Discussions with Iran in 2013 did not factor into any of the 
Department of the Treasury's discussions with Congress regarding IFCA-
related sanctions on Iran.
                                 ______
                                 

        Responses of Under Secretary Wendy Sherman to Questions 
                    Submitted by Senator Jeff Flake

    Question. The administration has said they will vigorously enforce 
the remaining sanctions on Iran and will take action against entities 
that abuse the sanctions relief. Vigorous enforcement will be crucial 
to ensure companies do not reenter the Iranian market above what is it 
permitted under the sanctions relief. As Under Secretary Cohen said 
last week in Turkey, ``Businesses interested in engaging in Iran really 
should hold off. The day may come when Iran is open for business, but 
the day is not today.''

   What areas of sanctions relief raise the most concern that 
        they might be prone to abuse by bad actors looking to make a 
        quick profit?

    Answer. We have made abundantly clear to both foreign governments 
and the private sector that, with the exception of the limited and 
temporary relief offered under the Joint Plan of Action (JPOA), we will 
vigorously enforce all existing sanctions on Iran throughout the 
duration of JPOA implementation, including prohibitions on investment 
in Iran's energy sector, the purchase of Iranian oil by new customers, 
and a wide range of other commercial and financial activities. This 
commitment is ironclad, and we closely track Iran's economic activities 
every day. There is not one area of the sanctions relief that causes us 
particular concern, as the parameters of the JPOA are narrow and 
international companies know well our commitment to punishing those who 
exceed them.

    Question. I'm concerned that the 6 months to a year envisioned for 
negotiations on a final agreement will be extended and then extended 
again and the talks will just drag on. Former Secretary of Defense 
Gates put it well, saying recently, ``I think there ought to be a firm 
deadline at 6 months. I think the Iranians are world-class experts in 
slow-rolling their negotiating partners or adversaries.''

   Under Secretary Sherman, what happens in July if no 
        agreement is reached? Are we going to offer Iran more sanctions 
        relief not to restart its program? Would it be acceptable to 
        the administration for Iran's nuclear program to continue at 
        current levels?

    Answer. The Joint Plan of Action expires 6 months from the January 
20 implementation date. There is no automatic renewal or extension of 
the relief the P5+1 is providing to Iran. The Plan can only be renewed 
by mutual consent. If the P5+1 agree to renew it, we would have to 
decide whether and if to provide additional relief. We want to ensure 
that the first step does not become the status quo, hence the tight 
timeline.

    Question. White House Press Secretary Jay Carney recently said Iran 
will be required, under a comprehensive solution . . . to dismantle 
``significant portions of its nuclear infrastructure.'' Yet in an 
interview with CNN's Fareed Zakaria, President Rouhani said there will 
be no destruction of any existing centrifuges and that Iran will not 
accept limitations regarding its nuclear technology research and 
development.

   Given these statements, what are the prospects for reaching 
        a final agreement that ensures Iran cannot produce a nuclear 
        weapon? Can you define what the dismantlement of a significant 
        portion of Iran's nuclear infrastructure might look like?

    Answer. The P5+1 and EU will meet with Iran in Vienna on February 
18 to begin negotiations on a long-term comprehensive solution that 
will fully address the international community's concerns regarding 
Iran's nuclear program. Such a solution would provide verifiable 
assurances to the international community that Iran's nuclear 
activities will be exclusively peaceful and ensure that Iran does not 
acquire a nuclear weapon. We have always been clear in our discussions 
with Iran that, as part of a comprehensive solution, Iran will be 
expected to implement strict limits and constraints on its nuclear 
program. Under the terms of the JPOA, Iran has committed itself to a 
number of steps before we finalize a comprehensive solution, including, 
among other things, fully resolving concerns related to the IR-40 
reactor at Arak and addressing the United Nations Security Council 
(UNSC) resolutions with a view toward bringing to a satisfactory 
conclusion the UNSC's consideration of this matter. In addition, Iran 
has committed to implement agreed transparency measures and enhanced 
monitoring. The Joint Commission set up between the P5+1 and Iran to 
oversee the implementation of the JPOA will also work with the 
International Atomic Energy Agency to facilitate the resolution of 
``past and present issues of concern''--which all parties understand 
means the possible military dimensions of Iran's nuclear program.

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