    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                       TERRORISM, MISSILES AND CORRUPTION:
                THE RISKS OF ECONOMIC ENGAGEMENT WITH IRAN

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

                                    HEARING

                                   BEFORE THE

                          COMMITTEE ON FOREIGN AFFAIRS
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  MAY 12, 2016

                                   __________

                               Serial No. 114-180

                                   __________

            Printed for the use of the Committee on Foreign Affairs

     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Available via the World Wide Web: http://www.foreignaffairs.house.gov/
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                          COMMITTEE ON FOREIGN AFFAIRS

                     EDWARD R. ROYCE, California, Chairman
    CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
    ILEANA ROS-LEHTINEN, Florida         BRAD SHERMAN, California
    DANA ROHRABACHER, California         GREGORY W. MEEKS, New York
    STEVE CHABOT, Ohio                   ALBIO SIRES, New Jersey
    JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
    MICHAEL T. McCAUL, Texas             THEODORE E. DEUTCH, Florida
    TED POE, Texas                       BRIAN HIGGINS, New York
    MATT SALMON, Arizona                 KAREN BASS, California
    DARRELL E. ISSA, California          WILLIAM KEATING, Massachusetts
    TOM MARINO, Pennsylvania             DAVID CICILLINE, Rhode Island
    JEFF DUNCAN, South Carolina          ALAN GRAYSON, Florida
    MO BROOKS, Alabama                   AMI BERA, California
    PAUL COOK, California                ALAN S. LOWENTHAL, California
    RANDY K. WEBER SR., Texas            GRACE MENG, New York
    SCOTT PERRY, Pennsylvania            LOIS FRANKEL, Florida
    RON DeSANTIS, Florida                TULSI GABBARD, Hawaii
    MARK MEADOWS, North Carolina         JOAQUIN CASTRO, Texas
    TED S. YOHO, Florida                 ROBIN L. KELLY, Illinois
    CURT CLAWSON, Florida                BRENDAN F. BOYLE, Pennsylvania
    SCOTT DesJARLAIS, Tennessee
    REID J. RIBBLE, Wisconsin
    DAVID A. TROTT, Michigan
    LEE M. ZELDIN, New York
    DANIEL DONOVAN, New York

         Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

                   Jason Steinbaum, Democratic Staff Director

                                C O N T E N T S

                                  ----------
                                                                       Page

                                   WITNESSES

    The Honorable Juan C. Zarate, chairman, Financial Integrity
      Network........................................................     4
    Mr. Mark Dubowitz, executive director, Foundation for the Defense
      of Democracies.................................................    28
    Ms. Elizabeth Rosenberg, senior fellow and director, Energy,
      Economics and Security Program, Center for a New American
      Security.......................................................    69

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    The Honorable Juan C. Zarate: Prepared statement.................     7
    Mr. Mark Dubowitz: Prepared statement............................    31
    Ms. Elizabeth Rosenberg: Prepared statement......................    71

                                    APPENDIX

    Hearing notice...................................................   106
    Hearing minutes..................................................   107
    The Honorable Eliot L. Engel, a Representative in Congress from
      the State of New York: Material submitted for the record.......   109
    The Honorable Gerald E. Connolly, a Representative in Congress
      from the Commonwealth of Virginia: Prepared statement..........   111
    The Honorable Michael T. McCaul, a Representative in Congress
      from the State of Texas: Questions submitted for the record to
      the panel......................................................   113

                           TERRORISM, MISSILES AND CORRUPTION:
                        THE RISKS OF ECONOMIC ENGAGEMENT WITH IRAN

                                  ----------

                             THURSDAY, MAY 12, 2016

                           House of Representatives,

                         Committee on Foreign Affairs,

                                Washington, DC.

        The committee met, pursuant to notice, at 10:07 a.m., in
    room 2172 Rayburn House Office Building, Hon. Edward Royce
    (chairman of the committee) presiding.
        Chairman Royce. This hearing will come to order. When the
    Obama administration was strong-arming Senate Democrats to save
    its Iran deal, many promises were made. Central to the White
    House storyline was the President's claim that sanctions on
    Iran for terrorism, sanctions on Iran for human rights and
    ballistic missiles ``will continue to be fully enforced.''
        As many will recall, Treasury Secretary Lew said
    unequivocally that ``Iranian banks will not be able to clear
    U.S. dollars through New York, hold correspondent account
    relationships with U.S. financial institutions, or enter into
    financing agreements or arrangements with U.S. banks.'' He
    testified, and I quote, ``Iran, in other words, will continue
    to be denied access to the world's largest financial and
    commercial market.''
        But unfortunately, the administration's words have not
    matched its actions. The administration has meekly responded to
    Iran's provocative acts--thanks in part to the weak U.N.
    Security Council language it agreed to on ballistic missiles.
    And just one Iranian has been sanctioned for human rights
    abuses since negotiations began. Just one.
        Indeed, last month, a top Treasury official publically
    proclaimed that non-nuclear sanctions would undermine the Iran
    agreement. That is the opposite of what the committee was told.
    If Iran objects, the administration bends over backwards to
    accommodate. Effectively, the Supreme Leader now holds the veto
    pen over future Congressional action.
        Iran will keep pushing until the Obama administration stops
    rolling over. Congressional pressure may have knocked the
    administration off their plans--for now--to allow Iran access
    to the U.S. dollar, which is the world's top currency, but the
    administration refuses to rule out a future move. And in the
    meantime, it is actively working other angles to push new
    investment into the Iranian economy.
        Secretary Kerry is in Europe this week taking the odd step
    of reassuring foreign firms that Iran is, in his words, ``open
    for business.'' Other administration officials go so far as to
    say that Iranian economic growth is in our national security
    interest. That is a tough case to make when you consider that
    Iran's Islamic Revolutionary Guard Corps has been labeled
    Iran's ``most powerful economic actor,'' and it was labeled so
    by the U.S. Treasury Department. That is the terrorist IRGC
    that they are talking about. The Iranian Revolutionary Guard
    Corps is Iran's ``most powerful economic actor,'' according to
    our Treasury Department.
        The reality though is that the administration's pep talks
    to international companies to spur investment in Tehran will be
    viewed skeptically. For investment is like a rope. It can't be
    pushed into a country that is corrupt, that holds international
    businessmen hostage, that launches missiles marked ``Israel
    must be wiped out.'' Rather it is pulled into countries that
    are transparent, that respect contracts, and don't threaten
    their neighbors. Banks want maximum certainty. And that just
    won't be found in a country that ranks 130 of 168 on
    Transparency International's corruption index.
        And as we will hear today, a CEO's understanding of their
    company's reputational risk is more powerful than any sanction
    Congress could write. An international banker doesn't want to
    end up on the wrong side of a transaction which unwittingly
    funnels money to Iran's ballistic missile program. And the
    designation of the entire territory of Iran as a ``primary
    money laundering concern''--and that is the way we designate
    it--means just that: Any financial transaction with Iran risks
    supporting the regime's ongoing illicit activities.
        Many of the restrictions left on Iran are intended to
    protect our financial markets from such abuse. The
    international organization charged with countering money
    laundering worldwide declared this year that it is
    ``exceptionally concerned about Iran's failure to address the
    risk of terrorist financing and the serious threat this poses
    to the integrity of the international financial system.''
        That is why my legislation to prohibit the administration
    from allowing the U.S. dollar to be used to facilitate trade
    transactions with Iran and which upholds Iran's designation as
    a ``primary money laundering concern'' is so key.
        Iran is still the world's leading state sponsor of
    terrorism. Until it stops funding terror, until it stops the
    illicit weapons program, it should be treated like the global
    menace it is.
        I now turn to the ranking member for any opening comments
    he may have on our hearing today.
        Mr. Engel. Well, thank you very much, Mr. Chairman. Thank
    you for calling this hearing. And to our witnesses, welcome to
    the Foreign Affairs Committee. We value your time and your
    expertise, especially as the implications of the Iran deal
    begin to unfold.
        I was chuckling this morning that it occurs to me there's a
    lot of Iran expertise on Capitol Hill today. We have a
    Presidential candidate up here meeting with the Speaker who
    told AIPAC about the Iran deal, ``I have studied this issue in
    great detail. I would say actually greater by far than anybody
    else.'' So perhaps he should be one of our witnesses, but I
    would rather have all of you, the three of you today, instead.
        When the details of the agreement were reached last year,
    it appeared that when sanctions were lifted the Iranians would
    receive a windfall to the tune of tens of billions of dollars.
    Last month, Secretary Kerry said that Iran has only come into
    about $3 billion as a result of sanctions relief. Now, I am not
    losing sleep because Iran can't get its hands on huge sums of
    money, but it is worth asking now that the deal is going
    forward, why is Iran seeing just a trickle instead of a surge?
        The explanation, as I understand it, couldn't be less of a
    surprise. Banks don't want to do business with Iran. They
    understand the risks. They see the same patterns of dangerous
    behavior that the rest of the world has seen for years--an
    illegal ballistic missile program, support for terrorist
    groups, human rights abuses, corruption and money laundering.
        So it is no wonder that the Financial Action Task Force,
    what we call FATF, continues to designate Iran as a high risk
    jurisdiction. Just like Iran's leaders, Iran's financial
    institutions don't play by the same rules as the rest of the
    world. As a result, international businesses and financial
    firms want nothing to do with Iran.
        So what does this mean for the deal? I certainly don't
    think we should be making any concessions to Iran beyond the
    scope of what is in the deal. As you know, I voted against the
    deal. In my view, it is reasonable for the United States to
    clarify what is against our law and what is not, what kind of
    business transactions are now in bounds, and what kind of
    activity might run afoul of other laws and sanctions.
        But we have lived up to our end of the bargain. I didn't
    like the deal, but I have no doubt that we will keep our word.
    At the end of the day, if Iran's leaders are unhappy with the
    reluctance of the global business community to play ball, they
    have no one to blame but themselves. If Iran wants to shed its
    pariah status, it needs to abandon the activities that led it
    to isolation in the first place. Stop supporting terrorism.
    Stop suppressing the human rights of the Iranian people. Stop
    building ballistic missiles.
        Incidentally, that is where our focus should be as well,
    continuing to hold Iran's feet to the fire in all of these
    areas. And I know the chairman and I have had many discussions
    and we will hold Iran's feet to the fire.
        Secretary Kerry told this committee last summer, ``We will
    not violate the JCPOA if we use our authorities to impose
    sanctions on Iran for terrorism, human rights, missiles, or any
    other non-nuclear reason. And the JCPOA does not provide Iran
    any relief from U.S. sanctions under any of these, of those
    authorities or other authorities.'' That is a quote from
    Secretary Kerry.
        So when we see ballistic missiles with the words ``Israel
    must be wiped out'' etched on the side in Hebrew from the
    Iranians, when tens of millions of dollars go to Hamas to
    rebuild its network of terror tunnels, when thousands of
    rockets end up in Hezbollah's hands, when Iran continues to
    prop up the Assad regime, Shia militias in Iraq and Houthi
    fighters in Yemen, when we intercept ship after ship carrying
    Iranian weapons, we need to consider whether we are putting
    those existing authorities to their best use.
        I look forward to hearing from our witnesses today about
    what more we can be doing to compel Iran to change course away
    from all these harmful and destabilizing actions. I look
    forward to your testimony. Thank you, Mr. Chairman.
        Chairman Royce. Thank you, Mr. Engel.
        We have a distinguished panel before us this morning. Mr.
    Mark Dubowitz is the executive director of the Foundation for
    Defense of Democracies where he leads projects on Iran on
    sanctions and nonproliferation. He is the author of 15 studies
    examining economic sanctions, and we welcome him back to the
    committee here this morning.
        Mr. Juan Zarate is the chairman and co-founder of the
    Financial Integrity Network. Previously, Mr. Zarate served as
    the Deputy Assistant to the President and Deputy National
    Security Advisor for Combating Terrorism. From Orange County,
    California, Mr. Zarate was also the first ever Assistant
    Secretary of the Treasury for Terrorist Financing and Financial
    Crimes. Welcome again.
        Ms. Elizabeth Rosenberg is a senior fellow and director of
    the Energy, Economics, and Security Program at the Center for a
    New American Security, and previously Ms. Rosenberg served as a
    senior advisor at the Treasury Department.
        So without objection, the witnesses' full prepared
    statements will be made part of the record. Members are going
    to have 5 calendar days to submit any statements or questions
    or any extraneous material for the record. But what we would
    encourage is for our witnesses to summarize their remarks. We
    will start with former Assistant Secretary Zarate and then go
    to Mr. Dubowitz and then Ms. Rosenberg.

    STATEMENT OF THE HONORABLE JUAN C. ZARATE, CHAIRMAN, FINANCIAL
                           INTEGRITY NETWORK

        Mr. Zarate. Chairman Royce, thank you very much for the
    invitation to be here and the honor to testify before this
    distinguished committee. Ranking Member Engel, thank you very
    much as well. I am honored to be on this panel with two great
    colleagues and friends, and so we are going to have a jovial
    panel today. I respect Mark and Liz very much, so thank you
    very much.
        I also want to say, Mr. Chairman, my father and brother are
    here visiting from Orange County, California, so I am very
    proud that they are here to see you and to witness this, so
    thank you very much.
        And a final preambulatory statement here, I want to thank
    you for your leadership and the leadership of this committee,
    former leadership as well, Congressman Ros-Lehtinen, for issues
    that don't often receive a lot of attention in the press.
    Issues like Iran obviously do, but ending conflicts in Africa,
    worrying about proliferation networks, worrying about arms
    trafficking networks like those run by Viktor Bout are all
    things that you have worried about for years and we have worked
    on together, and I want to thank you for that commitment and
    the work of this committee. It has been serious and important.
        Chairman Royce. Thank you for your work in helping put
    Viktor Bout behind bars.
        Mr. Zarate. Thank you, sir. I appreciate that.
        Well, let me now summarize some of the points of my
    testimony. As this committee may be aware, when the JCPOA was
    being debated and when I testified before the Senate I
    expressed deep concerns and reservations about the structure,
    demands, and effects of the nuclear deal on U.S. interests
    especially in anticipation and the likelihood of increased
    belligerence and adventurism from Iran. And as we know and we
    have witnessed, this belligerence has continued and been
    amplified.
        Iran has conducted repeated ballistic missile tests in
    violation of U.N. sanctions and promises further launches.
    Qasam Soleimani, the Iranian general, head of the Quds Force,
    traveled twice to Moscow, at least, in contravention of
    international travel bans to coordinate military cooperation
    with the Russian Government.
        Iran remains the leading state sponsor of terror and has
    continued its direct support to terrorist proxies throughout
    the world from Hezbollah to Iraqi Shiite militias to the Houthi
    rebels in Yemen. Iran has deployed shock troops to Syria to
    fight for, die, and defend the Assad regime, with reports of
    thousands on the ground. Iran has continued to engage in human
    rights abuses internally. It continues to detain two Iranian
    American citizens, and Robert Levinson missing from Kish Island
    since March 2007 remains missing and unaccounted for. And on
    January 12, 2016, we witnessed the Iranian naval forces
    arresting 10 American sailors at gunpoint and broadcasting the
    video of their detention in order to humiliate them and the
    U.S. Navy.
        Unfortunately these actions are not surprising and they
    will continue. But more importantly, the nature of the regime,
    its control of the economy, its willingness to use the
    financial system to pursue all its goals, internally and
    externally, has not changed either. The Iranian system is
    corrupt, lacks transparency at all levels, and is centrally
    controlled by the regime. This along with the uncertainty of
    how the JCPOA, the nuclear deal, will unfold creates enormous
    risk for legitimate international actors and companies
    considering doing business in or with Iran.
        This in part explains why there hasn't been a wave
    legitimate Western businesses investing aggressively or
    operating directly in Iran. The risks are real and they are
    significant and they are under consideration, especially when
    the IRGC remains in control of vast swaths of the Iranian
    economy, when the banks have been misused to finance terror and
    support the regime's causes, when the clerical regime controls
    bonyads worth billions of dollars raising issues of kleptocracy
    and corruption.
        And there is no sign that the Iranians will stop using the
    financial system for illicit purposes. In fact, the U.S.
    Government and international bodies like the FATF have declared
    the Iranian system's Central Bank as primary money laundering
    concerns and reason to have high risk and posture toward their
    activities.
        So this complicated risk environment has dissuaded most
    legitimate companies from doing business. There is the risk of
    existing sanctions, secondary sanctions, remaining EU and U.N.
    sanctions, the potential for enforcement not just by the U.S.
    Treasury but by other authorities. Also, the fundamental fact
    that there are financial risks that in 2016 are important for
    financial institutions and businesses to take into
    consideration. We are no longer simply worried about sanctions
    risk in Iran. We are worried about other illicit financing
    risks.
        And certainly it appears that Iran has made it its business
    and its strategy to force the United States and Europe to help
    rehabilitate itself in the international system. This is
    something that we predicted. Something I testified to,
    something we had anticipated they would do and they have.
        But the U.S. shouldn't fall into this trap. We shouldn't be
    in a position of rehabilitating Iran. We shouldn't be sending
    delegations around the world to explain how it is that we can
    do business in Iran legitimately. We should not be undercutting
    our authority by telling European businesses that they need not
    listen to the regulatory policy or other actions of U.S.
    Treasury or regulatory officials, quite the opposite. We should
    be reinforcing the effect and reach and suasion of our
    authorities around the world.
        And certainly we shouldn't be giving Iran the accommodation
    and the ability to use dollars in offshore clearing accounts.
    Facilities that would give them something that certainly was
    not negotiated in the deal but would also give them the benefit
    of international trade and access to dollars. Certainly, not
    when this remains the leading state sponsor of terror and,
    under Section 311 of PATRIOT Act, a primary money laundering
    concern.
        Mr. Chairman, I also think we shouldn't diminish our
    ability to use targeted unwinding as this negotiation unfolds
    to benefit our strategic interests. For example, with respect
    to the Iranian banks, as opposed to simply plugging them back
    into the global system, we should have a system of strictly
    monitoring what is happening in those banks so that we have a
    monitored re-entry into the financial system allowing us both
    to monitor what is happening in those banks, but also giving
    reassurance to the financial system that we understand what is
    happening in and through those institutions.
        Finally, Mr. Chairman, I think the current state of affairs
    reveals that there were some faulty assumptions about where we
    were with the deal. The fact that our power was waning in terms
    of the ability to use financial suasion and tools of exclusion,
    that is not right. The fact that the deal would bring
    diplomatic unity, a reward for good behavior, that is not
    happening. The fact that the JCPOA would open channels for
    discussions with Iran about these other activities, that is not
    happening.
        In short, Mr. Chairman, the aversion to the risks of doing
    business in and with Iran will continue especially if Iran
    demonstrates an unwillingness to stop its provocative and
    dangerous activities. Iran will not be in a position to join
    the international community completely if it does not
    demonstrate clearly that it can engage as a trusted and
    transparent actor in the financial system.
        The onus to prove this should be on Iran's shoulders. Any
    complaints about access to capital markets or investment should
    be posed to the clerical regime. Iran has to decide whether it
    will abide by international standards, norms and obligations,
    and we shouldn't give them a free pass. Absent this, it will
    remain risky business to do business in or with Iran. Thank
    you, Mr. Chairman.
        [The prepared statement of Mr. Zarate follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT

                         ----------

        Chairman Royce. Thank you, Mr. Zarate.
        Doctor?

    STATEMENT OF MR. MARK DUBOWITZ, EXECUTIVE DIRECTOR, FOUNDATION
                     FOR THE DEFENSE OF DEMOCRACIES

        Mr. Dubowitz. Chairman Royce, Ranking Member Engel, members
    of the committee, on behalf of FDD and its Center on Sanctions
    and Illicit Finance, thank you very much for inviting me to
    testify today. And it really is a great honor to be testifying
    with Juan and with Liz, whose work and whose service to our
    country I greatly admire.
        The nuclear deal with Iran provided Iran with a patient
    pathway to nuclear weapons capability by placing limited,
    temporary, and reversible constraints on its nuclear
    activities. The deal and the interim agreement that preceded it
    provided Iran with substantial economic relief to avoid an
    economic crisis and return to a modest recovery path.
        Iran's return to oil markets and the lifting of
    restrictions in Iran's use of some $100 billion in frozen
    overseas assets gave the regime badly needed hard currency to
    settle its outstanding debts, begin to repair its economy,
    rebuild its foreign exchange reserves, and ease a budgetary
    crisis which, in turn, freed up funds for the financing of
    terrorism and missiles.
        Iran already has gotten significant economic relief. It
    avoided an economic collapse. And Ranking Member Engel, I hope
    we have an opportunity to talk about your comment on the $3
    billion that Secretary Kerry made which, interestingly enough,
    Glenn Kessler of the Washington Post, yesterday, gave that
    claim two Pinocchios, so we should discuss why.
        Now the nuclear deal did nothing to address Iran's missile
    development, support for terrorism, regional destabilization,
    human rights abuses, and all of these things have remained just
    as problematic or in some cases have actually gotten worse
    since the JCPOA was reached.
        During last summer's congressional review period, the
    administration pledged that the U.S. would continue to enforce
    these non-nuclear sanctions and oppose Iran's dangerous
    activities, and Iran has threatened that if these non-nuclear
    sanctions are imposed it would walk away from the agreement and
    snap back its nuclear program, something that I have called the
    Nuclear Snapback in prior testimony.
        Congress should reject this nuclear blackmail. It needs to
    hold the administration accountable for the commitments that
    they made to you. Sanctions against Iran's many malign
    activities are clearly not a violation of the JCPOA as Iran
    claims, but it is an affirmation of U.S. policy, actually as
    Secretary Kerry himself has articulated when he said, ``We will
    do everything to oppose Iran's destabilizing policies with
    every national security tool available.''
        But it sure doesn't appear that the administration is going
    to stand behind its own policy. Since the nuclear deal was
    reached, only nine individuals and nine entities have been
    added to Treasury's sanctions list for all of Iran's ongoing
    illicit activities, including missile tests. And the
    administration has backed away from using the term
    ``violations'' instead of arguing that these tests are now
    inconsistent with the U.N. Security Council Resolution 2231.
        Nor are we likely to see action against human rights
    abusers. Indeed, when President Rouhani was elected in June
    2013, there was a widespread but incorrect assumption that he
    was a moderate who would hail greater freedoms in Iran. But the
    regime's domestic repression has only intensified. Since last
    summer, the administration has not designated any individuals
    or entities for human rights abuses, and only one individual
    and two entities since Rouhani came to power in the summer of
    2013.
        And now the administration reportedly is considering this
    new concession that again Iran did not explicitly negotiate as
    part of the JCPOA. This is direct or indirect access to
    dollarized transactions. This concession undercuts the
    effectiveness of our entire non-nuclear sanction strategy,
    which depends on the private sector's fear of the risks
    involved in transacting with Iran. Allowing dollarized
    transactions aids Iran's push to legitimize its financial
    sector without ceasing the underlying terrorism proliferation,
    missile financing, and related money laundering and sanctions
    evasion.
        The Iran deal turned the regime from a nuclear pariah to a
    nuclear partner without having it come clean on its decades-
    long rap sheet of illegal weaponization activities. And it is
    important to understand that the regime is now seeking to
    follow the same legitimization strategy with respect to its
    illicit financial activity and human rights abuses. Iran should
    not be allowed to gain international acceptance without
    demonstrable changes in all of its dangerous behavior.
        And it is important again to understand that this has to go
    far beyond a mere exercise in checking the box on technical
    requirements from the Financial Action Task Force relating to
    money laundering and terror financing and it has to require
    fundamental and substantive changes in behavior. As long as
    Iran, for example, continues to fund Hezbollah, Iran should
    never be legitimatized as a responsible financial actor.
        Congress can maintain its leverage by strengthening and
    implementing non-nuclear sanctions and by considering some of
    the recommendations from my written testimony which I will
    summarize very quickly. Number one, we need to protect the
    integrity of the U.S. dollar from Iranian illicit financial
    activity. We need to codify existing restrictions, require the
    administration to report on financial institutions involved in
    dollarization, and link these prohibitions to the end of
    terrorism and missile development as well as compensation for
    victims of Iranian terrorism. There is still $53 billion in
    outstanding judgments.
        Number two, designate the IRGC in its entirety under EO
    13224 as a foreign terrorist organization; number three, impose
    sanctions on the IRGC as well as sectors of the Iranian economy
    that are involved in Iran's ballistic missile development;
    number four, create an IRGC watch list to identify entities
    below the threshold for being owned or controlled by sanctioned
    entities; number five, expand these human rights sanctions to
    protect the Iranian people. Six, to target corruption not only
    for money laundering but also as a human rights abuse; and
    number seven, push back against Iran's legitimization campaign
    at FATF and elsewhere by exposing its threats to the global
    financial system.
        Let me conclude with this. Secretary Lew has argued that
    sanctions are an effective instrument to address illicit
    activities but they must be lifted when the illicit behavior
    changes. This is a very important principle but it misses a
    crucial detail. Iran has not addressed the underlying behavior
    that prompted many of the U.S. sanctions in the first place.
        Thank you for the opportunity to testify and I look forward
    to your questions.
        [The prepared statement of Mr. Dubowitz follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                  ----------

        Chairman Royce. Thank you, Mr. Dubowitz.
        Now, Ms. Rosenberg.

        STATEMENT OF MS. ELIZABETH ROSENBERG, SENIOR FELLOW AND
    DIRECTOR, ENERGY, ECONOMICS AND SECURITY PROGRAM, CENTER FOR A
                         NEW AMERICAN SECURITY

        Ms. Rosenberg. Thank you, Chairman Royce, Ranking Member
    Engel, and distinguished members of the committee. I appreciate
    the opportunity to testify before you today on the risks of
    economic engagement with Iran.
        The Iran sanctions regime was and remains the most
    comprehensive program of U.S. and international sanctions
    commensurate with the grave security concerns regarding Iran's
    nuclear proliferation activities, its regional destabilization,
    ballistic missile programs, support for terrorism, and abuse of
    human rights.
        Many U.S. and international sanctions on Iran were waived
    on implementation day, the milestone of the nuclear deal
    recognizing Iran's completion of its major initial nuclear
    commitments. However, the United States maintains sanctions
    authorities relevant to Iran as part of the deal as well as a
    wide array of sanctions on Iran outside the scope of the deal,
    as mentioned by my co-panelists and yourself as well. The
    existing architecture of Iran sanctions remains very powerful
    and affords an enormous amount of leverage to pursue Iranian
    security provocations and destabilization.
        Following implementation day, there are various reasons why
    Iran will expand its links to the international financial
    system only very slowly. The cumbersome unraveling of nuclear
    sanctions restrictions at banks and companies around the world
    in order to engage in now permitted business with Iran is only
    one factor. Remaining sanctions of Iran for its terrorist and
    ballistic missile activities are a deterrent to those who would
    contemplate business with Iran, along with prudential concerns
    related to a history of corruption, a lack of transparency and
    maneuverability for foreign firms in Iran's financial system.
        Beyond remaining sanctions and Iran's self-imposed
    financial troubles, its escalating regional provocations and
    continued aggression through proxies make the specter of future
    confrontation with its neighbors or the United States a real
    possibility. Iran has the largest and most lethal ballistic
    missile arsenal in the Middle East and has stepped up its
    missile tests in recent months, again as has been mentioned. It
    has also expanded its material support to the Houthis in Yemen
    and continues to support other proxies that destabilize the
    region, including President Assad and Hezbollah.
        For reasons of political and security risk, the existing
    sanctions, and the serious financial challenges associated with
    attempting business in Iran, many global banks have made it
    clear that they do not plan on doing business with Iran. The
    banks and companies that will attempt it are generally moving
    slowly with contracts and deals, and they are biding their time
    to discover what market pitfalls or potential future sanctions
    may mean for their business. And furthermore, many of the banks
    that are doing so are regional banks with relatively smaller
    capacity to handle trade and structured finance, and retail
    services.
        U.S. policymakers and European counterparts and others
    should publicly identify Iran's self-imposed financial
    problems. Doing so will make it clear to Iran and the global
    community that Iran bears significant responsibility for
    improving its own economic conditions and that the removal of
    sanctions under the nuclear deal cannot independently deliver a
    windfall to Iran.
        The strongest and most credible strategy to highlight
    Iran's need to improve its financial transparency and
    accountability is for technical experts to point out the
    problems in the anti-money laundering, counterterrorist
    financing, counter-corruption, and prudential financial
    stability domains that Iran must address. Additionally, such
    experts should be encouraged and allowed, by license if they
    are U.S. persons, to offer technical guidance to Iranian
    financial institutions to conduct this work. This will support
    U.S. policy interests in achieving greater transparency in the
    Iranian financial industry, and it will clearly demonstrate
    that the United States is not the roadblock to Iran's economic
    reform. It could also help to reinvigorate private business in
    Iran to better challenge the insidious control of the IRGC over
    significant parts of the Iranian economy.
        In pursuing Iran sanctions now and in the future, U.S.
    policymakers must prioritize the important work of isolating
    Iranian entities engaged in dangerous and illicit behavior
    through aggressive implementation of existing sanctions
    authorities, and they must balance this with educational
    outreach to highlight Iran's self-imposed financial problems
    and implementation of strategies to facilitate and encourage
    remediation of these problems by U.S. or foreign experts.
        Thank you for the opportunity to testify, and I look
    forward to answering any questions you may have.
        [The prepared statement of Ms. Rosenberg follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                  ----------

        Chairman Royce. Thank you, Ms. Rosenberg. Thank you.
        Mr. Zarate, the body that most everybody looks to when
    considering these issues is the Financial Action Task Force
    headquartered in Brussels. This is the body that is charged
    with countering money laundering worldwide. And they have been
    quite emphatic in their warnings on Iran, calling it a high
    risk jurisdiction.
        As a matter of fact, 2 months ago, 2 months ago, the
    organization said it was exceptionally concerned about Iran's
    failure to address the risk of terrorist financing and the
    serious threat that this poses to the integrity of the
    international financial system. But yesterday, a senior
    Treasury official appeared to suggest Iran might receive an
    improved rating from FATF, saying Iran should get credit for
    trying to come off that list.
        Is this a case of the U.S. working the refs? Are we beating
    up on the referee here? How would Iran get off of the FATF
    blacklist and do they deserve it?
        Mr. Zarate. It is a great question, Mr. Chairman. The FATF
    sometimes feels like a bit of a mysterious body to those who
    haven't seen it work from the inside. But as you said, it is
    the standard setting body. It is the assessment body that looks
    at whether or not jurisdictions are abiding by international
    anti-money laundering and counterterrorist financing systems.
    That is a technical body. And in being a technical body they
    look at the formulaic responses and activities of governments,
    whether or not they have passed anti-terrorist financing laws,
    whether or not they have suspicious activity reporting
    requirements for their financial institutions, whether or not
    they have regulatory bodies that are inspecting compliance
    systems, et cetera. So there is a very technical dimension to
    this.
        Iran has been recalcitrant across the board. They have not
    engaged the FATF, they obviously don't have these kinds of laws
    and practices, and they clearly are a state sponsor of terror.
    So this is precisely why FATF for a number of years has held
    them to be a jurisdiction of high risk and has called on
    jurisdictions around the world to inform their financial
    institutions that Iran is highly suspect.
        What Iran has figured out though, Mr. Chairman, is that
    this is a body that can be engaged with and is open to being
    engaged with, and we should, I think, be open to that as well.
    But the challenge here is what reforms are we asking of Iran?
    Are they simply paper reforms that are not meaningful and don't
    address the real risks behind what Iran is doing?
        And I think this is going to be a challenge for FATF,
    because FATF, I think, wants to engage, and the U.S. Treasury
    wants to engage this process, but we certainly don't want to
    give Iran a free pass. And I don't think my former colleagues
    at the U.S. Treasury are going to whitewash this because they
    believe fundamentally in issues of financial integrity and
    protecting the international financial system. The real
    question here is will Iran game the system, and we should not
    allow that to happen.
        Chairman Royce. But Mr. Zarate, Secretary Kerry is in
    London this morning. He and his British counterpart are meeting
    with the European bankers. There is a piece in the Financial
    Times about how the bankers are pushing back, British major
    institutions saying we don't want to invest there in Iran. They
    spoke of bridging a gap between the political intention of the
    agreement and how the banks are reacting. And Secretary Kerry
    noted that as long as banks do their normal due diligence and
    know who they are dealing with then there won't be issues.
        But isn't the point of the international warnings on Iran
    and the Treasury's designation of the entire country as a
    jurisdiction of ``primary money laundering concern,'' isn't
    that sending the message that due diligence can't even be done
    in this environment because of the corruption inside of the
    country and the system? The IRGC is nationalized. Most of the
    major businesses are in the hands of the Iranian Revolutionary
    Guard Corps.
        Mr. Zarate. Mr. Chairman, you have it exactly right. And
    this is the fundamental tension in the JCPOA, which is an
    agreement in which we promised the reintegration of Iran into
    the global financial and commercial system without demanding
    the change in the underlying conduct that has been the basis of
    their financial isolation. And I think what is happening now is
    the delta between that strategy of financial isolation for all
    of the things that Iran does, from terrorist support to
    ballistic missiles to the nuclear program, the nuclear issues
    are now off the table but those other issues were not on the
    table.
        And so the challenge here is we have a system and a set of
    sanctions and a set of international requirements, by the way
    U.S. requirements, that have become global norms. The global
    norms are U.S. standards that demand a change in conduct and a
    change in behavior and at a minimum require Iran to demonstrate
    that it is a legitimate actor in the system. That we can know
    what it is doing with its financial system, that we know the
    source of funds, that we understand the actors in the system.
        In fact, the Treasury just this past week in the wake of
    the Panama Papers has put out new regulations about customer
    due diligence which heightens the standards around beneficial
    ownership and what we should know about with whom we are
    transacting and what we are transacting in. That goes doubly
    and triply for Iran.
        And so I haven't seen the full remarks of the Secretary,
    but I would say that it is a bit dangerous to suggest that all
    you have to do is engage in normal due diligence when talking
    about Iran, its behavior, and its history of using its
    financial and economic system for all of the nefarious conduct
    that they have been sanctioned for.
        Chairman Royce. Well, let me go to Mr. Dubowitz for a short
    answer here too, because I mentioned in my opening statement
    that we have had some success for now in pushing back on the
    administration's plans to allow Iran access to the U.S. dollar.
    But what is Iran's goal in getting access to the dollar? Is it
    the ease of doing business or is Iran seeking to get the stamp
    of approval in international financial markets without making
    the changes to its banking practices or underlying behavior
    which is transferring money directly into its missile program,
    the terrorism it funds, and so forth?
        Mr. Dubowitz. Well, Chairman Royce, it is both. I mean,
    Iran wants access to the U.S. dollar because the U.S. dollar is
    the global currency. It is responsible for something like 87
    percent of global trade, 60 percent of foreign exchange
    reserves, and 40 percent of international financial
    transactions. On the other hand, Iran was actually getting paid
    for its oil under sanctions using euros and yens. So it is
    possible for Iran to actually transact internationally without
    access to the U.S. dollar, but the real reason they want access
    is exactly that. It is a stamp of approval. It is part of the
    legitimization strategy. It is to do what they did on the
    nuclear side. We are not going to come clean on our
    weaponization, but we are going to become a nuclear partner and
    a respectable international nuclear power. We are going to do
    the same thing on the financial side with the dollar.
        Chairman Royce. Thank you, Mr. Dubowitz.
        Mr. Engel.
        Mr. Engel. Thank you, Mr. Chairman. Last year, when the
    agreement with Iran was announced, we were told that because we
    were removing sanctions on Iran for its nuclear program it
    still did not preclude us from having sanctions on Iran for the
    other things they do--support of terrorism, ballistic missiles,
    whatever.
        The President wrote to our colleague Congressman Nather
    last summer during the consideration of the nuclear deal with
    Iran, and the letter said and I quote, ``Critically I made sure
    that the United States reserve the right to maintain and
    enforce existing sanctions and even to deploy new sanctions to
    address those continuing concerns which we fully intend to do
    when circumstances warrant.''
        I would like your opinion about what additional authority
    does the administration need now to crack down on Iran's
    terrible behavior? Would new non-nuclear sanctions violate the
    terms of the nuclear deal? Does the President have the
    authority now, enough authority now to go after Iran for
    terrorism or for ballistic missiles, or would Congress need to
    pass a law to give the President the authority?
        Mr. Dubowitz.
        Mr. Dubowitz. So Ranking Member Engel, I mean, the
    President has always had the authority under IEEPA to use
    executive orders to do whatever he wants with respect to Iran.
    But I think as Congress realized over the past at least decade
    those authorities were insufficient without Congress playing an
    important role in passing statutes that actually sent a clear
    message to the international business community that if you did
    business with Iran and you did business with designated
    entities that there would be secondary sanctions that would
    have a very powerful impact on your ability to then transact
    globally and particularly with the United States.
        And I think it is critical to understand that Congress
    needs to play that role going forward with respect to non-
    nuclear sanctions. And one example would be on the ballistic
    missile side that you mentioned. I mean, it is absolutely clear
    there are seven, eight sectors of Iran's economy that are
    providing key technology and parts and components to Iran's
    missile program.
        Now does the President have the authority to designate
    those sectors of the economy? He does under existing EOs, but I
    think Congress can play a very important role in holding the
    administration's feet to the fire on identifying what sectors
    are playing a key role in Iran's ballistic missile program, and
    then imposing secondary sanctions on any foreign entities that
    are doing business with those sectors.
        Mr. Engel. Thank you. Mr. Zarate, do you agree?
        Mr. Zarate. Absolutely. What is interesting, Congressman,
    is that not only is there the patchwork of Iran's sanctions
    related legislation and sanctions that Ms. Rosenberg talked
    about, but there is also a whole suite of executive orders
    based on IEEPA that go to the underlying conduct that we are
    worried about with respect to Iran. I will just give you a
    quick list.
        Terrorism, Executive Order 13224; drug trafficking,
    multiple executive orders; proliferation finance signed by
    President Bush in 2005; the cyber executive order signed by
    President Obama, April 1 of last year; the transnational
    organized crime executive order; human rights related elements
    of IEEPA provisions; the Syria sanctions in executive order;
    the Yemen executive order.
        So you go down the line in terms of all of the conduct that
    we are worried about with respect to Iran, not only does the
    administration have the existing authority based on Iran
    legislation and Iran sanctions but you also have the ability to
    affect the underlying conduct based on the way we have applied
    sanctions aggressively over the last 15 years. It also
    underscores why the question of Iranian conduct is so
    important, because we have built the sanctions program that has
    been so effective on Iran and other targets of these measures
    around the underlying conduct that they are engaged in. And if
    they are not changing their behavior they remain subject to
    those sanctions as well as the international program.
        So my answer to you is we have existing authorities. The
    administration has plenty of authority with which to work. And
    to Mark's point, I think Congress' role, I think, is to help
    clarify the lines of where that authority is and, frankly,
    where the threats still lie from Iran.
        Mr. Engel. Thank you. Ms. Rosenberg, you warn against
    limitations, and I quote you, that could ``undermine the
    attractiveness or primacy of the U.S. financial system and the
    dollar as a reserve currency.''
        So let me ask you, what are the risks to the U.S. financial
    system if oil trade were to be done in, say, euros instead of
    dollars? With the amount of dollars in circulation compared to
    euros or other currencies it is even possible to shift to other
    currencies? And finally, what would be the impact of
    restrictions on the use of the dollar on the two U.S. clearance
    systems, which are Fedwire and CHIPS, and U.S. surveillance of
    financial flows?
        Ms. Rosenberg. Thank you for the question. It is hard to
    contemplate the trade of oil not in dollars. It is a massive
    market, it is highly liquid, and it is overwhelmingly done in
    the dollar. And even though conversation about de-dollarizing
    oil transactions has been ongoing for quite a long time, it is
    difficult to think how that would occur. If, however, there was
    a substantial amount of oil trade that did occur not in the
    U.S. dollar it would of course reduce the amount of flow
    through U.S. clearing mechanisms, financial institutions of
    course, which reduces the amount of activity and revenue they
    can collect there.
        And also, in addition to physical trade in oil, there is
    also a tremendous market in what is called paper trade or
    financial trade, sometimes called speculative trade, in oil
    that occurs around the physical trading. It occurs mostly in
    the United States because oil is denominated in dollars, and
    that business represents a huge amount of commerce that would
    not be in the United States if a majority or a significant
    amount of trade moved to a different currency and was therefore
    cleared in a different jurisdiction.
        And that is something that as a key global commodity, as a
    major global commodity market, should be of interest and
    concern for people who watch markets, market activity, and the
    opportunity for raising business in the United States.
        Mr. Engel. Thank you.
        Ms. Rosenberg. Essentially, the same is true when you are
    thinking about foreign exchange transactions or other dollar
    clearing for those U.S. platforms that clear that in the United
    States.
        Mr. Engel. Thank you very much.
        Chairman Royce. We go to Ileana Ros-Lehtinen of Florida.
        Ms. Ros-Lehtinen. Thank you so much, Chairman Royce, and
    thank you for your continued efforts to highlight the dangers
    of the Iranian nuclear deal and the many ways in which the
    administration has and continues to deceive Congress and the
    American people when it comes to implementing this agreement.
    It seems every week there is a new revelation that was
    previously undisclosed or some new concessions that the
    administration is offering to the regime that were not part of
    the agreement.
        Every time Iran threatens to walk away from the deal over
    perceived slights, the administration caves to Iranian demands.
    And the regime knows that it can continue to use this tactic
    and get what it wants because President Obama is intent on
    maintaining this weak and dangerous deal even if it means
    allowing the Iranians to undermine the intent and the letter of
    the JCPOA.
        Now we are hearing the administration backtracking on
    claims that it would not allow Iran access to the U.S.
    financial system and is actively working to ensure that Iran
    does indeed get its sanctions relief and that was not part of
    the deal. So how would the administration go about giving Iran
    access, either direct or indirect access to the U.S. dollar and
    our financial system, and what would that access mean for
    Iran's coffers?
        And turning to the IRGC, we know that the IRGC controls a
    large portion of the Iranian economy, owning the country's
    largest construction company, its main telecommunications
    company, and controlling as much as 25 percent of the Tehran
    Stock Exchange. It controls and owns banks. The officials sit
    on and control the boards of private companies and it is the
    primary player in Iran's infrastructure and increasingly its
    energy sector.
        We know that the IRGC is largely responsible for the
    development of Iran's ballistic missile program as well as
    overseeing the Quds Force, the asymmetric war and terror
    operators who are responsible for the deaths of hundreds of
    American servicemen and women and countless other individuals
    worldwide.
        What sort of impact would Iran getting access to our dollar
    and financial system have on the IRGC and the Quds Force? Why
    has the administration not designated the IRGC as a foreign
    terrorist organization? And more importantly, what do you
    suggest, what steps could we take to limit the IRGC's financial
    growth, and what impact would Iran getting access to the U.S.
    dollar have on its ballistic missile program, its support for
    Hezbollah, et cetera?
        Lots of questions, you can answer any one of them. Thank
    you, ladies and gentlemen.
        Mr. Dubowitz. So Congressman Ros-Lehtinen, thank you for
    those questions. First of all, the way the administration would
    give access to the U.S. dollar, it is important to understand
    that the administration is committed not to give Iran access to
    the U.S. financial system, and that Treasury officials have
    been very clear that that means u-turn transactions to the U.S.
    financial system.
        My concern is that they are going to give dollarized
    transactions. They are going to give access to the U.S. dollar
    offshore. And why this is important is because getting access
    to the U.S. dollar means that it facilitates international
    financial transactions. So most importantly, it actually again,
    as Chairman Royce said, it is a stamp of approval on Iran. It
    is part of their legitimization strategy. They can say, if the
    United States of America is green-lighting the greenback, then
    FATF shouldn't have us on the blacklist. Sorry to throw out so
    many colors.
        But that is their strategy, their financial legitimization
    strategy. And this really benefits the IRGC which ultimately is
    not going to work directly through designated IRGC entities. It
    is going to work through cutouts and front companies, and those
    cutouts and front companies are going to be controlled by the
    IRGC either through share ownership or boards of directors, and
    they are going to be able to use the U.S. dollar.
        Ms. Ros-Lehtinen. I will give just 1 minute to anyone else
    who would like to----
        Ms. Rosenberg. Can I respond? As a point of clarification
    it is not practically possible to do a lot of dollar activity
    in large transactions, or a large number of transactions,
    outside of the U.S. financial system without using a U.S.
    financial institution. That is because at some point those
    dollars need to be cleared through a U.S. financial system. It
    is impossible not to. Possibly you could aggregate them over a
    period of time, but even as an omnibus clearing activity that
    would occur.
        Ms. Ros-Lehtinen. Thank you. Mr. Zarate, you have got 30
    seconds. Thank you, ma'am.
        Mr. Zarate. I think one of the dangers, Congresswoman, is
    that you incentivize systems to actually be created. So even if
    there aren't existing sort of volumes in systems, you actually
    incentivize actors to create offshore dollar clearing systems
    to facilitate IRGC activity, and frankly then allow them to
    hide some of their activity even further.
        One really important point here, too, is if we allow this
    concession in the context of the spirit of the deal, we will be
    conceding that access to the dollar is actually a part of the
    nuclear sanctions related relief.
        Ms. Ros-Lehtinen. Thank you.
        Mr. Zarate. That then doesn't allow us to use non-access to
    the dollar as a tool for all the other activity that is
    important.
        Ms. Ros-Lehtinen. Good point. Thank you, Mr. Chairman.
        Chairman Royce. Congressman Brad Sherman from Los Angeles.
        Mr. Sherman. We have to straighten out the difference
    between being pro-Iran deal, and there are many reasonable
    people who have taken that position, and pro-Iran. And those of
    us who criticize the Iran deal, can it not create a political
    circumstance where the defenders of the deal feel they need to
    not only defend the deal, which can be done with some
    credibility, but to defend Iran?
        And what we should be talking about is to demand full
    compliance with the deal and ourselves not over-comply and give
    to the Iranians more than they bargained for. There are, of
    course, those in the United States who would take military
    action against Iran, and those who are repelled by the idea of
    military action in general and specifically in the Middle East.
    That does not mean that letting Iran do what it wants ought to
    be the position of liberals and others whose instinctive belief
    is peace. Iran is taking its thugs to Syria and killing people
    by the hundreds every week, and those who believe in peace have
    to realize that they have no allies in Tehran.
        Energy prices, the current global decline has led to a
    significant pullback in investments in energy worldwide. For
    global energy companies what are the factors guiding their
    decisions on investing in Iran? Can Iran offer itself as an
    attractive place to invest at a time when you cannot be assured
    of getting more than $30 for a barrel of oil? Ms. Rosenberg.
        Ms. Rosenberg. Can I respond?
        Mr. Sherman. Yes.
        Ms. Rosenberg. Yes, thank you. Iran is an interesting case
    for large international companies, and particularly for
    independent companies, not nationally owned companies. They
    need to replace their reserves. They are looking for big, good
    opportunities to seek the opportunity to produce. Iran is one
    such place if you look at it from the perspective of its
    geology, the lack of technical difficulty in being able to
    produce the oil.
        Mr. Sherman. What is the lifting cost of Iranian oil?
        Ms. Rosenberg. In the single digits. In the single digits,
    so by comparison to much U.S. production which is not
    economically liftable today under an oil price in the mid-40s
    and higher.
        Mr. Sherman. Got you.
        Ms. Rosenberg. So this is in the world amongst the lowest
    global prices for lifting. Nevertheless, the difficulty, by
    comparison to the ease in the geology and the lifting costs, is
    the difficulty in making contracts with the Iranian Government.
    The IPC, their contract, hasn't been finalized yet. They can't
    agree on it. That is an immediate problem. Additionally, making
    payments, sourcing equipment, there are incredible----
        Mr. Sherman. Is there anything we can do to make it even
    harder other than fuel efficient automobiles and low oil usage?
        Ms. Rosenberg. It is harder even then--yes, it is harder
    even then what I mentioned too.
        Mr. Sherman. Rather than describe how hard it is, do you
    have any suggestions for making it even harder?
        Ms. Rosenberg. For them to produce? There is----
        Mr. Sherman. And to get oil companies to invest.
        Ms. Rosenberg. There is nothing that the U.S. Government
    could do more powerful than the collapse in oil prices which
    have shut global oil companies out of sanctioning any kind of
    major energy project anywhere in the world.
        Mr. Sherman. Does anybody have any suggestions as to,
    obviously we can't match the decline in oil prices, but any
    suggestions as to how we can make it tougher? Mr. Dubowitz.
        Mr. Dubowitz. Well, one of the things that I think would be
    interesting, actually, is to look at the Saudis and other Gulf
    countries and let them use their enormous economic leverage to
    put international companies to a choice between doing business
    in Iran's energy sector or doing business in their energy
    sector. I mean that would be market based economic and
    financial warfare that would have nothing to do with sanctions.
    It would have to do with economic leverage being used by the
    Saudis----
        Mr. Sherman. I want to go on to aircraft. Obviously IranAir
    is in a position to buy American aircraft. That was a bad part
    of the JCPOA. But Mahan Air is still designated as a terrorist
    organization. I hope colleagues here, well, you will be
    receiving a letter from me soon about urging the EU to
    designate Mahan Air under its terrorism sanctions, and of
    course to urge the Ukraine, which is seeking so much American
    support, to not allow Mahan Air to land in Kiev. With that I
    will yield back.
        Chairman Royce. Thank you. Thank you, Mr. Sherman. We go
    now to Mr. Joe Wilson.
        Mr. Wilson. Thank you, Mr. Chairman, and thank you for
    having witnesses here on such an important issue. And it is
    somewhat startling, I think the American people need to know
    the threats that are still coming out of Iran and the threats
    to American families, and somehow an agreement that really
    just, I think, promotes it obviously with the funding. And Mr.
    Dubowitz in particular I want to thank you for your service as
    executive director of the Foundation for Defense of
    Democracies. You make a difference promoting freedom worldwide.
        And Mr. Dubowitz, with the talk surrounding the
    administration's decision to purchase heavy water from the
    Iranian Atomic Energy Organization, I want to note that the
    last facility to produce heavy water domestically was at the
    Savannah River site in Aiken, South Carolina. Nearly all of the
    commercial nuclear reactors in the United States use light
    water, and the purchase of 32 tons of heavy water from Iran
    represents nearly half of the United States' total imports of
    this material which usually comes from our great allies, Canada
    and India.
        I appreciate Chairman Ed Royce, who has questioned this
    purchase, inquiring what guarantees there are that the money
    wouldn't be used to promote and fund terrorism. Mr. Dubowitz,
    are there any guarantees at all?
        Mr. Dubowitz. None at all. There are none at all. And the
    other thing that is remarkable is that we are actually paying
    the Iranians to perfect their ability to produce heavy water so
    that when all the restrictions on heavy water production
    reprocessing and the plutonium pathway to nuclear weapon go
    away over time the Iranians will actually have all of that time
    funded by us in order to perfect the essential element of a
    plutonium bomb, so I don't know why we are facilitating that
    and paying for that.
        Mr. Wilson. And thank you for being so clear. And the
    American people need to know this, and to me the whole thing is
    bizarre, and how in the world we got to this place. And then
    Mr. Zarate, your testimony too has been so insightful and
    clear. Thank you. Sometimes diplomats come across a bit
    obfuscating.
        There are a number of senior Iranian officials that are
    complicit in human rights abuses, brutal treatment of the
    Iranian people. The administration has not sanctioned
    individuals such as Iran's interior minister or the head of
    judiciary. Has there been any change in Iran since the deal was
    agreed to?
        Mr. Zarate. None. None that is visible. None that has been
    demonstrated. There has been a lot of hope in the parliamentary
    elections, but that I think is a bit of a false hope. And we
    have seen none of those detained including the leaders of the
    Green Movement, those individuals remain detained. And I think
    we have bent over backwards both through the negotiating
    process and even now to not appear to be instigating or
    aggravating the Iranians, and I think that has muted our voice
    whether at the start of the Green Movement or even now.
        Mr. Dubowitz. Congressman, if I could just add to that.
        Mr. Wilson. Yes.
        Mr. Dubowitz. 2015 was a record year for executions in
    Iran. The human rights situation has gotten worse not better.
    That is not me saying that, that is Ahmed Shaheed, the U.N.
    Special Rapporteur on Human Rights. And yet the administration
    as I said, since Rouhani came to power in 2013, they have only
    sanctioned one individual and two entities for human rights
    abuses.
        What is the rationale for not imposing human rights abuses
    on the instruments of repression and the individuals who are
    engaged in these human rights abuses? If the administration is
    serious about non-nuclear sanctions and serious about
    protecting the American people, why has it been so remiss in
    using its existing authorities on human rights abuses?
        Mr. Wilson. And I thank both of you for referencing the
    Green Movement. The people of Iran deserve better, and so thank
    you for promoting that. And Mr. Dubowitz, and back right on
    point what you said, instead of the administration trying to
    encourage companies to do business with Iran, shouldn't the
    focus be on cracking down on corruption which is robbing the
    Iranian people? And what is Iran's current involvement with
    terrorist groups?
        Mr. Dubowitz. Well, again Iran is the leading state sponsor
    of terrorism. They support Hezbollah. They support Hamas. They
    support designated Iraqi Shiite militias, and they are
    obviously involved in the slaughter in Syria. And I think your
    point on corruption is exactly right. I mean, corruption is a
    human rights crime as well. Dictators use the fruits of
    corruption in order to both keep power and as instruments of
    repression.
        And I think that is something that actually has been widely
    acknowledged by the U.S. Government and by Assistant Secretary
    Danny Glaser in a number of speeches, and that corruption needs
    to be addressed through existing authorities. And if existing
    authorities are insufficient and clarification is needed,
    Congress needs to make it clear that corruption is not only a
    money laundering concern but it is a human rights concern, and
    actually crack down on those individuals involved in
    corruption.
        Mr. Wilson. And again, as we conclude, thank you, all three
    of you, for raising these issues that are so important to
    American families.
        Chairman Royce. Mr. David Cicilline from Rhode Island.
        Mr. Cicilline. Thank you, Mr. Chairman. Thank you to our
    witnesses. The argument was advanced during our consideration
    of the JCPOA that successful implementation of the agreement
    with rigorous enforcement to ensure full compliance of the deal
    would put us in a stronger position to push back on Iran, and
    now a non-nuclear Iran and the other areas. And there were even
    predictions from many we heard from that there would be likely
    an increase in their nefarious and thuggish behavior as a
    response to the more extreme parts of the regime after the deal
    was struck as a way to sort of reassure them that they were
    still in control. And I think based on the testimony today and
    my own reading that is what we are seeing, an additional
    destabilizing activity.
        And so my first question, really, is do we read anything
    out of the election and the runoff election results in April?
    Some have suggested that there is some evidence that the
    reformers have made some progress and that that bodes well for
    the future. Can anyone comment on whether we should read
    anything into the election results?
        Mr. Dubowitz. Well, I think, first of all, it wasn't an
    election. It was a selection. Over 90 percent of reformers were
    disqualified from running. The lists that were actually
    assembled for the parliamentary elections were lists where
    hardliners were included as moderates. So it was a great
    marketing job, but it didn't fundamentally change the power
    structure within Iran.
        And I think if we have learned anything from the
    revelations on Ben Rhodes, the U.S. Government and the U.S.
    intelligence community doesn't believe that the Iranian regime
    is moderate in any way and doesn't believe that Rouhani is a
    moderate, and so that this whole moderate theme has maybe been
    a fiction of our imaginations rather than an accurate
    description of the interfactional power balance within the
    Iranian Government.
        Mr. Cicilline. So are there----
        Ms. Rosenberg. If I could add to that.
        Mr. Cicilline. Sure.
        Ms. Rosenberg. It is true that these most recent elections
    are notable for trying to test the wind, if you will, in Iran
    and what is happening with the popular sentiment. Nevertheless,
    the upcoming Presidential election for Rouhani may be a better
    sign post to us. So we don't have that data yet, we won't for
    quite awhile until his election, he stands again for election.
    But that may be a better sign for us about the popular
    sentiment and the control of the Supreme Leader over that
    Revolutionary economy.
        Mr. Cicilline. Thank you. And I would ask each of the
    panelists, are there any risks that you see to passing new
    sanctions even if they are outside the JCPOA? Does the
    administration need additional authority or is it just not
    using the authority it currently has? And maybe you answer that
    first and then I have a follow-up question. Yes.
        Ms. Rosenberg. Right. So the administration does not need
    additional authorities. Mr. Zarate went through a number of
    authorities that the administration does have from support to
    Syria, Yemen, transnational organized crime, cyber,
    proliferation, terrorism. That covers a huge scope, and
    furthermore, there is the opportunity for iterations of those
    through various prongs within them for derivative designations.
        The danger that comes from additional sanctions is if there
    is an opportunity to set up statutes or language, definitions
    that don't match creating confusion for the private sector. As
    was mentioned previously, I have warned about the concerns of
    diminishing the attractiveness of the U.S. dollar. That great
    power we do have that was spoken of by Mr. Dubowitz as well.
        And to the extent that we support and care about the
    proliferation security gains that have been accomplished in the
    nuclear deal, if imposing additional sanctions that reimpose
    sanctions that were lifted occurs and it undermines the deal,
    that could be a tremendous setback for proliferation security
    concerns.
        Mr. Cicilline. Mr. Dubowitz?
        Mr. Dubowitz. Yes, if I could just make a quick comment.
    And we heard this debate for 10 years. Congress heard this
    debate from the administration, that they had all the existing
    authorities that they needed, but you still passed CISADA and
    ITRSHRA and IFCA and NDAA. So I think that this argument has
    been a longstanding argument.
        I think what Congress has realized is that A, you can
    impose secondary sanctions, which are a very powerful way to
    complement the executive orders; and B, through reporting
    language and clarification language you can begin to hold the
    administration accountable for its commitments to impose non-
    nuclear sanctions, which again are not a contravention of the
    JCPOA, but as Secretary Kerry said they are very much
    consistent with using all national security tools against
    Iran's destabilizing behavior.
        So again, Congress has played a critical role in the Iran
    debate and I think Congress can continue to do so through new
    statutes.
        Mr. Cicilline. Yes, sir.
        Mr. Zarate. Congressman, I think Congress acts and the
    administration acts with great authority when the sanctions are
    based in fact, based on real activity of concern, and certainly
    are in furtherance of not just U.S. law but international
    norms. If the sanctions appear to be arbitrary and capricious
    and simply reimposing prior sanctions or capriciously targeting
    individuals because we don't like them, that is problematic. I
    think when there is actual substantive concern about the real
    risks and those have been identified by both Congress and the
    administration that is incredibly powerful and frankly can't be
    disputed.
        And one final point here, you know, Iran has emerged out
    from under many of these sanctions into a new world of
    heightened expectation for global financial transparency. They
    are starting at a very low bar. We should do everything
    possible to force them to the standards that now exist in 2016,
    because those are very real standards and they are very real
    risks if they don't meet them.
        Mr. Cicilline. Thank you very much. Thank you, Mr.
    Chairman, I yield back.
        Chairman Royce. Thank you. We go now to Jeff Duncan of
    South Carolina.
        Mr. Duncan. Thank you, Mr. Chairman. Thanks for this
    hearing. You know, how can anyone in America trust anything
    that the administration says at this point? They misled the
    American people about the Affordable Care Act. They misled the
    American people about the attacks in Benghazi and the
    motivation behind those attacks. They misled the American
    people about the IRS' targeting of conservative groups. And now
    we see they have misled the American people over the Iran deal
    as evidenced by Ben Rhodes' comments and the New York Times
    article this week, confirmed in the Washington Post article
    where the administration pushed a certain narrative. Misled not
    only the American people, misled the media who in turn misled
    the American people. And even White House spokesman Josh
    Earnest couldn't find the words to deny the administration
    misled you, America.
        Mr. Chairman, I would like to recall, reiterate my call for
    the State Department to provide to this committee and the
    Committee on Homeland Security, a white paper referenced in
    their memo as they implemented the Visa Waiver Program
    Improvement and Terrorist Travel Prevention Act, which they are
    using to circumvent the will of Congress and the letter of the
    law to allow foreigners that have traveled to Iran and other
    areas of the world that host terrorists to have access to the
    Visa Waiver Program.
        There was a white paper referenced in their justification.
    We asked Secretary Kerry in this committee. We have sent
    letters to the Department of State. We have asked the
    Department of State officials and Homeland Security Committee
    for a copy of that white paper that they used to circumvent
    Congress and to circumvent the law. So I reiterate my call for
    that.
        Mr. Zarate, how much money would Iran have access to with
    this Iranian deal, unfrozen assets? Let's just talk about
    unfrozen assets for just a second.
        Mr. Zarate. Yes, Congressman, the estimates have been
    anywhere between $70 billion to $150 billion. And obviously we
    have heard----
        Mr. Duncan. That is a lot of money.
        Mr. Zarate. A lot of money. And I have estimated and I have
    said this before in testimony that there are likely assets that
    are unaccounted for. Those are known assets----
        Mr. Duncan. Known assets, right.
        Mr. Zarate [continuing]. And largely central bank
    reserves----
        Mr. Duncan. And a standing Iranian economy with sanctions
    being lifted, their ability to sell their oil in open market
    not the black market, would enhance that number somewhat.
        Mr. Zarate. Absolutely. And that does not include the
    growth of their economy and the----
        Mr. Duncan. Exactly. So let me read Ayatollah Khomeini's
    words after this deal was struck. ``Whether the deal is
    approved or disapproved, we will never stop supporting our
    friends in the region and the people of Palestine, Yemen,
    Syria, Iraq, Bahrain, and Lebanon.'' Basically, Hezbollah,
    Hamas.
        Iran is the largest state sponsor of terrorism financially
    and with material support. And with his own words they are
    going to continue to support those terrorists, his own words.
    With a $150 billion and an expanding economy that is a heck of
    a lot of money to support terrorism. Should the free world be
    concerned?
        Mr. Zarate. Absolutely. And it is precisely why we
    shouldn't be giving Iran any special exemptions or special
    access to the dollar, be it onshore or offshore. I mean, we
    should expect and we know not only from what the Iranians have
    said but also what the terrorists have said, you know, Hassan
    Nasrallah himself said that we expect continued and expanded
    support from the Iranians.
        And so we know that it is going to happen, we know that
    there is an increased risk, a very real risk of flows of
    millions if not billions of dollars to Iranian proxies. We have
    seen with the interdiction of shipments to Yemen by
    international naval forces, including U.S. forces that they are
    trying to send arms into Yemen to the Houthi rebels acting as
    their proxies. So we know this is----
        Mr. Duncan. They are active in Iraq. They are active in----
        Mr. Zarate. Yes. It is not just what they say, we see it on
    the ground. We understand it. We hear what their allies say.
    And so it is a real risk.
        Mr. Duncan. Yes. Let me reclaim my time. I chair the
    Western Hemisphere Subcommittee, and we have had hearings and
    we have been very vocal about the presence of Hezbollah in the
    Western Hemisphere. General Kelly, former commander of
    SOUTHCOM, has testified about his concern of Iran's activity in
    the Western Hemisphere.
        Hezbollah is a proxy of Iran. Iran is active here, cultural
    centers and areas in Latin America that don't have really
    strong Islamic ties or Muslim populations. We know that the
    Tri-Border region between Paraguay, Argentina, and Brazil is
    very active in Hezbollah.
        If Hezbollah is in the Western Hemisphere and Iran has $150
    billion to support their friends, Hezbollah and Hamas and the
    others that the Ayatollah himself mentioned, would reason not
    speak to the fact that they may support Hezbollah in the
    Western Hemisphere, and their own activity, Iran's activity, in
    the Western Hemisphere that could target American interests or
    the interests of our friends and allies closer to home? Not in
    the Middle East but here in Latin America and the Western
    Hemisphere. Is that fair to assume?
        Mr. Zarate. That is absolutely fair, and it is not just in
    the Tri-Border Area. It is in places like Venezuela where there
    have been traditional and commercial ties between the Iranian
    Government and the Venezuelan Government.
        Mr. Duncan. And like I say, Air Tehran, Air Terror,
    whatever the flights.
        Mr. Zarate. Exactly. Not to mention the expanse of
    Hezbollah network which the U.S. Treasury and the DEA have been
    exposing as a global criminal enterprise in Latin America, in
    West Africa, which is part of this infrastructure that Iran can
    tap into and certainly support with financing.
        One other point I will just say, a friend and colleague of
    mine Alberto Nisman, the Argentine prosecutor, I believe was
    murdered in part because he was investigating not just the
    attacks from Iranian sponsored terrorism in----
        Mr. Duncan. In '92 and '94. Go ahead.
        Mr. Zarate. But also looking at where Iran had presence in
    South America and in Latin America.
        Mr. Duncan. And just for the committee's awareness, the
    gentleman, the Iranian that was implicated in those attacks was
    supposed to come to Colombia and may still lead a delegation to
    Colombia, should be arrested by INTERPOL. That is how close to
    home this is. With that I yield back.
        Mr. Dubowitz. And that is Mohsen Rabbani for those folks at
    INTERPOL who are paying attention.
        Chairman Royce. Yes. We will make this discussion available
    to INTERPOL and talk to the government in Colombia.
        Let's go to Mr. Gerry Connolly of Virginia.
        Mr. Connolly. Thank you, Mr. Chairman. I think this is our
    30th hearing on Iran. And I don't know that this committee has
    cloaked itself in glory on the subject. We beat dead horses.
    And we have been proved wrong, I think. I am going to ask Ms.
    Rosenberg.
        Ms. Rosenberg, the JCPOA, the agreement that was completely
    decried and opposed by my friends on the other side of the
    aisle and some members of my own party--let me see. One of the
    requirements was that all uranium enrichment levels had to be
    reduced to 3.67 percent. Has that happened?
        Ms. Rosenberg. The IAEA has certified that by the beginning
    of this year, in January, Iran had met all of its major basic
    and nuclear commitments which is the basis for----
        Mr. Connolly. I know, tell me one by one. So 3.67 percent,
    yes or no.
        Ms. Rosenberg. Yes, I believe so.
        Mr. Connolly. Did they in fact remove the core of the Iraq
    heavy water research reactor and fill it with concrete?
        Ms. Rosenberg. Cement, yes.
        Mr. Connolly. Did they reduce their stockpile of previously
    enriched uranium by 95 percent?
        Ms. Rosenberg. Yes.
        Mr. Connolly. Did they ship it out of the country?
        Ms. Rosenberg. Yes, removed.
        Mr. Connolly. Did they subject their centrifuge production
    and uranium mines and mills to surveillance by outside
    international nuclear inspectors?
        Ms. Rosenberg. Yes, and their reports have been made
    public.
        Mr. Connolly. And did they reduce the number of centrifuges
    as required by the agreement?
        Ms. Rosenberg. Yes.
        Mr. Connolly. Hm. Anything they cheated on that we know of?
        Ms. Rosenberg. Not that we know of.
        Mr. Connolly. Not that we know of, really. Now, I don't
    know. I am not a nuclear expert, but if they met all of those
    metrics and we are supposed to believe that this was a
    smokescreen to allow Iran to become a, to give it a,
    quote, deg. ``patient pathway to the bomb,'' it looks to me
    like that is not a patient pathway to a bomb. That actually
    reverses the development of a bomb. Would that be a fair
    statement from your point of view?
        Ms. Rosenberg. Yes. If I may add to that----
        Mr. Connolly. Of course.
        Ms. Rosenberg [continuing]. Additionally. I don't think,
    however, given the grave concerns that the international
    community has had about Iran's demonstrated proliferation
    activities, that achieving those milestones we have just gone
    through, should give anyone any comfort that this is a the end
    of the road.
        Mr. Connolly. Of course.
        Ms. Rosenberg. Which is one reason, of course, why this
    nuclear agreement goes on much longer than just implementation
    day, and why many people correctly believe that this should be
    a strengthening of the international nonproliferation regime.
    Not just for Iran, but for any other state of proliferation
    concern.
        Mr. Connolly. Right. But we know it is a fallacy in reason
    to argue because it isn't absolute forever perfect we therefore
    should not do it. Sometimes we take incremental progress, real
    incremental progress that takes the immediate and short term
    existential threat and reduces it or reverses it significantly,
    that is better than the alternative, is it not?
        Ms. Rosenberg. I think many people feel seriously
    reassured, very sincerely reassured, that Iran is further today
    from----
        Mr. Connolly. Right.
        Ms. Rosenberg [continuing]. A nuclear bomb and nuclear
    warheads on its ballistic missiles arsenal than it was only a
    number of months ago.
        Mr. Connolly. And I think they should be, because
    objectively they are.
        Ms. Rosenberg. I agree.
        Mr. Connolly. And that doesn't mean, however, the threat is
    removed. It doesn't mean that we are not going to face all
    kinds of other problems in the relationship. And it doesn't
    mean that 15 or 20 years hence they might want to reevaluate
    and reverse the commitments they made in this agreement--god
    forbid--and that is what we have got. But we have bought some
    time, and we didn't just buy time and freeze it in place. We
    reversed it.
        And according to your testimony, and you are not the first
    to testify here, to the best of our knowledge they have met
    every metric. It is really interesting to me that we want to
    talk about everything but compliance, having of course
    predicted that they wouldn't comply.
        Ms. Rosenberg. I think it is appropriate to talk about, and
    I assume you would agree, to talk about these other issues of
    concern related to Iran.
        Mr. Connolly. Absolutely.
        Ms. Rosenberg. But nevertheless, very important to
    distinguish between nuclear, oversight of this nuclear deal and
    these other concerns, something that----
        Mr. Connolly. Listen, I am old enough to have lived through
    the Cold War. We had nuclear agreements with our bitter enemy
    that had promised to wipe us from the face of the earth, the
    Soviet Union. That didn't stop us from negotiating under
    multiple administrations with Moscow, starting with John
    Kennedy after the Cuban Missile Crisis of all things. The first
    Nuclear Test Ban Treaty he negotiated with Khrushchev. Now we
    are capable of looking at multiple compartments and
    manipulating them to our advantage where we can, and this is a
    good example. I yield back.
        Chairman Royce. We go now to Mr. Randy Weber of Texas.
        Mr. Weber. I would follow up that by saying that the
    Russians weren't strapping dynamite vests on kids and killing
    people in other countries, but that is just me.
        Mr. Dubowitz, I think in your exchange with Congressman
    Duncan you didn't get to finish your last idea. Would you like
    to take time to do that now?
        Mr. Dubowitz. Yes, thank you, Congressman, a couple things.
    One is I would just make it clear that with respect to the
    Revolutionary Guards and Hezbollah, the fact that Boeing and
    Airbus are now signing, or trying to sign, multibillion dollar
    deals with IranAir, I would say that is incumbent upon those
    companies, and I would argue impossible for those companies, to
    ensure that the technologies that they are providing to IranAir
    are not going to end up in the hands of IRGC Air, which is
    Mahan Air. And I think that those agreements are incredibly
    difficult to enforce and that the due diligence will be
    exceptionally difficult to actually undertake.
        I would also actually take some exception to the exchange.
    Iran is in flagrant violation of U.N. Security Council
    Resolution 2231, which is the implementation resolution for the
    JCPOA which replaced all of the previous six U.N. Security
    Council resolutions, because it is engaged in multiple missile
    tests for long-range ballistic missiles capable of carrying a
    nuclear warhead--capable of carrying a nuclear warhead.
        A nuclear weapon is not just enrichment, a nuclear weapon
    is also a warhead and it is also the delivery vehicle which is
    the missile. So Congressman Connolly, Iran is in flagrant
    violation of U.N. Security Council Resolution 2231 and that
    should give us some serious pause.
        Mr. Weber. Well, and thank you for saying that. Let me
    point out that my good friend from California earlier said that
    liberals, it was their, I believe their instinctive inclination
    to peace, and I just want to ask, did he say instinctive or was
    it extinctive?
        We need to be careful, because you are dealing with a
    regime that would take every opportunity to be in flagrant
    violation, to use your words, not only on all of the sending
    of, as I point out, terrorism to other countries, kids,
    dynamite strapped on, blowing up people, their commitment to
    destroying Israel, the United States ultimately. I think we
    should take them seriously.
        So I appreciate, for one, you all being here and pointing
    out that we need--and I had this conversation with John Kerry.
    We should have made them prove that they wanted to be a good
    world community neighbors, if that is the right word, by doing
    all of these things in a period of time. You know, they have
    been bad actors since 1979 when they took the hostages in
    Tehran. That is 30, back then, last year it was 36 years ago.
    Half of that time would be 18 years. A fourth of that time
    would be 9 years. An eighth of that time would be 4\1/2\ years.
    A sixteenth of that time would be 2 years basically.
        Couldn't we just make them comply for 2 years to prove that
    they were serious, to prove that they were willing to be good
    community neighbors? I mean, the whole JCPOA was absolutely a
    travesty in my opinion. That is my opinion.
        But anyway I wanted to ask you all for your opinions while
    you are here. Three things, I want to know three things to
    apply pressure on Iran. How do we apply pressure, in your
    opinion, Mr. Dubowitz? Just give us three short things that we
    could make them comply as closely as possible. What would you
    do specifically? Well, give me one or two things.
        Mr. Dubowitz. I would require the administration to report
    to Congress on the sectors of Iran's economy that are providing
    key technology and personnel.
        Mr. Weber. That is not going to happen. I don't trust this
    administration to report to us. I am sorry, I just don't. What
    can we do as a Congress----
        Mr. Dubowitz. So you could GAO to do the same report, and
    GAO would then look at other organizations that have done
    similar reports. We have done a report on Iran's missile sector
    looking at the sectors of the economy. Congress could then pass
    legislation or affect the legislation.
        Mr. Weber. What can we do--it is Mark, right, first name is
    Mark?
        Mr. Dubowitz. Mark, yes.
        Mr. Weber. What can we do, Mark, to cut off funding, in the
    House of Representatives if we would have guts, so that when
    they want to use access to the United States financial
    institutions, we as the United States Congress, I know it would
    have to be in the House of Representatives, what could we do to
    shut down their access to the U.S. financial institutions?
        Mr. Dubowitz. So again I think--and Juan and Liz have
    talked about this. I mean, the best thing you can do is appeal
    to the market. The best thing that you can do is create this
    risk overhang that already is there and you can amplify it.
    Require companies and financial institutions to report to the
    SEC if they are doing business with IRGC entities. Not just
    designated IRGC entities, but entities that are on an IRGC
    watch list that GAO or CRS or independent organizations could
    provide.
        By creating a market risk what you are going to do is you
    are going to do what Juan talked about, which is you are going
    to focus on the conduct, the illicit conduct that Iran is
    engaged in and you can shine a spotlight on that. That does
    more to change market calculations by----
        Mr. Weber. I am out of time, but let me follow up by this,
    and I am not going to be able to get to the other two. How do
    we bring our friends on board with that whether it is Britain,
    whoever it is, how do we bring our allies on board with that?
        Mr. Dubowitz. Well, our allies need access to the U.S.
    market. Many of our allies have financial institutions with
    corresponding banking relationships in the United States. Many
    of our allies have companies that are trading on U.S.
    exchanges. So I would go around the governments and I would
    appeal to the companies.
        British banks today don't want to go back into Iran despite
    the fact the British Government is trying to strong-arm them
    back into Iran, because they care about U.S. market access,
    they care about their reputations and they don't want to be
    doing business with the Revolutionary Guards and entities and a
    state that is engaged in such illicit and dangerous conduct.
        Mr. Weber. Okay. Thank you, Mr. Chairman, and I yield back.
        Chairman Royce. Thank you. Now we go to Mr. Ted Deutch of
    Florida.
        Mr. Deutch. Thank you, Mr. Chairman, and again I would like
    to thank you and Ranking Member Engel for your enduring
    commitment to ensure that this committee continues to provide
    oversight on the nuclear deal and remains engaged and vigilant
    on all of Iran's troubling activities.
        For much of the week Secretary Kerry has been quoted in the
    press as proclaiming that Iran is open for business, and that
    as a U.S. official is quoted as saying, it is in fact not U.S.
    sanctions but Iran's bad banking practices along with its
    ballistic missile launches, support for terrorism, and human
    rights abuses including, I might add, a long history of
    arresting foreign businessmen that make it an unfriendly
    business climate.
        And I would agree that every single company that is
    considering doing business in Iran should be deeply concerned
    by and should consider all of these factors before making any
    deal. The Washington Post, yesterday, reported that fear of
    running afoul of continued U.S. sanctions for all of these
    other bad behaviors is preventing banks and businesses from
    dealing with Iran.
        I hope that in his travels Secretary Kerry is making clear
    to our allies that not only will those sanctions remain in
    place and be enforced with vigor, but they too should be
    enforcing these sanctions as they are not covered under the
    JCPOA. Let's be clear here. If Iran wants business, it is up to
    the regime to change its behavior.
        Now the Washington Post also reported that detention of
    foreign citizens is another reason businesses are and should be
    wary of reentering Iran. And I would urge these companies to
    give deep consideration to the fact that the longest held
    American hostage in history disappeared in Iran. Robert
    Levinson went missing in Iran on March 9, 2007 and he is still
    not home. And more importantly, Iran is still not providing
    information as to his whereabouts.
        And I hope that Secretary Kerry has raised the issue of Bob
    Levinson in every one of his meetings with foreign banks and
    foreign businesses. And I hope that every single oil company,
    airplane manufacturer, construction company that meets with
    Iranian officials raises Bob Levinson's case. And I hope that
    every one of these businesses as they contemplate their
    challenges to doing business in Iran contemplate the fact that
    Bob Levinson has been missing for 9 years and makes this an
    issue in those discussions.
        And they should be demanding that if Iran wants foreign
    investment to return, then it should begin to prove itself a
    responsible actor by fulfilling its oft-stated pledge of
    cooperating and providing information on Bob's whereabouts and
    then helping to return him to his family. And I might add, I
    hope that in the reports in the press that our great media, who
    are following these issues so closely, whether or not
    businesses want to re-engage in Iran, will also raise in their
    discussions the fact that Bob Levinson is the longest held
    American hostage and that Iran has not provided the necessary
    information to help bring him home.
        Mr. Dubowitz, I understand that it may be unusual business
    practice for a company to engage with a government in areas
    that are commonly left to diplomats. But why should all of
    these companies looking to reenter Iran, why should they care
    about Iran's human rights abuses? Why should they care about
    Iran's support for terrorism? And why, to follow on my opening
    statement, why should they be concerned about an American who
    has been missing, went missing in Iran more than 9 years ago?
        Mr. Dubowitz. Congressman Deutch, I think for two
    fundamental reasons. Reason number one is that the next hostage
    that could be taken is them. The CEO or the director of
    business development for the Middle East for a major oil
    company or a major financial institution could be the next
    hostage, because Iran takes hostages as part of its standard
    operating procedure.
        And the second reason is because these international
    companies have reputations and those reputations are worth
    billions of dollars, and to have a reputation of doing business
    with a hostage-taking, genocide-threatening, nuclear-building,
    missile-testing, Holocaust-denying regime is just bad,
    fundamentally, for business.
        Mr. Deutch. Mr. Chairman, I would, before I yield back I
    would just say again, the members of this committee are
    probably tired of hearing me talk at every single committee
    hearing, every meeting we have on Iran about my constituent who
    needs to be returned to his family.
        But it is just inconceivable to me that all of the stories
    we have been reading this week have focused on whether or not
    Iran should be open for business, on whether or not other
    countries should worry about sanctions and going back in to do
    business deals in Iran without mentioning Bob Levinson's name.
    I don't understand it. There is an American who has been
    missing for more than 9 years. Everybody, everybody should care
    about Bob Levinson. And I yield back.
        Mr. Weber [presiding]. For the record, Congressman, we do
    not get tired of hearing about that. Thank you. And the chair
    now recognizes Scott Perry.
        Mr. Perry. Thank you, Mr. Chairman. Mr. Dubowitz, Mr.
    Zarate, can you tell me in your opinion, I know this might be a
    little off-target for the hearing, but is Iran's ballistic
    missile capability currently prepared to deliver whatever
    payload that it might desire to put on it, whether nuclear or
    otherwise, beyond, I don't know, several hundred miles? Do they
    currently have that capability on a consistent basis?
        Mr. Dubowitz. Well, they certainly have the capability to
    in terms of range.
        Mr. Perry. Right.
        Mr. Dubowitz. The question is do they have the capability
    to affix a nuclear warhead to those missiles.
        Mr. Perry. With a triggering device. That is in question,
    right?
        Mr. Dubowitz. Right, that is in question.
        Mr. Perry. So that is the continued testing that we see of
    the ballistic missiles. That is what they are working on.
        Mr. Dubowitz. Right. And the danger on the warhead side is,
    again Congressman Connolly seems to think that the Iranians are
    in such full compliance, but on warhead issues we don't know
    because warhead design is done in a room basically this size.
        Mr. Perry. Right.
        Mr. Dubowitz. And we don't even know if we are going to
    have access to military sites where that warhead design is
    likely to take place.
        Mr. Perry. I am going to get to another question, but I
    just want to make the point, while Mr. Connolly feels that they
    are in compliance, and of course you have already elucidated to
    the fact that they are not in compliance, they are in flagrant
    violation of Resolution 2231, I would remind him that we will
    have the same conversation in 10 to 15 years when Iran has
    consolidated its gains in Yemen, Libya, Iraq, if I didn't say
    Yemen already, Syria, et cetera, and will have also perfected
    its ballistic missile technology, will be within months of
    right where it was when we left off, when they left off of
    nuclear device, an armed warhead, and also have the air defense
    artillery from Russia to protect all that stuff, and we will be
    able to do very little about it just like we can do with North
    Korea right now, and I will revisit the conversation with Mr.
    Connolly at that time.
        That having been said, let me ask you folks this because we
    are talking about financial transactions. In addition to the
    sanctions risk, there is a considerable risk to companies
    entering Iran from a business perspective. For example, Iran
    banks will have to adjust to tougher international regulations
    and may need to offload nonperforming loans into a bad bank.
        Many of Iran's banks are still struggling after piling up
    bad debt during the more than a decade long sanctions era,
    several banks having exposure to the country's property market
    which turned sour in 2012 leaving problem loans in the system,
    compounding the situation. Thus, the Iranian financial sector
    is in a precarious situation. Official data showed that the
    ratio of nonperforming loans to total loans was 13.4 percent in
    the Iranian month ending of June 21, 2015. Market estimates
    point to nearly double that figure with the equivalent of $40
    billion at the top end investments for nonperforming loans.
        Since the 2008 financial crisis, most banks must adhere to
    international capital standard known as Basel III which
    required them to bolster their balance sheets. Iran remains a
    command economy dominated by the Islamic Revolutionary Guard
    Corps, the IRGC, to include the banking sector. While the
    Secretary is running around telling everybody it is going to
    fine to invest in Iran, I just want to know how significant the
    reforms would be for Iranian banks to meet international
    banking standards particularly with Basel III.
        Gentlemen. I would like to hear from them if you could,
    first.
        Mr. Zarate. I haven't looked at the balance sheets
    currently, but you are absolutely right that one of the
    questions that any institution going into Iran has to look at
    is what is the health of the financial system? And it is not
    just sort of, it is not only the balance sheet but it is also
    the requirements of safety and soundness post-Basel III.
        So you are absolutely right, in terms of capital
    requirements as well as transparency and accountability which
    is now part of the international system. As I said before, 2016
    is a very different environment than 15 years ago in terms of
    what the expectations are for a financial system. And so Iran,
    I think, has to undertake massive reforms. And what is odd to
    me is we are bending over backward to demonstrate that it is
    okay to do business in Iran when they aren't even meeting any
    of those basic standards, be it post-2008 or 2016.
        Mr. Perry. We are bending over backwards. The United States
    is bending over backwards to tell the international community
    it is okay to invest there, knowing full well that they are far
    from compliance with international standards, particularly
    Basel III. Is that----
        Mr. Zarate. Yes. And we are certainly not sending out road
    shows for our allied economies that are struggling with de-
    risking and other challenges where major banks and businesses
    are de-risking and getting out because they are not meeting
    standards. And so I don't see Secretary Kerry talking about
    investment in Iraq----
        Mr. Perry. Right.
        Mr. Zarate [continuing]. Which maybe we should be, but he
    is certainly not. And so I think there is a real danger here of
    mixing messages and altering our own standards by trying to
    meet the needs of the Iranians as they complain about the
    restrictions that they are facing in the international system
    when the international system is looking clearly at a very
    risky environment.
        Mr. Perry. I mean, what would be the point of it from your
    perspective? Why would the United States engage in this?
        Mr. Zarate. We certainly want to demonstrate that there is
    a benefit to the deal, that we can honor our side of the deal
    and that is to be commended. And I do take a little bit of
    issue with those of us who raised questions about the JCPOA. We
    very much were open, and certainly in the Bush administration,
    to negotiations, and in fact we started the pressure campaign
    in 2005 in parallel with the diplomatic process. Deputy
    Secretary Burns, who is part of the negotiating process for
    President Obama, was also negotiating on behalf of the Bush
    administration.
        So the reality is that we have used these tools as a way of
    isolating rogue behavior, and the challenge with the JCPOA is
    that we perhaps have negotiated away our ability to use them
    aggressively precisely because we have given Iran the voice to
    say you are not giving us the benefit of the deal, which was
    reintegration into international financial and commercial
    system. We can't do that if they are not changing their
    behavior. That is the inherent tension of the deal and it is
    precisely what I told the Senate on two occasions when these
    issues were being debated.
        Mr. Dubowitz. Can I add something very quickly to that? I
    mean, just to clarify, we never committed to the Iranians in
    the JCPOA anything to do with outcomes. We never said that we
    are going to commit to you that you will be reintegrated in the
    global financial system. We never said to you that we are going
    to commit that your GDP is going to increase by 5 percent and
    there is going to be $500 billion of foreign direct investment.
        We committed that we were going to de-designate entities,
    and we are now, we should now be engaged in providing
    regulatory guidance on what those de-designations mean rather
    than becoming the business development and trade promotion
    authority of the Islamic Republic of Iran.
        Mr. Perry. I am sorry, my time is long expired. I yield.
        Mr. Weber. I thank the gentleman for yielding back.
    Congressman Boyle, you are recognized for 5 minutes.
        Mr. Boyle. Yes, thank you. I wanted to associate myself
    with comments that were made much earlier by my colleague
    Representative Brad Sherman. He, I believe, like myself was
    someone on the Democratic side of the aisle who found fault
    with the Iranian nuclear deal and ultimately opposed it.
        That said, I don't think it is helpful or in any way
    productive to keep relitigating old ground, and that the point
    of our work today and in the future for what is in our national
    security interest as well as the interest of our allies is to
    ensure ways moving forward that we can benefit from the
    positives of the deal while at the same time addressing those
    areas of concern. Chief among them for me, and when I wrote an
    op-ed in The Philadelphia Enquirer in August announcing that I
    would be voting against the deal, I talked about how not 5
    years from now, 10 years from now, 15 years from now, today the
    amount of money somewhere in the $2-4 billion range it is
    estimated that Iran is using to fund terrorism, whether it be
    Hezbollah and the over 100,000 rockets in southern Lebanon that
    are being pointed at Israel, whether it is Hamas, whether it is
    their actions to prop up the Assad regime, what they are doing
    in Yemen, et cetera, et cetera.
        So I want to kind of, you know, address my comments looking
    forward prospectively on what can be done today to address,
    sanctions-wise or other tools we have available, the bad
    Iranian behavior and the support for terrorism, while at the
    same time not doing anything that would violate our own
    obligations under the JCPOA. So with that comment, let me
    actually first invite Ms. Rosenberg who hasn't had an
    opportunity for awhile to address that.
        Ms. Rosenberg. Thank you for the question. There are a
    number of things that the United States can do along with
    partners and allies in the rest of the world to address these
    very serious terrorism concerns, also regional destabilization
    concerns, you have mentioned. Since we are talking about
    sanctions, first among them is using those authorities
    aggressively that the United States has, as has been mentioned
    previously.
        I fully support the suggestion that Congress could call
    upon the administration to designate the IRGC in its entirety
    under terrorism authorities as well as an aggressive campaign
    to go after its agents, instrumentalities, front companies, et
    cetera, in Iran and outside of it as a way to expose this
    activity and go after it.
        However, sanctions are certainly not the only tool,
    possibly not the most important tool, for truly combating
    terrorism activities that Iran sponsors in the region and
    beyond. Certainly counterterrorism cooperation with partners in
    the region, some of Iran's neighbors, is an incredibly
    important activity that occurs already and should be a subject
    of support from this body and broadly, internationally.
    Intelligence sharing and covert operations are also critically
    important to that set of activities. So that is just a short
    list.
        Mr. Boyle. If anyone wanted to add to that.
        Mr. Zarate. Congressman, I think Liz is absolutely right. I
    think part of this is the position that we need to push back
    and push back in ways where there are real threats and real
    risk. One of the suggestions that I have made in the past is
    much more aggressive interdiction of Iranian shipments, which
    we have seen some of in the context of Yemen.
        Mr. Boyle. And we have seen some of that increase recently.
        Mr. Zarate. Exactly, because the risk is going to increase
    precisely because they have more funding, they have more
    interest, there is more adventurism. That needs to be ramped up
    with our naval forces as well as allied naval forces. That also
    raises the specter, which is not included in the negotiations
    or how we have looked at the risk of the deal, a proliferation
    with North Korea. The very real possibility that Iran and North
    Korea continue to collaborate on things like ballistic missile
    technology has to be a part of what we are looking at in terms
    of risk and pushing back on.
        And I also think we shouldn't ignore things like human
    rights. We have the Magnitsky Act in terms of Russia, why
    aren't we thinking more aggressively about what Iran is doing?
    Certainly, I think one could argue that the human rights abuses
    in Iran equal if not surpass what is happening in Russia, so
    why isn't there legislation or at least focus there? So I think
    we have muted our voices a bit because we have wanted the deal,
    to be honest, but if that is the case we have the deal, let's
    make it work.
        Mr. Boyle. Right.
        Mr. Zarate. But there are real risks that are still
    attendant to this. Let's push back on those risks.
        Mr. Boyle. I am down to 12 seconds, so let me just kind of
    conclude with this. When Treasury Secretary Jack Lew sat right
    there and testified in front of this committee, there was
    debate on exactly how much money we were unfreezing or making
    available to them. There were estimates upwards of $150
    billion. He said no, that actually the accurate figure is $56
    billion.
        And I took the administration at that. My point was that
    even if 90 percent of those funds go toward improving their
    basket case economy, if they just siphon off 10 percent to
    continue terrorist behaviors that is more money than they have
    at their entire disposal now for all their terrorist
    activities. So making sure that we tackle those funds for
    behavior that they are doing today is, in my view, the single
    most important thing Congress can do. I yield back.
        Mr. Weber. The gentleman makes a good point. The gentleman
    from New York is recognized for 5 minutes.
        Mr. Donovan. Thank you, Mr. Chairman. Our hearing is
    entitled, Terrorism, Missiles and Corruption, and I wanted to
    touch on the corruption in Iran. And the Foreign Corrupt
    Practices Act prohibits United States citizens, United States
    companies from doing business with people who are bribing
    officials for business transactions and purposes.
        Part of the implementation day, the administration issued
    an edict for the subsidiaries of United States companies to be
    able to do business with the Iran Government. I was just
    curious if any of you had any position or idea, are these
    subsidiaries actually violating the act? And if they are, how
    is the parent company protected, the United States parent
    company from these subsidiaries protected from violating the
    act itself?
        Ms. Rosenberg. So this is right that the foreign subs of
    U.S. parents are allowed under the agreement to be able to do
    business in Iran. There are a number of caveats which say that
    they can receive certain back office services from their U.S.
    parents, but they cannot avail themselves of U.S. persons,
    financial institutions, the dollar, and other services that
    many would consider necessary for their functioning.
        In practice I think it will be incredibly difficult, if not
    virtually impossible, for those foreign subsidiaries to do
    their business as long as they are planning to do so in a
    responsible manner following existing sanctions and FCPA
    regulations. And for the parent, to protect itself adequately
    requires, as has been discussed, a tremendous amount of due
    diligence to ensure that no part in this company, its
    subsidiary, is involved in inappropriate or illicit activities.
        Mr. Dubowitz. And Congressman, I will just add, your
    question on corruption, I think, is an important one and Juan
    underscored this. But the pending Global Magnitsky Human Rights
    Accountability Act, which is before Congress, is one mechanism
    which can be used to target corruption, because not only does
    it target human rights violators but also government officials
    and their associates who are responsible for or who are
    complicit in significant corruption. So Global Magnitsky, I
    think again is not only important for human rights, qua human
    rights, but also to target corruption.
        And if you look at Iran's regime, and the Supreme Leader
    himself runs a $95 billion holdco called the Execution of Imam
    Khomeini's Order, which by the way was de-listed under the
    JCPOA, but it is a massive corruption mechanism, as are the
    bonyads. And so the corruption within the Iranian regime is
    something again not only should we target because it is an
    effective way to protect the financial system, but also these
    are the crooks and thieves that are stealing from the Iranian
    people.
        And there may be a lot of disagreement in Iran over the
    nuclear program or other issues, but on the corruption issue it
    is certainly clear that since 1979 and even before that the
    Iranian people have been cheated out of their national wealth.
        Mr. Zarate. Congressman, I would just say in terms of the
    environment in 2016, corruption and the issues of kleptocracy
    are now on the global agenda. And you clearly see the
    Department of Justice focusing more and more on aggressive
    applications of the FCPA. The FIFA case is a great example of
    the use of anti-corruption prosecutions to actually go after
    prosecution rings and networks around the world, especially
    institutions.
        But three quick issues that I think are important in terms
    of corruption with respect to Iran. One is the lack of
    transparency as to who owns what and what is tied to the
    leadership, everything that Mark and Liz and we have been
    talking about. The second is the rule of law. What does
    contractual relationship in Iran look like? What does it look
    like and what are the benefits and facilitation fees, et
    cetera, tied to dealing with the IRGC or a state-owned company?
    What is the rule of law in that context? That is a big
    question.
        And the third is, there is an international standard around
    how you engage and enhance due diligence, ask lots of questions
    about politically exposed persons. That is called PEPs. It is a
    term of art. While Iran is full of PEPs, it is full of high
    risk of corruption. And so for businesses, one of the reasons
    they are having trouble with managing how you go in, if you
    even wanted to go into Iran, is you have a sea of PEPs that you
    now have to deal with and engage and enhance due diligence to
    understand how they source their funds, what they are doing,
    what businesses they control, and this is all part of these
    heightened global standards that Iran is now facing. They are
    not just facing potential recalcitrants as part of the deal,
    they are facing heightened international standards that they
    have never been forced to adhere to.
        Mr. Donovan. I thank you all. My time is expired. Thank
    you.
        Chairman Royce. Thank you. We go to Mr. Ron DeSantis of
    Florida.
        Mr. DeSantis. Thank you, Mr. Chairman.
        Mr. Dubowitz, with this Ben Rhodes article I was thinking,
    because I remember during that time when Rouhani was elected
    and the people were starting to say he was a moderate and then
    this was like this great opening, and I never bought that. I
    think most of our members never bought it. But, you know, I did
    think that the administration was just being naive about it. It
    turns out, I mean, they never bought it either. I mean, they
    knew that this a deal that was really going to be done in
    conjunction with Iran's hardliners.
        But it does seem to me just thinking back, I am interested
    in your thoughts that the deception was very effective. I mean,
    they did create a narrative in the media that this was a really
    important opening. That there was a chance for change here and
    that that is what they were grappling onto, even though they
    had already started down this road before Rouhani was ever
    elected.
        Mr. Dubowitz. Congressman, that is exactly right. And the
    reason that deception was so important is actually because of
    the technical issues around the nuclear deal. When I talked in
    my testimony about a patient pathway to nuclear weapon, what I
    mean is that these key restrictions that Congressman Connolly
    believes are so important are actually going to go away
    beginning after 5 years and 8 years, 8\1/2\ years, 10, 15.
        Now if Iran ends up in 10, 15 years as a moderate regime
    with a nuclear weapons capability, an industrial size
    enrichment program and ICBM, a powerful economy, regional
    hegemony, then we are not going to be as concerned because
    actually they start to look more like Japan which has threshold
    nuclear capability. But if Iran is still ruled by the hard men
    of Iran, the hardliners, if Rouhani was the Supreme Leader, and
    he is a hardliner, then we have a very dangerous regime in
    possession of industrial size nuclear capability. That is why
    that deception that Ben Rhodes has spun out is so damaging.
        Mr. DeSantis. I agree. In terms of the access to the
    dollar, I remember the testimony not just from this committee
    but others about the administration says, look, they are not
    going to have access to the financial system. I believe that
    they also said it wouldn't even be indirect. But what is your
    recollection of that? Is what they are trying to do now, does
    that conflict with any of the testimony that we heard from the
    administration to lead up to the deal?
        Mr. Dubowitz. Well, it certainly contradicts the spirit of
    what they said. I think they were really, really careful to
    talk about specific access to the U.S. financial system and u-
    turn transactions. And, you know, to Liz's comment, you are
    right. At some point a U.S. financial institution is going to
    have to be involved in offshore dollar clearing because they
    are going to have to provide more dollars into the system. If
    those dollars have been used they have to replace the dollars
    that have been used.
        But you can get around that by providing a license to U.S.
    financial institutions that would legally protect them for
    providing dollars to the offshore dollar clearing facilities.
    You could also do it not only through offshore dollar
    facilities but through book transfers, intrabank book transfers
    within the same financial institution that does that conversion
    and transfer.
        So I am concerned the administration has been trying to
    very carefully thread the needle between its commitments to
    Congress and its desire to give Iran dollarized financial
    transactions generally or in specific classes of transactions.
        Ms. Rosenberg. If I could just respond to that.
        Mr. DeSantis. Hold on. I am going to have one at a time.
    Mr. Zarate, the Treasury recommends that people considering
    doing business in Iran or with Iranian persons conduct due
    diligence to ensure that they are not knowingly doing business
    with the Revolutionary Guard Corps. What are these companies
    supposed to do? Because, you know, there is a huge percentage
    of the businesses that are controlled by the Revolutionary
    Guard Corps. You are not going to have a Revolutionary Guard
    Corps general show up to broker the deals. I mean, these things
    are sheltered and there are different things. And so what are
    companies supposed to do, and can they ever really be sure in
    some of these instances that they are not providing money for
    the Revolutionary Guard Corps?
        Mr. Zarate. It is incredibly opaque, and you are right. I
    think any due diligence, be it enhanced or otherwise, is
    limited by the structure and nature of the environment in which
    you are doing that diligence. And, you know, I doubt that Iran
    has a corporate registry for all of those companies run by the
    IRGC. Some of it is public actually. There has been a lot of
    research on some of those. But a lot of it is opaque and we
    know that they have used shell companies, we know that they
    have used procurement agents, we know that they have used
    classic layering in money laundering fashion to hide their
    activities.
        And so it is a very hostile environment to transparency and
    due diligence. And what you have are financial institutions
    that are being asked to do that kind of due diligence in other
    parts of the world in very harsh and difficult environments now
    contemplating that in the Iranian context along with all of the
    things that Iran does in using or misusing its financial
    system. That is why it is so risky in doing business and it is
    very hard for a CEO or compliance at a general counsel of a
    bank to say I feel fully comfortable that I understand with
    whom we are doing business, how we are doing it, and to be able
    to fence-ring the kinds of risk that they are exposed to.
        Mr. DeSantis. Yes, I agree. I think that is very well
    stated. And my time is up, but I appreciate everyone's
    testimony. I yield back.
        Mr. Engel. Mr. Chairman, I am wondering if we could let Ms.
    Rosenberg finish her answer.
        Chairman Royce. Without objection, yes, Mr. Engel.
        Ms. Rosenberg. Thank you. I just wanted to offer that as
    the President has stated, the U.S. Government is not
    considering giving Iran access to the U.S. financial system. In
    fact, under current restrictions, the u-turn penalty, this is
    something that banks take very seriously. And when they have
    abused it, as has been demonstrated in some of the big bank
    enforcement cases, including by using book-to-book transfers
    that were inappropriate and constituted evasion, they have been
    punished severely. So currently they are not considering it, it
    is not possible, and it is punishable with severe and expensive
    financial penalties.
        Mr. Engel. Thank you. Mr. Chairman, I ask unanimous consent
    to place into the record this letter from the Treasury
    Department explaining the administration's policies related to
    Iranian transactions and access to the U.S. financial system.
        Chairman Royce. Without objection.
        Mr. Dubowitz. Mr. Chairman, may I say one quick thing? When
    the President of the United States says very clearly we will
    not give Iran direct or indirect access to the U.S. dollar,
    then I think you and your colleagues should be more assured.
        Chairman Royce. Thank you, Mr. Dubowitz. I thank all of our
    panel today. Mr. Zarate, good to see you again. And we thank
    you for your time, very insightful testimony. And this was a
    particularly timely discussion given Secretary Kerry's meetings
    in Europe this week and yesterday, and as international
    financial institutions weigh their reputational risks with a
    country like Iran, which as we heard is not heeding basic
    international standards.
        So this hearing stands adjourned.
        [Whereupon, at 12:02 p.m., the committee was adjourned.]

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