[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
        
        
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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

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                                                                   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:]
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    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:]
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    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:]
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    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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