[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
IRAN TERROR FINANCING AND THE TAX CODE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON OVERSIGHT
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 4, 2015
__________
SERIAL NO. 114-OS09
__________
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
KEVIN BRADY, Texas, Chairman
SAM JOHNSON, Texas SANDER M. LEVIN, Michigan
DEVIN NUNES, California CHARLES B. RANGEL, New York
PATRICK J. TIBERI, Ohio JIM MCDERMOTT, Washington
DAVID G. REICHERT, Washington JOHN LEWIS, Georgia
CHARLES W. BOUSTANY, JR., Louisiana RICHARD E. NEAL, Massachusetts
PETER J. ROSKAM, Illinois XAVIER BECERRA, California
TOM PRICE, Georgia LLOYD DOGGETT, Texas
VERN BUCHANAN, Florida MIKE THOMPSON, California
ADRIAN SMITH, Nebraska JOHN B. LARSON, Connecticut
LYNN JENKINS, Kansas EARL BLUMENAUER, Oregon
ERIK PAULSEN, Minnesota RON KIND, Wisconsin
KENNY MARCHANT, Texas BILL PASCRELL, JR., New Jersey
DIANE BLACK, Tennessee JOSEPH CROWLEY, New York
TOM REED, New York DANNY DAVIS, Illinois
TODD YOUNG, Indiana LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
ROBERT J. DOLD, Illinois
TOM RICE, South Carolina
Joyce Myer, Staff Director
Janice Mays, Minority Chief Counsel and Staff Director
______
SUBCOMMITTEE ON OVERSIGHT
PETER J. ROSKAM, Illinois, Chairman
MIKE KELLY, Pennsylvania JOHN LEWIS, Georgia,
PAT MEEHAN, Pennsylvania JOSEPH CROWLEY, New York
GEORGE HOLDING, North Carolina CHARLES B. RANGEL, New York
JASON SMITH, Missouri LLOYD DOGGETT, Texas
KRISTI NOEM, South Dakota
JIM RENACCI, Ohio
C O N T E N T S
__________
Page
Advisory of November 4, 2015 announcing the hearing.............. 2
WITNESSES
Mark Dubowitz, Executive Director, Foundation for Defense of
Democracies.................................................... 7
Douglas Feith, Senior Fellow, Hudson Institute, former Under
Secretary of Defense for Policy................................ 52
David Schizer, Dean Emeritus and Professor of Law and Economics,
Columbia Law School............................................ 44
Kenneth Stethem, Chairman & CEO, Aegis Industries, LLC........... 61
Jim Walsh, Research Associate, Massachusetts Institute of
Technology's Security Studies Program.......................... 70
PUBLIC SUBMISSION FOR THE RECORD
Additional Written Comments for the Hearing Record............... 103
IRAN TERROR FINANCING AND THE TAX CODE
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WEDNESDAY, NOVEMBER 4, 2015
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:03 a.m., in
Room 1100, Longworth House Office Building, the Honorable Peter
Roskam [Chairman of the Subcommittee] presiding.
[The advisory of the hearing follows:]
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Chairman ROSKAM. The hearing will come to order. Welcome to
the Ways and Means Oversight Subcommittee hearing on Iran
terror financing and the Tax Code.
Today's hearing will review the President's authority to
waive provisions in the Tax Code aimed at discouraging Iran's
support for terrorism and explore whether those provisions
should be strengthened. Earlier this year, James Clapper, the
director of national intelligence, stated, quote, ``Iran
remains the foremost state sponsor of terrorism and is
increasing its ability to influence regional crises and conduct
terrorism. This has been the consistent view of the
intelligence community for more than three decades,'' end
quote.
Let's start by looking at how all this began. Ironically,
today, 36 years ago, it is the anniversary in 1979, Iran's now
ruling theocratic regime seized the U.S. Embassy and our
diplomatic personnel in Tehran. In response, the U.S. severed
our diplomatic relationship and imposed strict economic
sanctions against Iran. We also enacted provisions in the Tax
Code to discourage U.S. companies from doing business in Iran.
Iran has long been one of the most active and prolific
State sponsors of terrorism in the world, funding hundreds of
attacks through its terror proxies abroad including, Hezbollah,
Hamas, and Islamic jihad. In 1984, the State Department
officially designated Iran as the state sponsor of terrorism.
A year later, in 1985, Iran supported the Hezbollah-led
high-jacking of TWA flight 847 en route from Athens to Rome.
The hijackers diverted the plane, to Beirut, held most of the
passengers and crew hostage. One victim, Navy petty officer
Robert Stethem, was singled out because he was a member of the
U.S. military. He was tortured and murdered during the attack.
In forced heroism, he was posthumously awarded the Purple Heart
and the Bronze Star. His brother, Kenneth, is here with us
today as one of our witnesses.
Over the years, Iran has increased support for terrorism,
committed heinous human rights violations, and engaged in an
illegal mission to develop nuclear weapons. To punish these bad
acts, numerous countries have imposed economic sanctions
against Iran, and the United Nations Security Council has
followed suit. So let's fast forward to the present day. In
July, the United States and the P5+1 countries finalized the
Iran nuclear agreement. And under this deal, the U.S. and our
international partners agreed to dismantle the current
sanctions regime in the hope that Iran will slow its pursuit of
nuclear weapons technology. The agreement also gives the
Iranian regime access to an estimated $150 billion in currently
frozen assets.
The Obama administration pursued a nuclear agreement with
Iran at any cost, rushing forward to implement the terms of a
bad deal, despite majority opposition in both chambers of
Congress. In order to do it, President Obama violated the Iran
Nuclear Agreement Review Act, also known as Corker-Cardin, that
he himself signed. And instead of submitting the full text of
the nuclear agreement, plus any related documents and side
deals to Congress, as the law requires, he refused to provide
the text of the two secret side deals. And as a result, the
American public still doesn't know the full scope of the
concessions President Obama gave to the Iranians.
What we do know is, that the Iranian nuclear agreement says
it will, quote, ``Produce the comprehensive lifting of all U.N.
Security Council sanctions as well as multi-lateral and
national sanctions related to Iran's nuclear program,'' end
quote.
Under the law we are examining today, U.S. companies get
two benefits for their worldwide business, foreign tax credits
and deferral.
One of the relief measures the President may provide to
Iran while implementing his nuclear agreement is to waive these
provisions, which work to discourage U.S. companies from doing
business there. Under current law, because of Iran's extent of
support for terrorism, and because the U.S. Government has
severed diplomatic relationships with Iran, no foreign tax
credit may be claimed by a U.S. company doing business in Iran.
I would like to show a graph.
When U.S. companies do business with foreign countries, say
Japan, for example, they are typically eligible for a foreign
tax credit which offsets taxes paid to foreign governments.
These foreign tax credits make sure U.S. companies don't pay
the same taxes twice, once to their home country and once to a
country where they may be doing business internationally. But
business with Iran is not eligible for this benefit, obviously.
U.S. companies do essentially have to pay tax twice for any
business conducted in Iran; first, any taxes required by Iran,
and then also the usual amount of taxes required by the U.S.
Under current law, for every $100 in profits earned in Japan, a
U.S. company would be left with over $65 after taxes. This is
shown on the left.
But for a U.S. company doing business in Iran, they would
have far less, from $100 in profits, only $42 after taxes, and
this is shown on the right. So in addition to the foreign tax
credit, the Tax Code requires U.S. companies to pay taxes
immediately on any income derived from Iran by foreign
subsidiaries. This is much harsher than the rules that would
apply for international commerce in Japan, for example, where
taxes are only owed in the U.S. once those profits are
repatriated.
These provisions have generally been effective in
discouraging U.S. companies from doing business in Iran,
business that would certainly improve the Iranian economy and
increase the power of financial resources of Iran's regime.
However, the law currently gives the President the authority to
waive these punishing tax provisions and allow beneficial tax
treatment for businesses conducting business in Iran.
Historically, waiving these provisions has only occurred
after a country has followed through on the concessions they
have promised. For example, President Bush waived the
provisions for Libya in 2004, but only after Libya had
demonstrably ended its support for terrorism and its weapons of
mass destruction programs.
In contrast, President Obama has already entered into an
agreement with Iran that would waive most of the current
sanctions, potentially including these tax provisions. But
instead of requiring concrete proof that Iran's concessions
have been achieved, the administration actually said it will
waive sanctions against Iran even if the country doesn't comply
with the nuclear agreement. So we have to ask ourselves, how
will Iran move forward under the agreement?
Iran's supreme leader has publicly said that Iran will use
some of the $150 billion in newly unfrozen assets to continue
funding terrorism, and influential Iranian critics and
government officials, including the supreme leader himself,
continue to call for death to America. The White House not only
ignores these declarations, but actually defends them, assuring
Americans that this rhetoric is only intended for Iranian
domestic political consumption.
Secretary Kerry has said that it doesn't reflect Iran's
intention to destroy the United States, because he adds, quote
``no specific knowledge of a plan by Iran to actually destroy
us,'' end quote. I think most people consider illegal efforts
to build a nuclear arsenal while declaring death to America a
clear demonstration of intent. With the lifting of sanctions,
the Tax Code provisions that we examine today are more
important than ever. This Committee wrote to the President
asking whether he would waive the provisions or if he would
commit not to waive them during his presidency. He has not
responded. Stopping Iran's support for terrorism is crucial for
the safety of the American people both at home and abroad.
And on a final note, let's be clear from the outset. Funds
Iran will receive under the administration's nuclear agreement
will go to sponsoring terrorism. Whatever one's opinion of the
Iran nuclear agreement, and we have a wide range of views on
this panel, we should be able to agree on the importance of
taking measures to counter Iran's support for terrorism. The
tax provisions that we are discussing today are in our
jurisdiction and are related to Iran's support for terrorism,
not nuclear proliferation. It is that support for terrorism
which triggers them so they can and should remain in effect
outside of the framework of the nuclear agreement. And I hope
that we can work in a bipartisan basis to fight and defeat
terrorism and examine how we can strengthen these tax
provisions to achieve that goal.
I know that Mr. Rangel would like to be recognized just to
acknowledge that he is called to another meeting of the Ways
and Means Committee and intends to return.
Mr. RANGEL. Thank you so much for the courtesy, Mr.
Chairman.
I promised Mr. Lewis and certainly the other members that I
would be here, but Chairman Tiberi has called a meeting, which
includes the Members of the Committee on Trade. We are meeting
with the British parliamentary to take a look at the
transatlantic agreement. And I wanted so much to be here
because I read recently that Prime Minister Netanyahu next week
will be visiting with the President of the United States. And I
have every reason to believe that the Iranian agreement will
not be renegotiated, especially by our Committee, and that we
will be looking forward to working to see how we can have a
binding bipartisan agreement to show Israel the depth of our
commitment to her as a part of being a leader of the free
world.
The $3 billion annual aid package expires in 2017 with
Israel, and we hope this Committee will play an important role
in developing a 10-year defense package for Israel and to do
the best we can to make what some may consider a bad
agreement--it is certainly, not a good agreement, but it could
be the best agreement we have had. And I hope the panel and our
Committee and Congress and the President would do the best that
we can to show that we are Israel's best friend.
So thank you for the courtesy, and I will be returning as
soon as the other committee meeting has expired.
Chairman ROSKAM. Thank you.
Mr. RANGEL. Thank you so much.
Thank you, Mr. Lewis.
Chairman ROSKAM. Mr. Lewis.
Mr. LEWIS. Thank you, Mr. Rangel.
Thank you, Mr. Chairman, for yielding.
Many of you know that sanctions can be useful diplomatic
tools. For almost 40 years, Congress has worked with the
executive branch on Iran's sanction policy and legislation.
It has always been a partnership. I often think some
international sanctions help to bring about diplomatic and
democratic changes to shift the course of history. This legacy
is the reason why I, and many others, support the bipartisan
sanction deal that finally brought Iran to the negotiation
table to discuss their nuclear weapons program.
Let me be clear, I am no friend of Iran's regime. Like many
of you, I am sickened by the acts of terror that the Iranian
leadership has supported. Too many people have lost their lives
and countless loved ones in senseless attacks and violence.
This is why I supported bipartisan, bicameral legislation
seeking justice for former American hostages and their
families. This is why I speak up for religious freedom and the
release of political prisoners, and this is why I fight to
protect victims of human rights abuses in Iran and around the
world.
After the Iran nuclear agreement was finalized, I spent
months attending briefings, studying documents, and listening
to citizens of my district. I held many long executive sessions
with myself, and weighed all sides of the argument. In
particular, I reflected on the words of Dr. Martin Luther King,
Jr. when he called upon us to rededicate ourselves to the long
and bitter but beautiful struggle for a new world. You see, the
way of peace is an immutable principle that I hold near and
dear to my heart. I believe then, as I believe now, that the
administration's nuclear agreement is a good deal. Though it
may not be perfect, we must not, we cannot, let the perfect be
the enemy of the good.
As we speak, the agreement is being implemented and Iran is
just beginning to dismantle its nuclear weapons program. Any
legislative attempt to undermine this opportunity for peace
cannot, must not, be entertained. We do not need more war and
conflict. War is messy. It is bloody, it destroy the hopes, the
aspirations, and the dreams of a people.
The American public and people around the world are sick
and tired of war and violence. As members of Congress, we have
a moral obligation, a mission, and a mandate to give peace a
chance. We cannot sow the seeds of failure. We must light the
way of hope.
Mr. Chairman, thank you. I look forward to hearing from the
witnesses, and I yield back.
Chairman ROSKAM. Thank you, Mr. Lewis.
We are joined by five witnesses, and I want to thank each
of you for taking the time to spend with us this morning.
Mark Dubowitz is the executive director of Foundation for
the Defense of Democracies. Mr. David Schizer is the dean
emeritus and professor of law and economics at Columbia Law
School. Mr. Douglas Feith is the senior fellow at the Hudson
Institute, former Under Secretary of Defense for Policy. Mr.
Kenneth Stethem, who I recognized in my opening statement, is
the chairman and CEO of Aegis Industries. And Dr. Jim Walsh,
research associate at the Massachusetts Institute of
Technology's security studies program.
We have your written testimony for the record. You are each
going to be recognized for 5 minutes.
And, Mr. Dubowitz, let's start with you. Thank you.
STATEMENT OF MARK DUBOWITZ, EXECUTIVE DIRECTOR, FOUNDATION FOR
DEFENSE OF DEMOCRACIES
Mr. DUBOWITZ. Chairman Roskam, Ranking Member Lewis,
honorable Members of the Committee, on behalf of FDD and its
center on sanctions and illicit finance, thank you for the
opportunity to testify, particularly with such a distinguished
panel of experts.
Ken, thank you for your service and your brother's service
to our country.
I want to emphasize that today the Iranian regime is
involved in a range of dangerous and illicit activities. In
fact, recently, the regime tested a ballistic missile capable
of carrying a nuclear warhead. It has massively increased its
crackdown on its own citizens. It has expanded its support for
Syria's murderous Assad regime and for terrorist organizations
like Hezbollah and Hamas.
Meanwhile, Iran remains the leading state sponsor of
terrorism and is currently holding several American hostages.
The Iran nuclear agreement, the JCPOA, gives the regime a
patient pathway to a nuclear weapons capability as key nuclear
restrictions begin sunsetting after 8 years. In addition, the
agreement provides extensive sanctions relief likely to benefit
the most dangerous elements of the regime, including those
directly involved in terrorism. Specifically, the revolutionary
guards, which control key strategic sectors of Iran's economy
and the supreme leader's $95 billion holding company called the
execution of Imam Khomeini's order, or EIKO.
It is difficult to imagine a significant business
transaction with foreign companies where the IRGC or EIKO won't
be in on the deal. These financial gains will enable them to
expand their dangerous activities. In anticipation of the
sanctions relief from the Iran deal, President Rouhani's 2015-
2016 budget rewards the IRGC, the intelligence services, and
the hardline clerical establishment with a 48 percent increase
in expenditures. The IRGC itself will receive 64 percent of
public military spending, which is set to rise to $11- to $12-
billion annually. The IRGC's massive construction arm, Khatam
al-Anbiya, will see its budget double. If past is prologue, the
cash will be spent partly on the IRGC's regional aggression,
ballistic missile program, and support for terrorism.
Despite Iranian threats, including most recently from the
supreme leader, the JCPOA does not preclude the use of
nonnuclear sanctions. The administration has done little,
however, to respond to Iran's threatening behavior. But
regardless of whether one believes that the JCPOA was a great
deal or a terrible deal, Congress needs to take the lead on
ramping up sanctions to address Iran's support for terrorism
and using other provisions to target illicit behavior not
covered by the JCPOA.
An important first step is to designate the IRGC as a
terrorist organization and to sanction EIKO, where the nexus
between corruption and sponsorship of terrorism is
overwhelmingly clear. There are major loopholes in U.S. law
given the overwhelming evidence that the IRGC, and not just its
Quds Forces involved in supporting terrorism, as well as the
dangers from the imminent lifting of U.S. sanctions on the
supreme leader's $95 billion terrorism slush fund. Taking these
steps against the IRGC and EIKO are not a violation of the
agreement.
My written testimony provides greater detail and additional
steps that Congress could take, but I want to emphasize the
elimination of tax breaks for companies doing business in Iran,
provisions addressing Iran's support for terrorism,
nonproliferation, and therefore, not precluded by the
agreement. The goal is to diminish the funds available to the
IRGC, EIKO, and their support for terrorism, and other illicit
activities.
Now, some may argue that preventing tax benefits to U.S.
and foreign companies which do business with State sponsors of
terrorism will have little impact. I disagree. It is the use of
these nonnuclear measures that will undercut the incentives for
these companies to engage with illicit Iranian actors.
First, if the U.S. doesn't increase pressure through these
nonnuclear sanctions, including through the use of tax
provisions, to target Iran's dangerous activities, we are going
to be effectively rewriting the agreement as demanded by Iran's
supreme leader, Ali Khamenei. We should not be unilaterally
disarming our course of power by giving into the supreme
leaders's threats.
Second, Congress should use its powers to limit the extent
to which foreign subsidiaries of U.S. companies engage with the
leading State sponsor of terrorism. If current tax provisions
are insufficient to deter this business, Congress should
consider strengthening them. If Congress limited OFAC's
licensing authorities for U.S. parent-foreign subsidiary
transactions and imposed a 100 percent tax rate, for example,
on profits from Iran, these companies would be significantly
deterred from this business. And Congress should explore
imposing negative tax consequences on companies doing business
in the U.S. with foreign affiliates doing business with Iran,
regardless of the location of a company's headquarters.
Third, and finally, Congress should examine the criteria
under which the President could use his waiver authority in
this tax provision. These tax benefits should be blocked for
State sponsor of terrorism like Iran. Unlike Libya, a country
that did benefit from presidential waivers, Iran will not
dismantle its nuclear program, not end its state sponsorship of
terrorism, and not make restitution of the past victims of Iran
terrorism. Unfortunately, there is a substantial risk that tens
of billions of dollars will flow to Iran, will be used in part
to kill and maim future victims.
Thank you for the opportunity to testify today. I look
forward to your questions.
Chairman ROSKAM. Thank you.
[The prepared statement of Mr. Dubowitz follows:]
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Chairman ROSKAM. Mr. Schizer.
STATEMENT OF DAVID SCHIZER, DEAN EMERITUS AND PROFESSOR OF LAW
AND ECONOMICS, COLUMBIA LAW SCHOOL
Mr. SCHIZER. Thank you, Chairman Roskam, Ranking Member
Lewis, and Members of the Subcommittee. Thank you for inviting
me to testify today about terrorism-related provisions in the
U.S. tax law. This issue is timely and important, since the
JCPOA is supposed to ease nuclear-related sanctions on Iran,
but not terrorism-related sanctions. And in announcing the
JCPOA, President Obama said, and I am quoting him, ``We will
maintain all sanctions related to Iran support for terrorism.''
Curtailing Iran's support for terrorism, obviously, is an
important goal. Congress can use the tax law to pursue it in
two ways. First, Congress should discourage U.S. and other
businesses from paying tax to Iran since this revenue could be
used to fund terrorism.
Second, Congress should raise the tax cost of doing
business in Iran since this commercial activity can strengthen
extremist groups such as the Revolutionary Guard. Two
provisions of the Tax Code pursue these goals under current
law. I believe I am the only tax lawyer among the witnesses, so
my role is to review how these provisions work. Since both have
significant gaps, I will also suggest ways to strengthen them.
The first provision, section 901(j), raises the cost of
paying tax to Iran. Ordinarily, when U.S. taxpayers pay tax to
a foreign country, every dollar of tax they pay to a foreign
country reduces their U.S. tax by a full dollar. But taxes paid
to Iran are treated less favorably. A dollar of these taxes
reduces U.S. tax by only 35 cents for corporate taxpayers. As
the Chairman was observing before, this is instead of the full
dollar. The reason is that section 901(j) authorizes only a
deduction instead of a credit.
The second provision, section 952(a)(5), accelerates U.S.
tax when U.S. multi-nationals do business in Iran. Usually,
foreign earnings are not taxed until they are brought back to
the U.S. But if this money is earned in a state that sponsors
terrorism, the U.S. tax hit right away.
I will now flag some gaps in these provisions and highlight
a few possible solutions. First, the rule forcing the U.S.
multi-nationals to pay tax immediately is somewhat porous. It
applies to income and the statutory test it is derived from,
states that sponsor terrorism, but this derived-from standard
is imprecise. It applies when a firm is drilling for oil or has
operations on the ground, but there is an argument that it
doesn't apply when firms sell goods into Iran from the outside.
The reason, is that income from the sale of properties
sometimes is treated as earned where title passes, instead of
where the property ultimately is used. So U.S. taxpayers may
argue that income from selling goods into Iran is not derived
from Iran, so no current U.S. tax is due as long as title
passes in international waters.
To plug these gaps, Congress can direct the Treasury to
promulgate regulations that read that derive-from standard more
broadly, or Congress can consider legislation. For example, the
test can be whether states that sponsor terrorism are the
ultimate destination of the property.
Taxpayers may try another way to shift income away from
states that sponsor terrorism in an effort to avoid these
provisions. Not just by claiming that the revenue comes from
somewhere else, but also by stuffing deductible expenses into
these countries, such as interests and royalties. To thwart
these income stripping strategies and more generally to raise
the cost of doing business in Iran, Congress can consider
stopping taxpayers from deducting these and other costs of
doing business there. In other context Congress has taken away
deductions for bribes, for fines and penalties, and for the
cost of drug trafficking. Congress should consider the same
treatment for costs of doing business in states that sponsor
terrorism.
Finally, perhaps the most daunting gap in these rules is
that they don't reach foreign multi-nationals. These firms
don't pay tax, U.S. tax, on foreign earnings, so they are
immune to the costs imposed by these provisions. Now, even if
these provisions just target U.S. firms, they can still weaken
states that sponsor terrorism.
If fewer firms are willing to do business with Iran, Iran
has less bargaining power and is likely to get less favorable
firms. Nevertheless, these rules would be more effective if
they also reach foreign multi-nationals. In an important lever
here is that these firms do pay U.S. tax on their earnings in
the United States. So an extra tax can be imposed on the U.S.
earnings of firms that do business in Iran. The size of this
extra tax could depend on how much money the firm earns in
Iran. To avoid discriminating against foreign firms which would
violate our treaties, this extra tax can apply to U.S. firms as
well.
So to sum up, section 901(j) and section 952(a)(5) raise
the cost of paying tax in Iran and doing business there. All
these rules have very useful effects in their current form.
Congress can consider ways of strengthening them. Thank you.
Chairman ROSKAM. Thank you.
[The prepared statement of Mr. Schizer follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman ROSKAM. Mr. Feith.
STATEMENT OF DOUGLAS FEITH, SENIOR FELLOW, HUDSON INSTITUTE,
FORMER UNDER SECRETARY OF DEFENSE FOR POLICY
Mr. FEITH. Thank you, Mr. Chairman.
Chairman ROSKAM. Your mike is not on.
Mr. FEITH. Thank you. Chairman Roskam, Ranking Member
Lewis, and Members of the Subcommittee, it is an honor to speak
with you about Iran's sanctions.
I have been asked to discuss a specific question, how
Iran's situation now, under the new nuclear deal, compares to
Libya's situation in late 2003, after the Qadhafi regime
renounced its nuclear and chemical weapons programs. I dealt
with the Libya matter when I was Under Secretary of Defense for
policy, working for Secretary Rumsfeld from July 2001 until
August 2005.
The question is, does President Bush's waiver of section
901(j) sanctions regarding Libya, argue for a waiver now by
President Obama regarding Iran. I see significant differences
between the cases. The Libyan regime made an unequivocal
decision, not only to stop its WMD programs, but to invite
American and British engineers into Libya to dismantle those
programs facilities and to take the equipment out of the
country.
When the Americans and others entered Libya, they were let
into all the locations they wanted to inspect. They were given
far more information than they already had. Libyan officials
didn't play the game of saying that they will confirm data if
the foreigners will tell them what they know.
Libya's dictator, Muammar Qadhafi, had resolved to get out
of the WMD business. His government announced the decision
without qualifications or ambiguity. Qadhafi himself publicly
confirmed it. Qadhafi, horrible dictator though he was, was
serious about permanently ending Libya's WMD programs. His
words were clear and categorical, and his actions were
consistent with his words. This is not, however, the case with
the words and actions now of Iran's leaders.
In the JCPOA, the Iranian regime reaffirms that under no
circumstances will Iran ever seek, develop, or acquire any
nuclear weapons. But that simply restates its essential nuclear
nonproliferation treaty obligation, which Iran accepted in 1970
and then in recent years violated.
Iran's various nuclear activities violate that obligation,
which is why the U.N. Security Council supported economic
sanctions against Iran and why there has been all the Iran-
related diplomacy for years. Iran has never admitted that its
uranium enrichment, ballistic missile, and other nuclear
programs, aimed to create a weapons capability.
It has never admitted that they violated the
nonproliferation treaty; it has never apologized for those
programs and doesn't, in the nuclear deal, promise to end them
permanently. So Iran's new reaffirmation that it won't seek to
develop or acquire nuclear weapons is not valuable. Just as
some clothing stores sell pre-torn jeans, the Iranians have
sold President Obama a pre-broken promise.
Iran has not made an open book of its nuclear weapons-
related secrets as Libya did. It hasn't given inspectors free
reign to visit anywhere in Iran. On the contrary, it demanded
restrictions, making it difficult, and perhaps impossible, for
inspectors to prove violations even if they somehow learn of
them. The JCPOA inspection regime focuses mainly on declared
facilities, but it is not reasonable to assume that Iran would
choose to violate the deal in a declared facility.
The issue of undeclared facilities is important. Iran, over
the years, built large nuclear facilities that it managed to
conceal from foreign eyes for long periods of time. A former
top IAEA official commented a couple of years ago, if there is
no undeclared installation today, it will be the first time in
20 years that Iran doesn't have one.
Unlike Libya, Iran has not invited American and other
foreign engineers to come in and dismantle its nuclear
facilities. Iran, under the JCPOA, is allowed to continue to
enrich uranium, to continue nuclear research and development,
to increase eventually the quality of centrifuges used for
enrichment, and to continue to improve its technology for long-
range ballistic missiles that have no purpose other than to
deliver nuclear warheads.
As I mentioned, section 901(j) sanctions can be based on
the country's support for terrorism, and it bears noting that
when President Bush lifted them for Libya, the Qadhafi regime
was showing that it was moving away from such support. The
Iranian regime, however, appears intent on continuing to
finance, arm, train, and aid Hezbollah and other terrorist
organizations.
Chairman ROSKAM. Mr. Feith, so if you can just bring your
remarks to a close now, and then we will have an opportunity to
continue to engage.
Do you have like another paragraph or so?
Mr. FEITH. Sure. What I would say in conclusion, is that
the basic reason we have----
Mr. CROWLEY. Mr. Feith, just a moment. How much more do you
have to read or go through?
Mr. Chairman, if you don't mind me asking.
Do you have a lot more to go through?
Mr. FEITH. Well, I can end now if you would like.
Mr. CROWLEY. I am interested in hearing his full text if
that is okay. If it is not prolonged, I would be interested in
hearing it.
Chairman ROSKAM. I have got the capacity to foreshadow, and
I think he has more to say than we have. So trust me on this.
Why don't you just wind it up, and we will get back. And we
will have plenty of opportunity to have a discussion.
Mr. FEITH. Sure. Thank you, Mr. Chairman.
There is an incentive that the Iranians had to enter into
this agreement, was to lift sanctions and get the enormous
economic benefits of potentially hundreds of billions of
dollars for doing so. The incentive that the Obama
administration had to enter into this deal changed.
Initially, the Obama administration aimed to end the Iran
nuclear program. When it became clear that that was not
achievable, the administration changed its goal without
admitting as much. And its goal shifted from ending the Iran
nuclear program to delaying it. And that is all they have
managed to accomplish. And they can delay it only if the
Iranians comply with the agreement. But it is not clear that
the Iranians will comply with the agreement. It is not clear
that we will be able to detect violations, and it is not clear
that even if we detect violations, that we could do anything
effective to enforce the agreement. And those are my main
concerns about the situation that we find ourselves in.
Chairman ROSKAM. Thank you.
[The prepared statement of Mr. Feith follows:]
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Chairman ROSKAM. Mr. Stethem.
STATEMENT OF KENNETH STETHEM, CHAIRMAN & CEO, AEGIS INDUSTRIES,
LLC
Mr. STETHEM. Thank you, Chairman Roskam, and Ranking Member
Lewis for the opportunity to be here today and discuss the
presidential authority to waive the antiterrorism provisions in
the Tax Code with regards to Iran.
Before I start, I would like to recognize Representative
Meehan and the others on the committee who supported H.R. 3457,
the justice for victims of Iran terrorists. Thank you, sir.
The question of the day, my remarks can probably be
distilled down to two or three questions. The first question
is, will Congress side with Iran and their terrorist activities
or with America?
I would like to give you all a brief introduction into my
family, the Stethem family, which is a family of service.
Between my father, my mother, and three brothers, we have 105
years in the Navy. I have got two brothers who served as Navy
seabee divers, and one of my younger brothers, Robert, was the
Navy diver that was killed on the TWA flight 847 in 1985 in
Beirut, by Hezbollah terrorists which were sponsored by Iraq.
And I was fortunate enough to serve as a SEAL and as an EOD
technician. I am here today for two reasons. The first is to
discuss the provisions I mentioned earlier and why I think that
supporting the antiterror provisions with respect to the Tax
Code in regard to Iran is a sound policy.
The second reason I am here is duty and honor. My brother
cannot be here, and many other victims cannot be here. So I
would like to take a moment, a brief moment, and recognize my
brother, the other victims of Iran terrorism, and also our
fallen vets, and vets who sacrificed their lives and limbs in
the war on terror.
Thank you. My experience with terrorism began in 1985. I
have seen it on a personal level; I have seen it on a
professional level, and I have seen it on a policy level for
the last 30 years. During the highjacking in 1985, it was my,
my family, and our Nation's really first huge terrorist
incident that played out over TV and over CNN for a long period
of time.
For those who don't know the story, I would just like to
share it briefly. Basically, my brother was beaten and
tortured, and dragged out front and asked to yell into a mike
because Hezbollah wanted to refuel a plane and the amal militia
didn't want them to leave; they were getting too much press. So
Hezbollah said, we are going to kill--told the tower, we are
going to kill an American if you don't send out a truck. They
put a gun to my brother's head, and they said, yell.
And he had already told one of his fellow teammates on the
plane that was up there with him, we can't yell, because if
there is a rescue attempt, the plane has to be on the ground.
And John Testrake said it best, the pilot, when he said, he was
beaten and not a sound was heard to come from him. He was shot
and then just dumped on the tarmac as if his life had no value.
So I have seen terrorism on a personal level; I have seen
it on a professional level, and I have seen it on the policy
level. And I will just share a few things that I have learned
along the way. Terrorism must be fought on multiple levels
simultaneously. Not sequentially, simultaneously.
And this fight, this strategy against terrorism, must be
based on sound strategy. It must be based on sound strategy and
not simply on a military action. There is an absolute truth in
the military, goes something like this, military operations are
only as good, effective, and successful as the political
policies and strategies they support. Far too long our
countries and our administrations have depended on the military
for quick ops and quick success when it is sound policy that is
needed for peace.
A common misconception among Americans is the opposite of
war is peace, and this isn't true. The word ``war'' is an
ancient German word. It means to confuse. When you make
warfare, you make confusion on the enemy. The opposite of war
is our word of war or aware. It is clarity. The opposite of
confusion is clarity. The opposite of war is awareness. It is
sound policy. It is clarity. Peace comes from clarity.
Look at World War II. The war didn't end and all of a
sudden there is peace and prosperity. There was a Marshall Plan
in Europe and we had another plan for Japan. The peace came--
for Japan, the peace came out of clarity of policy, and we
don't have it today.
I have heard the comment made over and over again,
Americans are tired of war. That is a projection. Let me tell
you something, Americans aren't tired of war. I don't know any
of my friends in the military that I served with, SEALS or not,
they are willing to fight for freedom. I don't know how many
American who doesn't want the military to fight for freedom.
Americans aren't tired of war; Americans are tired of war that
is not based on sound strategy, sound policy. Wars that are
being fought to fight and not win.
Political strategies and policies against terrorism, they
need to be simple, they need to be sound, they need to be
sustainable, and there needs to be accountability.
I would just briefly mention in accountability, the topic
of the JCPOA and the flagrant violations by Iran, there is no
accountability. There has already been flagrant violations.
There is no accountability. So how good is this policy? If the
minor violations--they aren't held accountable to by the
parties, why do we think the major ones will be?
Specifically, on Iran and terrorism, everybody here wants
peace. If we could have one thing, we would want peace. I
believe that. The question I haven't heard asked since 1979,
since the Islamic jihad was declared, and I just--it blows my
mind. I have never heard anybody ask Iran, the Ayatollah, are
you still at Islamic jihad, a holy war, with the United States?
That question hasn't been answered, because it hasn't been
asked. And that is the first question that should have been
asked before we started negotiating about nuclear power with
them.
Americans have been asked to separate the nuclear issue
from the terrorism issue. I would ask has Iran been asked the
same? Has Iran renounced the Islamic jihad? Has Iran renounced
their terrorist acts on the Beriut barracks bombing, on the TWA
flight, on the USS Cole? Chairman, I am almost done. Thank you.
I believe, I strongly believe that separating the radical
fundamentalist Islamic regime from their terrorist activities
is like trying to separate heat from a flame or light from a
candle. It can't be done. The failure of the current
administration to develop a sound security strategy policy for
the Middle East should not preclude Congress from developing
one against this menace of mankind. The first step in
developing a sound security strategy for the Middle East is
asking Iran, are you jihad? Another one might be to actually
define what war means and what combat means.
Congress has a great opportunity before it, and this
subcommittee is laying the cornerstone. And if you miss this
opportunity, it is going to be like shooting an arrow from a
bow, and you are not going to be able to call it back.
In closing, I would like to share two quotes that resonate
deeply within me. And they are as true and timeless as when
they were first spoken--today as when they were first spoken.
The first one, ``I love the man that can smile in danger, that
can gather strength from distress and grow brave by reflection,
since the business of little minds to shrink, but to he whose
conscious approves his conduct will pursue his principles onto
death.'' My brother pursued his principles onto death for
everyone here.
The last quote is written on a plaque outside of his team
in Virginia Beach: ``We will always remember. We will always be
proud. We will always be prepared so we can always be free.''
Thank you.
Chairman ROSKAM. Thank you, Mr. Stethem.
[The prepared statement of Mr. Stethem follows:]
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Chairman ROSKAM. Mr. Walsh.
STATEMENT OF DR. JIM WALSH, RESEARCH ASSOCIATE, MASSACHUSETTS
INSTITUTE OF TECHNOLOGY'S SECURITY STUDIES PROGRAM
Mr. WALSH. Mr. Chairman, Mr. Ranking Member, Members of the
Committee, it is an honor to be here with you today to discuss
the implementation of the nuclear agreement with Iran and our
P5+1 international partners.
In my testimony, I want to directly address the central
question raised by this hearing: What are the policy
implications of providing tax-related sanctions relief. For
example, will such relief result in an increase in Iran State
sponsored terrorism? Before addressing the issue of possible
tax-related sanctions relief, it make sense to step back and
consider the agreement itself and what it accomplishes.
My professional judgment is that this agreement is the
strongest, most intrusive nonproliferation agreement ever
negotiated. This positive assessment is not mine alone, but
rather, shared by American nuclear weapons scientists, retired
diplomats, including three former U.S. Ambassadors to Israel,
and retired military officers. Support for the agreement has
included a broad and bipartisan cross-section of the U.S.
national security establishment, including Republican national
security luminaries, such as Brent Scowcroft and Colin Powell.
In addition, Israel's atomic energy agency and more than 40
retired Israeli defense and the government officials have
endorsed the agreement, as well as, our European allies. This
agreement reduces Iran's stockpile of uranium by 98 percent. It
restricts Iran's enrichment levels. It reduces Iran's installed
centrifuges by two-thirds and goes beyond the additional
protocol, the current gold standard, for IAEA verification.
This agreement provides for 24/7 monitoring of Iran's declared
nuclear facilities and a first ever expedited procedure for
investigating any suspicious undeclared facilities.
Many of its provisions, including snapback sanctions, are
unprecedented. The agreement quadruples the number of
inspectors over what had been operating in Iran prior to
November 2013, and it is difficult to think of a simpler but
more powerful measure of the difference that this agreement
makes. If one were to ask virtually anyone, whether increasing
the number of IAEA inspectors in Iran by 400 percent is a good
thing? The answer would undoubtedly be yes.
With that in mind, I want to shift to the issue of tax
related sanctions relief. And by way of background, it should
be remembered that the U.S. imposes two broad categories
sanctions on Iran, primary sanctions, are those that prohibit
American individuals and entities from engaging in business
with Iran. Secondary sanctions prohibit foreign individuals
from interactions with Iran. This agreement provides relief
primarily from secondary sanctions not primary sanctions. With
limited exceptions, sanctions prohibiting American trade
investment in Iran will remain in place for years to come.
Now let me focus on the policy implications of providing
tax-related sanctions relief in particular. Based on a review
of the evidence, I judge that even a full waiver of U.S.-
owned--a full waiver of tax penalties on foreign-owned
subsidiaries as unlikely and ill-advised as that may be, will
not, by itself, generate new trade or investment in Iran.
One, American primary and other sanctions will remain in
force. In addition, the architecture created by CISADA and
ILSA, particularly as it relates to money laundering,
terrorism, and other issues, continues on the books and with
enforcement.
Number two, few subsidiaries of U.S. companies will want to
do business in Iran. American-affiliated companies are not
welcome in Iran and the supreme leader has made that clear in
his recent letter to President Rouhani. In addition, the recent
arrest of an Iran-American businessman will further dampen
interest by American firms and their subsidiaries.
Finally, let me address the broader issue of sanctions
relief and terrorism. There is this larger critique offered by
some opponents of the agreement suggesting that it will lead to
an increase in state sponsor terrorism by Iran. In my judgment
both the assumptions of this critique and its conclusions are
deeply problematic.
First, the intelligence community has assessed that new
funds will be devoted to rebuilding Iran's economy, not to
terrorism. The L.A. Times reported that, quote, ``A U.S.
intelligence assessment predicts that Iran's Government will
pump most of the expected funds into the country's slacking
economy and won't significantly boost funding for militants,''
close quote.
Number two, Iran received some $16 billion in sanctions
relief during the 2 years of the interim nuclear agreement,
yet, there is no evidence pointing to an upsurge in Iran state-
sponsored terrorism.
Number three, the U.S. continues to enjoy a wide variety of
tools to combat terrorism with or without an agreement.
Number four, no American wants Iran to support terrorism,
to oppress human rights, or to engage in any number of those
objectionable activities. But the only thing worse than Iran
that does these things, is an Iran that does these things and
has nuclear weapons. And absent sanctions relief, there will be
no agreement, and Iran's nuclear program will be unconstrained.
In conclusion, this agreement represents a historic
achievement that is arguably the strongest multi-lateral
nonproliferation agreement ever negotiated. It will advance the
national security of the United States as well as the security
of our friends and allies for decades to come. And nothing
related to tax-related sanctions relief alters that conclusion.
I thank the Committee for providing me the opportunity to
share these views.
Chairman ROSKAM. Thank you, Mr. Walsh.
[The prepared statement of Mr. Walsh follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman ROSKAM. And thank all the witnesses. It is obvious
that you have more knowledge and more experience than we have
time in your presentations, so it is our hope and expectation
now to be able to engage in questions to you. And I will
recognize Mr. Kelly.
Mr. KELLY. Thank you, Chairman. Thank you, all, for being
here.
Mr. Stethem, thanks so much. I mean, there is an old saying
that time heals all wounds. It is absolutely false. The wound
may heal, but it leaves a deep scar that is there forever. Your
loss and the show of patriotism and courage from your brother
is an incredible lesson for all of us to look at.
And I do appreciate people's concern over this. I will say
one thing, I note there is nobody I think, that would ever opt
for a war. But let me just read something from President Reagan
that I think is pretty good on this subject. It says, now let's
set the record straight, there is no argument over the joys
between peace and war, but there is only one guaranteed way you
can have peace, and you can have it in the next second.
Surrender.
When we talked about the agreement with Libya, and now we
look at in the new Iran agreement, there is a huge difference
between the two outcomes; is there not? I look now where there
is--we are sending billions and billions of dollars of American
money over--it is getting distributed through Iraq into Iran's
hands; a lot of it going to ISIS and other terroristic
entities, there is just no doubt in my mind, they have already
violated the agreement.
So, Mr. Dubowitz, Mr. Schizer, Mr. Feith, if you can, there
is a huge difference right? I mean, the stark difference of
this is the difference between day and night where you have one
person, Qadhafi, who was ready then to say, okay, fine, we are
going to give into this. And then you have the situation now
where it is almost like we are the laughing stock of any type
of a peace agreement, like yeah, we are going to go ahead and
do what we want to do anyways. First of all, I don't believe
you can ever have an agreement with anybody unless both parties
agree that they want to get to a common end. Ours was to keep
Iran from getting nuclear agreements, their purpose was to go
ahead and progress on the path that they were on.
So it went from never getting to for sure getting them. If
you can tell me, when it came to Libya, there were stark
differences, and the behavior was completely different. What
would make anybody think, just after a month or so of this
agreement being signed that somehow this is going to have a
positive effect? I don't get it. Is there something I am
missing?
Mr. Feith, if you would.
Mr. FEITH. Representative Kelly, I think that you are
correct that there is a world of difference between the cases.
One of the main differences is, it is clear from the history
that led to Qadhafi's decision to get rid of his WMD. What
happened was the United States had reacted to 9/11 in a fierce
fashion. There was an intense commitment on the part of the
U.S. Government to deal with the problem of countries that
supported terrorism and pursued weapons of mass destruction.
And what Qadhafi saw was that the United States had overthrown
the Taliban regime in Afghanistan and had overthrown the Saddam
Hussein regime in Iraq. The timing is quite significant.
Qadhafi, like the Iranians, wanted to get rid of the
economic sanctions on his country. When he saw the United
States taking that kind of military action, he became very
fearful that he was next on the list. And the timing is quite
interesting that Saddam Hussein was captured and appeared in
his disheveled, humiliated state on international televisions,
on televisions all over the world, on December 13, 2003. And it
was 6 days later that the Libyan Government announced we are
getting out of the WMD business, and Libya invited in the
American and British inspectors to come in and----
Mr. KELLY. If I can, and I understand where you are coming
from, but I think it really comes down to, Libya knew there
were consequences if they didn't stop what they were doing.
Iran has absolutely no respect for this agreement and doesn't
feel any consequences from it, neither militarily or
financially, so why should they follow the agreement? There is
no reason for them to follow the agreement. I just would
suggest that in any type of agreement, in any type of treaty
that you come to--this is not a treaty--that if there are no
consequences for bad behavior, and they have already violated
this agreement, why in the world would they suddenly say, you
know what, I think we will start going along with the intent of
what was trying to be done.
From the very onset we have done nothing but give, give,
give and they take, take, take. We talked about the people that
have been held hostage. That never came into it. We talk about
now they are testing missiles. They are not going to deliver
care packages. They are delivering nuclear warheads. And there
is absolutely no retribution for this. There is no consequences
for this, so why in the world would we think that somehow, even
as tax consequences, we have become so vanilla. We have become
so soft. We have become so weak that nobody respects us
anymore. Our friends don't trust us, and our enemies don't
respect us. I would just suggest, and, Mr. Stethem, I got to
tell you, what your brother did in that airplane is the America
that I remember. That is the America that the world remembered.
All of a sudden we are not that America anymore. We are an
America that turns its back on its friends and encourages its
enemies to go with bad behavior because there are absolutely no
consequences at any level for any bad behavior on the Iranian
side. This is absolutely pathetic.
Chairman, thank you for calling this meeting, but I will
tell you what. The sanctions are fine. We should have increased
them. We shouldn't have backed them off, and we should have
demanded other concessions before we even sat down at the table
with these people because they are not on the same page with
us. Their objective is to wipe us out. It is not to come up
with an agreement. Thank you.
Chairman ROSKAM. Mr. Lewis.
Mr. LEWIS. Thank you very much, Mr. Chairman. Let me thank
all of the witnesses for being here. Thank you and your
families for serving. But I must tell you that I still believe
that American people are tired and sick of war and violence.
Peace is not the absence of tension and conflict. Peace is the
presence of justice.
Dr. Walsh, thank you for being here. You are a native of
Atlanta, and I want to welcome you for being here. Is there
anything that you would like to add to your testimony or
clarify for the record, for clarification, what you said or
wanted to say?
Mr. WALSH. Thank you, Mr. Ranking Member, and thank you for
calling attention to my Georgia roots. I would like to extend
my remarks because I argued that this is the most robust and
intrusive nonproliferation agreement in the 70 years of the
nuclear age. And I included in that a comparison to the Libya
agreement. I would like to spend a moment talking about Libya,
if I may.
The Iran agreement is clearly more robust than the Libyan
agreement, and I supported the Libyan agreement, by the way.
The Libyan agreement had no snapback sanctions. It had no
dedicated procurement channel. It had no IAEA access beyond the
additional protocol, all of which are features of the Iranian
agreement. Now it has been said that Libya dismantled what it
had while Iran gets to keep some of its enrichment capability.
And while I think that is technically true, it simply reflects
the huge differences in the two circumstances.
The Iran agreement came and was negotiated after Iran built
19,000 centrifuges, almost half of which were built under the
Bush administration. Libya's nuclear efforts consisted largely
of boxes of centrifuge parts, not an industrial-scale
centrifuge program. Obviously it is easier for a country to
give up what it wants rather than what it already possesses.
The administration took Qadhafi's word that it would not
reconstitute the program, start an undeclared program. The Iran
agreement is not based on trust. It is based on verification.
As we talk about human rights and terrorism and other concerns,
it seems odd to me to point to the Libya agreement. It was just
a few years after the Libya nuclear agreement, that the U.S.
and its European allies were bombing the supposedly trustworthy
and reformed Qadhafi because of allegations he was massacring
his own people. Now as it stands, I still think it was a good
agreement because it was better, as with Iran, to have a bad
actor that is doing bad things but doesn't have nuclear
weapons.
If we were going after Qadhafi as we did with our European
allies, and he had had nuclear weapons, that would have been
worse, but I don't know that I would cite the Colonel as a
particularly good figure in support of trust rather than
verification.
Now, I know you are getting which wildly different
assessments of the agreement and predictions about what will
happen in the future, and as a policymaker, I am sure that is
hard to evaluate. Obviously you should look at the evidence.
You should look at the history. Are there internal
contradictions in the arguments we are making to you? Do we
really get the history right? But I would say in addition to
that, one way to judge who to believe and what to believe going
in the future, is to look at the track record of the
prognosticators, of us here. In the past, have we been accurate
in our predictions of what would happen?
Take for example, predictions around the Joint Plan of
Action, the interim nuclear agreement that preceded the JCPOA.
Now we have had critics and some on this panel who said
arriving at the interim agreement would lead to the collapse of
sanctions, that the sky was going to fall, that all these
terrible things were going to happen, and none of it did. Those
predictions were wrong. In fact, many of the fiercest critics
of the interim agreement found themselves 2 years later arguing
it should be extended, rather than having an alternative
comprehensive agreement.
So, again, it is fair to look at the evidence. It is fair
to look at the logic, and it is fair to look at the track
record of whether people have been right or wrong in the past
about their predictions. So, let me pause there in case you
have additional questions.
Mr. LEWIS. Dr. Walsh, going forward, if Iran cheats or
violates the terms of the agreement, can the United States and
allies reimpose sanctions?
Mr. WALSH. Absolutely. I don't think people really
appreciate the miracle of the snapback sanctions. At any point,
any member of the P5 on the Security Council for any reason--
doesn't have to wait for IAEA; doesn't have to wait for anyone
else. If the United States thinks that Iran is in material
breach of the agreement, it goes to the Security Council and
says Iran is cheating, and at that moment, bang, the clock
starts. A 30-day clock starts ticking, and those sanctions snap
back in 30 days unless the Security Council passes a resolution
to extend them.
So you might say, well, maybe the Europeans or the Russians
will try to extend that and prevent the snapback, and yet the
U.S. has a veto power. That is the beauty of the new snapback
sanctions. If Russia tries to block, the Chinese try to block,
the Europeans try to block, our ability to reimpose sanctions,
we veto it, and those sanctions take effect.
Mr. LEWIS. Thank you, Dr. Walsh. I yield back, Mr.
Chairman.
Chairman ROSKAM. Mr. Meehan.
Mr. MEEHAN. Thank you, Mr. Chairman. I don't know where to
begin. The miracle or the myth of snapback sanctions is really
the place that I would begin that inquiry, but that is not my
line of inquiry right now. I have been struggling with a number
of aspects of this, not the least of which is the recognition
that in excess of $100 billion worth of assets are ready to be
returned to Iran in preparation for the conclusion of this
agreement, most of which, again the myth that these are going
to flow somehow to the government, which is largely run by the
Quds Forces and the Iranian Guard to begin with, who are going
to benefit from that, and we know it is going directly to
terrorism.
So as opposed to sending excess dollars that are going to
support terrorism around the globe, I also appreciate that as a
matter of law, families like Mr. Stethem's, law created by this
Congress who enticed the families like Mr. Stethem's to see
some measure of justice to hold those countries accountable.
And I found that there were 87 such lawsuits filed in Federal
courts and an excess of $46 billion worth of judgments against
Iran directly associated to Iranian-sponsored terror.
Now let's begin with the fact of precedent. Mr. Feith, you
were there in Libya in a similar situation when the
congressional opportunity created by the Foreign Sovereign
Immunities Act gave victims of the Lockerbie bombing the same
opportunity. Prior to concluding that agreement, is it not
accurate that you also negotiated that Libya would pay in full
the reparations responsible for the terror created by Libya?
Mr. FEITH. Yes, sir. In the period before the Libyans
decided--the Qadhafi regime in Libya decided to get rid of its
WMD, it for several years tried to get out from under the
economic sanctions by offering a compensation package to the
families of the victims of Pan Am 103, and it concluded that
arrangement. It is interesting that what happened was it
concluded an arrangement with the families. The issue then went
to the U.N. for the lifting of sanctions, and the position of
the U.S. Government was we abstained on that resolution, to
lift the economic sanctions from Libya, because we said that we
were still troubled by Libyan support for terrorism and Libyan
WMD, and so our position was very threatening to the Qadhafi
Government.
Mr. MEEHAN. But the point was, we assured, that those
victims were compensated before the conclusion of the
agreement.
Mr. FEITH. Right. But we didn't let them off the hook
merely for that. In other words, we kept the pressure on, even
when our pressure was successful to get them to compensate the
families, we kept the pressure on.
Mr. MEEHAN. Mr. Dubowitz, it is a matter of law, and,
again, that the families are entitled, including extensions of
this under the Terrorism Risk Insurance Act and other things
which gave us access to even more of these assets. Now, is this
something that can just be unilaterally overrun by the
President because he reached an agreement, or are there
requirements on the President with respect to certifications of
Congress before this kind of agreement can be reached in
violation of the congressionally mandated opportunities for
victims like Mr. Stethem's families?
Mr. DUBOWITZ. Well congressman, unfortunately the President
is using his national security interest waiver to unilaterally
release this $90 to $150 billion that is sitting in these oil
escrow funds in six countries. And money is going back to Iran.
Not a dime is going back to the victims of Iranian terrorism.
And I think it is quite an interesting conversation with Dr.
Walsh here. The notion that somehow this Iranian regime is not
going to be using this money for terrorism and hasn't been
using the money that it has already received since the Joint
Plan of Action for terrorism.
I think we have all noticed that there has been a massive
expansion of Iranian terror activity and regional aggression in
Syria led by Qasem Soleimani of the Quds Force. I mentioned the
budget of 2015, 2016. President Rouhani is giving the
revolutionary guards and the Quds Force a 50 percent increase
in their budget. So the fact that he is anticipating all this
money that is going to be coming and he is giving the
revolutionary guards and Soleimani and the Quds Force a 50
percent increase.
Mr. MEEHAN. The point of it is though, that he has used
this power without certifying why it is in the best interests
of the United States to return $100 billion to Iran to continue
to pursue terror.
Mr. Stethem, let me just close my questions by asking you
something very, very specific. Families like yours who are
entitled to see some measure of justice, this isn't about the
money. It is about the opportunity to see some measure of
justice, and I know from my time as a prosecutor, every time a
victim replays the circumstances in a courtroom, it is as if
the incident happened fresh again.
Now this administration has explicitly stated that they
continue to assure that they are going to do everything
possible to assure that the pursuit of the rights of the
victims are going to be taken into consideration. Do you
believe this administration is doing that?
Mr. STETHEM. No. I believe the administration has done a
better job representing Iran and their terrorist ways than the
American people. This isn't about the money. If I had to put my
finger on what this is really about, this is about another
family not going through a loss like our family had. This is
about another American man, woman, child, being beaten,
tortured, and blown up because we happen to believe in a
different way.
I really do believe the administration has represented Iran
better than it has represented American interests in the Middle
East.
Mr. MEEHAN. Thank you, Mr. Stethem.
Chairman ROSKAM. Mr. Crowley.
Mr. CROWLEY. Thank you, Mr. Chairman. Mr. Stethem, you and
I actually have something in common that is unwelcome. The fact
is you lost your brother, and I remember the day your brother
was assassinated or was killed, and I was heartbroken.
Mr. STETHEM. My condolences.
Mr. CROWLEY. And my first cousin, you may know, was killed
on 9/11. He was battalion chief in the fire department and he
found himself in Tower 2. His last known words were, I want to
try and make a difference. And unfortunately, the only problem
we have is that we both know that America will continue to lose
men and women, unfortunately, in the future in defense of
freedom because we know there are enemies out there that want
to take that away from us.
But I do appreciate that. My condolences to you and to your
family and for the history of support to this great Nation,
that they have lent to this great Nation, so thank you, sir,
for your appearance today, and for your testimony.
Mr. STETHEM. Thank you, sir.
Mr. CROWLEY. You mentioned specifically sound strategies,
sound politics. Under Secretary Feith, I think it is fair to
say that Americans have some questions about the strategies and
the policies and, particularly your judgment, on the matters of
war and peace. It is interesting that you are here today to
talk about Iran because you are universally acknowledged as
having been an important proponent of the war in Iraq. I know
there is a difference between Iran and Iraq. One ends in N. The
other ends in Q. In between there is an O and P, and I think
that stands for oops. We made a mistake here. But having said
that, you did that while serving in the Defense Department.
In your book you defend the decision to go to war in Iraq,
and as late as 2008, you still were justifying the war in Iraq
as a good decision, and you said, and I quote, ``I think the
President made the right decision given what he knew and given
what we knew and to tell you the truth, even given what we have
learned since,'' end quote.
Do you still really believe all that given the terrible
cost of the conflict in Iraq, and was the decision to go to war
and your prodding to go to war, the right thing to do?
Mr. FEITH. I think the world is better off without the
Saddam Hussein regime. The Saddam Hussein regime represented a
serious threat to the United States and to our interests, and I
think that after 9/11 when the President looked at the
vulnerability of the United States that had been exposed on 9/
11 and he looked at the nature of the Iraqi regime and the
kinds of activities it was involved in, he came to the
conclusion that after years of trying to deal with that
problem----
Mr. CROWLEY. In the interest of time, I think the answer is
yes. You believe that it was the right move to make. Is that
correct?
Mr. FEITH. I think the President made the right decision--
--
Mr. CROWLEY. I asked you, did you think, your terms, it was
the right move to make. I take it by the answer the answer is
yes. I can see that that is the same judgment with which you
are approaching the deal with Iran. Under Secretary Feith, many
people were deeply disturbed by the previous administration's
attempts to play up the ties between Iraq and Al Qaeda. This
was such a serious problem that the Pentagon's inspector
general carried out a report of your office's work. The
inspector general said your office drew, and I quote,
``conclusions that were not fully supported by the available
intelligence,'' end quote. They also said that your office,
quote, ``did not provide the most accurate analysis of
intelligence,'' end quote, to senior decisionmakers. That
sounds fairly serious considering what it all led to.
My question is, did you at that time do anything that was
inappropriate in the run-up to the Iraq war? Yes or no? Do you
think you did anything inappropriate leading up to the Iraq
war.
Mr. FEITH. No and----
Mr. CROWLEY. Mr. Feith, the Pentagon's inspector general
specifically described the work of your office as
inappropriate.
Mr. FEITH. Mr. Crowley, you are not doing justice to the
issues that you are raising.
Mr. CROWLEY. I have the time, Mr. Chairman. It is running
out. I am asking you to answer the questions.
Mr. CROWLEY. Do you not agree with the independent Pentagon
inspector general, yes or no?
Mr. FEITH. No. And I wrote an article--by the way if you
are interested, I wrote an article in the Washington Post that
addresses----
Mr. CROWLEY. Answer the question. No, and I am following--
--
Chairman ROSKAM. No, listen, you are controlling the time.
Mr. CROWLEY. I am. Thank you. Do you still believe today
that Iraq and Al Qaeda were as close as implied at that time?
Many Americans, most Americans, distinctly recall the
administration making a connection between Al Qaeda and Saddam
Hussein. Do you believe that was the case and still is the
case?
Mr. FEITH. As I have said, I believe that the best
information on that was the information that ultimately the
director of the CIA released in a letter to the Senate
Intelligence Committee chairman.
Mr. CROWLEY. Mr. Feith, your office was responsible for the
post-invasion planning of the Defense Department. Is that
correct?
Mr. FEITH. We were one of the many offices in the
government that played a role in that.
Mr. CROWLEY. Do you believe you did a good job in post-
invasion planning in Iraq? Do you believe you correctly
anticipated the scale of the insurgency that would arise and
last for so many years afterwards?
Mr. FEITH. You are asking a question that is essentially an
intelligence question, and my office is not intelligence.
Mr. CROWLEY. I am asking, do you believe that you foresaw
and planned adequately for what would happen in the aftermath
of the invasion of Iraq, that empowered not Iraq obviously, but
Iran while we were sleeping, while the administration back then
was sleeping, to further develop nuclear weapons?
Mr. FEITH. It is a large question you are asking; some of
the planning was good. Some of the planning was less good.
Mr. CROWLEY. The failure to adequately plan for post-combat
operations led directly to the chaos and instability that roils
Iraq and the region today. You were one of the architects of
our current chaos. Why should we have any confidence--I know,
Mr. Chairman, my time is just about up. Why should we have any
confidence that you have any ability to accurately assess the
situation in the Middle East today, given your track record in
advocating maybe the biggest strategic blunder the U.S. has
ever made, why should any American ever again follow your
advice?
Mr. FEITH. Calling it the biggest strategic blunder the
United States ever made I think undermines your credibility,
not mine.
Mr. CROWLEY. How is that, Mr. Feith?
Chairman ROSKAM. The gentleman's time is expired.
Mr. CROWLEY. No, no, Mr. Chairman. He questioned my
character. So why is that, Mr. Feith?
Chairman ROSKAM. The gentleman's time is expired.
Mr. CROWLEY. Mr. Feith, why is that? Please, please, Mr.
Chairman, you have to allow him to further that comment.
Chairman ROSKAM. Listen, he laid a----
Mr. CROWLEY. I would like to know why he thinks that falls
on me.
Chairman ROSKAM. Mr. Holding.
Mr. CROWLEY. Mr. Chairman, with all due respect. He made an
comment----
Chairman ROSKAM. Listen, I have got nothing but respect for
you. Your time is expired. Mr. Holding? And we have gone well
over.
Mr. CROWLEY. No, but you haven't gone nearly as over as you
have with the other members, Mr. Chairman.
Chairman ROSKAM. Listen, the gentleman's time is expired.
Mr. CROWLEY. Mr. Chairman, Mr. Feith made a direct comment
to me about my responsibility. I accept, but I would like for
him to further explain what he meant by that.
Chairman ROSKAM. The gentleman's time is expired. Regular
order. Mr. Holding.
Mr. CROWLEY. Thank you, Mr. Chairman.
Mr. HOLDING. Thank you, Mr. Chairman. I would like to draw
our attention back to the tax provisions that we are discussing
today which relate to Iran's support for terrorism. The Obama
administration has made clear that the JCPOA only addresses
Iran's nuclear activities and doesn't affect the ability of the
United States to impose sanctions to address Iran's support for
terrorism. So tax provisions, terrorism.
Now there are some who maintain, argue that the tax
provisions have little impact on whether companies can invest
in Iran because the sanctions still in place prohibit doing
very much business with Iran. I want to dig just a little bit
deeper. So Mr. Schizer, do you think it is correct that the
current tax provisions impact whether companies invest in Iran
in all circumstances?
Mr. SCHIZER. Absolutely. In fact, I can tell you because I
know lots of tax directors at many multi-national companies,
they are very focused on the details of the tax law--it will
not surprise this committee at all to learn that--and the idea
that the tax costs would be higher pursuing opportunities in
Iran would have a very significant impact.
One of the points that I have made earlier is that there
are ways in which this committee can consider strengthening
those rules so that the deterrent would be even greater, but
certainly these rules could be effective in many circumstances.
Mr. HOLDING. Now to the degree that the tax provisions are
ineffective, do you think there are ways that we could
strengthen these tax provisions to have a more meaningful
impact on whether companies will invest in Iran, and how would
you propose we do that?
Mr. SCHIZER. Absolutely. So I think one of the things we
have to consider is broadening the definition of the kind of
income that is going to be picked up here. We wouldn't want
people to make technical, very legalistic arguments about how
they are making profits with Iranian customers, but it is not
really in Iran. And that is very much a doable mission for this
committee or for the Treasury.
I think another consideration is trying to sweep in foreign
multi-nationals, because the truth is, these provisions at the
moment really don't affect them very much. They affect American
companies but not foreign companies. But this committee could
propose legislation that would reach them as well.
Mr. HOLDING. Indeed it is clearly within the orbit of this
committee and with Congress that we could strengthen these
provisions and say any company, foreign or domestic,
considering their options in Iran, it has to have in the back
of their mind, you know, will the tax laws change, and they can
certainly change in a way that would be incredibly detrimental
to their business activities in Iran. Correct?
Mr. SCHIZER. Absolutely, sir. And the truth is, if you
think about the calculation that a company could make, they
could think well, we could make some money in Iran. It is a
market that we might like to explore. But if there is a
consequence in the U.S. market, that would vastly overwhelm any
interest they would have in making profit in Iran because the
American market is the largest in the world.
Mr. HOLDING. Mr. Dubowitz, do you really think that it is
clear the administration isn't going to allow the American
companies to invest in Iran through foreign subsidiaries?
Mr. DUBOWITZ. You are asking me, sir?
Mr. HOLDING. Yes.
Mr. DUBOWITZ. Congressman, I think it is actually clear
that that is exactly what is going to happen, that foreign
subsidiaries of U.S. companies are eager to do business in
Iran, and as long as there is no U.S. person who is actually in
the foreign subsidiary, and as long as that foreign subsidiary
satisfies the specific regulations that OFAC lays out, then
that foreign subsidiary will be engaging or will be permitted
to engage not only in business in Iran, but business with the
revolutionary guards and the supreme leaders, $95 billion
terrorist slush fund, which as I have been trying to emphasize,
are the dominant economic players in Iran.
Mr. HOLDING. But the laws could change?
Mr. DUBOWITZ. The laws can change. I think the laws should
change.
Mr. HOLDING. You don't think that Iran is going to suddenly
overnight become something other than the largest state sponsor
of terrorism in the world, do you?
Mr. DUBOWITZ. Well, there was a New York Times story just
today actually which I thought was interesting from Thomas
Erdbrink, who is the New York Times Tehran bureau chief; and
the point of the story is to show that, in fact, post-deal Iran
has become even more aggressive, even more anti-American. It is
funding even more terrorism. It is cracking down even more
viciously on its own citizens. In fact, I see no indication
that this deal is going to lead to the sort of transformative
impact that many of the deal supporters believe.
And I would just say one other point. I know we don't want
to get into the nuclear physics of this, but Mr. Walsh has
talked about this at great length. Understand that the deal's
restrictions are set to expire beginning in 8 years' time.
Within 10 years, Iran will be able to install an unlimited
number of centrifuges in its Natanz enrichment facility. After
15 years, most of these restrictions will go away, and Iran
will have an industrial-size nuclear program with near zero
nuclear weapons breakout capability. That is the Iran you need
to imagine. That Iran, in my estimation, is not going to
transform into a moderate, responsible player.
Mr. HOLDING. Mr. Stethem, one quick question for you. Do
you think the Congress should use the Tax Code to discourage
investment in Iran?
Mr. STETHEM. Yes. I think our administration, our Congress,
our Federal Government, should use every means available in
every way to fight them until, until we know the jihad is over
or that regime is replaced.
Mr. HOLDING. Thank you for your resolve.
Chairman ROSKAM. Mr. Doggett.
Mr. DOGGETT. I yield 30 seconds and only 30 seconds to Mr.
Crowley.
Mr. CROWLEY. Mr. Feith, will you please expound upon what
you said to me at the end of your testimony. I believe you
suggested responsibility was on me. Is that correct?
Mr. FEITH. I said that I don't agree with you on your
characterization of how----
Mr. CROWLEY. I appreciate that but, what do you mean by
your last sentence when you said the responsibility is on me?
Mr. FEITH. No, no. I didn't say the responsibility was on
you. I said that the assertion that Iraq was the worst disaster
in American history undermines your credibility.
Mr. CROWLEY. How does it undermine my credibility?
Mr. FEITH. Because I disagree with you on your
characterization of the----
Mr. CROWLEY. It has nothing to do with my credibility. You
called into question----
Mr. DOGGETT. I reclaim my time.
Mr. CROWLEY. It is your judgment, Mr. Feith, is what is
being called into question before this committee today.
Chairman ROSKAM. Mr. Doggett is recognized.
Mr. DOGGETT. Mr. Stethem, I honor your service as much as I
completely disagree with your policy recommendations and honor
your brother, and share the outrage that all of us feel at what
happened to him. Indeed, I feel outrage about the lost lives of
over 4,000 Americans from cherry picked intelligence from the
Bush administration that led us into a totally unnecessary war
in Iraq.
The scheduling of today's vote as an anniversary of the
embassy takeover, like the scheduling of the vote on the
Iranian nuclear agreement on 9/11, demonstrates that this is
all about showmanship, not legislative draftsmanship.
Indeed it is the most slender of reeds that even connects
anything within the jurisdiction of this committee to the
Iranian nuclear agreement. No President in American history has
ever waived these provisions, no President other than President
George W. Bush on one occasion. And to suggest that Mr. Obama
is considering the waiving of these provisions, and that there
is some intelligence to that effect is about like the quality
of the intelligence, Mr. Feith, that you and Mr. Rumsfeld and
Mr. Cheney relied upon to get us into the disaster in Iraq of
which we are continuing to pay a very dear cost.
There is a serious earnings-stripping, subsidiary abuse by
multi-nationals, and, Mr. Chairman, if you are interested in
exploring under existing law, since this committee won't do
anything about that problem worldwide, if you want to explore
what pharmaceutical companies in the United States can sell to
Iran under existing law, whether they charge the Iranians lower
prices than they do Americans and whether they paid a dime on
their profits, I would be eager to join you.
But today is not about legislation. It is about catch up.
It is about catch up because we have attempted--we have had
attempts to repeal the ObamaCare provisions 61 or 62 times, and
we have only had one effort so far in the form of H.R. 3457 to
repeal and undermine the Iranian nuclear agreement. And so
today we are on that program. As with the attempts to repeal
ObamaCare, there is much missing information. Where was the
concern with the Iranian centrifuges when President Bush was
the President? Fox News' own Chris Wallace finally got Dick
Cheney to admit that when he was Vice President, Iran's number
of centrifuges went up from zero to more than 5,000. That was
the effective anti-Iranian policy of the last administration.
Mr. Chairman, there are over 4,000 American lives that have
been lost, hundreds of thousands of lives of Iraqis, and over
$2 trillion in United States funds. I think an apology is
called for. I would like to see an apology from those who
forced us into that unnecessary war, jeopardized our economy,
and continue to place the lives of young Americans in danger
today because they engaged in the greatest foreign policy
disaster in American history.
And if we can do a little before we use military force to
secure our families, our allies, in Israel, and the rest of the
world from an Iranian nuclear bomb through using negotiation
rather than putting those young Americans on the line first
before we have tried to use negotiation, we must do it, and
that is why I so vigorously support efforts to fully and
effectively implement this agreement rather than to see it
undermined with stunts like today. I yield back.
Chairman ROSKAM. Thank you. Just to give you a little
editorial feedback, today is no stunt. Today is an attempt to
draw the attention of what is a possibility of the
administration. So Chairman Ryan on September 22 wrote to the
President and asked him the question, are you going to waive
these things? And so there has been no answer.
And I understand the nature, the real difficulty that I
have and I think that all the members on the committee have, of
separating out the nuclear deal from the other terror
activities, and it is very hard for us to keep these apart. And
I think we have got to be disciplined in how we do it. It is
not an admonition against anybody on the committee. These
things tend to conflate.
But what our challenge is, and the effort before this
committee is, how do these tax provisions relate? We are
talking about huge commercial enterprises. And so, Mr. Doggett,
I would rest easy if the President said I agree with you and I
have no intention of waiving these things. And then, that would
be a good thing. He has not said that. He has not answered the
chairman of the Ways and Means Committee, now the Speaker.
And we can interpret that one way or we can interpret that
another way. But I think that there is a real opportunity for
us because what you have noticed is, there is nobody here that
is defending Iran, nobody. There is bipartisan recognition that
Iran is a bad actor killing people and being despicable. So
since I used your name in debate, I will yield to you.
Mr. DOGGETT. Thank you very much. There has not been the
slightest indication that this administration attempted to do
what no other administration has ever done, what this
administration has ever done, with the exception of the action
of President Bush in Libya. I think if you want to explore what
is being sold to Iran today by American pharmaceutical
companies and others under exception, what they are charging,
what they are getting, that is a legitimate line of inquiry.
But to have Mr. Feith, who has so much experience with
intelligence, tell us he thinks the President might be
considering doing something here that we have got to stop, well
it is really a stretch. It is really unfortunate.
Chairman ROSKAM. Well, reclaiming my time. Reclaiming my
time. It is not Mr. Feith that is making that assertion. It is
the chairman of the Ways and Means Committee that is making
that assertion, and we have not heard from the administration--
--
Mr. DOGGETT. Based on what? I mean, Mr. Feith says he might
be considering it. What is the basis for this letter----
Chairman ROSKAM [continuing]. To a letter from this
committee.
Mr. DOGGETT. What is the basis for inquiring at all other
than to thwart and undermine the agreement?
Chairman ROSKAM. Mrs. Noem is recognized.
Mrs. NOEM. Thank you, Mr. Chairman. I think the chairman
made several of the points that I wanted to make today as well.
I don't understand why the President hasn't clarified for us
exactly what his intentions are. I would think the security of
the United States is in question with this agreement, and that
is why as much clarity and light as he can shed on the
situation would be extremely helpful and help us rest easy,
that we know which side we are on on this agreement.
And I guess under that kind of discussion, Mr. Dubowitz, I
would like to ask you in particular, we know that Iran
endangers Americans, abroad and here at home, and that their
actions have been to spend billions of dollars to fund
terrorism over the years. We know on this committee that the
Tax Code can incentivize or deincentivize actions. That is what
this hearing is about today. It is to talk about what
provisions are in the Tax Code that can either be used to
encourage Iran to take action or discourage them from taking
action. And that can have a powerful impact on decisions that
are made into the future. It can be a critical tool for
punishing Iran's behavior.
When trying to modify Iran's behavior in the past, what
works better, concessions, giving them concessions or giving
them penalties for how their actions go forward? Mr. Dubowitz?
Mr. DUBOWITZ. Well, Congresswoman, first of all, thank you
for redirecting the focus to what this hearing is about. I
think you are exactly right in that we have got a track record,
a bipartisan track record, of demonstrating that the use of
sanctions, both nuclear and nonnuclear sanctions, has been very
successful in actually getting Iran to agree to a nuclear deal.
Whether you agree with the deal or not, the coercive tools that
Congress, that you and your colleagues put in place primarily
between 2010 and 2013, had a major impact not only on Iranian
behavior but most importantly as you have identified, on market
behavior.
And so these non-nuclear sanctions, which I included the
tax provisions under, are actually a tool that the President
has said he still has and will still use but is not using.
Mrs. NOEM. And do you agree these sanctions are what
actually brought Iran to the negotiating table?
Mr. DUBOWITZ. Oh absolutely. The Iranians were facing
economic collapse in a severe balance of payments crisis in
2013 as a result of Central Bank sanctions, Swiss sanctions,
oil sanctions, CISADA financial sanctions, that brought Iran to
the table.
Mrs. NOEM. So tell me what has happened since the deal has
been finalized as far as concessions. Do we see a change in
behavior by Iran? Do we see them complying with international
law?
Mr. DUBOWITZ. Well, quite the contrary. We see them
violating U.N. Security Council Resolution 1929 in testing a
long-range ballistic missile capable of carrying a warhead.
Mrs. NOEM. Have they been required to dismantle their
missile systems or weapons systems at all?
Mr. DUBOWITZ. Well, certainly the agreement itself
unfortunately doesn't deal with ballistic missiles. The
administration promised it would, and then midway through the
negotiation exempted that from the agreement.
Mrs. NOEM. And then what has happened since then? Have they
done anything to deal with their weapons systems, or do they
remain intact?
Mr. DUBOWITZ. No. Their ballistic missile program, in fact,
is expanding, and it is expanding in the direction of an ICBM
program, which obviously from an Iranian perspective, they need
an industrial-sized nuclear capacity on the enrichment side,
they need a warhead, and they need a long-range ballistic
missile and ICBM to have a full-blown nuclear weapons program.
And they are able to proceed patiently down those three
pathways in ways that I think are going to be of deep concern
to all of us.
Mrs. NOEM. So tell me about their change in behavior, if
there has been any, as far as being a regional actor since the
negotiations have been finalized.
Mr. DUBOWITZ. Well, Iran has increased its regional
expansion. It is obviously implicated in substantial bloodshed
in Syria, in Iraq, in Yemen. They are continuing to ship heavy
weaponry to Hezbollah via Assad, and they are threatening our
ally Israel. If anything, Qasem Soleimani, the Quds Force, and
the Revolutionary Guards itself have become more aggressive and
are going to be better funded in order to engage in that kind
of regional expansion, support for terrorism and sectarian
bloodshed.
Mrs. NOEM. So are our allies in that region safer since the
negotiations have been finalized?
Mr. DUBOWITZ. Well, certainly my assessment is no. Their
assessment, as they have expressed I think publicly and
privately, to Members of Congress is that they are deeply
fearful of what this Iranian nuclear deal and more importantly
Iran's regional breakout has actually meant for them.
Mrs. NOEM. Thank you. I would firmly believe from what we
have seen in Iran's previous behavior and their behavior today
is that certainly concessions do not work to change their
behaviors. Penalties, sanctions, certainly do. And that when we
look at our Tax Code, that we should keep those kind of things
in mind when we make sure that we are going to have an impact
to keep our allies in the region safer and our people here at
home safer as well. With that I will yield back.
Chairman ROSKAM. Mr. Renacci.
Mr. RENACCI. Thank you, Mr. Chairman. I want to thank the
witnesses for their testimony today. I also want to get back to
the Tax Code and whether really the current tax provisions
relating to Iran work, and whether they should be strengthened.
Knowing that there are really two hammers here, one is that
companies do not get the benefit of the tax credit; and, number
two, they don't get the no deferral of their income.
Mr. Schizer, you said in your testimony that denying the
benefit of deferral, which is the second hammer as I call it,
is porous and suggests that it will be interpreted more broadly
by the Treasury, so I kind of want to get into the weeds a
little bit. Can you explain what types of investments and
business transactions would likely escape the provisions if
companies engaged in careful tax planning?
Mr. SCHIZER. Absolutely, Congressman. That is an excellent
question. I think the ones that we are likely to catch under
current law involve activities in Iran, drilling for oil,
opening a factory there; but a great deal of economic activity
won't involve that. If a company wanted to sell scientific
equipment, for example, or other types of equipment and ship it
into Iran, what they would then do is two strategies, neither
of which I think are fully stopped by the law currently.
One would be to sell it to an intermediary, perhaps in
Dubai, and then rely on that intermediary to sell it into Iran,
and then that company would simply say we just made money in
Dubai.
The other possibility is they could even ship it directly
to Iran, but if the title passes in the Mediterranean before
you get to Iranian territory, then the taxpayer could take the
position that actually this money doesn't derive from--the
phrase is derive from Iran, and so the penalties don't apply.
I think technically this committee is very well positioned
to change the relevant language to capture those activities.
Treasury could do it through regulations also, but
unfortunately under current law, taxpayers would have an
argument that they could do that.
Mr. RENACCI. It is interesting. It sounds like you could
actually set up a shell company unrelated to yours and actually
ship through that company and not have the effect of the
deferral?
Mr. SCHIZER. Right. You could form a relationship with some
independent entity in another country and rely on them to sell
at a very small margin, so most of the profit remains with you,
but as long as that agent wasn't in Iran, you could argue that
this didn't apply.
Mr. RENACCI. The other thing you talked about which I
believe is important is, you testified that tax provisions only
impact companies headquartered in the United States but not
their foreign counterparts with U.S. operations, which does
concern me. You know, we have to have a general level playing
field. We don't want American headquartered companies at a
disadvantage. Can you tell us what policies we might consider
to level the playing field and impose negative tax consequences
on more companies with U.S. earnings doing business with Iran?
Mr. SCHIZER. So the challenge here is that the U.S. does
not assert tax jurisdiction over the foreign earnings of
companies that are not incorporated in the United States. So we
couldn't directly tax the profits that Siemens or a company
like that was making in Iran.
On the other hand, they are earning lots of money here in
the United States. We are emphatically permitted to tax that,
and the point is we could introduce some added tax costs on
their U.S. earnings as a penalty for the fact that they have
economic activity in Iran, and that could involve either a
higher tax rate, or it could involve disallowed deductions. I
think technically it could be done, and the focus would have to
be on tax they would be paying to the United States anyway.
Mr. RENACCI. And one other thing. In your testimony you
talked about--I am a CPA and I have done tax planning and tax
counseling--companies could shift a lot of their deductions on
that income in Iran and actually reduce the penalty there too.
You would agree with that?
Mr. SCHIZER. Right. And so really even if they admitted
that the income was earned in Iran, if they were able to offset
that income with deductions that they said were in Iran, then
they would get to the same place of avoiding these penalties.
And it is fully consistent with this committee's approach and
our tax laws' approach to disallow deductions for activity that
is public policy matter we don't like.
So you can't get a deduction for making a bribe. You can't
get a deduction for penalties for violating the law. There are
no deductions allowed for people who make their living selling
illicit drugs. And in the same spirit, this committee and
Congress could decide that they wanted to disallow those
deductions as well.
Mr. RENACCI. Thank you for your insights. I really believe
this committee needs to continue to explore tax measures which
discourage business with Iran while continuing, especially
while Iran continues to fund terrorism. Mr. Chairman, I yield
back.
Chairman ROSKAM. Thank you. Mr. Smith.
Mr. SMITH. Thank you, Mr. Chairman. I definitely appreciate
you holding this hearing today. This is clearly an important
issue. Back whenever I was serving in the Missouri State House,
I worked to pass some legislation that would prevent the State
of Missouri to invest in countries that support terrorism. And
Iran was one of the countries within that parameter.
We have heard a lot of testimony here today that the waiver
of sanctions will especially help Iranian entities closely tied
to the regime, including those supporting terrorism. It seems
to me that the tax provisions are that much more important with
this agreement.
And, Mr. Schizer, if the President were to waive these tax
provisions, how would that impact companies looking to do
business with Iran?
Mr. SCHIZER. The waiver of the tax provisions would
eliminate the penalties that we have been describing. What it
means is that when an American company pays tax to Iran, it can
reduce its American tax dollar for dollar, by the amount of tax
that it is paying to Iran. And a way to think about that is a
transfer from the U.S. Treasury to the Government of Iran. To
me that seems like an extremely unappealing proposition.
The other point is that American companies could then
benefit from the same deferral that they now benefit from when
they do business elsewhere in the world. But although we might
have reasons why we want them to have that deferral when they
do business in other countries, we really shouldn't, I think,
want to encourage this economic activity in Iran. So a waiver
would eliminate the penalties that exist under current law.
Mr. SMITH. So it would promote more companies doing more
business in Iran, paying more taxes in Iran, creating more
revenue for the Iranian Government, and the result, allowing
more resources to help direct terrorism activities. Would you
agree with that?
Mr. SCHIZER. It could, yes.
Mr. SMITH. And it all comes from the cost to our taxpayers.
Isn't it right that the foreign tax credits are paid from the
Treasury?
Mr. SCHIZER. It is a way to reduce your tax to the Treasury
dollar for dollar, so yes.
Mr. SMITH. And a lot of people refer to these types of
credits of the Tax Code as a subsidy by U.S. taxpayers. Do you
agree that that is quite common?
Mr. SCHIZER. I think it is clearly a tax benefit.
Mr. SMITH. Okay. Isn't it fair so say that if the President
had waived these provisions, U.S. taxpayer would effectively be
subsidizing Iranian-sponsored terrorism?
Mr. SCHIZER. Resources that otherwise would go to our
government would end up going to their government, yes.
Mr. SMITH. So subsidizing, using our resources to help
another country?
Mr. SCHIZER. Uh-huh.
Mr. SMITH. Especially a country who is not our friend. I
would like to ask Mr. Stethem, what do you think about giving
tax breaks for doing business with Iran, and also do you think
that this kind of tax policy Americans expect from their
government?
Mr. STETHEM. So the first question you asked, what do I
think----
Mr. SMITH. About giving tax breaks for doing business with
Iran?
Mr. STETHEM. I would like to be clear to everybody on the
committee. My first choice isn't war. It is peace. But you
can't have peace unless the other side wants peace too. And I
hate to keep beating this drum, but it needs to be beat.
Is Iran at Islamic jihad with us, a holy war or not? If
they are, we fight them on every street on every corner in
every way possible, in the banks, in the businesses, and if
they want, on the battlefield. We do not advance to the rear.
So I do support it. Your second question?
Mr. SMITH. So, let me get this right. You said that you do
support tax breaks to companies that do business with Iran?
Mr. STETHEM. Excuse me. Excuse me, sir. No, I don't support
the tax breaks. My apology. No.
Mr. SMITH. Okay. So you would clearly think that this kind
of tax policy is not the kind of tax policy that Americans
would expect from their government?
Mr. STETHEM. Our government should be representing the
interests of America and Americans and not funding terrorists
and not supporting companies that do business with state
sponsors of terrorism.
Mr. SMITH. I would agree. Thank you. Mr. Chairman.
Chairman ROSKAM. Mr. Dold.
Mr. DOLD. Thank you, Mr. Chairman, and I certainly
appreciate your leadership on this issue and for calling this
hearing, and I want to thank our panelists for coming.
One of the things that I try to do is try to figure out
what unites us. What do we agree on across the Congress, across
our country? And one of the things is we want to make sure we
are protecting our country. The other thing I think is, does
anybody disagree that Iran is the greatest state sponsor of
terror in the world today? Any of our panelists disagree with
that statement? You are going to disagree that they are not a--
--
Mr. WALSH. I would say Pakistan and Saudi Arabia are
competitors, but they are in the top three.
Mr. DOLD. Okay. But we can certainly agree that Iran is a
great sponsor of terror, and there is no question about it, and
I would argue probably the greatest state sponsor out there and
probably widely written on both sides of the aisle. I would
argue that they are certainly plotting to kill Americans each
and every day. They are funding terrorist organizations,
Hezbollah and Hamas, Assad. And so really what we want to try
to do is how do we stop the terror?
And Mr. Dubowitz, I know that you have written extensively,
and the Supreme Leader Khomeni's public letter on October 21
stated that the imposition of any sanctions at any level under
any pretext by any of the negotiating countries will be
considered a violation of the JCPOA. Well, frankly, do you
think that the Supreme Leader is going to abide by the JCPOA?
Mr. DUBOWITZ. It is an interesting question actually. If
the Supreme Leader does abide by the JCPOA, then he has a
patient pathway to a nuclear weapon. I think that he has an
irresistible impulse to cheat, as he has in the past, so I
think he will. I think he will cheat incrementally, perhaps not
egregiously, but the sum total of those incremental cheating
will be egregious.
Mr. DOLD. Has Iran in previous agreements ever kept their
word or ever abided by the agreement?
Mr. DUBOWITZ. Iran has a track record of nuclear mendacity
which is decades long.
Mr. DOLD. Obviously we are very concerned by the recent
testing of the ballistic missile and that certainly puts not
only our allies in the region, but I would argue all over the
world at risk. And again taking a long range approach, and as
we look at the tax provisions and the sanctions relief, do you
doubt that Iran came to the table because crippling sanctions
were in place?
Mr. DUBOWITZ. I have no doubt that was exactly the reason
they came to the table.
Mr. DOLD. And the sanctions relief that is going to happen
because of the Joint Plan of Action, is roughly between, I
think you have written between $90 and $120 billion. We have
seen estimates of $150 billion. Can you give me some sort of an
idea as we look at that kind of how that is going to play out,
and what do you think they are going to do with those resources
vis-a-vis terrorism?
Mr. DUBOWITZ. That is just the upfront payment, $90 and
$120 billion. Then Iran will be able to sell its oil in an
unrestricted way. The IMF and World Bank predict that Iran's
economy will grow about 5 to 6 percent in GDP annually, which
compared to 2013 there was a loss of 6 percent. So the
sanctions relief is far greater than the initial $90 to $120
billion in initial oil escrow release.
But to answer your second part of your question, there is
no doubt. When you look at the Iranian open books budget, their
transparent declared budget, they are going to give a 50
percent increase to the entity, the Revolutionary Guards,
responsible for carrying out terrorism. So they have actually
even signalled to us publicly that they are increasing
terrorism, not to mention the off-the-books money of tens of
billions of dollars that is sitting in these holding companies
and shadow entities that they use to fund their terror
techniques.
Mr. DOLD. Can you give us some sort of an idea today how
much Iran is sending in terms of liquid assets to Assad in
Syria?
Mr. DUBOWITZ. So according to the U.N. Special Repertoire
on Syria, the Iranian regime gave $6 billion in cash in kind to
the Assad regime last year.
Mr. DOLD. And how much do you anticipate after sanctions
relief will go to Assad?
Mr. DUBOWITZ. Well, certainly the Iranians have made it
very clear that the survival of the Assad regime is their
number one strategic priority in the region, so one would
assume that there is going to be a double-digit increase in
that.
Mr. DOLD. So I guess as we look at kind of the increase of
funding of terror, which again I would argue, puts Americans at
greater risk. We have seen people that have been kidnapped in
Iran as recently as just this week. You know, President Obama
has repeatedly stated that he will continue sanctions on Iran
for terrorism. Yet he has not indicated any support for
increasing sanctions, particularly against the IRGC.
Can you give me some sort of an indication as people are
looking at this saying why in the world would we not want to
sanction Iran?
Mr. DUBOWITZ. Well, this is why this hearing is so critical
because what you are talking about is the tax provision which
effectively amounts to a nonnuclear sanction. And so you have
got to basically today, you have got to call the supreme
leader's bluff. He threatened 2 weeks ago that the imposition
of nonnuclear sanctions on Iran would lead to the Iranians
walking away from the agreement.
If we don't test the Iranians today, by imposing the
nonnuclear sanctions that the President of the United States
promised, the longer we wait, the more difficult it will be to
impose nonnuclear sanctions to stop terrorism, human rights
abuses, and ballistic missile tests. And so we have got to
choose nonnuclear sanctions early on that will inflict cost on
the Iranian regime, and we have to do it early because the
longer we wait, the more difficult it will be. We will be self-
deterred from using coercive measures to respond to Iranian
aggression.
Mr. DOLD. And Mr. Chairman, my time is expired, but I do
welcome the opportunity to work with you all as we look forward
on how do we make sure we hold them accountable. Thank you.
Chairman ROSKAM. Thank you. I just want to follow up, Mr.
Dubowitz, on that point, and I think it is really important for
the purposes of today, to take away sort of some of the heat
and the anxiety and sort of the discussion to get back to this
crucial point. JCPOA as negotiated by the administration allows
for nonnuclear sanctions. That is right, isn't it?
Mr. DUBOWITZ. Correct.
Chairman ROSKAM. Now in light of that, it is completely
germane and completely appropriate for us as a committee based
on our jurisdiction to be thinking, all right, what role do we
play? And what we are saying is, look, we have posed this
question to the administration, that is the committee has, and
we have not heard from the administration about what the
President's plans are as it relates to these two important
provisions. That is, the foreign tax credit as it relates to
Iran, and deferral as it relates to Iran.
So some people can interpret it one way. Some people can
interpret it another way. In the words of my son, Steve, I am
just sayin,' and I am just sayin' that President Obama has done
many things that no American President has done before, and
simply because a President has not done something before
doesn't mean that it is off the table for President Obama. Am I
being reasonable in how I am looking at the world right now?
Mr. DUBOWITZ. Chairman Roskam, it is entirely reasonable
and would have been a very simple response from the
administration to Speaker Ryan's letter, which is to say, Mr.
Chairman at the time, Mr. Speaker, we have said repeatedly that
we will be using nonnuclear sanctions on Iran to respond to
terrorism, ballistic missile tests, human rights abuses; and
the tax provisions of the U.S. Tax Code are a nonnuclear
sanction, and we will be using those, and we will be not
waiving those. I mean that would have been a very simple
answer.
I have to say from my professional assessment, I remain
deeply concerned that the President will use nonnuclear
sanctions to respond to Iranian misbehavior and illicit
activity. And I think it is incumbent upon your committee and
incumbent upon the U.S. Congress, to get a clear answer from
the President and from the U.S. Treasury Department whether
those sanctions, those nonnuclear sanctions, completely
consistent with the JCPOA, will or will not be imposed.
Chairman ROSKAM. So I want to thank all of you today. I
want to thank the panel of witnesses for your time and your
expertise. Mr. Stethem, particularly you because it is obvious
to all of us that walking this journey with us today churns up
a lot within you, and because we value you and your brother's
sacrifice and the journey that your family has gone through, it
churns up a lot in us to see you reflecting this. So don't
assume that that is lost on us today. And I just want to let
you know I am very appreciative. Go ahead.
Mr. STETHEM. Thank you very much, sir. I would like to say,
thank the committee again, thank you; but I will tell you
something. I am so fortunate to have been born into the family
I was and the family I have, and nobody needs to feel sorry for
our family because we are proud Americans who love to serve.
Chairman ROSKAM. Thank you. There is an audience today that
is important for us, and I know I am speaking on my behalf. I
wouldn't presume to speak on behalf of the entire committee.
Chairman ROSKAM. But to those companies that are
contemplating a rush to do business with a terrorist regime. I
urge caution, because I am telling you what, we are interested,
and we are particularly interested in making it difficult to do
that. And I think there are a lot of people in Congress that
are going to try and extract a very high price for American
companies or anybody else that is trying to do business and be
complicit with the type of activity that robs the life of an
American hero on and on and on and on.
If they just think this Committee's going to lay back and
not be a challenge to that, they are sorely mistaken. So we are
going to be looking at tax credits; we are going to be looking
at deferral; we are going to be looking at the definitions
within the Tax Code; we are going to work to build a bipartisan
approach on this, because this is a donkeys and elephants
issue. This is an issue where the majority of Congress should
come together around this, and it is an issue that the
administration itself has said in the JCPOA, these sanctions
are fair game. And they are absolutely fair game, and we intend
to be forthright about it.
And so unless some of these companies think they can just
go in and make a quick buck and let the Iranians get more
money, they are going to have a lot of conflict on their hands.
So on that happy note, I yield back.
And all members are given the requisite number of time to
submit written questions to be answered later in writing. Those
questions and your answers will be made part of the formal
hearing record. And with that, the meeting is adjourned.
[Whereupon, at 12:06 p.m., the subcommittee was adjourned.]
Public Submission for the Record
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