[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
THE IMPLICATIONS OF U.S.
AIRCRAFT SALES TO IRAN
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON MONETARY
POLICY AND TRADE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
JULY 7, 2016
__________
Printed for the use of the Committee on Financial Services
Serial No. 114-95
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico RUBEN HINOJOSA, Texas
BILL POSEY, Florida WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts
Pennsylvania DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin KEITH ELLISON, Minnesota
ROBERT HURT, Virginia ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina BILL FOSTER, Illinois
RANDY HULTGREN, Illinois DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania DENNY HECK, Washington
LUKE MESSER, Indiana JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
Subcommittee on Monetary Policy and Trade
BILL HUIZENGA, Michigan, Chairman
MICK MULVANEY, South Carolina, Vice GWEN MOORE, Wisconsin, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma BILL FOSTER, Illinois
STEVAN PEARCE, New Mexico ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia JAMES A. HIMES, Connecticut
MARLIN A. STUTZMAN, Indiana JOHN C. CARNEY, Jr., Delaware
ROBERT PITTENGER, North Carolina TERRI A. SEWELL, Alabama
LUKE MESSER, Indiana PATRICK MURPHY, Florida
DAVID SCHWEIKERT, Arizona DANIEL T. KILDEE, Michigan
FRANK GUINTA, New Hampshire DENNY HECK, Washington
MIA LOVE, Utah
TOM EMMER, Minnesota
C O N T E N T S
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Page
Hearing held on:
July 7, 2016................................................. 1
Appendix:
July 7, 2016................................................. 45
WITNESSES
Thursday, July 7, 2016
Dubowitz, Mark, Executive Director, Center on Sanctions and
Illicit Finance, Foundation for Defense of Democracies......... 5
Goldman, Zachary K., Executive Director, Center on Law and
Security, New York University School of Law.................... 8
Lorber, Eric B., Senior Associate, Financial Integrity Network... 6
APPENDIX
Prepared statements:
Dubowitz, Mark............................................... 46
Goldman, Zachary K........................................... 65
Lorber, Eric B............................................... 75
Additional Material Submitted for the Record
Huizenga, Hon. Bill:
Letter from Timothy Keating, Senior Vice President,
Government Operations, Boeing, dated July 6, 2016.......... 96
Letter to Hon. Peter Roskam and Hon. Jeb Hensarling from
Timothy Keating, Senior Vice President, Government
Operations, Boeing, dated June 23, 2016.................... 97
Guinta, Hon. Frank:
Lettter to Senator Marco Rubio from Thomas Patrick Maloney,
Senior Advisor, Office of Legislative Affairs, U.S.
Department of the Treasury, dated June 7, 2016............. 99
Sherman, Hon. Brad:
Letter from Fred P. Hochberg, Chairman and President, Export-
Import Bank of the United States, dated November 4, 2015... 101
Dubowitz, Mark:
Federal Ministry of the Interior report entitled, ``2015
Annual Report on the Protection of the Constitution''...... 102
Article entitled, ``German intelligence: Iran seeks illegal
nuclear technology, Germany's Merkel says Iran violating UN
missile regulations........................................ 134
THE IMPLICATIONS OF U.S.
AIRCRAFT SALES TO IRAN
----------
Thursday, July 7, 2016
U.S. House of Representatives,
Subcommittee on Monetary
Policy and Trade,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:03 a.m., in
room 2128, Rayburn House Office Building, Hon. Bill Huizenga
[chairman of the subcommittee] presiding.
Members present: Representatives Huizenga, Pearce,
Stutzman, Pittenger, Messer, Schweikert, Guinta, Emmer; Moore,
Foster, Perlmutter, Murphy, Kildee, and Heck.
Ex officio present: Representatives Hensarling and Waters.
Also present: Representatives Royce and Sherman.
Chairman Huizenga. The Subcommittee on Monetary Policy and
Trade will come to order. Without objection the Chair is
authorized to declare a recess of the subcommittee at any time.
Today's hearing is entitled, ``The Implications of U.S.
Aircraft Sales to Iran.''
I now recognize myself for 3 minutes to give an opening
statement.
The U.S. State Department has consistently labeled Iran a
state sponsor of terrorism, and in a report most recently
released last month called Iran ``the world's foremost state
sponsor of terrorism.'' In fact, Iran's state-owned national
carrier, Iran Air, was sanctioned by Treasury in 2011 for
transporting fighters and weapons of war on behalf of Iran's
Revolutionary Guards.
Under the Iran Nuclear Deal, formerly referred to as the
Joint Comprehensive Plan of Action (JCPOA), the Obama
Administration agreed to authorize exports of commercial
aircraft to the Islamic Republic of Iran while keeping all
other existing trade restrictions in place.
These aircraft sales to Iran, purportedly meant to upgrade
the country's aging fleet, expanded from 150 to 500 airplanes
over the next 3 to 5 years.
On March 24, 2016, the Treasury Department's Office of
Foreign Assets Control (OFAC), issued a general license
permitting Boeing to begin negotiations with Iran.
On June 21st, Boeing announced it had reached a tentative
sales agreement with Iran Air, the country's flagship state-
owned carrier. Iran Air intends to purchase 80 commercial
planes with a value of $17.6 billion, along with the leasing of
29 737s.
However, any orders will remain contingent on the
additional OFAC license authorizing the sale. OFAC regulations
stipulate that such a license can also authorize financing
``incident to a transaction.'' And last month OFAC Acting
Director Johnny Smith suggested that Boeing sales may draw on
U.S. banks.
Opponents of Boeing's deal with Iran point to the country's
continued sponsorship of terrorism, the use of its financial
sector for international money laundering, and its support of
the Assad regime in Syria, which has committed atrocities over
the course of a 5-year-long civil war.
Critics also argue that U.S. financing of aircraft sales,
be it through a U.S. bank or agencies such as Export-Import
Bank, would go far beyond the Administration's obligations
under the Nuclear Deal.
Today's hearing will examine the Obama Administration's
nuclear agreement with Iran and how it opened the door for the
sale of American-made aircraft to the world's leading state
sponsor of terror. The subcommittee will also discuss
legislation to prevent the facilitation of certain transactions
by American financial institutions with Iran, as well as the
prohibition of the Export-Import Bank from financing projects
in Iran.
I am extremely concerned that by relaxing the rules, the
Obama Administration has allowed U.S. companies to be complicit
in weaponizing the Iranian regime. I will look forward to
hearing from our witnesses.
With that, I yield back the balance of my time, and
recognize the ranking member of the subcommittee, Ms. Moore
from Wisconsin.
Ms. Moore. Good morning, Mr. Chairman, and good morning to
all of our witnesses. It is such a privilege to serve in
Congress when you realize that you are going to be able to hear
from really just experts on these topics. And I do welcome you
here today.
I just want you all as our witnesses to know that this
committee had jurisdiction over the Iran deal and we waived it
when the Iran deal was before Congress.
The sale of these aircrafts to Iran is legal and it is
transparent, and it is under close supervision of the U.S.
Government in accordance with the express terms of the Iran
deal, which China, Britain, France, all of our allies were
party to.
In accordance with the express terms of it. And it actually
includes a special aircraft snapback provision, unlike the
Reagan deal with Iran, which you might all recall, where there
were arms traded for hostages. This, again, is transparent.
And as Ronald Reagan said during the time, ``I told the
American people I did not trade arms for hostages. My heart and
my best intentions still tell me that is true, but the facts
and the evidence tell me that it is not.''
I now yield 2 minutes to my good friend, Mr. Heck.
Mr. Heck. Thank you very much, Ranking Member Moore and
Chairman Huizenga, thank you very much. I have a lot of things
that I worry about that come within the jurisdiction of this
subcommittee.
I worry about stubbornly stuck wage growth, 30 years in
fact. I worry about GDP growth that is stuck at about 2
percent, more or less. I worry about that which I referred to
the other day in a full committee hearing, the U-6 measure of
unemployment stuck at just under 10 percent.
And this subcommittee has jurisdiction over a lot of issues
that could impact those factors which so affect middle class
Americans, whether it is our monetary policy jurisdiction, some
banking, some international financial institution jurisdiction
and the like.
And yet what we are focusing on today, the only hearing of
this week in this subcommittee, is proposed policy to interfere
in a private market transaction that is, and please remember
these words, fully legal, fully compliant and scandal-free--
fully legal, fully compliant and scandal-free.
I would much rather that we took our time focusing,
frankly, on the things that create good paying jobs that put
people to work in this country. In fact, what is happening here
today is evident to everyone. We are relitigating JCPOA.
Period.
We are interfering in a private market transaction that is
fully legal, fully compliant and scandal-free.
Thank you Madam Ranking Member. With that I yield back the
balance of my time to you.
Ms. Moore. I yield back my time. Thank you.
I just wanted to point out before we continue with the
hearing, just raise the safety concerns. There had been over a
couple hundred airplane crashes in the commercial area. These
planes that Iran has were so rickety and so ragged that the
parts were unavailable anywhere in the world to repair them.
And so it is really important to note that number one, we
are doing something that is saving lives of really innocent
people, and itcould also be Americans who are traveling in that
space as well.
In addition to that, Boeing will be doing the inspections,
have the inspections contracts so that if there is any effort
to weaponize these planes we will be the first to know. And I
think that that is really, really important to elucidate to our
members here.
And with that, Mr. Chairman, I would yield back the balance
of my time.
Chairman Huizenga. The gentlelady yields back.
And the Chair at this time recognizes the chairman of the
full Financial Services Committee, Mr. Hensarling of Texas, for
2 minutes.
Chairman Hensarling. Thank you, Mr. Chairman, and thank you
for calling this hearing. For the past year this committee's
bipartisan Task Force on Terrorism Financing has done excellent
work in shedding light on sources of terror financing and
offering legislation to improve U.S. Government efforts to
choke off these funds.
Undermining this work, news broke a few weeks ago that
Boeing had reached a deal to sell and lease billions of
dollars' worth of aircraft to Iran. This is the same Iran which
the U.S. State Department in a report last month again called,
``the world's foremost state sponsor of terrorism.''
And the Treasury Department has labeled Iran ``a
jurisdiction of primary money laundering concern.'' This is the
same Iran behind the 1983 bombing in Beirut that killed 241
American service members. The same Iran that fuels atrocities
in Syria, where half a million lives have been lost. This is
the same Iran whose government calls again and again for the
annihilation of our ally, Israel.
And yet, this Administration plans to authorize these
transactions with Iran Air, the state-owned national carrier,
which has been sanctioned by the United States for transporting
fighters and weapons of war on behalf of Iran's Revolutionary
Guard.
The Administration also seems poised to allow U.S.
financial institutions to provide financing for the deal,
despite explicit assurances that Iran would not have access to
the U.S. financial system when selling its nuclear deal.
One of the last things we should be doing is allowing
Boeing to export military fungible aircraft and providing
access to the U.S. financial system to the Iranian regime.
Boeing has been an iconic American company with a proud
heritage. And I awoke just the other morning to watch Boeing's
100th anniversary television commercial, which I have seen on
numerous occasions. On it were patriotic images of Martin
Luther King and one of the space shuttle rockets.
Mr. Chairman, how tragic it would be for Boeing if, on its
next anniversary, truth in advertising compelled it to replace
Martin Luther King's image with that of the Ayatollah Khomeini,
and to replace the space shuttle rocket image with that of
Hezbollah rockets instead raining on Israel.
Let us hope Boeing rethinks their decision, and if they do
not, our work is clear. We must ensure that American taxpayers
and depositors will not have their funds used to back financing
for the Ayatollahs and the world's greatest state sponsor of
terrorism.
Thank you, Mr. Chairman. And I yield back the balance of my
time.
Chairman Huizenga. The gentleman yields back.
And today, we welcome the testimony of Mark Dubowitz,
executive director of the Center on Sanctions and Illicit
Finance at the Foundation for Defense of Democracies; Eric
Lorber, senior associate at the Financial Integrity Network;
and Zachary Goldman, executive director of the Center on Law
and Security at the New York University School of Law.
I might also note that there was a fourth intention, and
you will see an empty Chair that is sitting there. Timothy
Keating, senior vice president at Boeing, was asked to join
this panel.
He was invited. He declined. He sent a letter that I would
like to insert into the record, explaining that he had
explained Boeing's position in a letter to Chairman Hensarling
and to Representative Peter Roskam dated June 23rd.
Unfortunately, I don't find that adequate. We would love to
have had that opportunity to ask Boeing a few questions and let
them explain where they were coming from. But their choice was
to not be here today.
So with that, each of you will be recognized for 5 minutes
to give an oral presentation of your testimony. And without
objection, each of your written statements will be made a part
of the record.
With that, Mr. Dubowitz, you are recognized for 5 minutes.
STATEMENT OF MARK DUBOWITZ, EXECUTIVE DIRECTOR, CENTER ON
SANCTIONS AND ILLICIT FINANCE, FOUNDATION FOR DEFENSE OF
DEMOCRACIES
Mr. Dubowitz. Thank you, Mr. Chairman. Chairman Huizenga,
Vice Chairman Mulvaney, Ranking Member Moore, Chairman
Hensarling, and committee members, on behalf of FDD and its
Center on Sanctions and Illicit Finance, thank you for the
opportunity to testify. It is an honor to be here and to
testify alongside these two superb experts.
There are a $25 billion deal between Boeing and Iran Air,
and a similar size deal with Airbus, demonstrates the risk that
companies and banks face in doing business with a regime with a
long and continuing rap sheet of illicit conduct.
These deals are a multi-billion backed by the Obama
Administration and the Europeans for the economic benefits from
the JCPOA will moderate Iran's behavior before the nuclear
restrictions start expiring in 2023. That is a bad bet given
Iran's aggressive behavior since the nuclear deal.
By selling planes to Iran Air, Boeing and Airbus are
partnering with an Iranian aviation company and an industry
complicit in the regime's weapons proliferation and
destabilizing adventurism. These Western aviation giants and
the banks financing this deal face a due diligence nightmare.
They cannot prevent the planes from being used by the IRGC
for deadly airlifts to Syria's Bashar al-Assad, Lebanese
Hezbollah and other terrorist entities.
And it seems that Iran Air is not keeping out of trouble.
Three times in June Iran Air flew routes known to be used by
the IRGC to resupply Assad and Hezbollah.
As recently as June 9, an Iran Air jet landed in Abadan,
Iran, the logistical hub of the IRGC's airlifts, and then flew
on to Damascus. The airline frequently uses false transponder
information to hide these flights. So much for legal compliance
and scandal-free.
We know that Iran Air will not be the only recipient of
these planes. It alone does not have the capacity to absorb the
large orders from Boeing and Airbus. And it is likely that it
will transfer these planes to the IRGC's Mahan Air and three
other sanctioned airlines.
These aircraft sales are not necessary. Iranian citizens
and foreign travelers have other alternatives to Iran Air and
Mahan Air, companies that are racked with corruption and
mismanagement and implicated in a range of illegal activities.
Indeed, over the past 3 years, Gulf and Turkish Airlines
have increased their domestic and international routes in Iran
by nearly 60 percent. And numerous European airlines are also
resuming service. Iranians have other alternatives.
These deals present another problem. They are preference of
aircraft over smart state craft. They undermine the Obama
Administration's much-touted economic snapback mechanism for
enforcing the JCPOA.
Last summer some of us raised concerns that Iran would view
any imposition of non-nuclear sanctions as a violation of the
deal and grounds to snapback its nuclear program. We warned
that these threats would neutralize new non-nuclear sanctions.
This is what I call Iran's nuclear snapback.
These warnings have come to pass. Already, over the past
year, the Obama Administration has failed to push back with
meaningful sanctions against Iran's malign activities. And the
Boeing and Airbus deals create a powerful lobby against any
return to sanctions.
If Iran Air illegally transfers planes to Mahan Air, for
example, the U.S. and Europe will be constrained by concern
that Tehran will walk away from both the nuclear deal and its
outstanding debts to Western companies and banks.
These threats are likely to motivate Boeing, Airbus and
their banks to lobby against any return to sanctions to protect
their investments.
The financing of these aircraft sales provides another
advantage to Iran. It is essential to the regime's demands for
economic legitimacy. Iran wants American banks to finance the
Boeing deal and for the Administration to permit the use of the
U.S. dollar.
Tehran wants to get the planes now. pay later, borrow the
money from Western lenders, and secure its access to dollarized
transactions. If the Administration provides this dollarized
access and in the future Iran Air legally resells Boeing planes
to Mahan Air, the next Administration will not be able to
revoke Iran's access to dollarized transactions.
Indeed, Tehran will argue that Washington provided this
concession under the Nuclear Deal so it cannot later revoke it
for non-nuclear reasons. Iran will threaten to walk away from
the deal and deploy its nuclear snapback. This will effectively
paralyze America's Iran policy for the next Administration.
The Boeing and Airbus deals only serve to increase the
Iranian regime's leverage over the Nuclear Deal while
diminishing Western appetite for rigorous enforcement.
I would conclude by noting that it is no small irony that
the combined value of the Boeing and Airbus deals, about $50
billion, is around the exact same amount that Iran refuses to
pay to settle outstanding judgments for victims of Iranian
terrorism, including Americans.
Look for lawyers pursuing justice for these victims to
target these aircraft deals. If these deals are permitted to
proceed, the Administration will make two of the world's most
respected companies and their banks accomplices to the world's
leading state sponsor of terrorism.
Thank you for the opportunity to testify. I look forward to
your questions.
[The prepared statement of Mr. Dubowitz can be found on
page 46 of the appendix]
Chairman Huizenga. Thank you, and the gentleman yields back
his time.
Mr. Lorber, you are recognized for 5 minutes as well.
STATEMENT OF ERIC B. LORBER, SENIOR ASSOCIATE, FINANCIAL
INTEGRITY NETWORK
Mr. Lorber. Thank you, Mr. Chairman. Chairman Huizenga,
Chairman Hensarling, Vice Chairman Mulvaney, Ranking Member
Moore, and distinguished members of the subcommittee, I am
honored to appear before you today to discuss the implications
of U.S. aircraft sales to Iran.
I would like to focus my testimony on the threats posed by
Iran, both to the region and to the international financial
community and the risks that the private sector faces when
considering re-entering Iranian markets.
I will also speak to the risks in providing commercial
aircraft to the Islamic Republic. I would be happy to discuss
my suggestions for the three legislative proposals during the
question and answer period.
Make no mistake. As we approach the 1-year anniversary of
the signing of the JCPOA, Iran has not changed most of the
underlying illicit activity that has led respectable financial
institutions across the world to refuse to do business there.
Iran continues to actively support Syrian President Bashar al-
Assad and international terrorist organizations including
Hezbollah.
Indeed, because of this underlying illicit activity, the
international financial community remains broadly reluctant to
re-enter the Iranian market, even if legally permitted to do
so. This reluctance is justified. Doing business in Iran poses
a unique and toxic combination of risks related to bribery,
corruption, money laundering, and illicit finance.
Such risks include, first, financial crime risk. Iran is
well-known to present serious risks related to bribery and
corruption and was recently ranked 130th out of 175 countries
in Transparency International's Corruption Perception Index.
In addition, the Financial Action Task Force continues to
keep Iran on its black list as a jurisdiction lacking necessary
financial crime compliance controls.
Second, sanctions risk. The United States continues to
maintain primary U.S. sanctions on Iran, which pose significant
risks for any multinational corporation considering doing
business there. U.S. jurisdiction is broad and U.S. regulators
can use it to target transactions that may not initially appear
to touch U.S. markets or involve U.S. persons.
Similarly, U.S. secondary sanctions remain in force,
particularly if foreign financial institutions do business with
the Islamic Revolutionary Guard Corps.
Given that the IRGC controls upwards of 35 percent of the
Iranian economy and has established opaque corporate structures
to hide its true ownership interests, companies returning to
Iranian markets run a high risk of dealing with prohibited
entities and running afoul of those regulations.
Likewise, though it signed the JCPOA, Iran has not changed
much of its underlying illicit conduct. It actively supports
terrorism and engages a wide range of destabilizing activities,
including ballistic missile development. Given such activities,
a serious risk exists that additional sanctions will be imposed
on the country.
And third, snapback risk. If Iran cheats on the JCPOA, the
U.S. Treasury Department has clear that it can partially snap
sanctions back into place, meaning that firms that have re-
entered those markets would be suddenly forced to exit, likely
at a significant financial loss.
These risks, among others, are a significant part of the
reason that the world's most reputable financial institutions
have been unwilling to return to Iran.
When speaking with these banks, the response has been
remarkably uniform. While the banks recognize that there are
commercial opportunities in Iran, the real and regulatory risks
remain far too high to consider re-entering the country.
In the case of Boeing's proposed sale of $25 billion worth
of aircraft and associated services to Iran Air, these risks
are even higher. Iran Air is well-known to have engaged in
illicit activities on behalf of the IRGC and, as you noted, was
designated by the Treasury Department in 2011.
While Iran Air was delisted as part of the JCPOA, the
illicit activity that led to the designation does not appear to
have changed. As my fellow witness, Mr. Dubowitz, has noted,
Iran Air continues to fly well-known arms and militant resupply
routes to Damascus and into Lebanon.
The heightened risks of dealing with Iran Air and other
Iranian airlines are also likely the reason that Boeing and
Airbus have reportedly had difficulty finding financial
institutions willing to bank these sales. Financial firms'
fears are well-founded.
Foreign financial institutions can be subject to U.S.
secondary sanctions if they provide services to the IRGC or its
affiliates. If a global bank provides financial services for
this deal and Iran Air uses these planes to transport arms or
militants to Syria or Hezbollah, the bank could lose its access
to U.S. markets, a death sentence for an international
financial institution.
In conclusion, companies considering re-entering Iran,
including Boeing, face serious risks of doing business with
sanctioned parties or in ways that directly or indirectly
support Iran's destabilizing activities. Congress should take
steps to limit that risk.
The three legislative proposals are steps in that direction
and with minor modifications can help the United States shape
Iran's behavior and limit its ability to use this equipment for
illicit purposes.
I look forward to discussing them during our question and
answer session. Thank you for your time. I look forward to your
questions.
[The prepared statement of Mr. Lorber can be found on page
75 of the appendix.]
Chairman Huizenga. The gentleman's time has expired.
And Mr. Goldman, you are recognized for 5 minutes.
STATEMENT OF ZACHARY K. GOLDMAN, EXECUTIVE DIRECTOR, CENTER ON
LAW AND SECURITY, NEW YORK UNIVERSITY SCHOOL OF LAW
Mr. Goldman. Chairman Huizenga, Chairman Hensarling, Vice
Chairman Mulvaney, Ranking Member Moore, and members of the
committee, thank you very much for the honor of appearing
before you today with my friends and colleagues, Mr. Lorber and
Mr. Dubowitz.
Last year, the United States and its partners in the P5+1
realized an important diplomatic accomplishment when they
agreed to the Joint Comprehensive Plan of Action with Iran.
In the JCPOA, Iran committed that it would never seek,
develop or acquire nuclear weapons, and the agreement
represents the first time in over a decade that Iran's nuclear
program is subject to limits agreed upon with the international
community.
Under the terms of the JCPOA Iran limited the number of
centrifuges that are operating, limited the degree of enriched
uranium it can possess, limited the amount of enriched uranium
that can be in the country at any given time, substantially
modified its existing nuclear facilities, all under the
supervision of the IAEA. In exchange, the United States and its
partners agreed to limited sanctions relief.
The agreement does not resolve all concerns about Iran's
behavior. Indeed, Iran remains one of the principal strategic
adversaries of the United States in the Middle East. Since 1984
Iran has been and today remains designated as a state sponsor
of terrorism. It provides substantial support to the regime of
Bashar al-Assad as he prosecutes Syria's brutal civil war.
It routinely engages in gross human rights abuses, commits
malicious cyberattacks inside the United States, and continues
its support for terrorist groups like Hezbollah and the Houthi
rebels in Yemen.
Until the adoption of the JCPOA last year, Iran's pursuit
of an advanced nuclear program compounded these other ways in
which Iran threatened American interests and the stability of
the Middle East.
Seen in this context, however, the JCPOA ameliorates one of
the most important components of the threat from Iran, namely
the menace posed by its nuclear program and the possibility
that its nuclear program could have been used to intensify the
other ways in which Iran threatens the U.S., its allies and its
interests.
And there was a significant chance that Iran's further
development of its nuclear program would have sparked an arms
race in the Middle East.
The constraints embodied in the JCPOA lengthen the time
needed for Iran to break out from 2 months at the time the deal
was signed to roughly a year under the terms of the agreement.
In exchange for these concessions, the U.S. committed to lift
nuclear-related secondary sanctions on Iran while it retained
its primary sanctions program with some exceptions.
One of those exceptions is at issue today, the commitment
by the U.S. Government to establish a licensing regime for the
sale of aircraft and related parts and services to Iran.
To be clear, such sales are risky for the reasons Mr.
Lorber and Mr. Dubowitz identified. Iran Air was designated in
2001--or 2011, excuse me, for providing support to the IRGC and
other proliferation-related entities.
And that is why it is incredibly important to focus on
contractual and licensing conditions and stringent monitoring
and enforcement in the event a sale of aircraft goes forward.
And indeed, the JCPOA itself states that any licenses to
sell aircraft to Iran will be contingent on those aircraft
being used exclusively for commercial passenger aviation.
The U.S. has put Iran on notice that a breach of those
conditions would be grounds for the U.S. to cease performing
its obligations under that section of the JCPOA.
The risks involved in selling aircraft to Iran are similar
to the risks generally attendant with doing business there, the
risks of becoming involved in illicit financial activity and
the reputational risk that comes from doing business in a
regime that routinely represses the human rights of innocent
people at home and abroad.
These risks and Iran's failure to address the shortcomings
of its own financial system are some of the reasons that Iran
says it has not gotten as much benefit from the JCPOA as it had
anticipated. It is Iran's responsibility to address those
shortcomings.
But as long as Iran adheres to the terms of the JCPOA and
the IAEA has not raised concerns that Iran is out of
compliance, the JCPOA has significant value in the U.S.'s
overall national security strategy, even while the U.S. must
continue to act to limit Iran's malign influence elsewhere in
the region.
And the U.S. retains the full suite of national security
tools including sanctions to enable it to do so. For as long as
that is true we must work to maintain the integrity and
viability of the JCPOA and to resist efforts to undermine it.
Thank you very much for allowing me to join you today. I
look forward to your questions.
[The prepared statement of Mr. Goldman can be found on page
65 of the appendix.]
Chairman Huizenga. The gentleman yields back the balance of
his time.
And with that, I would like to ask for unanimous consent
that any member of the full Financial Services Committee who is
not a member of the subcommittee be allowed to participate and
ask questions of the witnesses. Without objection, it is so
ordered.
The Chair now recognizes himself for 5 minutes. I was
hoping to address this to Mr. Keating from Boeing. I have a
series of questions from his letter to our chairman, Chairman
Hensarling and Peter Roskam.
First of all, it is in his first opening paragraph, he
talks about from the onset that consultation with Boeing the
Administration ``made it clear that implementation of the JCPOA
was critical to the national security interests of the United
States.''
Then later, at the bottom of this first page, it says,
``Boeing will continue to follow the lead of the U.S.
Government with regard to working with Iranian airlines.'' I
was hoping to ask him what kind of pressure they had been
feeling from the Administration to do this deal?
I also wanted to ask him as he was talking about the
Memorandum of Understanding or of Agreement to express Boeing's
intent to help Iran Air lease 29 737s, how were they going to
do that? What structure? Was it going to be directly or third-
party?
And finally, at the end they have stated repeatedly,
``Should the U.S. Government reinstate sanctions against the
sale of commercial passenger airlines to Iranian airlines we
will cease all sales and delivery activities as required by
U.S. law.''
And I wanted to get their opinion on what that would look
like? What would Boeing do if a new Administration did come in
and do that? Would they be passive? Would they be aggressive to
push back against that, that snapback?
And then finally, there is quite a bit of discussion about
where this financing is going to be going? And this is
something I would like to have you all address.
They say, ``We have not reached any decisions on how
payment from Iranian Airlines will be affected,'' as they are
looking at the financing of it.
And that they do properly lay out Export-Import Bank as
prohibited from any dealings with Iran. So I think we all ought
to be agreeing that we are going to be able to codify that.
But they are talking about other financing options pursued
by the customer. And I think that leads into those bank
situations that Mr. Lorber was talking about.
And Mr. Lorber, you talk about that. You write in your
testimony it is an underlying mix of money laundering and
financial crime in Iran remains in place and that even after
sanctions relief the list of Specially Designated Nationals
remains long.
In your testimony you note that there is a big difference
between permitting the sale of commercial aircraft and
proactively telling U.S. and foreign banks that they can
finance these sales.
You are a former Treasury lawyer, I believe, and did the
the U.S. Government commit to the JCPOA to provide Iran with
economic benefits and facilitating transactions or merely will
they not prohibit the trade? I am curious what your take is on
that.
Mr. Lorber. Thanks, Chairman. It is a great question and in
fact this goes to the heart of the JCPOA because much of the
language within the agreement itself is actually fairly
ambiguous. I think it is paragraph number 26 of the agreement
says, and I can quote it for you here if you would like?
Directly on this point it says, ``The United States will
make best efforts in good faith to sustain this JCPOA and to
prevent interference with the realization of the full benefit
by Iran of the sanctions lifted specified in annex two.''
I read that to mean that the U.S. Government must ensure
that the sanctions specified in annex two are lifted. Full
stop. That does not mean the United States needs to go above
and beyond and facilitate U.S. financial institutions providing
financing in this way.
Chairman Huizenga. And you would view this as above and
beyond?
Mr. Lorber. Correct. I would consider permitting U.S.
financial institutions to bank this deal as above and beyond
the obligations contained in this.
Chairman Huizenga. Now, in a letter to Senator Marco Rubio
last month, Treasury Department wrote, ``The administration has
not been and is not planning to grant Iran access to the U.S.
financial system.'' But I am curious. They seem to leave doors
open as you walk down that hall all the time. And I would like
someone to address this as well.
From a financial institutions perspective, what kind of
risks are there and what are the dangers if the United States
is seen as advocating for trade with Iran?
Mr. Lorber. Mark, do you want to--
Mr. Dubowitz. The problem with the Treasury Department's
answer is they left the door open for offshore dollarization.
And so that there may not be what is called a U-turn
transactions for the U.S. financial system, but it is possible
then to provide access to dollarization through offshore dollar
trading.
Chairman Huizenga. Like a third party?
Mr. Dubowitz. Right. And so the issue of course with that
is that Iran never negotiated that as part of the JCPOA. So now
we are going above and beyond what was committed to in the
JCPOA.
We are giving Iran access to the U.S. dollar offshore. And
in doing so we are effectively neutralizing the ability to use
non-nuclear financial sanctions in the future.
So the next Administration's hands are going to be tied. If
they try to take away dollarization the Iranians will cry foul,
that that is a violation of the JCPOA and the Iranians will
threaten to snapback their nuclear program.
And we won't be able to use financial sanctions in the
future to deter Iranian behavior, whether it is on the nuclear
side or on the non-nuclear side.
Chairman Huizenga. So my time has expired, but it is your
understanding or your belief that any new Administration coming
in, whomever that may be, will have their hands tied by this if
this moves forward?
Mr. Dubowitz. That is correct.
Chairman Huizenga. With that, my time has expired.
And I now recognize the gentlelady from Wisconsin for 5
minutes.
Ms. Moore. Thank you so much, Mr. Chairman. And I
appreciate you are going to add this to the record, the letter
that you read from Boeing, right? Yes.
Chairman Huizenga. Without objection so moved.
Ms. Moore. Okay. I guess what we are hearing, at least if
we are to follow the lead of the chairman's questions, that
Boeing did not have to make these sales in order to be in
compliance with the agreement.
So I guess I would ask you, Mr. Goldman, to comment on why
commercial passenger aircraft were included in the deal related
to preventing Iran from acquiring the nuclear capacity?
And how central were these provisions in terms of lifting
the sanctions related to Iran's willingness to give grounds in
other areas? How key was this to an agreement?
Mr. Goldman. Thank you, Ranking Member Moore. I think you
identified earlier an important reason the provision committing
the U.S. to establish a licensing regime for aircraft sales was
permitted in the agreement, and certainly a core reason was
questions of aircraft safety.
In 2010 the E.U. actually went so far as to bar certain
Iran Air aircraft from overflying the European Union because of
concerns about aircraft safety. And indeed, a licensing regime
for parts and services was included in the Joint Plan of
Action, the interim agreement that was reached in 2013.
I read the provision that allows the licensing of aircraft
sales to Iran effectively as standing on its own. The U.S.
committed to establishing a licensing regime contingent on
certain restrictions on how the aircraft parts and services
would be used.
And in a footnote to that provision said that if those
conditions are violated the U.S. would view itself as freed of
the obligations in that specific provision. So to my mind I
think that that provision can be seen as somewhat self-
contained.
Ms. Moore. Mr. Goldman, just let me continue to pursue this
line of questioning. The other witnesses have talked about the
Gulf and Turkish Airlines as being able to provide the air
capacity and that there would be no need essentially for there
to be an Iranian commercial fleet.
I guess my question is is that under the terms of the G-5
agreement would Airbus and other makers of aircraft be able
under the terms of the agreement to make these sales to Iran
were Boeing to step out of the picture?
Mr. Goldman. Certainly as a legal matter if they are
appropriately licensed Airbus would be permitted to sell the
aircraft to Iran. My sense, however, is that the U.S.
Government's ability to monitor and enforce whatever deals are
ultimately struck might be greater in the event a U.S. company
makes the sales than in the event that the foreign company
makes the sales.
Ms. Moore. So it gives us greater leverage--
Mr. Goldman. Sure.
Ms. Moore. --for an American company to make these sales
than it would be to just leave it out there for other countries
to do it.
Let me just ask you one other question. Would you regard it
as kind of a breach of the deal if there were legislation that
would somehow clawback the sale of aircraft to Iran? Is that in
our best interests and would it be a breach of the agreement?
Mr. Goldman. Iran thus far, as certified by the IAEA, has
adhered to its nuclear-related obligations under the deal. The
U.S. committed to establishing a licensing regime for aircraft
sales to Iran. It did not commit to actually issue those
licenses. It committed to establish a licensing regime.
If legislation were to bar the U.S. Government from
establishing such a regime, that could put at risk our
obligations under that specific provision of the JCPOA.
Ms. Moore. And just your comment, your opinion perhaps, on
the timeliness of this hearing? As you may recall, I indicated
that this committee had jurisdiction to have had this hearing
prior to the execution of the deal. Is this kind of an untimely
hearing in your opinion?
Mr. Goldman. Ranking Member Moore, the Boeing deal was just
announced in the last several weeks and certainly this is an
issue on which this committee has been and is appropriately
very focused. And so this hearing seems to me to be an
important exercise in oversight.
Ms. Moore. Thank you so much.
And I yield back, and thank the chairman for his
indulgence.
Chairman Huizenga. The gentlelady yields back.
And just to be clear, it really wasn't a motion but I am
happy to enter into the record without objection the June 23rd
letter from Boeing to Congressman Roskam and Chairman Jeb
Hensarling. Without objection, it is so ordered.
Chairman Huizenga. With that, I recognize the chairman of
the full Financial Services Committee, Mr. Hensarling from
Texas, for 5 minutes.
Chairman Hensarling. Thank you, Mr. Chairman.
Some who defend the Boeing Iranian Air deal point to the
commercial and civilian nature of of these airplanes. I would
note, Mr. Dubowitz, that a senior fellow at your organization,
Emanuele Ottolenghi, has written just last month that Iran Air
flew ``known weapons resupply routes to Syria,'' not just once
but three times.
And I believe it is for this very reason that Iran Air was
sanctioned by Treasury in 2011. So this is the ``civilian
airline.''
Could I have the first slide please?
In addition, Jane's Defense Weekly has written that Iran is
capable of reverse engineering from its planes. They write,
``The country's domestic aerospace industry has made great
strides in indigenously manufacturing what it requires to
sustain the country's military capabilities.''
And then this is a publication of Boeing itself, and I know
it is a little difficult to read. This was from a few years
ago, a Boeing Frontiers publication.
In the upper left-hand corner, it says, ``Building on
success, Boeing's commercial jetliners make an ideal platform
for a variety of military derivative aircraft.'' This is in
Boeing's words.
Next slide, please? And this apparently is a picture of the
P8, which is a derivative of the Boeing 737 commercial jet.
This is also in Boeing's words: ``I believe we are well-
postured to take commercial military development to the next
level.'' This is the Royal Australian Air Force using Boeing's
737 platform.
So I guess my question is, do the Boeing sales risk
weaponizing Iran directly or giving the country technology that
can be used to strengthen its military know-how?
Mr. Dubowitz, would you please comment on that?
Mr. Dubowitz. Mr. Chairman, the short answer is absolutely.
It is only in the month of June that Iran Air flew three
flights, its resupply flights through Abadan, Iran, an IRGC
resupply base, to Assad and Hezbollah. Iran Air was listed for
reasons that had to do with the IRGC and missile proliferation.
It was wrongly delisted because this was a nuclear deal and
that sanction should have remained because we promised to keep
our non-nuclear sanctions relating to the IRGC and missile
proliferation. But even if Iran Air is considered to be a
legitimate airline, which it clearly is not, Iran's entire
fleet is only 36 planes.
So the order for Airbus and Boeing is 200 planes. And the
Iranian minister who is responsible for this says it could go
up to 500 planes. So even if Iran Air were to double their
fleet to 70, they would still be somewhere in the neighborhood
of 130 to 430 planes that they are not going to be using.
So the question is where do those planes go? Well, there
are four other sanctioned airlines in Iran, Mahan Air and three
other Iranian sanctioned airlines that still remain sanctioned
under U.S. law. There is every reason to believe that those
planes are going to go either in a lease or a sale to these
other sanctioned airlines.
Chairman Hensarling. My time is running out. On page 12 of
your testimony, Mr. Dubowitz, you write, ``The financing of
Boeing's aircraft sales through access to the U.S. dollar is
central to Iran's demands for economic legitimacy.''
You go on to say, ``But Iran wants the U.S. Government to
specifically authorize payments for aircraft sales in dollars
with each class of transactions that are dollarized, Iran is
slowly undermining the ban on Iranian access to the U.S.
financial system.'' Would you please elaborate?
Mr. Dubowitz. The Administration claims that they have
prohibited Iran's access to the U.S. dollar. We know from press
reports that Secretary Kerry and his team had been briefing
reporters that they were going to offer a general license to
provide access to the U.S. dollar entirely.
That got essentially stalled when Congress found out about
it. Now what they are trying to do is try to provide access to
the U.S. dollar through a class of transactions approach. And
this is one of the central classes of transactions which is
access to the U.S. dollar, to facilitate the financing of these
aircraft sales.
If that happens, Iran is going to get access to the U.S.
dollar for a major transaction, $25 billion, Airbus as well,
$50 billion. Iran is effectively now moving into our dollar.
The Administration is greenlighting the greenback and we will
never be able to revoke that access again.
And as I testified earlier, that undercuts our ability to
use financial sanctions in the future against the IRGC, against
missile proliferation, things that Hillary Clinton herself has
actually promised to do if she were president.
Chairman Hensarling. My time has expired. Thank you.
Chairman Huizenga. The gentleman's time has expired.
The Chair recognizes Mr. Foster of Illinois for 5 minutes.
Mr. Foster. Thank you, Mr. Chairman, and thank you to our
witnesses. Just first sort of a big picture question, so you
mention one future where Iran is operating a potentially large
fleet of Airbus and Boeing planes, completely dependent on the
spare parts and technical support, all this sort of stuff, for
that continued operation.
And then they say maybe we are going to break out for all
of the reasons that people are worried about, for good reason.
Does that increase or decrease the leverage that the West has
that the moment that they break out they will be in violation
with all this.
Presumably their spare parts and everything will be cut off
immediately. And their potentially very large airplane fleet
will not be serviceable anymore. Compared to, say, an alternate
future where they buy Chinese and Russian airlines to
accomplish the same thing.
Which do you think gives the West the largest leverage to
prevent a breakout scenario?
Yes, Mr. Lorber, that would be you.
Mr. Lorber. Sure. I will take it. Thank you, Representative
Foster. I think that the first situation you mentioned if we do
sell Boeing aircraft and then have service contracts there,
that actually doesn't provide us with much leverage in case
they do decide to break out.
And the logic is Iran has become fairly adept, excuse me,
over the past 30 years for finding workarounds to service the
current Boeing aircraft that they do have.
And so I would fully expect them to attempt to stockpile
spare parts, attempt to stockpile expertise, frankly, on how to
maintain these aircraft such that if you did see a circumstance
where they broke out and Boeing did cut off the contracts they
would be able to keep those airplanes flying for a significant
amount of time.
Mr. Dubowitz. And Congressman, if I could just add to that?
If Iran is breaking out to a nuclear weapon, I don't think we
are going to be worrying about servicing Boeing aircraft. I
think we are going to be worrying about servicing U.S. fighter
jets to stop that break out.
So I think that the area of breakout means that we will
have zero economic leverage to stop Iran from pursuing a
nuclear weapon. I think to your question is do we have leverage
in the context of Iranians cheating on the deal, where they are
trying to incrementally cheat, and I think Mr. Lorber is
exactly right.
The reality is that in May of 2015 the U.S. Treasury
Department sanctioned nine aircraft that were being delivered
from Iraq Air to Mahan Air. And despite that sanction, right,
which was supposed to be a powerful sanction, those planes not
only were delivered but they are currently landing in European
airports.
So we have had no leverage despite the fact that we have
had those sanctions in place.
Mr. Goldman. Congressman, if I may? I think that the
dynamic that you identified is an important one. I would add a
few more. One, I would just to respond to Chairman Hensarling's
comments, the dynamics that he identified are undoubtedly a
risk.
I would also say that equally they would be a clear
violation of the JCPOA, either redirecting aircraft to SDNs or
repurposing civilian passenger aircraft for other purposes
would be a clear violation of Iran's obligations under the
terms of the deal.
Mr. Foster. Sure. No.
Mr. Goldman. That is not absolute--
Mr. Foster. No. It is my understanding that Boeing at this
point has a letter of intent and not final agreement. So you
could have, for example, it is not unreasonable to expect that
there be very detailed monitoring agreements in terms of making
sure the jets aren't repurposed or sold to someone else.
Mr. Goldman. I would expect--
Mr. Foster. As part of the leasing and/or sales agreements.
I don't know that that is going to be a fact, but it is an
entirely reasonable expectation.
Mr. Goldman. Congressman, I also don't know. I haven't seen
the term sheets, but I would expect that those would be
conditions both of the license and of the contract between
Boeing and whatever Iranian entity is its counterparty.
I would also note that the size of the deal provides some
degree of leverage to the United States and to Boeing. And so I
don't expect 109 airplanes to be delivered on day one to the
extent that these planes are delivered over a course of many
years, involve pre-payment, involve large down payments,
involve escrow payments to Boeing, things like this give Boeing
additional leverage.
Again, none of this eliminates the risk. There are
substantial risks, as my colleagues have noted, of engaging in
business in Iran as a general matter and of engaging in this
deal specifically.
Mr. Lorber. Representative Foster, do you mind if I weigh
in on your question as well?
Mr. Foster. Certainly.
Mr. Lorber. Thank you. So I think that the question of what
is contained in the contract is going to be incredibly
important between Boeing and Iran Air.
But I think given that we don't know what will be contained
in that contract this committee does have an important
responsibility to play to actually pass legislation which
requires OFAC issue certain licenses pursuant to particular
conditions.
So for example--
Mr. Foster. Oh, right. Yes. I agree, but I see a very large
difference between legislation that effectively has us walk
away from the JCPOA and something that sets significant
conditions on the sort of contracts, the monitoring, provisions
like that, to make sure that these are exclusively civilian for
the exclusive intended end user.
Mr. Lorber. I--
Mr. Foster. That is where I see our main oversight role.
Mr. Lorber. But Congressman, the problem is of course is
that in theory that sounds good. In practice the reality is
Mahan Air has been under U.S. sanctions. The U.S. Treasury
Department has been traveling around the world trying to
convince our European and Gulf allies to stop Mahan Air from
landing in their airports.
And if you bring Adam Szubin here, who is the under
secretary of Treasury, he will tell you that he has had no
success in convincing the Europeans, our Gulf allies, to block
the landing of a designated airline, Mahan Air, which is
controlled by the Revolutionary Guard.
So you can put all the provisions you want and monitoring
provisions you want in the contract, but the reality of what is
happening on the ground today is the U.S. Government has been
unable to stop sanctioned airlines from traveling to even
allied airports. That is the reality.
Chairman Huizenga. The gentleman's time has expired.
With that, the Chair recognizes Mr. Pearce of New Mexico
for 5 minutes.
Mr. Pearce. Thank you, Mr. Chairman. I have been listening
with great interest. I really appreciate the viewpoints
expressed by my friends on the other side of the aisle.
I probably draw a different conclusion because the
suggestion was made that we shouldn't be having the hearing.
And really one of the intersections of probably an important
discussion for the country and that is the need for jobs as
opposed to the national security concerns.
Now, for me it is somewhat more personal. Back in 1970 I
went into Airforce training, pilot training, and we had in our
class several Iranian pilots, became good friends with several
of the people during my year there.
When the Shah was overthrown I have tried randomly through
the years to try to find out what happened to any of my friends
and have never been able to contact, even as a Member of
Congress, been able to establish a trail for any of them.
And so the idea of a sponsor of terrorists, of a government
like that is one that is personal to me. And so I think that it
would be important for us to drill down.
But I do understand what our friends are saying about the
jobs. Now, one of the things that I have a concern about is,
and Mr. Goldman, I am probably going to ask you to address
this, but after the deal was done, the JCPOA, Ben Rhodes, who
is the National Security Advisor for Strategic Communication
for the president said, yes, we had to lie to the American
people in order to get their consent.
His further quote quoted as saying in the spring of last
year, and that was some time back, ``The legions of arms
control experts began popping up in think tanks. We literally
created an echo chamber that became key sources for often
clueless reporters and reporters who literally knew nothing.''
Now, given that background for the underlying agreement,
how can we believe anything that the Administration says about
the use of the airplanes or the intended use of the airplanes?
You surely understand that we come with a bit of
skepticism, but then when the President's own adviser says yes,
we did this, do you understand why we might have some concerns
on this side?
Mr. Goldman. Congressman, thank you for your question. I
look to the terms of the agreement itself.
Mr. Pearce. No, I am just talking about Mr. Rhodes' comment
that--forget the terms. The people were lied to about the terms
and what will make sure that we are not being lied to about the
elements of this agreement?
Mr. Goldman. Congressman, I think your committee and those
of your colleagues is well-positioned to request information
about monitoring of the agreement, both in public settings and
in private settings from the Administration.
Mr. Pearce. Okay. With all respect, we request a lot of
information from the Administration and almost never, never get
anything, whether it is CFPB, the Treasury or whoever. And so
my question then, just a rhetorical question is how in the
world can our allies trust us if this thing moves forward?
So I would like to separate in the rest of the time
separate the discussion into two pieces. You have one the sale
of the assets, but then the secondly is the financing of the
assets. Now, if we don't finance those here internally in the
U.S. who is going to finance those?
Mr. Lorber, do you have an opinion about that?
Mr. Lorber. I do. So I don't think it is going to be any of
sort of the major international financial banks, the Wolfsburg
Group, so-called Wolfsburg Group. I think you have been seeing
in the case of other aircraft sales to Iran, so some of the
smaller aircraft companies, Embraer, APR--
Mr. Pearce. Okay. I am maybe running out of time so I am
going to--
Mr. Lorber. Yes. It is smaller German, Austrian, Italian
banks, for example, that are not nearly as reputable and
cannot--
Mr. Pearce. So do you think it is better that we have the
financing done from in the U.S. if the sale occurs rather than
forcing the financing there?
Mr. Lorber. I don't. No. I don't think the United States
should be in the position of--
Mr. Pearce. Mr. Dubowitz, do you have an opinion on that?
Mr. Dubowitz. I don't think U.S. financial institutions
should be risking their reputation and risking potential
illegalities by financing a deal to airlines that are
controlled by terrorist organizations.
And if you want to know someone who is telling the truth to
you, Congressman, listen to Angela Merkel's speech to the
Bundestag today, where based on German intelligence she said
Iran is violating the deal because they are continuing to
procure nuclear and missile technology in Germany in violation
of the requirement of the JCPOA to use their procurement
channel.
Mr. Pearce. Wait, which kind of feeds back into my initial
point that the whole deal was sold to the American public based
on lies and now then there appear to be lies that are--it is a
very difficult question.
Again, I respect our friends on the other side pointing out
the balance between national security and jobs. At the end of
the day, truth does matter, so thanks.
And I yield back, Mr. Chairman.
Chairman Huizenga. The gentleman's time has expired.
It has come to my attention that we have been talking about
a number of letters, and in an effort to make sure everybody
has all the information about the various letters, I would like
to enter into the record without objection the letter to Dennis
Muilenburg of the Boeing company dated June 16, 2016, by Peter
Roskam and Chairman Jeb Hensarling that was the basis of a
number of the letters that we were discussing earlier.
And without objection, it is so ordered.
The Chair now recognizes Mr. Perlmutter of Colorado for 5
minutes.
Mr. Perlmutter. Thanks, Mr. Chairman.
So is it true, gentlemen, that the JCPOA is--and I am just
going to call it the agreement, okay, is in effect today?
Mr. Lorber, is it in effect?
Mr. Lorber. Yes, I believe so.
Mr. Perlmutter. Okay.
Mr. Dubowitz:
Mr. Dubowitz. It is and it is being violated.
Mr. Perlmutter. Okay. So you think it would be your
position that Iran has breached the agreement?
Mr. Dubowitz. Actually it is Angela Merkel's position in
her speech today because--
Mr. Perlmutter. I asked for your position?
Mr. Dubowitz. In my view that is exactly right. Iran is
supposed to be using--
Mr. Perlmutter. And you are a lawyer, right?
Mr. Dubowitz. I am.
Mr. Perlmutter. Okay.
Mr. Goldman?
Mr. Goldman. Yes, it is in effect.
Mr. Perlmutter. Okay.
Mr. Lorber, do you think it has been breached by Iran?
Mr. Lorber. I think that Iran has generally lived up to the
terms, though I think that there are points on the margin where
Iran definitely is pushing the boundaries and may be in slight
breach, yes.
Mr. Perlmutter. All right. Now, none of you disagree--well,
let us see if you do or you don't, because there is the
legislative piece which is obviously us and what we might do
about agreements going into the future.
There is also the judicial piece which Mr. Dubowitz thinks
it has been breached and he has quoted the German prime
minister. Is Angela Merkel a prime minister or--
Mr. Dubowitz. Chancellor.
Mr. Perlmutter. Yes.
Mr. Dubowitz. German chancellor.
Mr. Perlmutter. So my question is I looked at what Mr.
Lorber referred us to Section 5.1.1 of the agreement which
seems to be pretty straightforward. And maybe I am missing
something. ``The United States commits to allow for the sale of
commercial passenger aircraft and related parts and services to
Iran by licensing the export, re-export, sale, lease or
transfer to Iran of commercial passenger aircraft for
exclusively civil aviation end use.''
And then it goes on, ``export, re-export,'' keeps going and
then it has a footnote: ``Licenses issued in furtherance of
Section 5.1.1 will include appropriate conditions to ensure
that licensed activities do not involve and no licensed
aircraft goods or services are resold or re-transferred to any
person on the SDN list.''
That is the operative language. That is what we are dealing
with in this hearing, is it not?
Mr. Goldman. But Congressman, it is fully in the purview of
the U.S. Congress and the U.S. Treasury Department to put in a
condition--
Mr. Perlmutter. Is this, this the--
Mr. Dubowitz. So--
Mr. Perlmutter. --operative language that we are dealing
with?
Mr. Dubowitz. It is the operative language, but let me
explain the operative language.
Mr. Perlmutter. I just--is that a yes?
Mr. Dubowitz. That is the language, but--
Mr. Perlmutter. Thank you. All right. Now, you can expand
on that if you will?
Mr. Dubowitz. It is entirely within the purview of the U.S.
Government, both Congress and the Executive Branch, to put, for
example, in a certification that the President has to make that
Iran is not using these civilian aircraft for illicit military
purposes.
It is also entirely within your purview to put in a
requirement that these sales not be made until Iran is no
longer a state sponsor of terrorism.
And since Iran is in violation of the agreement, as we
learned today from Ms. Merkel, in illicitly procuring missile
technology from Germany in violation of the procurement
channel, Iran is in clear violation of the agreement--
Mr. Perlmutter. All right. So--
Mr. Dubowitz. --in the letter in spirit.
Mr. Perlmutter. --and I appreciate that. So if they are in
violation then it may allow us to not have to proceed further
with our obligations under the agreement. Okay. So I appreciate
that legal position. I got it.
Because we are dealing with a contract. Okay? And I
appreciate from a legislative point of view we may want to
change that contract in the future. We may want to add some
things. But we do have a contract today, but you say it has
been breached.
Mr. Dubowitz. The contract has been breached.
Mr. Perlmutter. And therefore it might eliminate any
responsibility for the U.S. to have to fulfill Section 5.1.1?
Mr. Dubowitz. No. You can fulfill that provision to the
letter by putting in a certification requirement and a
condition that this only take place once the president has
certified and once Iran is no longer a state sponsor of
terrorism.
Mr. Perlmutter. So--
Mr. Dubowitz. That is entirely within the purview of that
agreement.
Mr. Perlmutter. All right. All right. Wait a second. We
either have responsibilities under this agreement or we don't.
And we can always amend the agreement in the future if you get
Iran and the other countries to agree to the amendment. Isn't
that true?
Mr. Dubowitz. No, because the licensing construct that is
contemplated in that agreement gives Treasury and gives the
U.S. Congress the ability to set up the licensing regime with
conditions as the footnotes explains.
Those conditions could be and should be that Iran is not
violating the requirement that these aircraft not be used to
support the Revolutionary Guard and Bashar Assad and designated
terrorist organizations.
Mr. Perlmutter. So if a--
Mr. Dubowitz. That is not a violation of the agreement.
Mr. Perlmutter. So if that were placed in the license,
okay, and I appreciate that point, if that were placed in the
license you are not going to use this for any bad purposes,
then would you say go forward with this sale Boeing or not?
Mr. Dubowitz. So my recommendation would be that there be a
certification put in, that there be a 5-year rehabilitation
period so that we can actually track these planes to make sure
that they are not being used for illicit purposes.
If Iran satisfies that certification requirement after 5
years and the President can then certify, then we can move
ahead on a incremental basis allowing certain planes to be
delivered.
But I think it is actually foolhardy that the day after
Iran is--June the 9th, 1 month after Iran has continued to
conduct illicit activities with these planes, we greenlight the
sale and we hope and a prayer that Iran will change its conduct
when there has been no evidence that Iran is going to be
conducting itself--
Chairman Huizenga. The gentleman's time has expired.
Mr. Dubowitz. --in a legal way.
Chairman Huizenga. The gentleman's time has expired.
Mr. Perlmutter. And I appreciate your answers. Thank you.
I yield back.
Chairman Huizenga. The gentleman's time has expired.
With that, the Chair recognizes Mr. Schweikert of Arizona
for 5 minutes.
Mr. Schweikert. Thank you, Mr. Chairman. And I know you had
touched on this earlier, but I would like to get my head around
the financing mechanics. And so I thought we would do just a
little experiment. What is the total value that would be
financed first on the U.S. aircrafts to be sold? Anyone throw
that out for me?
Mr. Lorber. So the total value of the deal, we have heard
two numbers. We have heard $17.8 billion for the actual sale of
aircraft and then a leasing provision with a total market
value, we are not sure what it is, but market value is up to
$25 billion.
Mr. Schweikert. Okay. Just for the fun of it, 25. The
Airbus products?
Mr. Lorber. I believe the Airbus deal was initially valued
at $27 billion.
Mr. Schweikert. Okay. So now we have $27 billion. Airport
improvements, runways, fuel delivery systems, fire suppression,
all the list of the other infrastructure that goes when you
have updated a fleet, updated the types. Everything from the
jet ways--
Mr. Lorber. Yes.
Mr. Schweikert. --will have to all be updated. Has there
been any estimate of how much additional infrastructure
borrowing there will be needed?
Mr. Lorber. Not that I have seen as public source or have
been released by Iranian authorities, who I think would be
responsible for that.
Mr. Schweikert. Okay. So we are already basically at just
our quick calculation here, we know there is somewhere around
$52 billion.
Mr. Lorber. It is actually more than that because there are
other airline companies or other airplane companies that are
selling airlines to Iran, too. Embraer I know--
Mr. Schweikert. Okay. Embraer?
Mr. Lorber. --ACP and a couple other smaller ones.
Mr. Schweikert. Okay. So do we have a guess of the total if
we were to look back a decade from now how much international
borrowing would ultimately come from, let us call this opening
up.
Mr. Lorber. If I had to back of the envelope guess I would
say probably between $65 and $70 billion.
Mr. Schweikert. Okay. So just for the fun of it let us use
the 70 because it is an easy number. So $70 billion and how
much of that is going to come from the international
marketplace? Almost all of it.
Mr. Lorber. I would assume, yes.
Mr. Schweikert. If for the three panel members, are we
comfortable that this is money that is substantially going to
be inbound capital into Iran?
Mr. Goldman. Presumably some portion would be.
Mr. Schweikert. Okay.
Mr. Goldman. I couldn't speak to what portion.
Mr. Schweikert. Okay, but we are sort of doing a thought
experiment here. What is the risk premium? What is the threat
to the financial markets of the world when at any given moment
a bad actor, international sanctions come back.
How do you insure this sort of debt? How do you actually
design an understanding of the risk mechanics on it? Are, is
Iran going to be paying some huge interest rate premium because
of their risk profile?
Mr. Lorber. So there is--
Mr. Goldman. Oh, go ahead.
Mr. Lorber. This is actually exactly the reason that most
of the major global financial institutions have not gone back
into Iran is that they don't--for a variety of reasons, but one
important one is that they do not know how to appropriately
price that risk.
Mr. Schweikert. Okay. So--
Mr. Lorber. Financial--
Mr. Schweikert. --so are they going to have to use
alternative sources of capital to raise $70 billion?
Mr. Lorber. I think that is exactly why I think Iran is
trying to go to smaller banks with less U.S. sanctions exposure
in order to try to sort of create a hodge podge financing
scheme to pay for the sales.
Mr. Schweikert. Okay. Now--
Mr. Dubowitz. Congressman, it is also why the Export-Import
Bank and other export development banks in Europe, for example,
are probably going to have to backstop these deals because the
private financial institutions are not willing to risk their
money. So instead you are going to risk taxpayer money on this.
Mr. Schweikert. So functionally then you have just
sanctified with populations in the Western world a guarantee on
the risk premium of a regime that we already know is an
international bad actor? I guess where I am going from this is,
look, other members of the committee have done a much better
job than I can on the types of bad acts that we believe come
through the regime.
My concern is do you hand $70 billion, whether it be
taxpayer guaranteed dollars or smaller institutions that you
would have to at least conceptualize would be much more fragile
if all of a sudden there becomes, oh, sanctions went back on
because of this bad act and the Iranian government because
these are functionally an Iranian-owned airline, government-
owned airline, says, well, fine. We are just not going to pay
our debt.
Mr. Dubowitz. Yes. There is going to be--
Mr. Lorber. Congressman, you are absolutely right that the
financing I think is going to be the trickiest piece of the
puzzle should Boeing decide to actually proceed with the sale.
Mr. Schweikert. And I want to keep this in context of even
beyond Boeing. The--
Mr. Goldman. Absolutely.
Mr. Schweikert. The savings, the capital, the
infrastructure we have built to finance our society in the West
is now going to functionally be financing--
Mr. Goldman. Right.
Mr. Dubowitz. Yes.
Mr. Schweikert. --really dodgy debt. And yet the number,
the hundreds and hundreds of hours we have in this committee
screaming at each--excuse me--discussing with each other--on we
don't believe we should finance this type of bad actor called
Wall Street, or we shouldn't finance this or finance this. If
you actually take the types of rhetoric that have been in this
room--
Mr. Goldman. Yes.
Mr. Schweikert. --the discussion we are having here should
be absurd on the financing. So look, that is the benchmark I am
laying down.
I yield back, Mr. Chairman.
Mr. Goldman. Congressman, I would just note--
Mr. Schweikert. I'm sorry. It--
Chairman Huizenga. The gentleman's time has expired.
Mr. Goldman. $70 billion--
Chairman Huizenga. So far, there is no yelling. That is
good.
But with that, the Chair does recognize Mr. Heck of
Washington for 5 minutes.
Mr. Heck. Thank you, Mr. Chairman. I would like to begin by
correcting the record of my own remarks that I delivered at the
top of this discussion in which I asserted that it was self-
evident what we were really doing here today was relitigating
passage of the JCPOA notwithstanding the fact that this
proposed transaction is fully legal, fully compliant and
scandal-free.
But it is also pretty clear to me by the remarks made by
several people that it is a red herring to relitigate
reauthorization of the Export-Import Bank despite the fact that
both the Export-Import Bank and Boeing have asserted clearly,
explicitly and definitively that the EX-IM will not be
involved. Let us get that on the record.
One of my premises is that passage of this package of
bills, which would effectively block this transaction, would
have no effect insofar as Airbus would just fill the void. So
we wouldn't have a real world effect and that that would cost
America a lot of jobs.
The U.S. Department of Commerce estimates that for every
billion in exports, 6,000 jobs are created. So we are talking
about 100,000 jobs.
Some of my friends who are supportive of this package of
bills respond, well, no, Denny. That is not true because the
Office of Foreign Asset Control would not authorize the Airbus
sale because more than 10 percent of the content of them would
come from G.E. engines.
However, Mr. Goldman, I think I prefer to direct this to
you. Sir, I recognize that you are a legal expert on trade
sanctions, but doesn't it seem plausible if not likely that
given that both Rolls Royce and CFM, a combined G.E. and
French-based company make engines that would be suitable for
this Airbus frame would just fill this void, especially given
the fact that the magnitude of this sale would make it kind of
a smart financial and economic move? And that therefore Airbus
would find a way to rejigger production to in fact fill the
void?
Mr. Goldman. Congressman, I can't speak to the requirements
of Airbus planes. I understand though that they do presently
contain greater than 10 percent U.S. parts, therefore they
require a license from OFAC. And it is my understanding that
that license application is pending.
Mr. Heck. And that you have no opinion on whether or not if
they did not approve it that the market would do what the
market often does, which is just adapt by having either Rolls
Royce or the CFM?
All right. Let me go to another point.
Mr. Lorber. Congressman, can I--
Mr. Heck. No, because I have other questions.
Mr. Goldman, I read your testimony essentially to be the
world is safer as a consequence of Iran not acquiring nuclear
weapons under the JCPOA and that generally speaking therefore
we are better off with the JCPOA to monitor this so that the
world is safer, not more dangerous. Is that fair?
Mr. Goldman. That is my belief, Congressman. And I would
note that the U.S. Government retains all of the tools at its
disposal including sanctions to address all of the other
malicious behavior on the part of the Iranian government that
we abhor, its support for terrorism, its cyberattacks, its
human rights abuses.
And that several times this year the Administration has
imposed sanctions on Iranian entities for ballistic missile
procurement and other misdeeds.
Mr. Heck. Okay. So let us take this one step further. If
the transaction, fully legal, fully compliant, scandal-free
goes through, given a sales or a service and part contract that
would be a part of that sale, not speaking to Dr. Foster's
inquiry about leverage.
But doesn't it seem more plausible to you that American
employees of an American company or contractors of an American
company providing either parts replacement or servicing on the
part of the purchase by Iran would give us a better opportunity
to discover whether or not there had been some adaptation of
that airplane for a sanctionable purpose?
As opposed to if there are no eyes on these aircraft over
time?
Mr. Goldman. That would be my assumption, as would my
assumption be that the monitoring and reporting conditions that
could be imposed in a license or in Boeing's contract with
Iran--
Mr. Heck. Okay. So that is a clear answer to my question.
So let me just summarize. Passage of these bills which would
effectively block this sale will cost America up to 100,000
jobs and render both the world and the immediate geographic
region of Iran, where they do bad things, fully acknowledge,
less safe? Fewer jobs, less safe.
With that I yield back the balance.
Chairman Huizenga. The gentleman's time has expired.
The Chair now recognizes and welcomes Mr. Royce from
California, chairman of the House Foreign Affairs Committee.
Mr. Royce. Thank you, Mr. Chairman, and I thank the panel
here. Let me begin with this question because I am going to the
June 2011 Treasury designation of Iran Air that it was used by
the Iranian Revolutionary Guard Corps and Iran's Ministry of
Defense to transport military-related equipment.
Iran Air has shipped military-related equipment on behalf
of the IRGC, says the report, ``since 2006. And in 2008 Iran
Air shipped aircraft-related raw materials to a Ministry of
Defense-associated company, including titanium sheets, which
have dual use military applications and can be used in support
of advanced weapons programs.''
It further stated that ``rockets or missiles have been
transported via Iran Air passenger aircraft.'' So I would ask
Mr. Dubowitz, from what you know has Iran Air continued in its
process of engagement here in prohibited activities related to
Iran's support for terrorism to include the transport of
conventional weapons and ballistic missiles within the last 2
years? Do we have the intel on that or information about it?
Mr. Dubowitz. Chairman Royce, in fact just last month three
Iran Air flights went from the IRGC's resupply base in Iran to
Damascus. So that illicit activity continues.
Mr. Royce. So in terms of the question, has Iran provided
weapons to the Syrian government using Iran Air? I take it the
answer is probably--
Mr. Dubowitz. It appears to be so unless they are ferrying
civilians on sightseeing tours from a resupply base from the
IRGC. And probably we need to look into that.
Mr. Royce. So has Iran Air engaged in activities within the
last 2 years in support of the Iranian Revolutionary Guard
Corps?
Mr. Dubowitz. Yes.
Mr. Royce. Okay. Now my second question, last question has
to do with the ownership status because despite these clearly
terrorism-related designations, the Administration removed
sanctions on Iran as part of the nuclear deal as we all know.
And in addition, Iran Air has not been designated as being
owned or controlled by the government of Iran despite the fact
that we have seen little evidence that Iran Air has either been
privatized or changed its ownership structure.
So Mr. Lorber or Mr. Dubowitz, I would ask what is Iran
Air's ownership structure? Is it still owned or controlled by
the government of Iran? And are any members of the--and I guess
this would be of great interest to me, of the Iranian
Revolutionary Guard Corps specifically designated nationals,
shadow SDNs, or other political exposed persons in any of the
senior management positions?
Mr. Dubowitz. So Chairman Royce, Iran Air is still used by
the Revolutionary Guards. Iran was designated in 2011 because
it was being used by the Revolutionary Guards.
There is every evidence it continues to be used by the
Revolutionary Guards. And there was no reason it was delisted
since that was not part of a nuclear agreement. And there is no
reason why it should remain unlisted.
And I just would note one other thing very quickly. There
are four other airlines being used by the Revolutionary Guards
that remain sanctioned. And there are no--as we have no ability
to stop Iran Air from transferring leasing or reselling those
aircraft to four other Revolutionary Guard aircraft.
Mr. Royce. Mr. Lorber?
Mr. Lorber. Thank you, Chairman Royce. I would also add to
that that there is a provision of secondary sanctions
regulations which are still in force that prohibit foreign
companies from doing business not just with Iran Air but also
with agents and affiliates of the IRGC.
So if Iran Air is transporting goods on behalf of the IRGC
it is an agent and an affiliate and therefore entities doing
business with it are also subject to U.S. secondary sanctions.
Mr. Royce. And Mr. Dubowitz, when was that last flight or
the last three flights that you referenced?
Mr. Dubowitz. It was--
Mr. Royce. --to Damascus?
Mr. Dubowitz. --June the 9th.
Mr. Royce. June the 9th.
Mr. Dubowitz. One month ago.
Mr. Royce. Okay. My time is expiring. I--
Chairman Huizenga. But will the gentleman yield?
Mr. Royce. I will yield.
Chairman Huizenga. Thank you. I appreciate that.
Mr. Lorber, I just wanted to give you a quick opportunity.
Mr. Heck had a line of questioning that you wanted to jump in
on and I thought you could take this last 30 seconds?
Mr. Lorber. Thank you, Chairman. It was to your point,
Representative Heck, as to whether or not the market would
prevail and whether they could, for example, simply swap out
engines from European manufacturers.
It would depend on the type of aircraft, but my
understanding is that aircraft engines are generally
manufactured specifically for a particular aircraft. And so
there might not be, for example, a different manufacturer to be
able to swap in an aircraft very easily. Thank you.
Chairman Huizenga. All right. The gentleman's time has
expired.
Mr. Royce. I think--Mr. Dubowitz, were you seeking time to
reply on that as well?
Mr. Dubowitz. Yes. I just wanted to add as well that--and
it gets to a previous question before. My big concern is that
we may face in the coming years a $70 billion Iran bailout
where the U.S. taxpayer is going to have to stand behind all of
the unpaid debts from Iran Air and other Iranian airlines.
So when you think about jobs and exposure of the U.S.
economy, I would hate to have U.S. taxpayers have to step up
for a $70 billion bailout when Iran reneges on its commitments
or alternatively we have to snapback sanctions because of
Iranian cheating--
Mr. Royce. I thank the panel. My time has expired. Thank
you.
Chairman Huizenga. The gentleman's time has expired.
With that, the Chair recognizes the ranking member of the
full Financial Services Committee, Ms. Waters, for 5 minutes.
Ms. Waters. Thank you, Mr. Chairman.
To Mr. Goldman and Mr. Lorber, I would like to raise this
question to the two of you. Although the Iran deal clearly
commits the U.S. to license the sale of commercial passenger
aircraft and related parts and services to Iran, the deal also
makes clear that any license for the sale of passenger aircraft
will, ``include appropriate conditions to ensure that licensed
activities do not involve, and no licensed aircraft goods or
services are resold or re-transferred to any person on the
Special Designated National list.''
So I would welcome the views of any of the witnesses,
really, with respect to what kind of conditions should be
included in any potential license to ensure that aircraft sales
do not involve persons subject to U.S. sanctions.
Mr. Goldman. Thank you, Congresswoman. I would divide the
types of leverage that we might have should Boeing continue
down this path and sell aircraft into two different categories.
One are business dynamics, and those include the ongoing
contracts for maintenance services and spare parts, as well as
the length of time required to actually deliver the planes.
The second are both licensing and contractual conditions.
Contractual conditions to address a concern that Mr. Dubowitz
raised might include things like liquidated damages provisions
if Iran Air violates the terms of the contracts, prepayment
requirements, large down payments, escrow arrangements, things
like this that would prevent financing for this type of deal
should it go through from being a burden on any financial
institution sufficiently large to constitute a systemic
concern.
From the licensing perspective, you could include
requirements that any company selling aircraft into Iran
describe due diligence processes, issue ongoing reports,
potentially even contain route restrictions, certainly full
clarity and transparency as to the banking and financing
arrangements involved, things like this.
Ms. Waters. Let me just deviate for a minute and say that
my greatest desire is to avoid a nuclear disaster in this
world. And so I was very pleased when we finally reached an
agreement with Iran that I believe will allow us to avoid a
nuclear disaster and would create better relationships and
allow us to live in this world even if there are some different
philosophies about religion, about life in general.
Don't you think it is worth it to honor this agreement and
let it go forward and make it work for the good of all of us
rather than try and pick it apart and undo the hard work that
has been done by all of the nations that were involved in this
agreement? Don't you think it is better to give it a chance?
Anybody.
Mr. Goldman. Congresswoman, while I share the concerns that
everybody has articulated about Iran's malicious and
destabilizing activities throughout the world, I do agree with
you that the limitations imposed on its nuclear program by the
JCPOA are significant and I would not want to see as long as
Iran is adhering to the terms of the agreement I would not want
to see anything jeopardize the ability of the United States to
uphold its end of the bargain.
Ms. Waters. Anyone else?
Mr. Dubowitz. Congresswoman--yes. If I could answer that? I
agree with you that we should uphold the agreement. The
agreement allows us to put in provisions in the licensing
structure that I think are sensible.
For example, how about a provision that says none of Iran's
airlines are designated by the U.S. Government for malign
activities, and only after the U.S. Government can certify that
has taken place should these sales be allowed to proceed.
I would also add--and I am not sure if you were here when
we talked about this, but today Chancellor Merkel rose in the
Bundestag and made it very clear that according to German
intelligence Iran is violating the JCPOA by procuring missile
and nuclear technology from Germany in contravention of the
procurement channel that they are supposed to be using and that
they agreed to under the terms of the JCPOA.
So we had the ability in the agreement to put in sensible
restrictions on the licensing. At the same time, Iran is today
flagrantly violating their requirement.
Ms. Waters. Have we done our own verification?
Mr. Dubowitz. Of what, Congresswoman.
Ms. Waters. Of what you just described, about Ms. Merkel--
Mr. Dubowitz. I don't know if the CIA has. This was based
on a German intelligence report that Chancellor Merkel referred
to.
Ms. Waters. This is I believe a six-nation agreement. And
where we are supposed to be cooperating and if one nation has
some complaints I don't know what the agreement says, but it
would make good sense to me if we would come together and there
would be verification before we attempted to do anything to
modify or undermine the agreement. Does that make good sense?
Mr. Dubowitz. In fact, it makes good sense. So I would call
the German ambassador and I would ask him about Chancellor
Merkel's speech. I would ask him about German intelligence
findings that the Iranians are contravening the JCPOA.
And I would also have Congress use its statutory authority
to provide requirements that are allowed by the JCPOA to ensure
that we are not transferring Boeing aircraft to the
Revolutionary Guards to be used to kill Syrian women and
children. I think that is our obligation.
Chairman Huizenga. --the gentlelady's time has expired.
Ms. Waters. I think it is how and when.
Chairman Huizenga. The gentlelady's time has expired.
Ms. Waters. Thank you. I yield back.
Chairman Huizenga. All right. We are minute over, but thank
you for yielding back.
With that, the Chair recognizes Mr. Pittenger of North
Carolina for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman, for this important
hearing. I would like to clarify, Mr. Dubowitz, right over here
to your right, good morning. Angela Merkel and Germany, they
were a central player in the JCPOA agreement. Is that correct?
Mr. Dubowitz. Yes, sir.
Mr. Pittenger. In fact, she was a strong advocate of this
agreement. Was that not correct?
Mr. Dubowitz. That is correct.
Mr. Pittenger. So in that spirit of her advocacy, her
judgment was counted on and followed and applauded by this
Administration. Is that not correct?
Mr. Dubowitz. That is correct.
Mr. Pittenger. To that end, now we learn that she finds
that Iran is breaching this agreement by their own
intelligence. Yes, we do need to follow up with our own
intelligence, but it seems to me that the better part of wisdom
is to appreciate the leadership that she gave at that time at
the formation of this agreement and the leadership that she is
showing today. Would that make sense to you?
Mr. Dubowitz. Congressman, it makes sense, and I think what
it reveals is something more profound. As we set up this very
sophisticated procurement channel that would provide all the
checks and balances to make sure the Iranians don't engage in
illicit activity, everybody agreed to it. The Iranians were
supposed to use the procurement channel to buy things legally.
What have they done? They have gone around the procurement
channel, and according to Angela Merkel, they are procuring
nuclear and missile technology illicitly in Germany. So when we
all talk about these great sophisticated monitoring schemes
that we are going to set up for Boeing aircraft, we should keep
that in mind.
The Iranians have a long rap sheet of sanctions evasion and
illicit activity. They don't stick to sophisticated monitoring
regimes. They in fact violate them egregiously.
Mr. Pittenger. So the same person who was a strong advocate
for this agreement now is the one who is stating we have a
major problem.
Mr. Dubowitz. She is saying according to German
intelligence the Iranians are illicitly procuring missile and
nuclear technology in her country.
Mr. Pittenger. Thank you.
With Iran receiving these 200 aircraft, up to 200, what you
do you believe will be the effect in terms of regional
instability of the impact, and not only in Syria, but in Iraq,
Libya, Yemen, Sudan, all--the entire region where there is
enormous instability? And you find a more provocative Iran?
Could you kind of outline to us what your concerns may be?
Mr. Dubowitz. So my concern is that Iran is going to get
upwards of about 500 aircraft.
Mr. Pittenger. Hmm.
Mr. Dubowitz. Iran Air needs 36. So that leaves the
remaining 464 aircraft, if my math is right, for other airlines
who are sanctioned by the U.S. Government to use them.
Now, some percentage will be used for civilian flights, but
if past is prologue they are going to use some percentage of
those for military transport of Revolutionary Guard fighters,
Hezbollah militants, missile technology and weapons to continue
to destabilize the Middle East and contribute to what we have
already seen, which is the slaughter of Syrians and the
instability in Iraq, the arming of the Houthis in Yemen and an
environment that suits the JCPOA. It has not gotten better but
it actually has gotten worse.
Mr. Pittenger. Mr. Lorber, would you like to comment on
this?
Mr. Lorber. Thank you, Representative. Yes, I think that
Mr. Dubowitz is exactly right.
I think that the stated need for the number of aircraft
seems a bit exaggerated for civilian purposes and that at the
very least what you would continue to see is with the delivery
of aircraft if they are used for illicit activities the
sustaining of Iran's position in Lebanon, the sustaining of
Iran's position in Syria in a way that we have seen over the
past few years, longer than the past few years but in
particular in Syria in the past few years, has helped prop up
Syrian President Bashar Assad and contributed significantly to
frankly the large scale death of Syrian civilians.
Mr. Pittenger. Mr. Goldman, if Chancellor Merkel's
assessment is correct and is validated, do you believe that
that warrants us no longer being obligated to this agreement?
Mr. Goldman. Congressman, I have not unfortunately had a
chance to read her speech.
Mr. Pittenger. If she has, if what she has stated is
correct what would your--
Mr. Goldman. If Iran violates its commitments under the
JCPOA we should take appropriate action, absolutely.
Mr. Pittenger. Yes, sir. Do you also concur with the role
that Iran can plan in terms of instability in the region?
Mr. Goldman. Iran is certainly a destructive influence
throughout the region.
Mr. Pittenger. Thank you.
I yield back.
Chairman Huizenga. The gentleman yields back.
The Chair now recognizes Mr. Sherman of California for 5
minutes.
Mr. Sherman. I want to thank the chairman for allowing me
to participate although I am not a member of this subcommittee.
Iran Air continues to support the Iran Revolutionary Guard
force, its Quds forces and Assad and Hezbollah and other
terrorist groups.
We should at a minimum not license the sale of the aircraft
knowing that they are going to go to an airline that is likely
to use them to support terrorism.
The United States designated Air Iran under Executive Order
13382 in June 2011, that is President Obama's executive order,
for providing material support to the Iran Revolutionary Guard
Corps. There is no reason to believe that Iran Air is going to
change its conduct.
But we have to visualize how much blood is on the hands of
Iran Air. Think of that boy on the beach in Turkey fleeing the
deaths in Syria.
Hundreds of thousands of people killed, millions of people
internally displaced, millions of people made so desperate that
they are willing to risk their lives to flee from this civil
war, all because Assad gets aid ferried to him on Air Iran. It
shouldn't be on newly provided American planes.
And we should remember that in 1990 Air Iran was there as
the transport arm for a terrorist case, a terrorist
assassination of an opposition leader in Switzerland.
There are three bills before us. One is the easiest and
that is to prohibit EX-IM Bank financing. I have been in this
room. I have supported EX-IM Bank, but not if it finances the
air force of the Iran Revolutionary Guard Corps.
And that is why before I voted I obtained a letter from the
chairman of the EX-IM Bank saying that they do not anticipate
any scenarios in which the bank would seek the necessary waiver
for a transaction involving a state sponsor of terrorism. And
there are three such state sponsors; one is Iran.
Without objection, I would like to put this letter into the
record.
Chairman Huizenga. Without objection, it is so ordered.
Mr. Sherman. I think that legislation which locks this
decision in is beneficial and it saves time over at the EX-IM
Bank. They won't even have to think about whether to seek such
a waiver that they have already said that they would not seek.
The second issue is whether we should provide financing.
Nothing in the JCPOA says we are supposed to finance Iran or
any of its entities. If American banks make multi-billion
dollar loans to Iran, two things happen.
First, that is bad prudential management by our banks, and
second, those banks then have to become advocates here in
Congress for the U.S.-Iranian relationship. We don't need that.
We didn't promise that.
The third issue is whether we should even allow the sale of
these planes. And I am focused on prohibiting Airbus and
Boeing. There has been some difference here as to whether a
Airbus would require a license, but there is one way to cut the
Gordian Knot here. I believe that they would because of the
U.S. technology.
But we could ask if there is any doubt on this we could
have companion legislation. No American airline can buy a plane
from any airline manufacturer that sells to Iran Air. That
would eliminate any issue and make sure that this is put on an
even playing field.
Finally, there is the issue of whether we have this
obligation under the JCPOA. The JCPOA 5.1.1 makes it clear that
we would transfer planes exclusively for civil aviation use.
Now, if Iran wants to provide $5 billion or $10 billion in
gold to be held as a security deposit by the United States,
provide U.N. monitors 24/7 on every plane, and contract that if
one of these planes is used for anything that helps the Syrian
regime that all that gold becomes the property of the American
taxpayer, then maybe we could comply with 5.1.1.
Iran has offered none of that. We are being asked to
transfer planes to a company or an entity, Iran Air, that has
served as an air force for terrorism. And we are being told,
oh, but just trust them or just trust that we will be able to
do something if they violate.
And when Iran comes forward with a plan to guarantee that
these planes are not used for terrorism or to support Assad,
then we could consider changing any statute that we consider
now. But I don't see any such plan being proposed by the
Islamic Republic.
I yield back.
Chairman Huizenga. The gentleman's time has expired.
The Chair recognizes Mr. Stutzman of Indiana for 5 minutes.
Mr. Stutzman. Thank you, Mr. Chairman and I thank the
panelists for being here today and for helping us gain some
more insight on this particular transaction, which I frankly
find concerning. And I would like to talk a little bit about
H.R. 5608, that no EX-IM financing for Iran that Congressman
Peter Roskam from Illinois has sponsored.
First of all I would just ask all of the witnesses if you
would agree that the Export-Import Bank should not subsidize
any aircraft exports to Iran?
Mr. Dubowitz. Should not.
Mr. Lorber. Should not.
Mr. Stutzman. Should not?
Mr. Dubowitz. I agree.
Mr. Goldman. Should not.
Mr. Stutzman. So, to follow up on that position, if the
Administration claims that U.S. banks should finance aircraft
because the legal and reputational and regulatory risks are
manageable, then what is the Administration's argument against
involving the Export-Import Bank, which in 2014 devoted 40
percent of its authorizations to Boeing?
Mr. Goldman. Congressman, EX-IM Bank is already prohibited
by statute from financing deals involving Iran because Iran
remains designated as a state sponsor of terrorism.
Mr. Stutzman. So, would you support 5608 then and codify
that into law?
Mr. Lorber. So I think that I would support and codify in
5608 in particular because the current statutory basis for EX-
IM Bank being unable to deal with a state sponsor of terrorism
permits a presidential waiver.
And obviously H.R. 5608 does not allow for that waiver so
it codifies and makes sure that the President cannot in certain
circumstances provide for EX-IM financing for this deal.
Mr. Stutzman. Mr. Goldman, would you support 5608?
Mr. Goldman. I do not support EX-IM Bank financing a deal
like this.
Mr. Stutzman. Okay. Mr. Dubowitz, any comments?
Mr. Dubowitz. I support the bill and I would also note on
the waiver issue that the President has used the waiver through
the JCPOA to waive sanctions that were not nuclear sanctions.
They were sanctions that were imposed for terrorism, money
laundering, missile development, et cetera.
And so it is of great concern to me that the President has
already used his waiver to waive sanctions that were not
nuclear sanctions and that contravene his commitment to you and
to Congress and the American people that he would only waive
nuclear sanctions.
Mr. Stutzman. Well, yes. I think if we don't want
taxpayers--this is what I think is really important. Can we
guarantee that to the American taxpayer, that there is no
backdoor deal that we have seen in previous years EX-IM has
financed Boeing sales to large leasing companies abroad
including China and Russia?
The end user airline for these planes were not identified.
Is there a risk that Iranian carriers will lease planes from
such companies including carriers that remain sanctioned? Is
there some way that Export-Import financing to another entity
would find its way into Iran deals?
Mr. Lorber?
Mr. Lorber. I absolutely do think that that risk exists. I
know there have been considerations of finding third-party
leasing companies. I am--and the concerns that EX-IM Bank could
finance those as a way to facilitate the sale.
So I do think in addition that there is no guarantee that
if EX-IM decides or if EX-IM finances this deal through a
presidential waiver that the aircraft are for sure certainly
not going to end up being used by the IRGC or its agents or
affiliates to help support Iran's terrorism.
Mr. Dubowitz. And Congressman, I would add to that, Boeing
is already punting the responsibility to the U.S. Government
where they said a few weeks ago that the U.S. Government has
much greater intelligence capabilities than they have with
respect to due diligence.
So they are already starting to maneuver themselves into a
position where they can claim in the future, look, we don't
have the intelligence capabilities to do that kind of due
diligence. That is up to the U.S. Government to do.
So you could imagine a scenario of he said, she said when
U.S. Government and Boeing get into a dispute in the future
over who had responsibility to prevent the transfer of that
aircraft to designated entities.
Mr. Stutzman. So do you believe then that if 5608 were to
become law that that would prevent any of this potentially
happening or not?
Mr. Dubowitz. I think with respect to this legislation at
least it prevents the U.S. taxpayers from being on the hook for
a $70 billion bailout when that actually happens. With respect
to some of the other pieces of legislation here, again, the
certification requirement on a rehabilitation period I think
makes sense.
Again, as Congressman Sherman said, Iran continues its
illicit conduct. Why are we betting the farm that on the day
after that deal all of a sudden Iran and the regime are going
to turn to the side of good--
Mr. Stutzman. Right.
Mr. Dubowitz. --and stop conducting these illicit
activities? At least give them a 5-year cooling period like we
do in the criminal justice system where there is a
rehabilitation period before you are ``released'' into the
general population?
Mr. Stutzman. Thank you.
I yield back, Mr. Chairman.
Chairman Huizenga. The gentleman yields back.
Seeing we are in the first round of questioning here, we
are contemplating a second round if the witnesses are able to
stay. And seeing no other Members on the Democrat side, we will
go back to the Republican side and recognize Mr. Guinta of New
Hampshire for 5 minutes.
Mr. Guinta. Thank you, Mr. Chairman, and thank you to the
witnesses for being here today.
Are you all familiar with the letter the Treasury sent on
June 7, 2016 to Senator Rubio?
Mr. Goldman. I am familiar with it but don't have a copy of
it in front of me.
Mr. Guinta. Okay.
Mr. Lorber. Yes, same here.
Mr. Guinta. Maybe before the hearing concludes, we can
provide the witnesses with a copy. And I would like to make
sure it is entered into the record without objection.
Chairman Huizenga. Without objection, it is so ordered.
Mr. Guinta. Thank you, Mr. Chairman.
Here is my concern. It seems like there is general
agreement that there should not be taxpayer-funded dollars
going to support or assist Iran in any way. Is that clear? Is
that in agreement, Mr. Goldman? Do you agree with that?
Mr. Goldman. Yes. I agree with that.
Mr. Guinta. I am particularly interested in your response
because I have read your testimony and in your testimony you
refer to the JCPOA as a ``significant diplomatic
accomplishment.'' You also then state, ``Since 1984 Iran has
been and remains designated as a state sponsor of terrorism,''
which you have stated verbally.
But then you also note a couple paragraphs later that,
``Iran retains the ability to enrich uranium subject to
international supervision.'' So I guess my question would be
this.
First to Mr. Dubowitz, in your opinion has Iran lived up to
the agreement?
Mr. Dubowitz. So again, Iran is in violation of the
agreement in two ways. One, it is procuring illicit nuclear
missile technology outside of the established procurement
channel established by the JCPOA.
Two, it is in violation of the implementation U.N. Security
Council resolution that actually implements the deal by
continuing to test missiles capable of carrying a nuclear
warhead. So no, in my assessment Iran is in violation both of
the JCPOA and the underlying U.N. Security Council resolution.
Mr. Goldman. Congressman, I believe that was in my
testimony that you were reading.
Mr. Guinta. Yes.
Mr. Goldman. So the IAEA has certified that Iran is in
compliance with all of its obligations under the JCPOA. It has
done so on three occasions. First on implementation day and
then subsequently in two quarterly reports submitted by the
director general to the board of governors.
Mr. Dubowitz. So I would just add that the IAEA is not
required to certify about Iran's missile tests so that is
irrelevant. And the second issue is based on the procurement
channel issue that has been raised by Chancellor Merkel, we
will have to see what the IAEA's response will be, but that
actually is a matter for the Joint Commission of the JCPOA,
which is supposed to determine whether Iran is in violation of
the provisions of the JCPOA, specifically in this case the
procurement channel provision.
Mr. Guinta. And quite honestly I am not sure that the IAEA
shares or enjoys the same credibility today that it has in the
past. And I know that there are members in this House on both
sides of the aisle that question their capacity to provide an
honest and true and fair assessment of the agreement. But that
is a different debate.
I want to go back to this letter of June 6. In the second
paragraph from Treasury to Senator Rubio. It says, ``To be
clear, until Iran has addressed other concerns we have with its
behavior outside of the nuclear file, the U.S. financial
system, including the branches of U.S. financial institutions
abroad, will remain off limits to Iran.''
Based on that, I read the last paragraph of that same
letter, which says, ``When we speak to the private sector,
including financial institutions about the sanctions relief
under the JCPOA, it is not to encourage them to do business
with Iran, which is a business decision that they need to make
on their own. Rather, the purpose of such discussions is to
provide further clarity on what is permitted in the sanctions
that remain in place.''
It seems like the letter doesn't synch. The first page and
second page. On the one hand they are saying a business needs
to make a decision whether they are going to do business with
Iran, however, on the first page of the letter it says, ``We
ensure that that will not occur.
So that is the concern I have with the letter from Treasury
to a Senator just last month. So I think the frustration and
concern relative to the need for passage of 5608 is not only
necessary but it needs to expand to third-party leasing
companies because there is a possibility and a potential that
EX-IM could do business with Iran and they might not even know
it. Was that a fair assessment, Mr. Dubowitz or Mr. Lorber?
Mr. Dubowitz. So correct. So not only can EX-IM do business
with Iran if the President uses the national security waiver,
but if you look at the last sentence of the second paragraph of
that letter where it says, ``without explicit authorization''--
Mr. Guinta. Correct.
Mr. Dubowitz. --permits the U.S. Treasury Department to
authorize--
Mr. Guinta. Exactly. That is what I wanted.
Mr. Dubowitz. --the U.S. dollar through the U.S. financial
system. And by the way, the letter is also not quite precise in
that we do actually have jurisdiction over dollars that
circulate around the world because those dollars actually
originate in our financial system and return to our financial
system.
And so banks are not going to put dollars in or take
dollars out unless they have gotten authorization from OFAC
that they won't be hit with penalties in doing so.
So the letter provides, as you would imagine, a series of
outs for the Administration to do exactly what we are concerned
about, which is to provide dollarized transactions for the
Boeing deal and other deals as well as providing EX-IM
financing to put U.S. taxpayers on the hook.
Mr. Guinta. Thank you. I yield back.
Chairman Huizenga. The gentleman's time has expired.
And with the indulgence of the witnesses we would like to
continue with a second round. We have a bit less of a stacked
list of questions, but if there is no objection I would like to
continue and recognize myself for 5 minutes.
Again, and I don't mean to harp on this, but I would love
to have had Boeing here to start talking about what they are
going to do if the terms of the JCPOA are not being upheld has
been asserted by Angela Merkel and what does that mean? I would
love to have the Administration here talking about this to find
out what this would mean for this particular deal.
We have already seen bipartisan support for making sure
that the indications that EX-IM has given would be codified. I
think that that is a positive.
There has been some discussion about the role that the
United States has in not just stopping or questioning the
Boeing transaction but also the Airbus transaction and what
that would mean.
And as has been pointed out by my colleague from Arizona
and my colleague from California on the other side of the
aisle, this could very well be some bad prudential management
decisions if we see financial institutions move forward.
And I would like to--I was starting to talk about this, Mr.
Lorber, with you earlier and I want to touch on this. And I
also want to go back to talk about how some of this works with
leasing through other companies.
But let us talk a little bit about that financial
responsibility and risk that comes with these and for these
institutions that may choose to be a part of this.
Mr. Lorber. Thank you, Mr. Chairman. So I think that the
risks facing financial institutions for banking is
particularly--this deal in particular and then doing business
in Iran more generally, are very significant.
As I mentioned in my opening statement there are at least
three risks relating to sanctions, relating to illicit finance,
risks that underpin the Iranian economy, and then also
specifically to risks of future sanctions. So snapback, for
example, or additional sanctions that are a result of Iran's
continued support of terrorism or its ballistic missile tests.
In this particular case I think the primary risk that
foreign financial institutions, so non-U.S. financial
institutions, face is that they could be doing business with an
agent or an affiliate of the IRGC and therefore lose their
access to U.S. markets. I think that is a very significant risk
that is frankly coloring their decision to engage or not engage
in any of these types of transactions.
It is why, for example, you have seen a large number of the
European banks refuse to bank the Airbus deal. You had Airbus a
couple of months ago, I think it was in February, publicly
pleading and telling European banks to get back in the game and
yet the major ones have not moved in.
Chairman Huizenga. In fact and under secondary sanctions
enacted in 2010, the U.S. told foreign banks you can deal with
Iran or you can deal with the United States, but the choice is
yours. And it--
Mr. Goldman. That is not quite--
Chairman Huizenga. --it seems to me that maybe that also
ought to apply to EX-IM and if a foreign company wants to be
eligible to work with EX-IM, I don't believe it should be
making profits with the Iranians. It would seem to make sense
for me that would also hold especially on a leasing company's
fleet. And would that not seem to be a good idea?
And I know, Mr. Goldman, you have been defending the
transaction but have stated that you would not support EX-IM
support of advancing that. I am curious if the three of you
would care to weigh in about making sure that we can maybe belt
and suspenders this particular EX-IM provision that we are
talking about today?
Mr. Goldman. Sure. Chairman, just to clarify one point,
whether the transaction proceeds or not is a business decision
that is for Boeing to make. It is clear to me that issuing
licenses to Boeing should it wish to proceed with the deal is
consistent with the JCPOA and consistent with U.S. law.
I would agree with my colleagues--
Chairman Huizenga. But you also said if we could show and
demonstrate that they violated it as Angela Merkel has asserted
today or we believe has asserted, then you would also support
that those sanctions being re-imposed, correct?
Mr. Goldman. If Iran violates the JCPOA we should take
appropriate action in response absolutely.
Chairman Huizenga. Okay.
Mr. Goldman. I am completely also in agreement that any
entity, if the deal proceeds, any entity involved in that deal
whether it is a bank or a leasing company or an agent, needs to
steer clear of the kinds of risks that Mr. Lorber and Mr.
Dubowitz have identified. And as the Treasury Department in its
letter noted, there are a couple of different ways in which
those risks can materialize.
The U.S. Government has jurisdiction over transactions
involving U.S. persons or that touch the U.S. financial system.
As the department notes, it does not have jurisdiction over
physical dollars held outside the United States not in the
possession of U.S. persons.
So somebody walking down the street in Johannesburg with a
$10 bill in his pocket does not for that reason alone become
subject to U.S. jurisdiction.
Chairman Huizenga. I fully understand. I think this
chairman would like to make sure that everybody watching and
listening to this understands that we will be watching very
closely what our financial institutions are going to be doing
and trying to hold them responsible for those decisions.
My time has expired. The Chair recognizes the ranking
member of the subcommittee for 5 minutes.
Ms. Moore. Thank you, Mr. Chairman, and I am not sure I am
going to use the entire 5 minutes.
I just want to reiterate how grateful I am to the witnesses
for their appearance here today and for withstanding this
second round of questioning. I do know that I have learned a
great deal and it has been very provocative in terms of some
stuff that we might really want to do with regard to tightening
up on the licensing.
We have talked an awful lot about Boeing, which is an
American company. We have talked a little bit more about Airbus
and about the perhaps dearth of funding that Airbus would
suffer were they to try to fill that void and fill the order
for the Iranians.
But I am wondering, Mr. Goldman and others, if there is
anything--the P5+1 agreement which includes, of course, China,
France, Russia, of course us, and the U.K., Germany in the
E.U., well is there anything that would prohibit China, which
is being said to be developing some of these wide-body planes,
could China fulfill the commitment under the JCPOA to supply
aircraft?
Mr. Goldman. The provision of the agreement that we have
been discussing this morning, 5.1.1, speaks specifically to
obligations of the United States, which are ``to establish a
licensing regime that could permit the issuance of licenses to
sell U.S. origin aircraft, parts, equipment, services, et
cetera.
I can't off the top of my head think of any specific
provision of the JCPOA that would prohibit China, Russia or any
other party from selling and aircraft to Iran--
Ms. Moore. But--
Mr. Goldman. --as long as--sorry. Go right ahead.
Ms. Moore. Right. And I guess that is my point, that this
was a historic deal struck. Everybody was amazed at how we get
Russia and China into this kind of international agreement.
But to the extent that there has been some sort of
agreement that this was a central piece of it, is there
anything that would prohibit China from filling that gap if
somehow we were to legislate here in the United States, prevail
against providing those? Would there be anything that would
prohibit China from filling that?
Mr. Goldman. So the only thing would be the remaining
secondary sanctions. So for example if China sold a plane to
the IRGC, the Chinese entity that it sold that plane could be
subject to U.S. secondary sanctions.
Ms. Moore. Okay.
Mr. Lorber, yes.
Mr. Lorber. There are two other points I would add to that
as well. Another potential way that China could be prohibited
from selling aircraft to Iran or the IRGC would be if, for
example, components, as we were discussing before, of those
Chinese aircraft were manufactured in the U.S. or contained
U.S. technology.
And in sort of the interconnected globalized manufacturing
world that is fairly likely so you have to actually look at the
underlying technology and components.
The one other point I would also make is that just from a
technical and feasible perspective the likelihood that China
and Russia in the short term anyway can deploy attractive wide-
bodied aircraft that Iran is going to want to buy probably in
the next 5 years I think is fairly low. But after that I think
it is a very valid point.
Mr. Dubowitz. And Congresswoman, I would just add to this.
What we are really talking about here from a humanitarian point
of view is can we get safe, non-corrupt, compliant, transparent
airlines to fly in and out of Iran to service Iranians? And I
would just note again that today 44 percent of the flights are
provided by Gulf and Turkish Airlines.
In the past few months Air France, British Airways,
Lufthansa and Alitalia have all resumed service to Iran, both
international and domestic routes. And there are reportedly
nearly 30 carriers operating in Iran.
So a good alternative to this would be encouraged,
transparent compliance, legal airlines with a good safety
record to service the Iranian market, but have a period of time
where we are not actually allowing our companies to provide
aircraft to the Iranians to set up their own domestic fleet
when we have outstanding concerns about how that fleet will be
used in corrupt, non-transparent, non-compliant, illicit ways.
Ms. Moore. Okay. Well, thank you.
I would yield back the balance of my time. Thank you,
gentlemen.
Chairman Huizenga. The gentlelady yields back.
With that, the Chair recognizes Mr. Stutzman of Indiana for
5 minutes.
Mr. Stutzman. Thank you, Mr. Chairman, and I just want to
go back again to H.R. 5608. A report last month revealed that
Iran was able to purchase Boeings even before sanctions were
lifted thanks to backdoor deals with foreign airlines.
And I am just reading a part of this report that was
uncovered, that these backdoor dealings were uncovered by
International Business Times. Sales data obtained by IBT shows
that seven Iranian airlines purchased a combined 23 or more
Boeing and Airbus aircraft before the historic nuclear deal
between Iran and the U.S. was signed in October.
So while Iranian citizens were suffering under U.S. and
European sanctions that affected a range of goods, the
country's airline industry bypassed U.S. export laws and
purchased aircraft through international intermediaries.
And it goes on down to describe how flights disappear from
tracking systems once they enter Syrian airspace, but radar
reveals that they have landed in Damascus and are, according to
David Cohen, the U.S. under secretary for Terrorism and
Financial Intelligence, ``ferrying Islamic Revolutionary Guard
Corps along with weapons and funds.''
So it appears that there is plenty of evidence out there.
So doesn't this just underline the risk that U.S. aircraft can
find their way into Iranian hands even if they haven't
subsidized by EX-IM in an unrelated transaction?
Mr. Dubowitz. It not only underscores that, Congressman,
but it also shows because the U.S. Treasury Department, as I
mentioned, in May 2015 it actually sanctioned some of those
illicit purchases. And despite those sanctions Iran continued
to fly those airlines.
It also underscores that the Iranians have for years used
false transponders, not only for planes but for the national
Marine Tanker Company for the Islamic Republic of Iran shipping
lines in order to actually hide their deceptive behavior. And
they are continuing to do so as of June the 9th.
So this is the issue that you have an Iranian industry, the
airline industry, that has been historically and is currently
engaged in illicit and deceptive conduct and yet we are being
asked to support through EX-IM a multi, multi-billion dollar
deal using the U.S. taxpayer money on the hope and the prayer
that somehow it is all going to change for the better. And I
think that is an enormous risk for the U.S. economy.
Mr. Stutzman. So, Mr. Chairman, I am trying to understand--
we go back to what the Administration has said regarding the
U.S. banks financing aircraft. So it is okay for accountholders
at U.S. banks to do the dirty work where obviously we are not
giving Export-Import Bank legal means to participate in any of
these transactions when we do know that there is some backdoor
dealings.
Mr. Chairman, I guess I just conclude that it seems to me
that this--I appreciate your hearing of this particular
transaction but we need to continue to dig even deeper and ask
more questions.
So I don't know what the intelligence from the White
House--or what our intelligence departments and what the White
House--what does the White House say when they have evidence of
this that doesn't that cause them some concern to pause or to
do something about it, I guess is frankly what I am asking.
Why do we move forward with this deal with Iran and doing
more business with them when we know they are more than likely
messing with the equipment and continuing to move around the
Middle East supporting terrorism?
Mr. Dubowitz. Congressman, I mentioned earlier in my
testimony this notion of a nuclear snapback. And I think what
it has done is it has deterred the White House from actually
using sanctions at all to push back in any meaningful way
against Iran's malign behavior because Iran has set up a
dynamic where they keep threatening to walk away from the deal
if we take any steps against their malign activity.
Mr. Stutzman. Yes.
Mr. Dubowitz. And so the White House has gotten ourselves
in a position which I fear the next President is going to have
to try to unwind where we can't even use non-nuclear sanctions
against terrorism, against missiles, against the illegal
procurement of nuclear missile technology or planes or any
kinds of sanctionable activity.
The White House is actually not using non-nuclear
sanctions. There have been no human rights sanctions since the
JCPOA. There have been a handful of procurement sanctions
relating to missiles that do nothing because the Iranians can
reconstitute those sanctions.
There have been no terrorism sanctions. So the White House
actually I am afraid today for whatever reason, lives in fear
that the Iranians will walk away from the deal if we do
anything.
Mr. Stutzman. Yes.
Mr. Dubowitz. That is a very troubling dynamic that I think
the next President is going to have to deal with in ways that I
hope won't paralyze his or her statecraft.
Mr. Lorber. I would just add to that.
Mr. Stutzman. Sure.
Mr. Lorber. I think we are potentially even beyond a
position of just refraining from engaging in enforcement
action. Our designations as a result of Iran's behavior and to
the point now where we are significantly concerned that, based
on Iranian officials' comments that they are not seeing the
economic benefits of the deal and therefore they are
considering walking away.
And so you move from sort of what was promised to be an
aggressive enforcement posture almost to a situation where you
have the United States actively trying to go out and assure
European companies, for example, that they can absolutely go
back into Iran, basically being a cheerleader.
Mr. Stutzman. I thank the witnesses for your insight and
the information on this today.
Chairman Huizenga. The gentleman's time has expired, and
the Chair duly notes that the gentleman from Indiana I think is
correct. There are a number of questions that remain and should
be pursued with the Administration and others.
The Chair now recognizes Mr. Perlmutter of Colorado for 5
minutes.
Mr. Perlmutter. Thanks again, Mr. Chairman, and thanks for
this hearing. It has been very interesting, gentlemen.
Appreciate your testimony. I want to correct my calling the
chancellor the prime minister so let us get that out of the
way. That has been bothering me for the last half hour. So I am
sorry about that.
And Mr. Goldman, I would like to ask you a couple questions
I didn't get a chance to ask you. So, Mr. Dubowitz and I were
sort of jousting about breaches and anticipatory repudiation
and who has violated this and who has violated that.
Now, under the agreement there is some kind of dispute
resolution process, is there not?
Mr. Goldman. Under the JCPOA there--
Mr. Perlmutter. Yes.
Mr. Goldman. --is a dispute resolution process.
Mr. Perlmutter. So I am calling JCPOA--
Mr. Goldman. Yes.
Mr. Perlmutter. --the agreement. You guys can use the
letters. I am going to call it the agreement.
Mr. Goldman. Great.
Mr. Perlmutter. Is there?
Mr. Goldman. Yes.
Mr. Perlmutter. Okay. And do you know if that provision has
been in any way exercised or by any of the parties in
connection with the chancellor's comments? Has Germany done
anything? Has China? Has the U.S.?
Mr. Goldman. To my knowledge no, but--and I was not aware
of the chancellor's speech. According to Mr. Dubowitz it took
place today, so--
Mr. Perlmutter. So and I guess that then turns to a couple
of housekeeping items I would ask of you, Mr. Dubowitz. Do you
have a copy of her remarks? Do you have a text of her remarks?
Mr. Dubowitz. Congressman, I have the text. I also have the
German intelligence report on which her assessment is based.
Mr. Perlmutter. So you have the 317-page report?
Mr. Dubowitz. I do.
Mr. Perlmutter. Okay.
Mr. Goldman. In German and a--
Mr. Perlmutter. I would rather have it in English.
Mr. Dubowitz. I was about to say and a summary of it in
English.
Mr. Perlmutter. Okay. Mr. Chairman, if we could have those
things be part of the record since there has been such
extensive conversation about them? If you could provide those
to us--
Mr. Dubowitz. Sure. It would be my pleasure.
Mr. Perlmutter. --would you do that?
Chairman Huizenga. Yes. We will be getting to that as we
wrap up about written additional questions and so we can
probably orchestrate that, get a written question and for them
to request that. I think there are going to be a number of
other inquiries that the Chair plans to do as well with the
Germans.
Mr. Dubowitz. And Congressman, could I just add to this?
The chancellor, in her speech, is not making a determination
based on what the JCPOA says. She is not making a determination
based on the dispute resolution mechanism.
I am assuming that she is going to then reach out to her
partners and maybe they will then invoke this joint commission
that Mr. Goldman talked about. She is merely presenting the
evidence of the German intelligence services that have been--
Mr. Perlmutter. Right. And that is why I am asking you for
a copy of her text, but you and I were sort of talking about
breaches and who has responsibility--
Mr. Dubowitz. Right.
Mr. Perlmutter. --to do what. And at this point the dispute
resolution mechanism has not been invoked.
Mr. Dubowitz. To the best of our knowledge--it may have
been done so privately and we don't know, but there has been no
public reporting on any invocation of it.
Mr. Perlmutter. Okay. So let us go back, Mr. Goldman, if I
could to you on the licensing process. So where are we in the
licensing process to actually conduct a sale of one, two or 20
planes?
Mr. Goldman. So my understanding is that Boeing was issued
a license I believe in March to conduct the negotiations.
Several weeks ago they announced that there had been a
Memorandum of Understanding, a Memorandum of Agreement reached
for the Iran Air. In order to actually consummate the sale
there would need to be another license issued and I don't know
where that stands with OFAC.
Mr. Perlmutter. And each of us I think has some level of
skepticism, some level of suspicion. These have been two very
different countries, the United States and Iran, for a lot of
years where there hasn't been any dialogue or any conversation
other than saber rattling.
What kinds of things would you expect to see in the license
to make sure that planes are not available for any kind of
illicit or illegal activities under the agreements or under any
of our other sanction legislation or regulations?
Mr. Goldman. So I might expect to see requests about the
type of due diligence Boeing did, a description of what the
financing arrangements are, perhaps some reporting
requirements, things of that nature.
And then I think there is a second category of conditions
which would be the conditions that exist in any contract
between Boeing and whatever its Iranian counterparty would be.
I would think that there would be terms in that contract to
ameliorate some of the financial risks that Mr. Dubowitz and
other of your colleagues have identified this morning.
Those would involve things like liquidated damages
provisions, perhaps requirements for upfront payments or escrow
payments of things of the like to ensure that in the event Iran
violates its undertakings under the JCPOA or the contracts,
that they stand not to reap a windfall.
Mr. Perlmutter. Okay. And I thank you.
I would yield back, but with this closing remark, Mr.
Chairman. There has been a lot of discussion, a lot of kind of
interesting conversation, a lot of it at this point conjecture
and I think we have to do some additional research into these
kinds of things. And I thank you very much.
Chairman Huizenga. I appreciate that, and the Chair duly
notes that it sounds like we have tentative support for another
hearing about this.
Mr. Perlmutter. Sure.
lLaughter]
Chairman Huizenga. Which I think would actually be an
excellent question. We need to hear from Treasury. Has Germany
reached out? We need to hear from OFAC. What are their
timeframes? What is their process that they would go through
both for Boeing and for Airbus in this situation.
So it seems to me that there are a number of unanswered
questions, but gentlemen, thank you. You have spent a
tremendous amount of time and given us a lot of education about
a number of questions that have been put forward today. And I
would like to thank our witnesses for their testimony.
Mr. Dubowitz, you can anticipate a question from the Chair
for a copy of the report both in German and the English
summary. And so it is the report and I am sorry, Mr.
Perlmutter, what else had you--
Mr. Perlmutter. And the text of the speech.
Chairman Huizenga. And the text of the speech. Well, I
think that will be--
Mr. Dubowitz. Mr. Chairman, if I could just add to that, I
would also want to send for the record, if it is okay, the
evidence that there are still $50 billion in outstanding
judgments against Iran on behalf of victims of terrorism that
the Iranians are refusing to pay.
They are challenging the $1.7 billion decision of the U.S.
Supreme Court to hand over monies to American victims of the
Khobar Towers, the Marine barracks bombing, so it is very
interesting.
We are talking about $50 billion, $60 billion that the
Iranians are going to get and yet they refuse to not only pay
victims of Iranian terrorism, they are taking us to the
international court of justice challenging that. I would like
to just add that to the record.
Chairman Huizenga. The Chair duly notes that and the Chair
will be asking you that question formally for you to respond
to.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
And with that, again I would like to say thank you to our
witnesses for your time here today and the attention of our
Members on this very important issue.
With that, we are adjourned.
[Whereupon, at 12:15 p.m., the hearing was adjourned.]
A P P E N D I X
July 7, 2016
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