[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
THE IRAN NUCLEAR DEAL AND ITS
IMPACT ON TERRORISM FINANCING
=======================================================================
HEARING
BEFORE THE
TASK FORCE TO INVESTIGATE
TERRORISM FINANCING
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
----------
JULY 22, 2015
----------
Printed for the use of the Committee on Financial Services
Serial No. 114-44
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
THE IRAN NUCLEAR DEAL AND ITS
IMPACT ON TERRORISM FINANCING
=======================================================================
HEARING
BEFORE THE
TASK FORCE TO INVESTIGATE
TERRORISM FINANCING
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
JULY 22, 2015
__________
Printed for the use of the Committee on Financial Services
Serial No. 114-44
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
97-157 PDF WASHINGTON : 2016
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
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
Task Force to Investigate Terrorism Financing
MICHAEL G. FITZPATRICK, Pennsylvania, Chairman
ROBERT PITTENGER, North Carolina, STEPHEN F. LYNCH, Massachusetts,
Vice Chairman Ranking Member
PETER T. KING, New York BRAD SHERMAN, California
STEVE STIVERS, Ohio GREGORY W. MEEKS, New York
DENNIS A. ROSS, Florida AL GREEN, Texas
ANN WAGNER, Missouri KEITH ELLISON, Minnesota
ANDY BARR, Kentucky JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois
DAVID SCHWEIKERT, Arizona DANIEL T. KILDEE, Michigan
ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine
FRENCH HILL, Arkansas
C O N T E N T S
----------
Page
Hearing held on:
July 22, 2015................................................ 1
Appendix:
July 22, 2015................................................ 47
WITNESSES
Wednesday, July 22, 2015
Berman, Ilan I., Vice President, American Foreign Policy Council. 6
Dubowitz, Mark, Executive Director, Center on Sanctions and
Illicit Finance, Foundation for Defense of Democracies......... 8
Heinonen, Olli, Senior Fellow, Belfer Center for Science and
International Affairs, Harvard Kennedy School of Government.... 11
Nephew, Richard, Program Director, Economic Statecraft, Sanctions
and Energy Markets, Center on Global Energy Policy, Columbia
University..................................................... 13
Perles, Steven R., Senior Attorney and Founder, Perles Law Firm,
P.C............................................................ 10
APPENDIX
Prepared statements:
Berman, Ilan I............................................... 48
Dubowitz, Mark............................................... 58
Heinonen, Olli............................................... 266
Nephew, Richard.............................................. 274
Perles, Steven R............................................. 284
Additional Material Submitted for the Record
Pittenger, Hon. Robert:
Congressional Research Service Memorandum, ``Terrorism
Judgments Against Iran,'' dated July 20, 2015.............. 299
Schweikert, Hon. David:
``SWIFT General Terms and Conditions,'' dated July 3, 2015... 303
THE IRAN NUCLEAR DEAL AND ITS
IMPACT ON TERRORISM FINANCING
----------
Wednesday, July 22, 2015
U.S. House of Representatives,
Task Force to Investigate
Terrorism Financing,
Committee on Financial Services,
Washington, D.C.
The task force met, pursuant to notice, at 4:22 p.m., in
room HVC-210, the Capitol Visitor Center, Hon. Michael
Fitzpatrick [chairman of the task force] presiding.
Members present: Representatives Fitzpatrick, Pittenger,
Ross, Wagner, Barr, Rothfus, Schweikert, Williams, Hill; Lynch,
Sherman, Green, Himes, Foster, and Sinema.
Ex officio present: Representative Hensarling.
Also present: Representative Royce.
Chairman Fitzpatrick. The Task Force to Investigate
Terrorism Financing will come to order. The title of today's
task force hearing is, ``The Iran Nuclear Deal and Its Impact
on Terrorism Financing.''
Without objection, the Chair is authorized to declare a
recess of the task force at any time.
Also, without objection, members of the full Financial
Services Committee who are not members of the task force may
participate in today's hearing for the purposes of making an
opening statement and questioning the witnesses.
The Chair now recognizes himself for 3 minutes for an
opening statement.
Over the first several hearings of this task force, members
have heard foreign policy experts and others testify regarding
the pervasiveness of Iran's involvement in the financing and
exporting of terror throughout the Middle East and around the
globe. We know that Iran is the leading state sponsor of
terror, and as such, any diplomatic engagements with Iran or
understanding or agreements with them would be incomplete
without a clear and full understanding of these facts and its
impact on the face of global terror financing.
Today's hearing will explore the recently announced nuclear
agreement negotiated by the Obama Administration and the P5+1
nations with Iran, specifically its impact on terrorism
financing through and by Iran. Most concerning to many members
of this bipartisan task force is the easing of congressional
sanctions and with it the danger that a new influx of cash will
find its way to terrorist organizations threatening to strike
the United States of America. It appears this agreement fails
to address the realities surrounding Iran's sponsorship of
terror while furthering empowering its mullahs by infusing
billions of dollars into the economy through the lifting of
sanctions that successfully brought Iran to the negotiating
table in the first place.
The Iranian regime has demonstrated a lack of concern about
its own people. Leaving in doubt the estimated $150 billion in
funds currently held abroad will allow the Iranian economy to
fully recover, not to the benefit of the oppressed citizens but
to the advantage of the next generation of terrorist
syndicates. A nation so deeply committed to promoting terror
has lost its right to good-faith agreements. That is why over
the next 2 months, Members of both the House and the Senate
will review the fine points of this agreement before voting on
it, the product of the bipartisan passage of H.R. 1191.
It is my hope that this hearing, both the questions asked
by the members and the testimony of our witnesses, provides
vital information for Congress and the American people when
looking over this nuclear deal.
This agreement will determine the future of our Nation's
foreign policy and the global balance of power. It is far more
significant than a Presidential legacy or the political goals
of any party, and cannot take place with an eye on the next
election or an ideological allegiance. Republicans, Democrats,
and Independents alike hold the power to turn back a bad deal,
and I am confident that this task force, rooted in
bipartisanship, will play an important role in the
decisionmaking process.
At this time, I would like to recognize the task force's
ranking member, my colleague from Massachusetts, Mr. Lynch, for
an opening statement.
Mr. Lynch. Thank you, Mr. Chairman.
I also want to thank our esteemed panel here for your
willingness to help the task force with its work.
Last week Iran and the P5+1, which I hate using acronyms,
but it includes the United States, the U.K., France, Russia,
China, and Germany, finalized a Joint Comprehensive Plan of
Action that attempts to ensure that Iran's nuclear program can
be used exclusively for peaceful purposes and in exchange for a
broad suspension of many U.S., European, and United Nations
sanctions.
I am pleased that today's hearing will present our task
force with the opportunity to hear from experts with varying
perspectives on that deal.
While there is no such thing as a perfect negotiation that
leads to a perfect deal, I think that with proper
implementation and compliance, there is a great deal of good in
this deal. I cite section 3 of the deal, which I find
particularly comforting, and it says that: ``Iran reaffirms
that under no circumstance will Iran ever seek, develop, or
acquire any nuclear weapons.''
Of course in the next section, the agreement guarantees
that Iran will have the ability to develop a peaceful energy-
related nuclear industry in exchange for some sanctions relief,
primarily related to oil and banking, and as well of obtaining
nuclear weapons release for at least a decade, sanctions
related to terrorism and human rights abuses will remain in
place.
I am cautious but hopeful that we can make this deal work.
I believe there are still some questions that need to be
answered. Particularly concerning to our task force is how to
ensure that the approximately $100 billion in frozen assets do
not flow to terrorist organizations.
The State Department has designated Iran as a state sponsor
of terrorism since 1984 and notes that Iran continues to
support Hezbollah and the Assad regime in Syria, as well as
Hamas, Islamic jihad, and others.
On the other hand, the multi-layered sanctions imposed by
the United States and its allies have weighed heavily on the
Iranian people. Treasury Secretary Jack Lew recently stated
that Iran's GDP shrank by 9 percent in the 2 years ending in
March 2014 and is now 15 to 20 percent smaller than it would
have been without the sanctions. Iran's oil, coal, auto,
aircraft, financial, and textile industries are reeling from
U.S.-led sanctions, and due to the embargo on aircraft
components, visitors have regularly expressed dread at the
prospect of flying within Iran because of the woeful condition
of their domestic airlines.
Iran's policies have brought isolation and few allies. Many
experts view the election of President Hassan Rouhani, the
relative moderate candidate in that last election, as an
expression of Iran's desire to move in a new direction.
Sanctions relief could provide an opportunity for Iran to
rebuild its economy and invest in infrastructure and embracing
that moderate future.
While the opportunity is here, the trust necessary to move
forward is not. Fortunately, I believe this agreement does not
require us to place our trust in Iran. Under the deal's terms
and its roadmap for clarification on nuclear issues in Iran,
this entire agreement hinges on the adoption and implementation
of a rigorous International Atomic Energy Agency inspection,
monitoring, and guidance procedure. Indeed, the agreement
relies more on the IAEA inspectors. And it is good to see Olli
Heinonen here, someone who knows a little bit more about that
than any other party because in the absence of trust, we will
need the IAEA's assurance that Iran will remain in compliance.
While we should move forward with care and every precaution
for ourselves and for our allies, I believe we should move
forward.
Mr. Chairman, I yield back the balance of my time.
Chairman Fitzpatrick. I now recognize the vice chairman of
the task force, Mr. Pittenger, for 1 minute for an opening
statement.
Mr. Pittenger. Thank you, Mr. Chairman. Thank you for
calling this hearing.
This agreement, without question, has the most grave
outcomes of any agreement negotiated by this government. Our
allies in the Middle East, those whom I have met with on
countless times, from Prime Minister Netanyahu and other
leaders of the Arab world, are gravely concerned about the
outcome. They know their neighbor, they know and have watched.
Iran over the last 35 years is the greatest exponent of
terrorism.
Of course, each of us has concerns over the inspections,
but clearly this body today is going to address the terrorism
financing capacities that they will have with $100 billion. No
less than National Security Advisor Susan Rice, and General
Dunford, who is President Obama's nominee to be chairman of the
Joint Chiefs, have expressed those same concerns, that this
funding will be used for the purposes of building a military
and terrorism financing.
So I look forward to our discussions today. And thank you,
Mr. Chairman, for calling this hearing.
Chairman Fitzpatrick. I now recognize the gentlelady from
Arizona, Ms. Sinema, for an opening statement of 2 minutes.
Ms. Sinema. Thank you, Chairman Fitzpatrick and Ranking
Member Lynch, for holding this very important and timely
hearing.
A nuclear Iran is one of the greatest threats to security
in the United States and to peace and stability in the Middle
East. To support this deal, the agreement must end Iran's
nuclear weapons programs and strengthen the safety and security
of both the United States and our allies in the Middle East.
This deal, if Iran does not cheat, prevents Iran from
obtaining a nuclear weapon for 10 to 15 years. However, I have
several concerns about the deal's structure, planned execution,
and broader implications.
Several questions: Number one, is the United States
confident in success of the verification regime established by
this agreement? Number two, what is the exact timing of
sanctions released by the United States and the EU? And once
these sanctions are removed and foreign investment floods into
Iran, can we be confident that sanctions will snap back into
place if or when Iran cheats? Number three, what are the
broader consequences of this agreement for our security and
regional stability? And how will an influx of billions of
dollars affect the geopolitical balance in the Middle East?
Iran is the number one state sponsor of terrorism, and the
current regime is a destabilizing force in the region. Taking
our most effective sanctions tools from banking and energy
sector sanctions off the table could limit our ability to
counter Iranian aggression, stabilize the region, support our
allies, and avoid military contact.
Fundamentally, I seek to understand whether this deal
prevents a nuclear Iran for 15 years with long-term positive
change in the region or whether it could allow Iran to further
destabilize the region using financial resources and new non-
nuclear weapons while becoming an empowered nuclear threshold
state.
Over the next several weeks, Mr. Chairman, I know we will
all thoughtfully and thoroughly review the details of the
agreement, including the comments coming from Iran. And I want
to thank the chairman and the ranking member for holding
today's hearing, and thank our witnesses for coming to share
their expertise with us today. Thank you.
Chairman Fitzpatrick. The gentlelady from Missouri, Mrs.
Wagner, is recognized for 1 minute.
Mrs. Wagner. Thank you, Mr. Chairman, and thank you, Mr.
Ranking Member, for calling this timely hearing today. We have
just left our classified briefing, so it couldn't be more
timely. And I thank you, Mr. Chairman, for sounding the alarm
about the mistake, I believe of historic proportions, agreed to
by the Obama Administration last week in Vienna.
The President has agreed to far-reaching concessions in
nearly every area that was supposed to prevent Iran from
acquiring a nuclear weapon. Under this deal, Iran would receive
$100 billion to $150 billion in sanctions relief and regain
access to conventional arms and ballistic missiles that has
been denied for nearly a decade. Iran will be free to transfer
these weapons, as has been stated, to Hezbollah, the Syrian
Government, Yemeni rebels, and other terrorist groups. These
organizations threaten the security of the United States, our
ally Israel, and the world, and will further destabilize a
region already in crisis.
As Prime Minister Netanyahu said when visiting Congress
earlier this year, ``No deal is better than a bad deal.'' And
by any measure, this is a bad deal, Mr. Chairman. Congress
should show the world that America will not accept a nuclear
Iran.
I yield back, and thank you.
Chairman Fitzpatrick. The gentlelady yields back.
We now welcome our witnesses. Ilan Berman is vice president
of the American Foreign Policy Council. Mr. Berman has
consulted with the Central Intelligence Agency and the
Department of Defense and provided assistance on foreign policy
and national security issues to a range of governmental
agencies and congressional offices. He is a member of the
associated faculty of Missouri State University's Department of
Defense and Strategic Studies. He also serves as a columnist
for Forbes.com, and The Washington Times, and is editor of the
Journal of International Affairs.
Mark Dubowitz is executive director of the Foundation for
Defense of Democracies and director of its Center on Sanctions
and Illicit Finance. He is an expert on sanctions and has
testified before Congress and advised the Administration,
Congress, and numerous foreign governments on Iran and
sanctions issues. He holds a master's degree in international
public policy from Johns Hopkins University's School of
Advanced International Studies and Law, and an MBA degree from
the University of Toronto.
Steven Perles is senior attorney and founder of the Perles
Law Firm. Mr. Perles has handled a number of cases before the
United States Supreme Court, United States courts of appeals,
and district courts across the country. His litigation
practices included cases in the fields of Foreign Sovereign
Immunities Act litigation. He has lectured on the evolution of
antiterrorism civil litigation at conferences for national
crime victims' groups. He holds a law degree from the William &
Mary Law School.
Dr. Olli Heinonen is a senior fellow at the Belfer Center
for Science and International Affairs at the Harvard Kennedy
School of Government. Before joining the Belfer Center in
September of 2010, Dr. Heinonen served 27 years at the
International Atomic Agency in Vienna. Dr. Heinonen served as
the deputy director general for the IAEA and head of its
Department of Safeguards. Prior to that, he was director at the
agency's various operational divisions and was an inspector at
the IAEA's office in Tokyo, Japan. He studied radio chemistry
and completed his Ph.D. dissertation in nuclear material
analysis at the University of Helsinki.
Dr. Richard Nephew is the program director of the Economic
Statecraft, Sanctions and Energy Markets, Center on Global
Energy Policy at Columbia University. Prior to this position,
Dr. Nephew served as the principal deputy coordinator for
sanctions policy at the Department of State. He also served as
the lead sanctions expert for the United States team
negotiating with Iran. From May 2011 to January 2013, he served
as the director for Iran on the National Security staff. He
holds a master's degree in security policy studies and a
bachelor's in international affairs from George Washington
University.
The witnesses will now be recognized for 5 minutes each to
give an oral presentation of their written testimony. And
without objection, the witnesses' written statements will be
made a part of the record. Once the witnesses have finished
presenting their testimony, each member of the task force will
have 5 minutes within which to ask the witnesses questions.
On your table, there are three lights: green; yellow; and
red. Yellow means you have 1 minute remaining, and red means
your time is up. The microphone is sensitive, so please be sure
that you are speaking directly into it.
And, with that, Mr. Berman, you are now recognized for 5
minutes.
STATEMENT OF ILAN I. BERMAN, VICE PRESIDENT, AMERICAN FOREIGN
POLICY COUNCIL
Mr. Berman. Thank you, sir. And thank you, Mr. Chairman and
Ranking Member Lynch and distinguished members of the task
force for the opportunity to be here today to speak to you on a
truly critical issue.
There is a great deal to say about the Joint Comprehensive
Plan of Action (JCPOA), as the new agreement with Iran is
formally called. I simply don't have the time to say it all,
and on issues like verification and compliance, I think my
colleagues can acquit themselves much better than I.
So, if I could, I would like to devote my time to talking
about one issue in particular, which is the threat potential of
the Iranian regime and how it will change and expand as a
result of the JCPOA. This relates directly to the question of
sanctions relief because under the agreement, the Islamic
Republic is now poised to receive massive economic stimulus in
the very near future. Specifically, later this year or at the
very latest early next year, upon verification by the
International Atomic Energy Agency that Iran has disclosed the
requisite details of military-related nuclear work, the United
States will begin unblocking $100 billion and to $150 billion
of Iranian revenue from oil sales that have been locked in
escrow accounts in China, South Korea, and in other nations. I
think it is necessary to put this in some context precisely
because it is so large.
In 2014, the U.S. Government estimated that Iran's total
annual gross domestic product was $415 billion. So what we are
talking about here is a quarter, roughly, of Iran's annual GDP.
I think, with very little exaggeration, what we are talking
about here is a Marshall Plan for the Islamic Republic, the
financial equivalent thereof. And while White House officials
have expressed hope that the Iranian regime will use these
funds to focus internally, to focus on domestic conditions, on
improving the economic welfare of ordinary Iranians, it is
necessary to point out that money is fungible, and an Iranian
regime that has this kind of economic stimulus package has an
unprecedented financial windfall that will invariably translate
into greater capability in two areas.
The first area is terrorism. Several years ago, the U.S.
Government publicly estimated that Iran had ``a 9-digit line
item in its budget for support of terror organizations.'' This
included $100 million to $200 million annually to Lebanon's
Hezbollah, as much potentially as $25 million monthly to Hamas
in the Palestinian Authority, and the list goes on. And this
assessment was made at a time when Iran was subject to
stringent international sanctions, and there was no financial
relief for the Islamic Republic in sight.
Today, the situation is very different. The resources at
Iran's disposal in this area are poised to expand
exponentially, and as a result, what you will see is a much
greater potential on the part of Iran to translate its
financial windfall into a financial windfall for its proxies.
The second issue of particular concern to me is the
question of Iranian regime expansionism. The Iranian regime
possesses a distinct manifest destiny. Idealogically, it talks
about itself as the center geopolitically of the Middle East,
and it has launched--even in absence of sanctions relief--an
ambitious effort to expand its influence globally, but in
particular in the Middle East. What this looks like in practice
is a massive investment in propping up the Assad regime in
Syria, which has been estimated to cost the Iranian regime
something like $6 billion or more annually. The Iranians have
provided extensive military and economic backing for Yemen's
Houthi rebels. And, primarily, although not exclusively, but
primarily because of Iran's assistance, the Houthis have
managed to change fundamentally the power dynamic in that
country, and Iran has become a key power broker in Yemen's
future.
And the same holds true in Iraq, where Iran already
processes extensive political influence. The current fight
against the Islamic State terrorist group and the disarray of
Iraqi politics has allowed Iran, through both economic and
military and financial means, to expand its ambit still
further.
So what should we expect here? The Iranian leadership
already believes that it has an unprecedented opportunity to
dominate the region. The Iranian Supreme Leader, Ali Khamenei,
said as much in September of 2014 when he declared publicly
that, ``The power of the West on their two foundations--values
and thoughts, and the political and military--has become shaky
and could be subverted.'' Now, with the conclusion of the
nuclear deal, Iran is poised to have greater resources to
accomplish this than ever before, and this gets us to the
question of what we expect.
The White House has said in public that this deal is merely
transactional, it is focused strictly on the nuclear issue and
doesn't touch on other issues, including Iran's support for
terrorism, but both in scope and in duration and, frankly, in
its material minutia, what you see is a deal that is
aspirational. It is one that hopes that the Iranian regime
will, as a result, turn over a new idealogical leaf. But this
is not how the deal, how the framework agreement, is being read
in Tehran. As the Iranian Supreme Leader himself said several
days ago, Iran remains steadfast in its opposition of the
United States as well as its efforts to reshape the region in
its own image.
So what we end up with is a situation where, although
Iranian belligerency remains unabated, the Iranian regime,
through the JCPOA, now has dramatically greater financial tools
to accomplish its goals.
Thank you.
[The prepared statement of Mr. Berman can be found on page
48 of the appendix.]
Chairman Fitzpatrick. Mr. Dubowitz, you are now recognized.
STATEMENT OF MARK DUBOWITZ, EXECUTIVE DIRECTOR, CENTER ON
SANCTIONS AND ILLICIT FINANCE, FOUNDATION FOR DEFENSE OF
DEMOCRACIES
Mr. Dubowitz. Great. Thank you. Chairman Fitzpatrick and
Ranking Member Lynch, on behalf of the Foundation for Defense
of Democracies' Center on Sanctions and Illicit Finance, it is
an honor to testify before you and your task force and an honor
to be testifying with these distinguished experts.
I want to focus on the Revolutionary Guard Corps, the IRGC,
which I think is a major beneficiary of this nuclear deal. And
this nuclear deal itself is fundamentally flawed in both its
design and architecture. As a result of these artificial sunset
provisions, the IRGC, in fact, which controls Iran's nuclear
and ballistic missile programs, has patient multiple pathways
to developing nuclear weapons and regional power. Again, as
long as it is patient and faithfully complies with the
agreement, Iran over time will develop an industrial size
nuclear program with near zero breakout, an advanced centrifuge
powered sneak-out pathway, and multiple heavy water reactors.
Iran will be able to buy and sell heavy weaponry, with the
expiration of the arms embargo. Iran will also be able to
develop long-range ballistic missiles, including an ICBM. And
let's be clear that most of the economic sanctions are being
dismantled, unlike the nuclear program.
Now, I am focusing on the Revolutionary Guards, again,
because they are the major beneficiary. And, Mr. Chairman, last
spring, FDD provided the U.S. and U.K. Governments with a
database of 1,290 IRGC companies and individuals. The full
lists are in my testimony. I would ask them to be, please,
entered into the record.
After 16 months, the United States has not sanctioned any
of these IRGC entities or individuals. And the nonlisting of
these entities provides the IRGC with economic benefits and the
ability to operate without restrictions.
So the IRGC stands to benefit even more now because of the
JCPOA. The deal requires the United States and Europe to remove
numerous IRGC-linked entities from their sanctions list,
including the most important terrorism finance and money
laundering facilitator, the Central Bank of Iran. Most Iranian
banks, including some IRGC-controlled banks, will be permitted
back onto the SWIFT financial messaging system, giving Iran's
most dangerous actors access to the global financial system.
This is deeply troubling, because the IRGC, again, the most
dangerous actor in Iran, controls at least one-sixth of Iran's
economy, including major strategic sectors.
Now, these delistings are a direct challenge to the
conduct-based nature of the sanctions regime imposed by the
Obama and Bush Administrations. Those sanctions were designed
to target the full range of Iran's illicit activities and not
just Iran's nuclear program. And they were also designed,
according to Treasury officials, to protect the integrity of
the U.S. financial system. This was made clear when Treasury
issued a finding under Section 311 of the USA PATRIOT Act,
which found that Iran's financial sector, including its central
bank, was ``a jurisdiction of primary money laundering
concern.'' Treasury cited Iran's ``support for terrorism and
the use of deceptive financial practices.'' In short, the
entire country's financial system ``posed illicit financial
risks for the global financial system.'' Internationally, the
Financial Action Task Force confirmed these terror financing
and money laundering risks.
Though the 311 was conduct-based, this agreement now calls
for sanctions relief without a demonstrable change in Iran's
behavior. This mass delisting includes nearly 650 entities,
many involved in Iran's nuclear and ballistic missile programs.
More than 67 percent are going to be delisted from Treasury's
blacklist within 12 months. After 8 years, only a quarter will
remain on our lists.
In 8 years, the United States and the European Union will
lift sanctions on Fereydoon Abbasi-Davani and Mohsen
Fakhrizadeh-Mahabadi--they are the Robert Oppenheimer and A.Q.
Khan of Iran's nuclear weapons development--and Gerhard Wisser,
who actually ran, helped run A.Q. Khan's proliferation network.
The EU also lifted its nuclear sanctions on notorious Quds
Force Commander Qasem Soleimani, though he will remain on the
EU's terrorism list for now.
The deal lifts U.S. sanctions on 47 Iranian banks
designated for proliferation, nuclear and ballistic missile
activity or for providing financial services to other delisted
entities. They are all going to get back onto the SWIFT
financial messaging system.
Now, the White House assures us that they have a snapback
mechanism, that they can impose non-nuclear sanctions like
terrorism, but the agreement itself notes that Iran may walk
away from the deal and its nuclear commitments if new sanctions
are imposed. The agreement also contains an explicit
requirement for the European Union and the United States to not
interfere with trade and economic relations with Iran. So Iran
can use these provisions to argue that the reimposition of
sanctions, even if implemented on terrorism grounds, is a
violation of the agreement. Iran will threaten to return to its
nuclear program, and this gives Iran an effective nuclear
snapback, much more powerful than our economic snapback, to
intimidate the United States and especially Europe from
reinstating sanctions.
Now, Ilan has talked about the hundreds of billions of
dollars that are going to go back to Iran. And with Iran back
on the SWIFT system and its banks reintegrated into the formal
financial system, halting the flow of these funds to bad actors
will be challenging.
In short, Congress should require the White House to
renegotiate and to resubmit an amended deal for congressional
review that addresses these weaknesses, including the snapbacks
and sunsets, which are dangerous design flaws of the agreement.
Mr. Chairman, I am happy to share the other recommendations
in my testimony during Q&A. Hopefully, this is a good start.
And thank you for the opportunity to testify.
[The prepared statement of Mr. Dubowitz can be found on
page 58 of the appendix.]
Chairman Fitzpatrick. Thank you.
Mr. Perles, you are now recognized for 5 minutes.
STATEMENT OF STEVEN R. PERLES, SENIOR ATTORNEY AND FOUNDER,
PERLES LAW FIRM, P.C.
Mr. Perles. Thank you very much. Mr. Chairman, Ranking
Member Lynch, Mr. Pittenger, thank you again for the invitation
and the honor to testify before you today.
Over the last 20 or 30 years, my law firm has probably
represented and reconstructed more terrorist attacks involving
the death of, or personal injuries, to U.S. nationals than
perhaps the rest of the private bar combined. We have extensive
experience reconstructing and then litigating these matters
against countries like Libya, Syria, Iran, and the Sudan.
Our litigation portfolio is currently valued at about $17
billion. During the course of that period, we have separated
roughly half a billion dollars from the material supporters or
financiers of these attacks, and we currently hold $1.9 billion
of Iranian assets that were illicitly invested in New York in
our trust account awaiting final court order so that they can
be distributed to various clients.
I was asked to testify for a very explicit and narrow
question of expertise: In my view, my opinion, will the release
of $100 billion to Iran result in an increase in Iran's funding
of terrorist organizations resulting in the future deaths and
personal injuries of United States nationals? I think, based on
Iran's behavior that I have looked at since 1979, the answer to
that question is, inevitably, yes, there will be a substantial
increase in funding for those organizations, and they will
target U.S. nationals.
In a perverse way of looking at this, Secretary Kerry's
next objective in the world diplomatic arena is the Palestinian
peace process. If you study, as we have because of our client
portfolio, the Oslo Peace Accords, which were negotiated in the
mid-1990s, you come to the inevitable conclusion that there was
real peace in the Middle East at the conclusion of Oslo and
that the Iranians could not tolerate peace in the Middle East.
It is not consistent with their foreign policy view of how the
Middle East should be mapped.
Being unable to tolerate peace in the Middle East, the
Iranians sponsored a bus bombing campaign designed to destroy
the Oslo peace process, intentionally targeting American
students in Israel. The most famous of these is Alisa Flatow of
New Jersey and other students, like Matt Eisenfeld of
Connecticut and Sara Duker also of New Jersey. Alisa Flatow
happened to be the first American student killed in an Iranian-
sponsored bus bombing intended to destroy the Oslo peace
process.
You see Iran engaging in the same kinds of conduct even
earlier, back into the 1980s. The last time the United States
entered into this kind of agreement with the Iranians was 1981.
That agreement is known as the Algiers Accords. It resolved--
and resulted in the release of people who were called the
Tehran hostages. These are the American diplomats who were held
captive in Iran for more than 400 days. And look at the result,
again, through my optic. That agreement was executed in 1981.
Thirty-one months later, the Islamic Republic of Iran detonated
the largest non-nuclear device ever exploded, resulting in the
deaths of 241 U.S. servicemen in Beirut. Those service families
are our clients. The $1.9 billion that we hold in our trust
account, if this agreement does not interfere with that
distribution, should be distributed to those families some time
this fall.
One country that we have completed the cycle for in this
country in this kind of litigation is Libya. Muammar Qadhafi
engaged in a series of bombing campaigns against the United
States and U.S. interests in the late 1980s, including the
downing of Lockerbie and the La Belle discotheque bombing, the
La Belle victims being our client. We separated collectively--
and I am including the work that other law firms did for
Lockerbie--roughly $3 billion, something in excess of $3
billion in reparations from Mr. Qadhafi that were distributed
to American victims. I dare say, in retrospect, if Mr. Qadhafi
had known in the late 1980s that his bombing campaign was going
to result in his having to cough up $3 billion to his American
victims, he would have found some other way to be obstreperous;
he would not have engaged in that bombing campaign.
I think that the litigation that Congress has authorized
American victims of state-sponsored terrorism to engage in
serves a real national security purpose. There is no amount of
money that will help compensate a family for the loss of their
loved ones. The purpose of the litigation is deterrence.
Thank you, and I apologize for running over.
[The prepared statement of Mr. Perles can be found on page
284 of the appendix.]
Chairman Fitzpatrick. Thank you, Mr. Perles.
Chairman Fitzpatrick. And we will have an opportunity in
the Q&A to get further into that issue.
Dr. Heinonen, you are now recognized for 5 minutes.
STATEMENT OF OLLI HEINONEN, SENIOR FELLOW, BELFER CENTER FOR
SCIENCE AND INTERNATIONAL AFFAIRS, HARVARD KENNEDY SCHOOL OF
GOVERNMENT
Mr. Heinonen. Thank you, Chairman Fitzpatrick, Ranking
Member Lynch, and distinguished members of the task force for
giving me this opportunity to discuss one of the most crucial
issues in front of us today, the Iran Nuclear Deal.
In my testimony, I will focus on the verification aspects
of the Joint Plan of Action, but in my remarks, I am also
mindful that the reference to the roadmap agreed between the
IAEA and Iran, while it is publicly available, it has secret
attachments, which have not been available to me when I made my
testimony and statement.
Iran will retain a sizeable nuclear program with its
supporting nuclear infrastructure. In technical terms, Iran has
not changed its nuclear course. It will maintain substantial
uranium enrichment capacity, and it is permitted to expand it
after 10 years without having technical or economical needs to
do so. In addition, implementation of the additional protocol
remains provisional until the time when the IAEA has reached a
broader conclusion on the peaceful nature of Iran's nuclear
program.
This contradicts current IAEA practice. Such conclusions
have only been drawn by the IAEA when an additional protocol is
in force and ratified. This is not an easy matter to dismiss,
as we need to be mindful of potential complications down the
road should Iran seek to leverage, pull back, or dilute some of
its obligations at some point in time under its provisional
status.
Verification in Iran involves implementation of safeguards
agreement, additional protocol, additional transparency
measures agreed to by Iran, and the IAEA-Iran roadmap. The sum
of these parts is to block or at least to delay all pathways
for Iran to get the bomb. Our assessments should focus on
whether the verification provisions measure up to this goal and
look at the JCPOA's strengths, limitations, and challenges that
it could face. We also need to ask ourselves, what measures are
in place that will prevent slippage or account for changing
circumstances?
In light of my previous testimonies, I will only speak now
about some salient points. JCPOA has, from the verification
point of view, strong points but also vulnerabilities. Without
additional access to Iran's nuclear facilities, introduction of
modern monitoring tools to track nuclear material from cradle
to grave, the IAEA will be able to detect and report in a
timely manner any substantial diversion of declared nuclear
material at declared facilities. The measures will also provide
a high level of confidence that larger declared facilities,
such as Natanz or the conversion facility in Esfahan, are not
used to process undeclared nuclear materials.
At the same time, we know that nuclear proliferation cases
of the past have opted not to divert declared nuclear material
but used undeclared nuclear material or undeclared facilities.
To this end, JCPOA could have included stronger provisions.
The first one is the expanded declaration. As I pointed in
my previous testimonies, a complete declaration of all Iran's
nuclear activities, including the past ones, for example,
status of equipment and materials from dismantled
installations, would be important to set a critical baseline
for monitoring and verification. This is particularly
significant since Iran's nuclear program has been subject to
several changes, and has grown substantially since Iran stopped
its provisional additional protocol implementation at the end
of 2005.
Access to undeclared and suspected sites: The JCPOA
provides for a dispute settlement mechanism should Iran refuse
to cooperate or challenge the IAEA's request. There are,
however, concerns that matter. One example is the mechanism by
which information and evidence is provided that would
compromise sources of intelligence and give Iran the
opportunity to take countermeasures to buy time and erase
evidence.
Timeliness of access also matters. The comprehensive
safeguards agreement in 1972, negotiated by the IAEA Board of
Governors, has a provision that IAEA has access to a nuclear
installation if it believes that the information gets
compromised even during the arbitration process.
In terms of the settlement time, 24 days does not cover
credibly all plausible scenarios. It is clear that a facility
of sizeable scale cannot be simply erased in 3 weeks without
leaving traces. But the likely scenarios involved here would be
small scale, which would be critical to the weapon
manufacturing process, such as manufacturing of uranium
components for a nuclear weapon. But a 24-day adjudicated
timeline reduces detection probabilities exactly where the
system is weakest: detecting undeclared facilities, materials,
and keeping in mind the breakoff times.
Then I have some additional remarks with regard to the
manufacturing of centrifuges, possible military dimensions,
noting that IAEA has to provide a report by mid-December. I
don't think that this will be a complete existing report which
will put the PMD issue at rest since IAEA will not have time to
do all the investigations according to its prevailing
standards.
And then I also draw your attention to a couple of other
things. I think it will be very difficult to use American staff
on these inspections in the next few years in Iran, which I see
as significant because U.S. citizens will bring extra skills
which the IAEA otherwise doesn't have, and then on top of that,
the IAEA has to, I think, issue a little bit more transport
reports.
Chairman Fitzpatrick. Thank you.
Mr. Heinonen. Thank you.
[The prepared statement of Dr. Heinonen can be found on
page 266 of the appendix.]
Chairman Fitzpatrick. Thank you, Dr. Heinonen, for your
testimony.
Mr. Nephew, you are now recognized for 5 minutes.
STATEMENT OF RICHARD NEPHEW, PROGRAM DIRECTOR, ECONOMIC
STATECRAFT, SANCTIONS AND ENERGY MARKETS, CENTER ON GLOBAL
ENERGY POLICY, COLUMBIA UNIVERSITY
Mr. Nephew. Thank you, Chairman Fitzpatrick, Ranking Member
Lynch, and other members of this task force for inviting me to
speak to you today. It is an honor to speak to you in my first
formal testimony before Congress.
I would like to begin by extending my personal gratitude to
the members of the U.S. negotiating team. Regardless of how one
evaluates this deal, we are all most fortunate that this
country produces dedicated diplomats, civil servants, and
experts like those who worked on this deal.
In my opinion, the deal that they negotiated is a very good
one, especially compared to the most realistic alternatives.
And any negative consequences can be managed. The deal reached
satisfies the two most important U.S. national security
objectives for Iran's nuclear program: one, lengthening the
time that Iran would need to produce enough nuclear material
for one nuclear weapon; and two, ensuring that any such attempt
could be quickly detected.
With respect to breakout time, the deal delivers, giving us
years before we have a uranium breakout timeline shorter than a
year. For plutonium, breakout can be measured in decades.
Breakout is not the sole measure of a deal, but compared to the
status quo, 2 to 3 months to break out for uranium with one to
two weapons worth of plutonium being produced per year at Arak,
we are far better off with the deal than without it. Further,
with the transparency steps that Iran has accepted, both
breakout and any attempt at a covert path will be easier to
detect quickly. Some of these authorities will remain in effect
for 20 to 25 years, while Iran's obligations to the IAEA under
its standard treaties will continue in perpetuity.
Even some skeptics may agree that within a 10- to 15-year
band of time, the deal may work as designed but that the
sunsets present an irreconcilable problem. I disagree that this
concern is worth killing the deal. The argument against sunset
presupposes either that there is no point in time in which Iran
could be trusted with a nuclear program, requiring regime
change, or that negotiations could possibly have delivered a
longer sunset. Having been in the room, I believe the length is
as long as achievable. And in any event, after key restrictions
lapsed, the United States is also free to declare that Iran's
nuclear program remains a concern. Getting international
support to do something about it will require effective
diplomacy, but it is an option for a future President.
The other major complaint is that it provides Iran with far
too much sanctions relief and that the practical effect of
increasing trade with Iran will render snapback ineffective.
First, it is a blunt reality that Iran was not going to accept
major restrictions and invasive monitoring on the cheap. The
Administration did the right thing in leveraging sanctions
relief for maximum early nuclear steps. Iran is now under every
incentive to take the steps required of it as soon as possible,
which the IAEA will verify before Iran gets an extra dollar.
Of course, the sanctions relief provided by the United
States does not equate with unilateral sanctions disarmament.
The United States retains a number of sanctions authorities
that will continue to exact consequences for Iranian violations
of human rights and damage Iran's ability to engage in
terrorism financing, though I personally believe fears about
the extent of new Iranian spending in this regard are
overblown, and, according to the LA Times anyway, so does the
CIA.
But foremost of our tools remain secondary sanctions. The
United States will still be able to pressure banks and
companies into not doing business with the IRGC, the Quds
Force, Qasem Soleimani, and Iran's military missile forces.
Even if the EU and U.N. remove some of these from their lists,
these bad actors in Iran generally will find business stymied
until they correct their own behavior in the eyes of the United
States. This is both due to the direct risk of U.S. sanctions
and the improvement in international banking practices since 9/
11, a bipartisan effort begun under George Bush and continued
under Barack Obama.
The United States will also retain its ability to impose
sanctions on those trading with Iran in conventional arms as
well as with respect to ballistic missiles even after U.N.
restrictions lapse. The United States can also trigger snapback
of existing sanctions. Even just one JCPOA participant can
trigger UNSC review and a vote on a U.N. Security Council
resolution to continue with relief. The U.S. veto power in the
UNSC gives us the ultimate free hand to reimpose these
sanctions. This could come with political costs, and many
skeptics point to these costs as likely meaning that no such
snapback would ever be triggered, but international reaction to
U.S. actions will always depend on the context. If the
rationale for doing so is credible, then chances for success
will always be higher. Iran too would have much to lose if
snapback were to be triggered.
The description of the deal as a Marshall Plan is an
exaggeration, except that, in Iran, it needs the sort of
domestic investment that it would provide due to damage with
sanctions. Iran's leaders would therefore have to carefully
evaluate the costs and benefits of any course of action that
threatens the integrity of a nuclear deal. These costs will
grow as Iran's economy grows. Some may see this as resilience,
and I see it as Iran having more to lose.
To conclude, though it is not a perfect deal, I believe
that the nuclear deal reached by the United States, its P5+1
partners, and Iran, meets our needs and preserves our future
options. Like the Algiers Accord, it is necessary even if it
will have consequences which must be managed, and I urge
Congress to make the right choice and support this deal.
Thank you.
[The prepared statement of Mr. Nephew can be found on page
274 of the appendix.]
Chairman Fitzpatrick. We thank the witnesses for their
testimony, and each of the members of the task force will be
given 5 minutes now to question the witnesses. I will recognize
myself for 5 minutes.
And I will first ask Mr. Berman and Mr. Dubowitz if you
could respond to a recent statement of National Security
Advisor Susan Rice, who suggested--admitted, I guess--that some
portion of the $150 billion that will accrue back to the
Islamic Republic of Iran as part of the sanctions relief could
be or would be spent to support international terrorism. So the
question is to what extent you believe--and, again, $150
billion is an estimate--that any of these funds would be used
to enhance the capabilities of their terrorist proxies,
including Hezbollah, including Houthi rebels in Yemen, who were
mentioned earlier today, to bring terror not just to the
region, but to American citizens?
Mr. Berman. Thank you, sir. I think the best way to
illustrate the concerns that I have with regard to the fungible
nature of the money that Iran will get is to harken back to the
experience that the U.S. Congress and the U.S. Government had
with post-Soviet Russia in the 1990s. During that decade, we
implemented a program called Cooperative Threat Reduction,
colloquially known as Nunn-Lugar, to help the post-Soviet
Russian Federation dismantle both conventional and
unconventional weaponry, including ballistic missiles. The
investment at the time, and I believe it was somewhere on the
order of $600 million, was intended to widen the pie, so to
speak, with regard to Russia's ability to execute dismantlement
that it needed to do anyway. That was at least the rationale
that was given.
What was discovered belatedly was that the Russian
Government had allocated a certain percentage of its defense
budget for this dismantlement, and an infusion of American cash
was not sufficient to widen the pie, rather, that money was
used for other things, including a revival of the Russian
bioweapons program in the late 1990s.
I think the same concern is germane here. The sanctions
relief, and the scope is indeed enormous, it is certainly not a
Marshall Plan of the 1940s, which was $800 billion for all of
Europe, but $100 billion for one individual country is still an
awfully large sum of money. There is that concern that the
money will, even if it is spent overwhelmingly on domestic
affairs, will free up other dollars that will be spent on
terror, perhaps significantly so.
Chairman Fitzpatrick. Mr. Dubowitz, do you concur?
Mr. Dubowitz. Yes. I do concur with Mr. Berman. I think
that we also need to talk about economic relief. It is much
more than $100 billion. It is much more than $150 billion. We
are talking about economic relief that will allow Iran to sell
2\1/2\ million barrels a day, which will increase its revenues
$15 billion to $20 billion a year, open up its auto sector,
which represents about 10 percent of the GDP of Iran, its
petrochemical sector. We are talking about hundreds and
hundreds of billions of dollars over time.
Now, I agree with Mr. Berman and I agree with Mr. Nephew. I
don't think Iran is going to spend all of its money on
terrorism. Iran will spend some of its money on terrorism. And
a small percentage of hundred and hundreds of billions or
dollars means that Iran can keep Bashar Assad in power for more
time. It costs Iran about $6 billion a year, according to the
U.S. Special Envoy on Syria, to keep Bashar Assad in power, not
to mention the hundreds of millions of dollars available for
Hezbollah and other terrorist organizations.
But picking up on a point that Mr. Nephew made, the problem
is that Iran is also going to spend its money on its economy,
and not just on growth and diminishing unemployment but on
economic resiliency. See, the Iranians learned from 2012, 2013,
when we were hitting them with asymmetric shocks to their
economy that plunged them into a severe recession; they don't
want to be in a situation again where their economy is fragile.
So they will keep substantial foreign exchange reserves in
place and build up the kind of resilience they need down the
line so then when we try to snap back our sanctions, it will
not have the kind of asymmetric impact that it had on Iran at
that time. Economic resiliency is their rainy day fund. That is
what they are thinking of down the line when they have an
industrial size nuclear program with near zero breakout, and we
try to use economic leverage in the future to peacefully
enforce the deal. I believe we will diminish our peaceful
enforcement of this deal. We will leave a future President with
two options: Accept an Iranian nuclear weapon or use military
force to forestall that possibility, which is why this deal
makes war more likely, and when that war comes, Iran will be
stronger and the consequences will be more severe.
Chairman Fitzpatrick. Thank you.
Mr. Perles, briefly, if you can, in the Beirut barracks
bombing in 1983, many of those marines were residents of the
Commonwealth of Pennsylvania, and some of their families were
constituents of mine. They have an open judgment against Iran
for their connection. How do we bring closure to families like
those?
Mr. Perles. It is a two-track process, sir. First, we have
this $1.9 billion of illicit Iranian funds that we captured in
New York. That money is almost ready for distribution. The
Supreme Court has solicited the views of the Solicitor General
of the United States with respect to the underlying statute
that Congress passed to help us get at those funds. The statute
is facially constitutional. If the committee could ensure that
the Solicitor General promptly issues its statement of issue to
the Court affirming the constitutionality of that statute, we
should be able to proceed with releasing those funds this fall.
A second issue, and one that is far more serious from its
implications, are what are referred to as movement of funds by
book entry. That process can simply be described as, if you
have a billion dollars in a bank account in New York and one
day it is owned by a commercial company and the next day that
billion dollars belongs to the Islamic Republic of Iran, but
instead of moving money by SWIFT back and forth, you simply
keep track of who is earning the benefit of that money by a
book entry sitting in a bank in Luxembourg, you are able to
entirely avoid sanctions.
Chairman Fitzpatrick. Mr. Perles, I am out of time. Maybe
we could get back to this in a second round of questioning if
that is possible.
But I want to recognize the ranking member of the task
force, Mr. Lynch, for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman.
And, again, thank you to all of our witnesses.
Professor Heinonen, you have actually in the past been an
IAEA inspector. Is that correct?
Mr. Heinonen. That is true.
Mr. Lynch. Okay. And from our earlier conversations--and I
again thank you for your willingness to help the task force--
you indicated that you have been on the ground in Iran
previously with inspection responsibilities. Is that correct?
Mr. Heinonen. Yes. True.
Mr. Lynch. Okay. And tell me a little bit about that. How
long were you there in Iran?
Mr. Heinonen. Actually, I have never counted the number of
days I spent--
Mr. Lynch. Okay.
Mr. Heinonen. --but I went there for the first time
actually in 1986, and it was a very different era.
Mr. Lynch. When was the last time you were in Iran?
Mr. Heinonen. 2009.
Mr. Lynch. Okay. So you had a chance to see how the
inspection protocols were. And I guess to try to simplify it
for people, on a scale of 1 to 10, let's say 1 is that the
agreement is worthless, okay, and 10 means the agreement
provides absolute security, where along the spectrum--you have
had a chance to read this agreement now and sift through this
and try to figure out what the inspection protocols and
monitoring would provide. Where along that spectrum do you
think you would--on a scale of 1 to 10, what is the value of
this agreement in your estimation? I am trying to simplify. I'm
sorry, but it is the best we can do.
Mr. Heinonen. Yes. It is a little bit difficult to give the
rating yet because there are a few aspects of this agreement
which I don't know, like what is the real agreement between
Iran and IAEA on this possible military dimension.
Mr. Lynch. The PMD--
Mr. Heinonen. --so that is a little bit unknown here. And
this is, then, to do with the setting of the baseline for the
monetary. And then there are certain answers that are also, I
think, still in the text with regard to the past activities on
Iran, and that is why I urge that baseline there.
Mr. Lynch. Right.
Mr. Heinonen. If you have a poor baseline, then your
verification system will get compromised, but with--
Mr. Lynch. Why didn't we get that?
Mr. Heinonen. --information available today, I would rate
it perhaps 7 or 8.
Mr. Lynch. Okay. Seven or eight.
Mr. Heinonen. Or higher.
Mr. Lynch. Okay. I appreciate that.
Mr. Nephew, I noticed that in the agreement there are
carve-outs here. If you look at the sanctions that are provided
with relief, they are almost exclusively regarding nuclear
activity. They are sanctions that were put in place because of
past nuclear activity and nuclear research, uranium enrichment,
things like that, that Congress and the U.N. and the EU and the
President of the United States have put in because of nuclear
activity.
I don't see any lifting of sanctions regarding terrorism or
funding. And, look, no question about it, Iran has funded
Hezbollah, has funded Al--not Al Qaeda, they are Shia--they are
Sunni, rather--but has funded Hamas, has funded Islamic Jihad
and others. So I am not coating that over in any sense, but the
agreement is focused on the nuclear activity and not on the so-
called terrorist funding activity. Is that correct?
Mr. Nephew. Yes, sir, that is correct.
Mr. Lynch. Is there anything to stop us from maintaining
the--I had a chance to talk to Mr. Szubin over at Treasury, who
sort of rides herd on all of these financial sanctions, and he
tells me that they are going to stay in place. Is that your
understanding?
Mr. Nephew. Yes, sir, that is my understanding.
Mr. Lynch. Okay. And would anything in this agreement stop
us from, if we saw money going from the central bank to any of
these groups, we could put sanctions in place against the
Central Bank of Iran if we saw further violations of terrorist
financing provisions?
Mr. Nephew. Yes, sir. That is a possibility. I think the
big issue at that point will be what the Iranian response would
be to that. They have the ability to say that they think that
kind of sanction would violate the terms of the deal because it
would imperil the rest of their relief, but we have not ceded
any ability whatsoever to impose sanctions with respect to our
terrorism, human rights or other related authorities that are
outside of the nuclear arena.
Mr. Lynch. Okay. Thank you.
I have 6 seconds left. I will just yield back my time.
Thank you, Mr. Chairman.
Chairman Fitzpatrick. I now recognize the vice chairman,
Mr. Pittenger, for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
Mr. Perles, you stated in your testimony that your
representation of victims for you and your legal group has
enabled $1.9 billion.
Mr. Perles. Yes, sir.
Mr. Pittenger. Given that you said that would be a
deterrent toward future actions, considering Qadhafi and the
bombings of Lockerbie and La Belle, that perhaps you would be
thinking about future efforts.
With that in mind, with this agreement it appears what we
have done on these cases with these victims is basically wipe
out this agreement, the result being that these funds would no
longer be accessible. Is that a concern to you that they would
not be able to receive the judgments repatriated back to them
and be accessible?
Mr. Perles. It is a serious concern to us. As I said to Mr.
Fitzpatrick, it would be very helpful if the committee could
ensure that--speaking again for the Beirut Marine barracks
bombing families--$1.9 billion remains available as an asset.
Those funds are no longer with the Islamic Republic of Iran--
Mr. Pittenger. The future funds won't be accessible if the
case--
Mr. Perles. Future funds could be a very serious problem.
There are no future funds currently in the United States. Were
we to go out and try and reach funds outside the United
States--and we are trying to do that currently in Italy--I can
tell you that we have not received a warm reception overseas
from governments that like to trade with the Iranians.
In our enforcement activities for the Flatow, Eisenfeld,
and Duker case in Italy, where I suspect a lot of this $100
billion will go, as they are Iran's largest trading partner in
the EU, the Italian foreign ministry has formally entered our
proceeding against the Iranians in objection to our
domestication of the Flatow, Eisenfeld, and Duker terror victim
judgments in Italy. If the Italian courts abide by the request
of their foreign ministry, essentially, these judgments become
non-entities in Italy and probably the rest of the European
Union.
Mr. Pittenger. Thank you for that.
Mr. Dubowitz and Mr. Berman, we have provided, repatriated
back to Iran $700 million a month; in the last 16 months, $12
billion. We certainly see their footprint throughout the Middle
East, in Yemen, and Syria, and Iraq. Now they are going to have
access to substantially more money than that. It will be an
enormous challenge for the Financial Action Task Force (FATF)
and our Treasury working with other governments to track these
funds as they go through the financial system, through the 47
financial institutions there in Iran and their capacity through
money laundering.
What advice--where do you think we should go? Given that
this could very well be the case, what do you recommend we
could do to enhance the role of--encourage the role of FATF,
the 34 nations that work together and the role of Treasury? We
are going to have a lot more money accessible for terrorism
financing.
Mr. Dubowitz. Congressman, my recommendation would be that
Treasury should submit to House Financial Services an Iran
sanctions rehabilitation program with benchmarks that the
financial institutions and the Central Bank of Iran have to
meet before they are allowed back onto SWIFT. Because here is
the problem that Mr. Nephew is not telling you about: The
problem is the Central Bank of Iran is going to go back to
SWIFT, so are dozens of Iranian banks.
It would be virtually impossible for us to de-SWIFT those
banks again, because the head of VTB bank in Russia, when the
British were talking about de-SWIFTing Russian banks, called
that an act of war. The Iranians will call that an act of
economic war. And what they will do is they will use their
nuclear snapback in this agreement to claim that the
reimposition of those sanctions and the de-SWIFTing of the
Central Bank of Iran and other banks constitutes a violation of
this agreement.
Now, we might say, that is not true. It is non-nuclear. It
is terrorism. We have the absolute right to do this. But the
problem is that the Iranians will then intimidate the
Europeans, and they will say that we will walk away from the
agreement, we will engage in nuclear escalation because the de-
SWIFTing of our banks is an act of war. We will never get the
Iranian banks off SWIFT again. It took an act of God to get
them off in the first place. We will never get them off again.
Now, once they are plugged back in the formal financial
system--and by the way, we have not required them to actually
rehabilitate. There is no indication that they are no longer
engaged in illicit financial activities. And by the way, it
wasn't just nuclear. It was ballistic missiles. It was terror
financing. It was money laundering. It was sanctions evasion.
That is the reason the Central Bank got designated in the
first place, designated by Treasury, in a 311 finding. It
wasn't just nuclear, Ranking Member Lynch. It was actually a
range of illicit financial activities that constituted the
basis for that designation in the first place.
And so what we have done, essentially, is we have swept all
of that away for a nuclear deal, and we are allowing all of
these banks back onto SWIFT to plug back in the formal
financial system without actually having any indication that
they have been rehabilitated. So if I were House Financial
Services, I would require Under Secretary Szubin in the U.S.
Treasury Department to present a rehabilitation plan to you
with specific benchmarks, and to demonstrate to you on a timely
basis over time that these banks are now rehabilitated banks,
and only then should they be de-designated and put back onto
SWIFT, because once they are on SWIFT, we are not getting them
off SWIFT ever again.
Mr. Pittenger. Thank you. I yield back.
Chairman Fitzpatrick. The gentleman's time has expired.
The gentleman from California, Mr. Sherman, is recognized
for 5 minutes.
Mr. Sherman. Thank you.
This deal has the good, the bad, and the ugly. The good and
the bad happened the first year. We get rid of the stockpiles.
We decommission two-thirds of the centrifuges. The bad, you
witnesses have already commented on, they get their hands on
tens of billions of dollars. The ugly is next decade when they
could have such an enormous nuclear program that in the words
of the President, their breakout time would be basically zero.
So the question, at a minimum, is how do we put ourselves
in the position where we force a renegotiation of this deal
before we get to the ugly? There is a natural tendency for--and
the witnesses have done this. I tend to do it--is to grade the
deal, as if we are pundits trying to say whether the President
did a good job or not. And that is a wonderful use of time, but
we don't have a time machine to go back to June 2015.
And pundits get to do that, but we have to decide how to
vote. We have three possible votes coming up. One is a vote to
approve the deal. That has a 0.0 percent chance of passing. If
it did pass, it might morally bind future Administrations to
the deal. So we are not going to do that. The deal is an
executive agreement, which is below an executive legislative
agreement, which is below a real treaty.
So this is the weakest possible exchange of notes among the
Executive Branch. And if, God forbid, we were to vote to
approve this, and maybe somebody could claim it was an
executive legislative agreement, but we won't and it isn't. But
the real issue before us is whether we vote to disapprove and
whether we override. And one of the reasons not to vote to
disapprove is because we will probably fail to override.
And then we are going to be in a circumstance where we are
telling the world Congress has not ratified or endorsed the
agreement, and the proponents are showing a picture of
themselves celebrating our failure to override the veto. So the
last vote will be a victory for the 34 percent or the 40
percent who vote not to override. That is confusing to the
world. So I am hoping that instead we just vote on a resolution
to approve and vote it down.
But if we do override, that has real, legal binding
effects. We were in the classified hearings, and now I am here
trying to figure out what those effects would be. Legally, what
it does is it restores the sanctions and deprives the President
of his authority to waive the sanctions. Those sanctions are
not sanctions on Iran. Those are sanctions on British and
French and Japanese and Indian banks. Those are sanctions
against Italian and Russian and Chinese oil companies. It is
easy to say we want to sanction Iran. Start asking people if
they want to sanction French banks.
So the question is how other countries react if we try to
sanction their businesses for doing something our President
says is a reasonable thing to do, which is, do business with
Iran as long as they are following the agreement that Congress
may very well repudiate.
So, Mr. Berman, how are the French, the Italians, the
Japanese going to react if Congress wants to punish their banks
and cut them off from the most important financial banking
sector in the world, because those banks dared to participate
in transactions which the President of the United States says
are legitimate and, oh, by the way, are profitable for the home
country?
Mr. Berman. Sir, in a word, not well. And I know you led me
to that answer, but if you remember, earlier this year, I had
the privilege of--
Mr. Sherman. Could they kowtow? Politically, could they
kowtow? Could they say, look, we are announcing that we are
going to prevent our banks from doing these transactions,
prevent our companies from doing these transactions?
Mr. Berman. Yes.
Mr. Sherman. The President of the United States thinks they
are reasonable. We think they are reasonable. We think they are
profitable. But Congress is so powerful that we are going to
prohibit our companies from engaging in reasonable and
profitable business.
Mr. Berman. Sir--
Mr. Sherman. Could an Indian--could Moby do that? Could Abi
do that? Politically, even if they wanted to, could they go to
their people and say we are kowtowing the Congress?
Mr. Berman. I think Mr. Dubowitz will have some input as
well, but my amateurish interpretation of this is absolutely
they could, provided there is political will to actually
enforce those sanctions and enforce those measures. Because as
we have discussed before, one of the bipartisan failings of
Iran's sanctions up until this point is that while there are
the legislative means to sanction these banks for engaging in
this commercial activity with Iran, what we have been lacking
on both sides of the political aisle has been the political
will to truly enforce.
Mr. Sherman. If I can just sneak in one comment. We were
just in a classified briefing and a nonclassified non-answer
was, I asked the Administration whether they would follow the
law, and under those circumstances, punish those banks, and the
answer was a deafening non-answer. So it is, by no means, sure
that the President would impose those sanctions, let alone that
our trading partners would adhere to them and we accede to
them.
And I yield back.
Chairman Fitzpatrick. The gentleman's time has expired.
The gentleman from Florida, Mr. Ross, is recognized for 5
minutes.
Mr. Ross. Thank you, Mr. Chairman.
And I want to thank the witnesses for being here.
Mr. Berman, you spoke in your opening statement about the
use of funds to be funneled as they have been for such things
as building Iranian regime contacts. For example, I think you
said that they put $6 billion annually into Bashar al-Assad's
coffers, and that we are continuing to fund, or they are
continuing to fund Hezbollah, continuing to fund Hamas,
Houthis. We had some witnesses testify before this task force
sometime ago who essentially stated that Iran was the central
bank of terrorism.
And so what we are now about ready to do if this deal is
effectuated is to allow for an increase anywhere from $100
billion to $150 billion of frozen assets, accounts, and then to
channel this money through the same infrastructure that has
been there to fund state terrorism. Now, it seems to me that we
have allowed, or at least the premise of this negotiation has
been, let us not have an Iranian nuclear weapon capability, but
let us do so at the expense of expanding international and
global terrorism.
And to that end, I ask, what are we to expect? Are we to
expect that now those missiles that were funneled down into
Gaza are going to be more sophisticated? What are we going do
expect with regard to the missile defense system that now will
be sold from Russia to Iran? Are we here just basically saying
that we have licensed the management of nuclear capabilities in
Iran totally at the expense of expanding terrorism throughout
this world?
Mr. Berman. Sir, I think you hit upon what I believe is a
crucial point, which is that when we begin looking at this
agreement, one of the, I believe, most sober ways to approach
it would be to look at the consequences and whether or not the
United States has the political, economic, and strategic tools
to manage the consequences that are likely to flow from it.
Obviously, increased funds allocated to terrorist proxies of
the Islamic Republic is a tremendous concern.
Mr. Ross. And it is going to happen, as a matter of fact.
Let's just look at history. It has happened. And now let's look
at the history of our relationship with Iran. The only thing
that we have to rely on to make sure that this deal is
effectuated as it is written, quite frankly, is the trust of
Iran. And so, let's look at the history with Iran. Let's see,
since 1979, on every November 4th, they proclaimed Death to
America Day.
Just recently, within the last year, they put a mock
battleship out in the Persian Gulf and had that attacked and
sank in the name of destroying the United States. So
essentially, we have negotiated a deal that says that we are
going to have to trust Iran, and yet we are going to have to
trust them through a third party. So have we managed our
consequences to this point? And if not, what in history has
given us any indication that this was a deal that we should
have negotiated?
Mr. Berman. I don't believe we have. And in my opening
remarks, I made the point that although the premise that the
White House has put forward for the deal is transactional in
nature, that it is limited, it is limited to the Iranian
nuclear program, the way we have gone about negotiating this,
and the things that we have put on the table, including massive
sanctions relief as a result--
Mr. Ross. And the sanctions have worked. The sanctions have
worked.
Mr. Berman. They have. But the ability to rehabilitate the
Iranian economy and provide additional aid to terrorist proxies
of the Islamic Republic is a function of the fact that we are
looking at this deal privately, aspirationally, the idea that
Iran will turn over a new ideological leaf as a result of these
negotiations.
Mr. Ross. And if there is a violation by Iran, the
realistic expectation of snapback sanctions is not realistic at
all, is it?
Mr. Berman. I think there are many technical reasons to be
very skeptical of snapback, but maybe the most important is the
fact that, as former Secretary of State Henry Kissinger has
written about in several books, as you become deeply enmeshed
in negotiations, such as the ones that we are engaged in today,
you become a vested stakeholder. And bad consequences--
Mr. Ross. Exactly.
Mr. Berman. --are actually worth--
Mr. Ross. You do it for the sake of having a deal, not for
the sake of the substance of the deal that would have benefited
you had you stayed to your principles at the outset.
Mr. Perles, really quickly, what did the Administration use
to determine what were considered sanctions for nuclear
violation, terrorist violations? I just ran out of time, I
think.
Mr. Perles. Simple answer to your question: I remain
totally befuddled. I have no idea.
Mr. Ross. I agree with you.
Thank you. I yield back.
Chairman Fitzpatrick. The gentleman from Texas, Mr. Green,
is recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman.
I thank the ranking member as well.
You never know who is tuned in to these hearings, and for
this reason, if by chance a family member of someone who is
being held hostage is tuned in, I would like to make it very
clear that we are still working to get them returned, those who
are being held hostage. And while we talk about transactions
and all of the various ramifications of a deal, we have not
forgotten them, and that is, I think, important for us to say.
Mr. Nephew, I notice that you are making notes and your
name has been mentioned on more than one occasion and you have
not had an opportunity to respond. Do you have something that
you would like to say in response to some of the things that
have been said and directed toward you?
Mr. Nephew. Thank you, sir, for the opportunity.
I would say just a couple of things to preserve your time.
First off, I think there are some distinctions about the way in
which sanctions were applied against the Central Bank of Iran
that are relevant here. The United States did not impose a
designation on the Central Bank of Iran in the traditional
sense, in part, because we recognized the dramatic economic
implications that could result from that.
Instead, we took sanctions decisions that were intended to
clamp off their ability to get access to oil revenues. It is a
very unique way of doing business. We also imposed sanctions
that dealt with basically stigmatizing the Iranian financial
system for terrorism, money laundering related reasons. So as
far as I am aware, none of those implications are lifted as a
result of this deal.
Now, there are people out there who will still sell oil or
buy oil from Iran and transact with the Central Bank of Iran,
but we have not given a green light to believe that the Central
Bank of Iran is a good institution, or institution that is not
involved with respect to terrorism or money laundering or any
of these other things that they are involved with.
The reality is, though, if you are going to get a nuclear
deal with Iran, they are not going to do it without real
sanctions relief, without real economic sanctions relief. And
the decision that was made by the Administration--and, again, I
think it was a good decision--was that getting 10 to 15 years
of real distance from Iranian nuclear weapons breakout was
worth dealing with a future consequence of Iranian economic
revival.
I should also note too, on this issue of $100 billion to
$150 billion, I think it is an impression that it was a savings
bank that was opened up for the Iranians, and it is money that
is pouring in that we can't wait to give back to the Iranians.
You should bear in mind that this is Iranian money that we have
been restricting from them that they have not been able to use.
It is for this reason that they had the economic downturn that
Secretary Lew spoke about earlier.
So I think the bottom line is the Iranians do have a lot of
things they need to do with this money. It is not a gift from
U.S. taxpayers and it is not manna from heaven for them.
Mr. Green. Mr. Nephew, you have some knowledge of this.
Were you associated, in any way, with these negotiations?
Mr. Nephew. Yes, sir, I was the lead sanctions negotiator
starting in August of 2013 until I left the government in
December of 2014.
Mr. Green. And is it your opinion that we can or cannot
reopen the negotiations?
Mr. Nephew. Sir, I do not believe that we can reopen these
negotiations. I believe that to do so, or to attempt to do so,
would cripple us in those negotiations, particularly dealing
with countries like Russia and China, not even to mention our
European partners.
Mr. Green. I believe there are others who have opinions
that differ, so I would like to give some equal time. Let's
see, Mr. Dubowitz, you have an opinion that varies from this, I
believe?
Mr. Dubowitz. Thank you, Congressman.
I think there is an alternative because President Obama
always said there was an alternative. He said that no deal was
better than a bad deal. And the President is a responsible
Commander in Chief and a responsible executive, and he went to
these negotiations knowing that he had an alternative to this
deal. And I believe that we agree with the President; he has an
alternative. The alternative is to use American power,
including U.S. secondary sanctions, in the context of the U.S.
Congress asking this President to negotiate a better deal,
particularly around snapbacks and sunset provisions.
Now, if the President doesn't believe in the power of the
U.S. secondary sanctions, if his argument is that if you vote
down this deal, the sanctions regime will crumble, then,
unfortunately, there is no power in the economic snapback
because the economic snapback actually depends on the power of
the U.S. secondary sanctions to send a message of fear to the
marketplace, so that financial institutions and energy
companies at 7, 8, 9, 10 years when they have sunk in hundreds
of billions of dollars back into the Iranian economy--by the
way, contracts that are grandfathered--that they will respond
by moving out of the Iranian economy.
So the President can't have it both ways. Either there was
an alternative to this deal, in which case he was a responsible
negotiator who went in with the best alternative negotiated
agreement, or there is no alternative to this agreement, in
which case he negotiated with the Iranians without an
alternative.
Either U.S. secondary sanctions are powerful, in which
case, Congressman Sherman, they will survive if Congress votes
no, because, ultimately, they send a message to companies and
financial institutions based on risk and reputation who will
not want to go back into Iran, given the power of U.S.
secondary sanctions; or they are not powerful, in which case we
are going to have a really significant problem on our hands
down the line when Iran has an industrial-size nuclear program
with near zero breakout, significant economic resilience, and
the banks are all back on SWIFT and we try to go back in order
to try and impose sanctions.
Chairman Fitzpatrick. The gentleman's time has expired.
The gentlelady from Missouri, Mrs. Wagner, is recognized
for 5 minutes.
Mrs. Wagner. Thank you, Mr. Chairman.
And I want to thank the panel for being here today. I have
to say that I find all of your comments much more enlightening
and informational than the classified briefing that we just
attended, by a thousandfold.
It is an absolute fact that the cumulative effect of
western sanctions on Iran is a reason that Iran finally came to
the negotiating table. These sanctions have led to a 15 to 20
percent decline in Iran's GDP since 2010, and have driven down
Iran's crude oil sales by some 60 percent. Yet, while Iran's
economy has significantly declined, their investment in
terrorism groups and in regional, I will say, proxy militias
engaged in conflict has remained the same, if not, increased.
Iran has continued to support, as we have heard from
everyone, on both sides of the aisle, Hezbollah and Hamas. They
have involved themselves in conflicts in Egypt, Syria, Yemen,
and Iraq, and have successfully been promoting further
instability throughout the region. It would seem logical to say
that if Iran could find the resources to support terrorism and
regional turmoil while under the intense pressures of economic
sanctions, as they have been, they will continue to do so under
this deal, if not to a greater extent, due to their increased
access to financial resources.
In fact, it was National Security Advisor Susan Rice who
admitted that some of that $150 billion that Iran will receive
will be spent to support international terrorism. I don't think
anybody disagrees with that. However, there are some in the
Administration who have indicated that they believe Iran will
steer this additional funding into its own economy.
Mr. Dubowitz, how likely is it that funding will be steered
towards military proxy groups engaged in destabilizing
conflicts in the east, including Iraq?
Mr. Dubowitz. Congresswoman, it is very likely that they
will spend money on terrorism in supporting Assad. It's also
very likely that they will spend money on economic resiliency.
And I think, unfortunately, the conversation, the debate is
getting lost, because economic resiliency from our perspective
is a very, very bad thing. Because economic resiliency means
that Iran can fortify its economic defenses against future
economic pressure.
Now, Dr. Heinonen has spoken about verification inspection,
but a verification inspection is only as good as enforcement,
and the IAEA does not enforce. The United States of America
enforces. So it will be the United States of America that will
enforce this deal against Iranian stonewalling and cheating.
And if we have lost our ability to use peaceful economic
leverage to enforce this deal, the Iranians will therefore
cheat incrementally, daring us to respond for them using
military force. No President will use military force against
incremental cheating. And Iran will have the ability not just
to break out or sneak out to a bomb, but to inch out to a bomb.
Mrs. Wagner. The United States will only have secondhand
knowledge of Iranian facilities, to be perfectly honest, as we
will not and cannot be directly involved in the process of
monitoring or of verification. Oh, I wish I had an hour to
visit with each and every one of you.
I understand Iran's status as a state sponsor of terrorism
was not part of this deal. Do you believe, Mr. Berman, that
Iran will seek to be removed from the state sponsor of
terrorism list?
Mr. Berman. Ma'am, I don't think, necessarily, that is a
proximate goal, although it is certainly something that,
provided the politics, the political wind shift in that
direction, may be raised with regard to Iran.
Where I think we enter the zone of danger with regard to
increased Iranian sponsorship of terrorism as a result of the
JCPOA is precisely the fact that under the current structure of
the deal, and under the current mechanisms in the hands of the
U.S. Treasury Department, the Financial Action Task Force, and
other bodies that are tasked with overseeing this, we simply
don't have mechanisms that allow us to provide responses that
are short of walking away from the table.
In other words, there are no scalable responses to Iranian
cheating. And, as Mr. Dubowitz said, Iran is far more likely to
inch out of its obligations with regard to the deal than to
break out and make a sprint for the bomb. And as a result, what
we have is we have a scale problem. Currently, we don't have
the ability, short of abandoning the process altogether, to
exact tactical punishments from the Iranians for instances of
malfeasance, including additional funding for terrorism.
Mrs. Wagner. Mr. Berman, as I am running out of time--and
let me just say this: Mr. Dubowitz, I am very interested in
your discussion about the rehab plan and the Central Bank of
Iran. I spent 4 years as United States Ambassador to Luxembourg
from 2005 to 2009. I am very, very familiar with the Central
Bank of Iran, and I would consider one of the most important
things I have ever done in my entire life was to stop terrorist
financing from being laundered and sent through the Grand Duchy
of Luxembourg.
So I am very interested in your thoughts on SWIFT and the
rehab plan, and I would love to pursue that with you in the
future.
I am sorry about my time. I yield back, Mr. Chairman.
Chairman Fitzpatrick. The gentlelady's time has expired.
Mr. Himes of Connecticut is recognized for 5 minutes, with
advice to the members of the task force, we are in the middle
of the vote. So at the conclusion of Mr. Himes' questioning, we
will go into recess. We will reconvene at approximately 6:35
for the remainder of the questions.
Mr. Himes?
Mr. Himes. Thank you, Mr. Chairman.
This is clearly a challenging decision for the Congress. It
is the opposite of a black-and-white decision. If there is
anybody who is under the misapprehension that this is an easy
call, I think that speaks more to their credibility and bona
fide than it speaks to their understanding of what is a very,
very complicated thing.
And to illustrate that, this hearing, the undercurrent of
this hearing is how shocked we are to learn that as a result of
this deal, Iran may get some money. There is a little
controversy over how much money: the figure of $100 billion to
$150 billion keeps being bandied about. I will let those of you
who are saying $100 billion to $150 billion work this out with
the Treasury Secretary. He estimates the money at $56 billion.
Setting that aside, we are shocked that this terrorist
regime is going to get money. Folks, this was the deal. We
voted for the sanctions for the express purpose of taking away
the money to force them to the table to negotiate the deal.
Now, we may agree that the deal is good or bad, but to
negotiate the deal whereby they would get that money back. And
now we are shocked, shocked to learn that this bad regime is
getting the money back.
Now, bad regime, we get it. We know that. I am on the
Intelligence Committee. I see that day in and day out. You do
these deals with bad regimes. In the 1970s and the 1980s, we
did these deals, these similar nuclear deals with China and
with Russia at a time where I would daresay they were probably
both committing things that would qualify as crimes against
humanity. But we do these deals not with our friends but with
our enemies.
And context is important here, because we find ourselves
with a deal. It turns out when you negotiate with Persians, you
don't get everything you wanted. You have a deal with some
things that make you uncomfortable. But what about the history
of deals? Yes, there was the Algiers agreement whereby we freed
some hostages.
We haven't mentioned, by the way, the deal that was struck
by the Reagan Administration in 1985, 2 years after the Marine
bombing killed over 200 Marines, whereby the Reagan
Administration provided conventional arms to Iran so that
hostages would be released so that U.S. law could be violated
to fund the contras, violating the Boland Amendment.
George W. Bush tried to strike a deal in which there would
be no enrichment. That deal fell apart and we found ourselves
with 19,000 spinning centrifuges. So the question I have--and
the idea is that context is important. This isn't a great deal.
You don't get a great deal in situations like this. I
personally believe that the idea that we can just shut it all
down--and the President's coming under a lot of criticism here.
The Russians, the Chinese, the U.K., French, the EU, this was a
P5+1 deal.
My question is--and I haven't gotten a good answer on this.
I have 2 minutes left--if we unilaterally say no to something
that the world negotiated, that the Security Council has
endorsed, that the EU has endorsed, what scenario results in us
being in a better position than the position of having 15
years--and I understand they may cheat--but 15 years in which
we have some confidence--unless they cheat--that they are not
building a bomb? What happens that puts us into a better place
than we are in if we accept this deal?
I just open that up for a scenario that is better than
accepting the deal.
Mr. Dubowitz. Congressman, first of all, this is not a 15-
year deal, and it is not even a 10-year deal. You have to look
at this deal not through the prism of nuclear physics. You have
to look at this deal through the prism of Iranian economic,
conventional, and military power. The Iranians have negotiated
an agreement that in terms of their deal structure, it is
front-loaded.
Mr. Himes. But you do agree, this is a nuclear deal?
Mr. Dubowitz. That is not a nuclear deal. We are lifting
the arms embargo. We are lifting ballistic missile
restrictions, so it is not just a nuclear deal.
Mr. Himes. Got it. But from the standpoint of developing a
nuclear weapon, the centrifuge and the enriched uranium is, in
fact, a 10- to 15--unless they cheat--there is a 10- to 15-year
period in which there is high confidence and high visibility
that they are not building a bomb, right?
Mr. Dubowitz. Actually, I don't think that is true at all.
Mr. Himes. Why not?
Mr. Dubowitz. In fact, by year 8\1/2\, they begin to
develop advanced centrifuges. By year 10, they begin to enrich
at the Natanz facility and install a limited number of
sanctions--
Mr. Himes. But they can enrich above 3.67, right?
Mr. Dubowitz. No. What they have done is they have phased
this so they can start introducing on an industrial scale
advanced centrifuges. So right at year 15, they can actually
enrich not to 3.67 percent, not to 20 percent, but to 60
percent, because they will use that as justification that they
are going to have a nuclear-powered navy.
So what the Iranians have done is they have front loaded
the sanctions relief; they are getting the arms embargo lifted,
the ballistic missile restrictions lifted; they are fortifying
their regional presence; they are getting back in the formal
financial system; and they have negotiated themselves a patient
pathway to a bomb.
So when that pathway actually comes--because we are not
cutting off the pathways, we are delaying them and then we are
expanding them--when it finally comes, Iran will be much
stronger economically from a nuclear perspective, from a
ballistic missile perspective, regionally, and with respect to
terror financing and its proxies.
So when it comes, Congressman, the problem is is we are in
a worse situation because we now have a hardened regime with an
industrial-sized nuclear program at near zero breakout, which
means it is undetectable breakout. And they have multiple
enrichment facilities buried in an amount and looking like
Fordow. And then we have a problem on our hands. Now, the
problem on our hands at that point is we have no other peaceful
way to stop them, which is why this deal, in my opinion, is
going to lead to war. And it will make war more likely.
The other thing that I want to take issue with is we didn't
put these sanctions in place to respond to Iran's nuclear
program. The U.S. Treasury Department, over two
Administrations, said these were conduct-based sanctions. Your
task force is about illicit financial conduct. Your task force
should be very concerned that we are lifting sanctions on the
Central Bank of Iran and letting all these banks back onto
SWIFT despite to think none of these banks have been
rehabilitated from an illicit financial perspective. That is a
concern.
Chairman Fitzpatrick. The gentleman's time has expired. I
appreciate it.
I ask unanimous consent--I know we said we are going to go
to recess. The House Foreign Affairs Committee chairman is
here, Mr. Royce, who would like to be recognized. Without
objection, Mr. Royce is recognized.
Mr. Royce. Thank you, Mr. Chairman.
To get a clear sense of the consequences of Iran's support
for terrorism, I just wanted to give the task force one
horrific example. On January 20, 2007, a convoy of SUVs cleared
several checkpoints to reach a government compound that
included our American security team. Once inside the base, the
vehicle occupants, who were wearing U.S. uniforms provided to
them, and speaking English, by the way, fatally shot one
soldier, and they kidnapped four other U.S. soldiers.
With U.S. and Iraqi forces in pursuit, these Iranian-
supported militias executed our four soldiers in cold blood.
One was the father of two small children from southern
California. Hezbollah, the Quds Force, and their Shia militia
proxies were behind this attack. And shortly after, U.S. forces
apprehended Ali Musa Daqduq, senior Hezbollah operative, who,
together with the IRGC, masterminded that particular attack.
Unfortunately, the current Administration did not retain
custody of this individual, and an Iraqi court released him in
2012. And the point is this: There are many amongst the IRGC
who have had to operate under the restrictions that sanctions
have placed on them. And sanction are being lifted. But they
remain committed to harming the United States. And I don't take
their chants of ``Death to America'' as an idle threat.
As part of the nuclear agreement, the Obama Administration
is committed to bringing the Central Bank of Iran, and a number
of major Iranian financial institutions back into the global
financial system, a financial system that is much different
today than the one that Iran knew in 2012, between the increase
of cryptocurrencies and the increase in the use of non-banks,
our vulnerabilities to Iran's terror finance apparatus have
increased. And our legislative and regulatory structures have
not been adjusted for some time, and my concern is that their
effectiveness is beginning to decline.
So my question to Mr. Dubowitz and to Steve, to Mr. Perles
as well is, what specific measures would you recommend Congress
take to effectively address these vulnerabilities?
And I will add one other question to you, Steve,
Clearstream, a known money launderer for Iran is still moving
Iranian money out of New York to Luxembourg through an illegal
book entry system to keep the Beirut Marines, the families of
those Marines, from enforcing their judgment. In your
experience, what is OFAC doing about this kind of book entry
based laundering for Iran?
If you don't have time to finish this, by the way here, we
could have it for the record. But Mr. Dubowitz and Mr. Perles,
if you would like to give it a shot.
Mr. Dubowitz. Thank you, Chairman Royce.
You are exactly right. Europe is going to become a
Revolutionary Guards economic free zone. The Europeans are
lifting sanctions on the Revolutionary Guards and the Quds
Force. Iran's Revolutionary Guard and Quds Force can now
operate much more freely in Europe.
What would I do? First, Congress should require that the
IRGC be designated as a foreign terrorist organization. It
should also be designated under Executive Order 13224 for
directing and supporting international terrorism. The IRGC is
only designated for proliferation purposes under U.S. law.
Second, as I mentioned earlier, Chairman Royce, this task
force and Congress should require Under Secretary Adam Szubin
to present a rehabilitation program to you with specific
benchmarks to explain how these financial institutions,
including the CBI, will be rehabilitated, and to demonstrate to
you that they are no longer engaged in a full range of illicit
financing.
Mr. Royce. Thank you, Mark.
Steve?
Mr. Perles. Thank you, sir.
Let me start by saying that the Karbala attack that you
referred to in Iraq is one of my cases, and I promise you, sir,
I will see that case through to the end. The Department of
Defense issued POW medals to each of these servicemen and, of
course, they were presented to their families. No nation, let
alone Iran, gets to take a U.S. serviceman into POW status and
extrajudicially execute them. I promise you, sir, I will see
that case through to the end. The conduct there is patently
offensive by any standard.
Mr. Royce. And I think we better get the rest of the answer
for the record in writing.
And, Mr. Chairman, I think you and I better make tracks to
that vote right now. Thank you.
Thank you, sir.
Chairman Fitzpatrick. The task force is in recess. We
appreciate the perseverance of the witnesses. We will be back
at approximately 6:35. Thank you.
[recess]
Chairman Fitzpatrick. This hearing is called back to order.
We appreciate the perseverance of the witnesses and your
testimony today.
Mr. Rothfus of Pennsylvania is recognized for 5 minutes of
questions.
Mr. Rothfus. Thank you, Mr. Chairman.
Again, i thank the panel for sticking with us through that
series of votes. And I apologize for your inconvenience, but
thank you for being here.
I want to talk a little bit about the idea of the
intermingling of the types of sanctions; nuclear, nonnuclear,
ones that were directed towards terror. I am looking at a
report that the Bipartisan Policy Center put out last week. And
they noted that throughout negotiations with Iran, the position
of the United States has consistently been that it would only
lift nuclear-related sanctions as part of a final agreement.
Given the complexity of the U.S. sanctions regime and
numerous overlapping reasons for which sanctions have been
placed on Iran, distinguishing between those measures which are
and are not nuclear-related would pose a significant challenge
to the deal's implementation.
They continue with their analysis, and they say out of more
than 800 entities listed for sanctions relief under the JCPOA,
the Bipartisan Policy Center analysis finds the total of at
least 81 agencies, companies and persons, that were sanctioned
for reasons that are either explicitly nonnuclear or could be
contested as nonnuclear, these include entities that have been
involved in developing ballistic missile systems, weapons
smuggling, supporting terrorism, and violating human rights.
Under a strict interpretation of what constitutes nuclear-
related sanctions, these entities should not be subject to
sanctions relief.
Mr. Dubowitz, I wonder if you want might want to comment on
that and give and me your opinion of how much of an issue this
is?
Mr. Dubowitz. Thank you, Congressman. I think it is a big
issue. And I think what the Administration has done is that
they started to try to recharacterize nonnuclear sanctions as
nuclear sanctions so that they could provide sanctions relief
under the JCPOA. Let me give you an example. Ballistic missile
financing was considered to be a separate example of illicit
conduct. And so, there are a number of designations of Iranian
banks. The designation of the Central Bank of Iran included in
its--on its predicate, the financing of ballistic missiles, but
the Administration had a problem, which is that the Iranians
were demanding negotiations that a number of these entities be
de-designated, including the Central Bank of Iran. And so what
they have done is they have taken ballistic missile financing,
and they have recharacterized that as nuclear financing.
Mr. Rothfus. You might think you would have gotten a
concession if you are releasing a terrorism-related sanction or
a missile-related sanction, that you would have gotten a
commitment from Iran, for example, that they stop exporting
terror.
Mr. Dubowitz. That is true. But what we have to be careful
of here is because the Administration is saying, we retain the
rights to designate on terrorism and human rights ground. But
the fact of the matter is that terrorism and human rights
sanctions, for the most part, are not economic sanctions. And
as a result, what we are effectively doing is we are
dismantling the economic sanctions regime while still retaining
the right to go after Iran for terrorism and human rights
purposes. The problem is if we ever try to go after Iran for
anything that is considered economic, the Iranians will point
to the agreement, and they will say, there is a clause in there
that you promised not to interfere with the normalization of
trade and commercial affairs, and they will say that basically
we retain a nuclear snapback to walk away from the agreement.
So we have dismantled the economic sanctions regime and the
Administration has done that by recharacterizing, effectively,
nonnuclear sanction that--
Mr. Rothfus. Thank you. That is one of the issues I think
people really need to take a look at as they look at this
agreement.
Now, I want to direct this one to Mr. Berman. Earlier this
year, the G-20, whose 34-member countries constitute the
world's major financial centers met in Istanbul and committed
to take action to more aggressively combat terrorism financing
around the world. The G-20 enlisted the assistance of the
Financial Action Task Force (FATF), which will hopefully issue
a report later this year on how to prevent terrorist
organizations from using the global financial system for
fundraising. Should the JCPOA be implemented? How much damage
does it do to this effort by the G-20 and the FATF?
Mr. Berman. Thank you, Congressman. I think it does a
considerable amount of damage, because the sheer volume of
potential funds that will be transferred from Iranian coffers
to its terrorist proxies inevitably will complicate the
analysis of the Financial Action Task Force and also strain
existing mechanisms to monitor and interdict--
Mr. Rothfus. How much easier is it going to be for Iran to
launder money through the financial system to fund its
terrorist proxies under this agreement?
Mr. Berman. I think that is a good question. I am going to
defer to my colleague, Mr. Dubowitz.
Mr. Dubowitz. The problem is that FATF, at the end of the
day, has fundamentally actually depended on American financial
sanctions powers. So, on the one hand, you could say that
because we retain U.S. financial sanctions, we still have
power. On the other hand, it also relies on the ability to get
other nations to go along with us. And what we have effectively
done under this sanctions regime is we have dismantled the EU
sanctions. The EUs, they are lifting all of their sanctions
because the majority of them are nuclear sanctions.
And so as the Europeans go back to business, the Chinese,
the Russians, and everybody else, it is going to be much more
difficult to seek the kind of consensus that we need at FATF in
order to actually crack down on Iranian list of financial
flows, because our very partners are going to be so deeply
invested in the Iranian economy, that it will be more difficult
than it has been in the past to persuade them to enforce these
regulations on their financial institutions.
Mr. Rothfus. I think my time has expired. Mr. Chairman, I
yield back.
Chairman Fitzpatrick. The Chair now recognizes the
gentleman from Arizona, Mr. Schweikert, for 5 minutes.
Mr. Schweikert. Thank you, Mr. Chairman. I would like to
ask for unanimous consent to put some documents into the record
in regards to the charter SWIFT.
Chairman Fitzpatrick. Without objection, it is so ordered.
Mr. Schweikert. Thank you, Mr. Chairman.
Mr. Dubowitz, you are the only one up here who has actually
talked about SWIFT. And this is something I have been trying to
get my head around and wanted to focus on just for a couple of
minutes. First, in 30 seconds--20 seconds, describe the
backbone of what SWIFT is.
Mr. Dubowitz. Congressman, if I wanted to wire money to
you, I am going to wire money from my financial institution to
your financial institution, SWIFT provides the financial
messaging codes that, essentially, allow my financial
institution to identify my bank account and identify your bank
account to your financial institution, so that wire
transactions can take place. SWIFT is the international
backbone and the global standard for financial messaging that
facilitates financial flows around the world.
Mr. Schweikert. Okay. And the secure international backbone
of electronic movement of money? Simple enough? And Belgian
charter. So walk me through a conceptual idea. Let's say this
agreement moves forward, and all of a sudden, Iranian
institutions, banks, others that actually would be--have had a
SWIFT membership, would be able to move money. Except for the
fact that if I am here reading the SWIFT charter, both the
country and an institution that have been involved in bad acts
don't have rights to access that system.
So what happens here? I have here, where we are obligating
ourselves and countries to this agreement, at the same time, I
have a private electronic backbone moving money that is not
allowed to do this, that is the first question. How does that
end up working?
Mr. Dubowitz. The issue is that under the SWIFT bylaws,
they can deny access to any financial institution that brings
the SWIFT system into disrepute. SWIFT connects to something
called Target 2, which is essentially the EU's equivalent of
the U.S. Fed wire. Under the Target 2's bylaws, it said that no
bank engaged in proliferation sensitive financing, terror
financing, or money laundering should be accessing Target 2
through SWIFT. Of course, that fits Iran to a letter, which is
why, ultimately, in 2012, EU regulators ordered SWIFT to de-
SWIFT designated Iranian banks.
The problem: Now they are going to de-designate all of
those Iranian banks, including the Central Bank of Iran. EU
regulators will, whether they order or strongly suggest to
SWIFT that SWIFT reSWIFT or allow them back into the SWIFT
system. And, by the way, there are a lot of bad banks on the
SWIFT system. There are Russian banks, as I mentioned, who are
still there. The problem has been that the Russian banks that
are still there, as I mentioned earlier, the head of the B-C-D
Bank of Russia said if you de-SWIFT my bank, that is an act of
economic war.
So the problem is, SWIFT, I think, will allow these banks
back on. Once they are back on, it would be very difficult to
de-SWIFT them again, despite the bylaws. Because the only thing
that ultimately got SWIFT to move was congressional pressure in
2012 threatening sanctions against SWIFT that led to a chain
reaction.
Mr. Schweikert. For the chartering country, which is
Belgium--
Mr. Dubowitz. Correct.
Mr. Schweikert. --what do its laws end up affecting here?
And my fear is if there is a change of government in Iran, or
something happens, are they able to make an excuse at some
point saying, you haven't given us full access to the world's
financial systems, so we are going to blow up the agreement on
their end.
Mr. Dubowitz. If I am Iran, that is exactly what I am going
to do all the way through this process. I am going to keep
claiming that I am not getting sufficient economic relief.
Because economic relief, the sufficiency of economic relief is
a relative basis. So what Iran would do is claim that they are
not getting it, and then they will use that, excuses to not
actually fully comply with their nuclear--
Mr. Schweikert. Not to allow an inspection. I am just
seeing this sort of tit-for-tat negotiations coming out of
nowhere. And also, the fact of the matter is--and forgive my
language, sort of the bastardization of the movements of
electronic money and the ethics that we particularly, in this
country, have been trying to drive into this. And now we are
about to say, oh, except for in this case, ignore the bad acts.
Use the international system that we have helped create, and it
is okay to move at least these bad actors' money.
Mr. Dubowitz. To me, this is the--essentially, this is
dropping a bomb on Treasury's mandate. Because Treasury's
Office of Terrorism Financial Intelligence (TFI) was set up to
protect the integrity of the U.S. financial system, the global
financial system, from bad actors. It wasn't set up to get a
nuclear deal. It was set up to protect the integrity of their
financial system from money laundering, terror financing,
proliferation-sensitive financing and sanctions of Asia. And by
giving a nuclear deal--this nuclear deal to Iran and
dismantlement of our sanctions regime, we are effectively
saying it is not about conduct-based sanctions anymore. It is
about diplomatic achievement. Now we made this mistake before
with North Korea and Banco Delta Asia. North Koreans got all
those sanctions relief, and they got a nuclear weapon, and we
lost our economic leverage on North Korea.
My fear is we are going to do the same thing again. And
these have deep consequences for our sanctions programs writ
large, including against Russia and other targets.
Mr. Schweikert. Mr. Chairman, I appreciate your patience. I
am just waiting for the day that we are going to owe a family
or many families an apology because we allowed this backbone to
finance some horrible act, and we allowed them to use our own
systems. With that, I yield back, Mr. Chairman.
Chairman Fitzpatrick. The gentleman yields back. The
gentleman from Texas, Mr. Williams, is recognized for 5
minutes.
Mr. Williams. Thank you, Mr. Chairman.
And thank all of you for hanging in there with us tonight.
We appreciate it.
I am one of those who really wants to take care of America
first, and not Iran first. I think a lot of us here on the task
force are concerned about trusting Iran. Obviously,
historically speaking, many of us find it hard to believe that
Iran will actually allow for an open and honest process when
inspecting their nuclear sites. Determining how the JCPOA will
treat military site inspections is something I am really
concerned about. Most importantly, however, the fact that the
President agreed to a deal that lacked inspection, anytime,
anywhere, I believe will have serious consequences. And I am a
small business owner myself. I make deals all the time, and I
am still concerned why we negotiate when ``death to Americans''
and ``death to the Israelis'' is a common theme among the
people we say we can trust.
Now, my question to you, Mr. Heinonen, is the following: I
have heard you say that the 24-day window will allow Iran to
cheat, that Iran has not changed its nuclear course, it is
keeping all the options open for building nuclear arms. Can you
explain your comment?
Mr. Heinonen. Thank you, Congressman. And I will seize the
opportunity also to clarify my rating with Ranking Member
Lynch, who asked about it earlier today. He asked me to rate
the deal on a scale from 1 to 10. And as you see from my
testimony, I actually have divided this testimony in three
parts. One part is the nuclear facilities with nuclear
materials; one is the rights and provisions to access on
nuclear activities, where I raised those concerns, and there is
a third category, which I mentioned in my written statement,
which are some other activities which are proscribed, like
activities related to acquisition of computer software to
design nuclear explosive devices, certain multipoint detonation
systems.
When I looked at the rating for each of those, I think it
is better to look at each of those and you make your own risk
assessment on that.
The first one, when I said rating 7 to 8, this is for
nuclear facilities, the way I see it. And why it is not higher
is because there is this dispute settlement process which you
mentioned 24, up to 24 days or even more. But then, if you ask
me to keep the rating for this access to suspected sites on
nuclear sites, I don't think that I would be give more than 5,
if we use this rating.
And then if you ask my opinion, which other possibilities
to find these computer codes, and someone using them, that is
actually even not really inspection procedure for that, I think
it is a zero. It is not even 1. So I think that this clarifies
an answer to your concerns.
And we need to keep also in our mind that the timeliness
here is of essence. It is probably most with the time when
Iran's capabilities increase. And just as an example, I am not
a sanctions expert, but when you come to year 15, when Iran can
have any number of investment facilities, anyplace, actually, a
little bit deeper in ground than in Fordow, they can produce
oil enrichments they want, then the break-off time goes down,
goes to the weeks or even smaller. And then if you add this
manufacturing of weapon components and others, they are
prepared, that adds another 2 or 3 weeks to this whole picture.
I don't think that the sanctions have any meaning at that point
of time, because Iran already achieved what it needed in a
worst case.
Mr. Williams. My next question is directed to you also,
sir. How important is it that Congress knows which military
sites and scientists the Administration tends to demand access
to?
Mr. Heinonen. That is a difficult question.
Mr. Williams. That is why I asked you.
Mr. Heinonen. I think it is important for the international
community to know these names and installations in public. And
the reason for me is that there are some other states which may
have the information which, for example, the United States of
America Government doesn't have. So by disclosing these names,
these places, we achieve two things: We engage the other states
to the process and this really reinforces the system and makes
any concealment by Iran much more difficult. It also makes the
verification system much more transparent when the names are
known.
Mr. Williams. Thank you.
Mr. Chairman, I yield back.
Chairman Fitzpatrick. The gentleman from Arkansas, Mr.
Hill, is recognized for 5 minutes.
Mr. Hill. Thank you, Mr. Chairman. Dr. Heinonen, I was
interested in talking about, for a minute, the IAEA annexes to
the agreement. Secretary Kerry really was quite dismissive of
those in the briefing to Congress earlier this afternoon.
What amount of importance should we put on the Iranian
document with IAEA in terms of studying it as a part of fully
understanding the verification regime, inspection regime?
Mr. Heinonen. I think it is one of the most important
activities. I have been dealing with Iran for 12 years in a
row. And one of the most difficult things is to get things
written down on paper. What was not written, what was not
specified was allowed. So, therefore, I think that all of those
documents should be available for IAEA member states. I don't
see any technical reason why those should be--seek the
information from the member states of the IAEA. IAEA perhaps
keep some of those information in technical briefings, but,
again, I think that the transparency of the process requires
those to be disclosed so that we can see what kind of
confidence level we have for this verification regime which is
foreseen.
And as I said in my statement earlier today, I think at the
time from mid-August to mid-December, it is much, much too
short to solve this PMD problem. And then I also pointed out
that this IAEA is looking for all the facilities in the annex
of November 2011 report. But Mr. Amano himself has said that
there is some other information which came after this. And the
way I read this JCPOA doesn't really keep this opportunity to
IAEA to go to verify at this stage that other information.
Last, knowing from my own experience from earlier years is
that the IAEA, which reports only information which it is sure
at that point of time and information which meets its standards
for the veracity of the information. So I am sure that there
were also some pieces which, for those reasons, that Mr. Amano
decided not to include in this program. So, therefore, I see in
essence that the [inaudible] of the governments and the
legislative parts will see those details, so that they can do a
full assessment of what we can achieve, and what we cannot
achieve, because after all, these are the elements of your risk
assessment.
Mr. Hill. Right. And I feel like Secretary Kerry, as I
said, Mr. Chairman, was dismissive, and I hope that you will
speak with Chairman Royce about making sure that we see these
annexes and know the detail of the verification regime.
A question for Mr. Berman: You were talking about the GDP
in your written testimony and potential amounts of money that
are being released. Give me some feel for the flow in addition
to any near frozen money that is released. What kind of monthly
flow you think their revenue would be, and also, tell me what
you think the actual amount of foreign reserves should be for
their belt-and-suspenders approach of having adequate cash on
hand were snapback sanctions to come back? How much money would
you estimate? Ten percent of GDP? More? What would you say?
Mr. Berman. I think that is a good question. And it comes
down to sort of a term-of-art calculus. I think the numbers
that we heard earlier from other members of the task force when
we talked repatriation of sanctions of frozen funds that have
already been released in the context of $12 billion to date, I
think that is a useful barometer to look at when we look at the
sum of money that is expected to be provided.
Mr. Hill. How much would you say would be held in reserves?
Ten percent of the GDP? Would that give them that kind of
surety that they would--
Mr. Berman. I think that is a reasonable estimate. My
colleagues might disagree, might have a different estimate.
Mr. Dubowitz. Just to give us a sense of this, in 2012,
2013, Iran's full accessible foreign exchange reserves were $20
billion, economy of about $350 billion GDP. That is why they
were at 4 to 6 months in a severe balance of payment crisis to
the point where we could have actually accelerated the
sanctions and brought them to severe crisis. Would let up. We
gave them $12 billion, which took their foreign exchange
reserves, increased it by 60 percent to $32 billion. Now we are
going to give them at least $100 billion.
Now, their foreign exchange reserves are going to get to
$132 billion, and they have effectively gone from 6 percent of
their GDP to almost 40 percent of their GDP. So that what we
have done is we built up their foreign exchange reserves, which
now increases their economic resilience, and with that kind of
foreign exchange reserve rainy-day fund, over time, it is go to
make it very difficult for us to snap back sanctions and create
the kind of economic pain and time.
And Dr. Heinonen is right. When their industrial size near
zero breakout days away from actually breaking out to a nuclear
weapon, our ability to actually impose that kind of economic
coercive force at that time would be significantly diminished,
because it would take much longer to have any kind of impact,
never mind the impact we had in 2012.
Mr. Hill. Thank you.
Mr. Berman. Might I add one additional factoid just to
round out the discussion? I think it is useful to point out
when we were having the earlier discussion about the amount of
constriction that has occurred with regard to the Iranian
economy as a result of sanctions, we heard about a fifth with
regard to sort of the constriction of Iranian GDP. If these
numbers are anywhere near accurate, if we are, indeed, looking
at $100 billion to $150 billion, we are actually providing or
facilitating the expansion of the Iranian economy by a
significant portion. We are wiping clean the constriction that
occurred as a result of sanctions, and we are actually forcing
an expansion.
I think that should be noted because, as I said before,
money is fungible, and this expanded revenue is likely to
trickle in various ways to Iranian regional activities as well
as to terrorism.
Chairman Fitzpatrick. The gentleman's time has expired. We
will now proceed to a second round of questions, and I would
seek unanimous consent to do so. So, without objection, I will
now recognize Mr. Sherman of California for 5 minutes.
Mr. Sherman. I have heard reports that Iran really has as
little as $28 billion or as much as $150 billion. I would like
to know how much money they have on deposit, and then what are
the obligations that the host bank or the host country is going
to extract from that because obviously, nobody is going to give
Iran its money if it owes it to a domestic vendor, or if it
owes it to the bank where they have the deposit.
So, Mr. Nephew, how much do they have worldwide gross, and
how much of that is obligated?
Mr. Nephew. So, sir, thank you for the question. I would
have to defer to the colleagues at the Treasury Department for
a very accurate, specific set of numbers. My last information
suggests, again, that they have somewhere between $100 billion
and $150 billion in total reserves worldwide. Some of that is
in Iran, and some of that is in--
Mr. Sherman. When you say ``in Iran,'' you mean they have
currency of another country in a vault in Iran, or they have
their own money, which, of course, they have an unlimited
amount of?
Mr. Nephew. No, sir, that they have some other country's
currencies as well as gold, which would also tend to count as
the reserves as well.
Mr. Sherman. Okay. So excluding what is in their country,
we obviously, we are not giving back to them, what do they have
outside their country?
Mr. Nephew. And, again, my estimate would only be
preliminary. I have to defer to Treasury. I would say somewhere
in the neighborhood of--
Mr. Sherman. Trying to get a straight answer out of
Treasury is impossible, and in a classified briefing, it is
almost impossible. So can you tell me what percentage is in
China? What percentage is in Japan? Korea? What percentage is
in India?
Mr. Nephew. I would say a large percentage is in China,
probably in the neighborhood of 20 to 30 percent.
Mr. Sherman. Okay.
Mr. Nephew. I would say that another, maybe 20 percent, is
in Japan, and that the rest is spread between Korea, India, and
Turkey, which are the other main oil importers from Iran.
Mr. Sherman. And none is in Europe, because they stopped
importing a while ago?
Mr. Nephew. Right. There is some that is in Europe, but,
again, if we are talking percentages, you are probably in the
single-digit percentages.
Mr. Sherman. Okay.
Mr. Heinonen, and this picks up on earlier questioning, we
are being told that 24 days is enough, because whatever Iran
does is going to have this signature, and you are going to be
able to tell that something radioactive was there.
What I am most concerned about is can they perfect and
create a raise of their IR-8 centrifuges? Now, in order to
build these centrifuges, they are going to have to test them
and calibrate them. Do they need to use gasified uranium to
calibrate, or could they use an alternative gas in order to
create an array of centrifuges, what I will call a virgin set,
it has never touched uranium, there is nothing reactive in the
room, but they are ready to go?
Mr. Heinonen. Congressman, when you develop this kind of
centrifuge, actually it is basically a three-step process. The
first step is you do what is called a mechanical testing. You
just get them to spin and see that they survive long enough
under the very conditions where they are running. The next step
after that is normally that people use some other gas, like the
Xenon--
Mr. Sherman. Like what?
Mr. Heinonen. --like Xenon, which is noble gas.
Mr. Sherman. Okay.
Mr. Heinonen. But that is the centrifuge, just to see that
they work, because Xenon has several isotopes so you can see
the enrichment factors. So this is very open and second step.
And the beauty of that, if I may say, is that it doesn't cause
any corrosion or--
Mr. Sherman. It is an inert gas, yes.
Mr. Heinonen. Yes, inert gas. And then the third step is
when you run with the uranium gas to see that it still really
works as it was designed.
Mr. Sherman. Is there any substitute for the third step
that does not leave a radioactive signature?
Mr. Heinonen. I don't think that you can perfect the
centrifuges in such a way that it can survive--
Mr. Sherman. So the 24 days might be long enough to catch
them if they went to the third step. They can do computer
modeling. Obviously, we would never catch that.
Mr. Heinonen. Sir, I don't think that this 24 days has much
to do with that because these, first of all, things are
happening in different places. And when you go through the
tests, the last step of the tests, you don't need to test so
many machines.
Mr. Sherman. You don't need to calibrate each one.
Mr. Heinonen. No. You need to use uranium hexafluoride. You
need a room, which is probably the size of this. That is all
that you need. And then if you have 3 weeks' time to sanitize
it, as Mr. Albright also agrees with me, it is doable if you do
the planning in advance. And this is, I think, we need also to
recognize that when people talk about the reception techniques
of Iran in 2003, they were ad hoc arrangements. They were
caught by surprise. But if they have to do it today, they would
have very different--
Mr. Sherman. You are saying you could actually use uranium
hexafluoride gas in a centrifuge in a room like this and walk
into that room 24 days later and not be able to detect that
there had been any radioactive material in that room?
Mr. Heinonen. Yes, you can. But you have to plan it in
advance how you dismount--you can design it in such a way that
this can be done swiftly. And I want to remind you, that there
were places in--
Mr. Sherman. I would hope that you would issue a paper or
something on this to get it the kind of definitive press
coverage because we are being told and the American people are
being told that the 24 days is not too long because if they are
doing anything with uranium involved, it can be detected. And
you are saying not if you plan it in advance?
Mr. Heinonen. Yes. There were cases in 2003 that the IAEA
did not find in certain places enriched uranium, even though
there should have been.
Mr. Sherman. So if we just happened to bring a box of
uranium into this room, hopefully without us in it, and then
moved it out of this room in a few days, it is not certain that
you could detect that uranium had been in the room?
Mr. Heinonen. Provided that you renovate the room.
Mr. Sherman. Renovate the room. Okay. That usually takes
more than 24 days, but this is the U.S. Congress.
I yield back. And I am referring to this exact room.
Chairman Fitzpatrick. The vice chairman of the task force,
Mr. Pittenger, is recognized for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
Mr. Heinonen, 20 years ago, when we negotiated with the
North Koreans, we had the support of allies over there, and the
Japanese, who supported it; South Korea. Is the world safer
because of that agreement? Is the world safer because of the
agreement that we have with North Korea that was negotiated 20
years ago?
Mr. Heinonen. North Korea, yes, I was actually involved
myself from the IAEA side for the Agreed Framework. I think
that the vision of the people who designed the Agreed Framework
at that point in time was that North Korea regime would not be
a very long time. So this agreement, which was supposed--has
now lasted 2 decades, was not supposed to last 2 decades. And
that is why the provisions were like they were.
Mr. Pittenger. Excuse me. Is the world safer today?
Mr. Heinonen. No, for sure not in North Korea.
Mr. Pittenger. Thank you. That is my question.
In my discussions with IAEA in Vienna, my understanding is
that they are limited, when they have access, just to those 17
sites. Is that correct?
Mr. Heinonen. Yes.
Mr. Pittenger. They can't go anywhere else in the country?
Mr. Heinonen. At this point in time, no. But when this
additional protocol provision is sent in, this extra
transparency undertaken by Iran will be implemented, IAEA can
have access to additional places.
Mr. Pittenger. To additional places?
Mr. Heinonen. Additional places.
Mr. Pittenger. Predetermined, pre-agreed. But restricted to
that, and not accessible to anywhere else in the country. If
there is some other clandestine effort taking place, do we have
access to go to other places besides the 17 approved sites?
Mr. Heinonen. The problem is that there are certain
limitations for this access, which I have explained in my
written testimony. This is not anytime, anywhere. You need to
justify in writing why you want to go there, and what is the
information which drives you.
Mr. Pittenger. But if I could, just for times sake, is that
clarified to just be the approved sites, those 17 sites? Can
they say, ``We want to go to another part of the country?''
Mr. Heinonen. According to this agreement, yes.
Mr. Pittenger. Okay. Since the Iranians can stall through
the ICPA for at least a month or more, in reality, several
months, how would we know if Iran is removing compromising
material during this time, and how significant is this lead
time? Does it compromise the inspection process?
Mr. Heinonen. Yes, it cuts. And this is the reason why I
made the clarification to my statement with regard to the
access of suspected and undeclared sites. There, the detection
probably is much lower because of this time-lapse between the
request of access and going there, and in addition to this
extra certification which IAEA has to give and which the
counterpart can use to deceive the organization if it so
wishes.
Mr. Pittenger. Okay. Thank you.
Thank you, Mr. Chairman. I yield back.
Chairman Fitzpatrick. The gentleman yields back.
The Chair recognizes himself for 5 minutes.
Mr. Dubowitz, the Administration has stated that all
sanctions relief is from the nuclear sanctions regime only. And
after reviewing the list of entities and individuals de-
designated, which I think you referred to in your opening
statement--I think that was the list you referred to, and if it
was, we want to include it as part of the record.
My question to you is, do you agree with the
Administration's statement?
Mr. Dubowitz. As I mentioned earlier, Mr. Chairman, the
Administration is taking non-nuclear sanctions and
recharacterizing them as nuclear sanctions. So, on that basis,
I don't agree with the Administration. There were sanctions put
in place that were not related to Iran's nuclear program. They
were related to Iran's ballistic missile program, its money
laundering, it's a list of financial activities. And if you
look at the Central Bank of Iran, which to me is a classic
example of this, and there are other examples, but the Central
Bank of Iran was designated, legislatively designated and
designated by the Administration, and there was a finding under
Section 311 of the PATRIOT Act, and there were numerous
Treasury statements to confirm that it was engaged in a range
of illicit financial activities, nuclear, ballistic missile,
terrorism, money laundering, sanctions evasion, and yet, the
Administration is essentially allowing the Central Bank of Iran
back in the global financial system.
I disagree with Mr. Nephew. There are other ways to
negotiate this. There are ways to actually allow the CBI back
partially. There are ways to actually put down specific
benchmarks and say to the Iranians: Once you have established
and met those benchmarks, then we will rehabilitate your
Central Bank of Iran. But we are not going to wipe away all of
these illicit financial activities just because we have a
nuclear agreement. That could have been proposed and won in a
negotiation. It is not good enough to say that the Iranians
would have rejected it, and therefore, we took it off the
table.
Chairman Fitzpatrick. Why do you think that is happening?
Mr. Dubowitz. I don't want to speculate what is in the
minds of negotiators, and I have a lot of respect for the men
and women who put a lot of their years of their lives into
this, including Mr. Nephew. But I do think that we went into
these negotiations and I believe that the fundamental precept
on the sanctions side was that we can sweep away these
sanctions, but we will reinstate them if we have to. And that
is the construct. The construct is we will take them away, and
we will reimpose them if we need to; instead of saying, how are
we going to defend the sanctions architecture in key ways so
that we maintain the economic leverage, particularly on the
full range of Iran's illicit financial activities, and that
said to the Iranians: We will give you relief here, but we are
not giving you relief there until you establish that your banks
are no longer engaged in the full range of illicit financial
activities. That could have been a separate construct. I think
we could have defended that. I think we would have had
international support for that, but at the end of the day, the
Administration had a very different construct: Take it all way
and reimpose it if they cheat.
Chairman Fitzpatrick. My concern is that some of those de-
designations may affect the rights of American citizens who
have judgments against Iran.
And, Mr. Perles, in my first round of questioning, we
talked about the Beirut barracks bombing, a case I believe you
were involved in. We spoke off the record before the hearing
about how after September 11th, the district that I represent,
Bucks County, Pennsylvania, had too many families who lost a
loved one in the Towers and in other places around the country.
Fiona Havlish was a lead plaintiff in the case. I think Ellen
Saracini was involved in the case against the Islamic Republic
of Iran. They did receive a judgment in excess of a billion
dollars, which is yet uncollected. I saw a Congressional
Research Service list of total awards against Iran, and this,
excluding punitive damages, just compensatory damages, exceeds
$20 billion and doesn't even include the Havlish case from my
district.
So what message are we sending to--and I completely
associate myself with the remarks of Mr. Green earlier about
the four individuals who are hostages today in Iran. We speak
their names on the Floor of the House, and we don't forget
them, and we continue to work for them.
What message are we sending to the individuals who have
claims and judgments uncollected against the Republic? Might
those claims be wiped out as part of this agreement? Any of
you?
Mr. Perles. As counsel for many of the claimants, and I
spoke earlier with you off the record, we share an enforcement
activity with the Havlish plaintiffs and the Justice Department
in New York. The target of that enforcement activity was a
skyscraper, 650 Fifth Avenue in Manhattan, that Iran was using
as a money laundering facility. We sit at the knife's edge
today, not knowing what the impact of this agreement will be on
all of those enforcement activities. We don't know what
instruction the Administration will give to the Justice
Department with respect to this joint seizure that we have done
with the Havlish plaintiffs. We are simply stuck in stasis in
this wait-and-see attitude.
What we do know is at least in the case of this bookkeeping
entry system that we touched upon earlier, which is really the
world's largest hawala banking system--that is all it is at the
end of the day, is the world's largest hawala banking system. A
Federal judge in Manhattan last year asked OFAC to comment on
the lawfulness of this hawala system. This is Clearstream SA, a
Luxembourg country owned by Deutsche Borse running what we
track--I have no idea how much money really went through the
account. We were able to track $1.67 billion of Iranian money
going out of JPMorgan Chase by this bookkeeping system. And
OFAC, frankly, declined to opine upon the lawfulness of that
sort of transaction. From a practitioner's perspective, that is
very frightening because if a Clearstream can move Iranian
money in and out of New York by book entry without it being a
violation of law, the entire sanctions regime--and I am not
talking about Iranian sanctions; I am talking about sanctions
across-the-board--collapses. It means that any drug cartel, for
example, could move their money to Luxembourg in a Gulfstream
and have a Luxembourg-based bank move it into the U.S. system
by book entry. It is unreportable and--
Chairman Fitzpatrick. Mr. Perles, that skyscraper to which
you are referring, Fifth Avenue in Manhattan, New York City, I
believe is owned by Assa Corporation, which is alleged to be a
shell corporation controlled by Iranians.
Mr. Perles. That is correct.
Chairman Fitzpatrick. My concern is that the Assa
Corporation is on the list of organizations to be de-
designated, which goes back to Mr. Dubowitz's concern, what
does this have to do with nuclear sanctions, and what is really
happening here, and what is the impact? Perhaps that is a
subject for another hearing.
Mr. Dubowitz. Mr. Chairman, if I could just add one quick
thought. Mr. Nephew said that we are going to give $100 billion
of Iran's money back to Iran. It is interesting, I wonder if
U.S. negotiators, maybe you can ask Secretary Kerry this, did
they ever say to the Iranians: Of the $100 billion that we are
going to give you back, we are going to take X percent, and we
are going to use that to satisfy the claims for the judgments
of Iranian victims of terrorism. So before we give you money
back so you can use it to create future victims of Iranian
terrorism, you are going to pay those judgments out of that
money. And we are going to give you, for every dollar that we
give you--for every dollar that we take, we are going to give
80 cents back to you and 20 cents back to the victims of
Iranian terrorism. That would have been an easy way to have
settled this issue.
Chairman Fitzpatrick. My time has well expired.
And the vice chairman of the task force is recognized for
the final question of the hearing.
Mr. Pittenger. Thank you, Mr. Chairman.
Mr. Perles, in representation of your clients, you made
contact with OFAC, DOJ, the Solicitor General, as I understand,
on behalf of your clients--
Mr. Perles. On a variety of matters related to--yes.
Mr. Pittenger. --in seeking assistance on their behalf. Can
you tell us the nature of that? We understand that your request
was denied on one occasion at least, and you didn't--you were
rebuffed by them? Could you give us some context for that, and
is this consistent with your previous work with the government?
Had they been cooperative in the past, and why were they not
this time?
Mr. Perles. What we currently see could be more
appropriately characterized as nonresponsiveness. And we just
talked about the fact that a Federal judge asked OFAC to opine
upon the lawfulness of this gigantic hawala banking system. We
were in touch with OFAC after that request was made, and OFAC
simply failed to respond. They advised the Federal judge that
they were not going to respond.
We had hoped to be finishing up our activities at the
Supreme Court last spring. We were waiting for the Solicitor
General to opine upon the constitutionality of statutes that
you gentlemen passed to assist victims of terror. We are still
waiting. I certainly hope that the Solicitor General will opine
upon the constitutionality of those statutes this fall, but we
have no schedule. We really don't know where we are.
That is a very different contrast to where we were at the
conclusion of the Bush Administration. Stuart Levey, for whom I
have enormous respect, turned intelligence data over to us so
that we could seize $1.9 billion that was transient in New
York. At that time, he said to us: Your point of contact in the
Treasury will be the General Counsel of OFAC. The General
Counsel of OFAC gave me a phone number to call when I needed to
reach him. It was always answered by a recording, and I always,
without fail, received a call back from him within 10 minutes
of the time I called. We just don't see that anymore. It is
just not happening.
Mr. Pittenger. So you have seen a reluctance on behalf of
those who represent our government to assist American citizens
in their claims against Iran?
Mr. Perles. Yes, sir.
Mr. Pittenger. Thank you very much.
I yield back.
Chairman Fitzpatrick. The gentleman yields back.
I would like to, again, thank our witnesses for their
testimony here today.
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.
Without objection, this hearing is adjourned.
[Whereupon, at 7:42 p.m., the hearing was adjourned.]
A P P E N D I X
July 22, 2015
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]