    [Senate Hearing 114-417]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 114-417

            UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRAN DEAL

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

                                    HEARING

                                   before the

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                       ON

    EXAMINING THE NATURE OF THE SANCTIONS RELIEF THAT IS BEING PROVIDED TO
       IRAN, INCLUDING THE RECENT FOCUS ON THE POTENTIAL FOR GIVING IRAN
       ADDITIONAL ACCESS TO THE U.S. FINANCIAL MARKET IN RETURN FOR ITS
     PREVIOUSLY NEGOTIATED TEMPORARY NUCLEAR-RELATED COMMITMENTS SET FORTH
                 IN THE ``JOINT COMPREHENSIVE PLAN OF ACTION''

                                   __________

                                  MAY 24, 2016

                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

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                     Available at: http: //www.fdsys.gov /

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                              Washington, DC 20402-0001

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      RICHARD C. SHELBY, Alabama, Chairman

    MIKE CRAPO, Idaho                    SHERROD BROWN, Ohio
    BOB CORKER, Tennessee                JACK REED, Rhode Island
    DAVID VITTER, Louisiana              CHARLES E. SCHUMER, New York
    PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
    MARK KIRK, Illinois                  JON TESTER, Montana
    DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
    TIM SCOTT, South Carolina            JEFF MERKLEY, Oregon
    BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
    TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
    MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
    JERRY MORAN, Kansas

               William D. Duhnke III, Staff Director and Counsel
                     Mark Powden, Democratic Staff Director
                        Dana Wade, Deputy Staff Director
                        Jelena McWilliams, Chief Counsel
        John O'Hara, Senior Counsel for International Terrorist Finance
                Laura Swanson, Democratic Deputy Staff Director
                    Graham Steele, Democratic Chief Counsel
                   Colin McGinnis, Democratic Policy Director
                           Dawn Ratliff, Chief Clerk
                          Troy Cornell, Hearing Clerk
                          Shelvin Simmons, IT Director
                              Jim Crowell, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                             TUESDAY, MAY 24, 2016

                                                                       Page

    Opening statement of Chairman Shelby.............................     1

    Opening statements, comments, or prepared statements of:
        Senator Brown................................................     2

                                   WITNESSES

    Juan C. Zarate, Chairman and Cofounder, Financial Integrity
      Network........................................................     4
        Prepared statement...........................................    31
    Mark Dubowitz, Executive Director, Foundation for Defense of
      Democracies' Center on Sanctions and Illicit Finance...........     7
        Prepared statement...........................................    46
    Michael Elleman, Consulting Senior Fellow for Regional Security
      Cooperation, International Institute for Strategic Studies--
      Americas.......................................................     8
        Prepared statement...........................................    72
    Elizabeth Rosenberg, Senior Fellow and Director, Energy,
      Economics, and Security Program, Center for a New American
      Security.......................................................    10
        Prepared statement...........................................    78
        Responses to written questions of:
            Senator Heitkamp.........................................    84

                                     (iii)

            UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRAN DEAL

                                  ----------

                             TUESDAY, MAY 24, 2016

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10:30 a.m., in room SD-538, Dirksen
    Senate Office Building, Hon. Richard C. Shelby, Chairman of the
    Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

        Chairman Shelby. The hearing will come to order.
        Today the Committee will receive testimony on the
    repercussions of lifting economic sanctions from the world's
    leading State sponsor of terrorism--Iran.
        In particular, it is important for this Committee to
    understand the effects of implementing the Joint Comprehensive
    Plan of Action, or more simply, the ``Iran deal''. Time and
    again, Iran's actions have demonstrated that this deal has
    placed the U.S. in a position of weakness and given Iran the
    upper hand.
        As U.S. and global sanctions evaporate, Iran continues, and
    in some cases appears to expand, its dangerous behavior. It
    continues to express its commitment to the destruction of
    Israel. It continues to operate its aggressive ballistic
    missile programs, including testing these missiles five times
    since the Iran deal's implementation date.
        Yes, it continues to conduct illicit financing, sending
    hundreds of millions of dollars to groups like Hezbollah. It
    continues to promote severe and widespread human rights abuses,
    including record numbers of executions and oppressive
    restrictions on civil liberties.
        We are now more than 4 months into the implementation of
    the Iran deal in which Iran promised to refrain from building a
    nuclear weapon in exchange for significant sanctions relief.
        There is already a growing belief that this Administration
    has little interest in preserving the tools it would need to
    reimpose sanctions, should Iran violate the terms of the deal.
        And while the world relies on the promises of a rogue
    Nation, Iran has begun to see immediate benefits from the
    agreement, despite its claim that they are not accruing fast
    enough.
        For example, the deal gave Iran prompt access to
    approximately $100 billion in previously frozen overseas
    assets. The deal also suspended virtually all European Union
    and United Nations sanctions imposed since 2010, including
    those on Iran's valuable energy sector.
        In addition, it lifted most U.S. secondary sanctions on
    foreign entities and countries that transact business with
    Iran, including in the energy and banking sectors.
        Still, the Obama administration continues to actively
    engage in further opening Iran's economy to the world. In March
    of this year, Treasury Secretary Lew said that the
    Administration would continue to seek ways to ``make sure Iran
    gets relief.''
        In particular, the Administration has indicated its
    willingness to create avenues for a legitimate dollar trade
    with Iran, notwithstanding assurances that no Iranian
    transactions will touch the U.S. financial system in any way.
        Undoubtedly, access to the world's strongest and most
    liquid currency would allow the Iranian economy to flourish in
    comparison to current levels. But with such new-found wealth,
    there would be no restrictions on how Iran would spend their
    windfall.
        Many fear that there is absolutely no way to restrain a
    growing Iranian economy from funding Hezbollah, the Islamic
    Revolutionary Guard, Iran's missile program, and other
    priorities of Iran's Supreme Leader.
        It is no surprise that, despite the misguided efforts of
    the Administration to put the global banking system at ease,
    financial institutions are reluctant to do business with Iran,
    as well they should be. Not only are international banking
    sanctions extremely--and purposefully--complicated to unwind,
    but the reputational risk that Iran poses remains significant.
        Issues like these illustrate how the Iran deal was sealed
    before it was clear on how it would be implemented and, thus,
    whether or not it would work.
        And while Iran has not changed any of its non-nuclear
    reckless behavior, it has become apparent that the
    Administration will bend over backwards to try to make the
    agreement even more attractive to Iran. During last year's
    negotiations, the White House gave the impression to Iran and
    the world that it thought any deal was better than no deal.
    Unfortunately, it is taking extreme measures to try to make a
    bad deal work.
        I look forward to the testimony here today of our witnesses
    as the Committee evaluates the important issues before us and
    considers necessary and appropriate actions.
        Senator Brown.

                   STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. Thank you, Mr. Chairman. For the next 2
    days, this Committee will examine the continuing role of U.S.
    sanctions on Iran, those lifted under the terms of the Joint
    Comprehensive Plan of Action and those still in place, to
    combat Iran's ongoing malicious behavior.
        Iran is a State sponsor of terrorism. It destabilizes the
    region. It violates the human rights of its people. That is why
    the United States and our ally policymakers decided to focus on
    preventing the single greatest threat to the region and to the
    world--its nuclear program. They knew a nuclear-armed Iran
    would pose grave risks to us in our country, to Israel, and to
    the region. This original rationale is worth bearing in mind
    given the partisan rancor on this effort in the last 2 years.
        Long before the JCPOA, there had been a broad bipartisan
    consensus in the Bush administration and the Obama
    administration on using tough economic sanctions to force Iran
    to the negotiating table and to agree to steps to block its
    pursuit of a nuclear weapon. In 2008, President Bush's National
    Security Adviser, Condoleezza Rice, signed a memorandum with
    P5+1 allies stating that, in return for Iran agreeing to limit
    its nuclear program, the U.S. was ready to recognize its right
    to peaceful nuclear energy, to work with its leaders to build
    confidence to begin to normalize trade and economic relations,
    and allow for civil aviation cooperation. A number of my
    colleagues have forgotten that position taken by an
    Administration not named Obama. That served as the basis for
    future discussions in the Obama administration.
        That is why I was so disappointed--and I think most people
    in this country were so disappointed--in the partisan nature of
    the debate last year, including from colleagues who opposed the
    JCPOA even before reading it. Contrary to opponents' dire
    predictions, Iran complied with its commitments under the 2013
    Interim Agreement, and the International Atomic Energy Agency
    has verified that Iran has met its JCPOA obligations.
        Critics said our sanctions regime would unravel. They
    exaggerated the amount of sanctions relief Iran would receive.
    They claimed Iran would never shut down its centrifuges or
    disable its plutonium reactor or ship out its uranium or allow
    real-time monitoring of its nuclear sites. More recently, some
    allege that the Administration was preparing to provide Iran
    direct access to the U.S. financial system. Wrong on every
    count.
        The nuclear agreement was one of the most significant
    national security achievements in a generation. It was
    accomplished without dragging the United States into another
    war in the Middle East.
        This history underscores two points:
        First, economic sanctions are means, not ends. Whether
    applied to Iran or Russia or Burma, they are meant to bolster
    diplomacy and force concrete changes in a Nation's behavior. In
    Iran's case, economic sanctions strengthened our national
    security and that of allies like Israel by forcing Iran's
    leaders to abandon key elements of their nuclear program--think
    back to Condoleezza Rice and President Bush--by forcing Iran's
    leaders to abandon key elements of their nuclear program that
    could have led to a bomb.
        Second, whether we support it or oppose the JCPOA, we all
    understand the need to continue to combat the threat that Iran
    continues to pose to the United States or our allies. That
    requires the Administration to enforce existing sanctions, to
    designate new sanctions targets, to block Iran's pursuit of
    military technologies, and to take other steps to confront Iran
    and its terrorist proxies like Hezbollah.
        It requires Congress to confirm immediately our chief
    sanctions enforcer from whom we will hear today. Just
    parenthetically, we know that Acting Under Secretary Szubin was
    originally a Bush appointee. Now he is an Obama appointee, and
    his confirmation has been blocked. He should be in place with
    full powers and the full support of the Senate. This nomination
    has been blocked for over a year, first by this Committee, now
    by Republican leadership on the Senate floor.
        Congress must continue to provide close oversight and
    support robust military and other aid to regional partners like
    Israel. We should be focused on holding Iran's feet to the fire
    to ensure strict implementation of the agreement and to
    pressure leaders to change their own destabilizing behaviors.
        I hope my colleagues will not try to relitigate the JCPOA
    by trying to reimpose old nuclear sanctions under new labels.
    Broad new sanction legislation that contradicts our commitments
    and tries to tie the President's hand would undermine the unity
    we have developed with our P5+1 partners around the world, and
    we should remember that. That will not help confront the
    threats Iran continues to pose or help the cause of regional
    stability. It will be seen as transparently political. It will
    invite a Presidential veto.
        I welcome our witnesses. I look forward to hearing their
    perspectives.
        Chairman Shelby. Thank you, Senator Brown.
        First, we will receive testimony from the Honorable Juan
    Zarate, chairman of the Financial Integrity Network, who also
    served as the Deputy Assistant to the President and Deputy
    National Security Adviser for Combating Terrorism from 2005 to
    2009.
        Next we will hear from Mr. Mark Dubowitz, executive
    director of the Foundation for Defense of Democracies.
        Then we will hear from Mr. Michael Elleman, consulting
    senior fellow for regional security cooperation at the
    International Institute for Strategic Studies.
        Finally, we will receive testimony from Ms. Elizabeth
    Rosenberg, a senior fellow and the director of the Energy,
    Economics, and Security Program at the Center for a new
    American Security.
        Mr. Zarate, we will start with you. All of your written
    testimony will be made part of the hearing record in its
    entirety, and if you have been here before, you know you can
    sum up your remarks. Thank you.

    STATEMENT OF JUAN C. ZARATE, CHAIRMAN AND COFOUNDER, FINANCIAL
                           INTEGRITY NETWORK

        Mr. Zarate. Chairman Shelby, thank you for that kind
    introduction and the honor to be here today before you. Ranking
    Member Brown, thank you. Distinguished Members of the Senate
    Banking Committee, it is an honor to be back before you today,
    as well as to be testifying with this distinguished panel whom
    I count as friends as well as colleagues.
        Chairman, when the JCPOA was being debated, I expressed
    deep concerns about the structure, demands, and effects of the
    nuclear deal on U.S. interests, especially in anticipation of
    increased Iranian belligerence and adventurism. Predictably, we
    have seen that belligerence continue.
        Iran remains the leading State sponsor of terror and has
    continued its direct support to terrorist and militant proxies
    from the Golan to Yemen. Iran has conducted repeated ballistic
    missile tests in violation of U.N. sanctions. Iran has deployed
    troops and dispatched Shi'ite militias from around the world to
    fight for the Assad regime in Syria. Iran has continued to
    engage in human rights abuses. Iran continues to hold two
    American citizens unjustly while Robert Levinson remains
    unaccounted for.
        In January of this year, Iranian naval forces arrested
    American sailors at gunpoint, broadcasting the video of their
    detention. And, Mr. Chairman, Iran continues to develop its
    cyber capabilities and has engaged in malicious cyberattacks
    against U.S. Government sites, the private sector, specific
    individuals, and sites like the Bowman Dam in the suburbs of
    New York.
        Last year, Mr. Chairman, I explained that the JCPOA was
    fundamentally flawed, in part because it would empower and
    enrich the regime and ultimately constrain our ability to use
    the most effective financial and economic tools of isolation to
    counter dangerous Iranian behavior. Those deficits are
    revealing themselves.
        I think it is important for this Committee to consider
    three fundamental issues with respect to the important role of
    sanctions and the nuclear deal moving forward.
        First, Mr. Chairman, there is inherent tension and even
    contradictions in what the JCPOA promises. Ultimately, what we
    negotiated and promised was reintegration of Iran into the
    global economic system. Though non-nuclear sanctions were
    supposedly off the table, the agreement neuters U.S. ability to
    leverage one of its most powerful tools: its ability to exclude
    and unplug rogue Iranian actors' activities from the global
    financial and commercial system. Promising Iranian
    reintegration into the global system was not possible unless we
    were willing to defang our sanctions regime and ignore Iranian
    behavior, rehabilitate the perception of the Iranian regime
    ourselves, and take the most effective tools of financial
    isolation off the table.
        The constriction campaign that was applied over the course
    of years--and I appreciate Senator Brown's reflection on that--
    was intended to use the illicit, dangerous, and illegitimate
    nature of Iranian activity as the driver for unplugging Iran
    from the global financial and commercial system. That
    underlying conduct has not changed. If anything, the risks have
    increased, especially as Iran uses the financial and commercial
    system to pursue all its goals. The Iranian system is corrupt,
    lacks transparency at all levels, and is centrally controlled
    by the regime. This explains why legitimate businesses are wary
    of reentering the Iranian market and why the Iranian leadership
    continues to complain that the United States has not satisfied
    its side of the bargain.
        Second, Mr. Chairman, and unfortunately, the United States
    is falling into the trap of rehabilitating the Iranian economy.
    Throughout this deal, the onus should remain solely on Iran to
    alleviate concerns about its activities, lack of transparency,
    and failure to meet heightened global standards of financial
    integrity in the banking and commercial worlds. Iran should not
    get a free pass. This posture should force the Iranians to turn
    inward to determine how they can meet international
    expectations instead of trying to compel the United States and
    Europe to alter their standards or dictate to the private
    sector where and with whom they should do business.
        Some recent U.S. actions have created the impression that
    the U.S. and European Governments have assumed the burden of
    reintegration of the Iranian economy into the global system.
    There have been reports that the U.S. might offer Iran the
    ability to access offshore dollar-clearing facilities, to allow
    for dollar-denominated transactions, and ease Iran's ability to
    trade internationally. The United States should not be offering
    special exemptions of measures to assist Iran with access to
    dollars while Iran remains a leading State sponsor of terror,
    subject to serious sanctions, and designated as a primary
    money-laundering concern.
        The U.S. Government has been sending delegations around the
    globe to clarify existing sanctions and obligations, and
    apparently to explain how business with Iran may be undertaken
    with the Iranian regime. The burden instead should fall on Iran
    to demonstrate that its activities, policies, and use of its
    system is legitimate, transparent, and meets international
    standards.
        The U.S. has announced that it plans to buy heavy water
    from the Iranian nuclear system. The U.S. should not usher Iran
    into the global economy, especially not in the nuclear markets.
        Finally, the U.S. Treasury officials have reiterated their
    commitment to enforcing existing sanctions vigorously and
    maintaining the ability to use these tools effectively. These
    commitments, however, are undercut when the U.S. modifies its
    message to suggest that our sanctions regime should not
    constrain or affect the risk calculus of the private sector.
    Quite to the contrary, Mr. Chairman, the U.S. should be doing
    everything possible to reinforce the power and reach of U.S.
    measures.
        Third, Mr. Chairman, we should continue to view the use of
    sanctions and the process of unwinding itself as critical and
    strategic levers to effect Iranian behavior. The U.S. should
    treat the JCPOA and its implementation as an ongoing process
    and evolution where sanctions and sanctions unwinding form a
    strategic part of U.S. and international efforts to not only
    enforce the deal but maintain economic and financial leverage
    against Iran, to push back on dangerous Iranian activity, and
    force the Iranians to make hard decisions about their role in
    the world.
        Mr. Chairman, the Iranian regime has needed access to
    capital, new technologies, and connectivity to the markets
    globally. That is what it lost over the past decade. It is what
    the negotiated to regain in the JCPOA. And it is now the source
    of Iran's most significant complaint.
        The United States must be willing to use its financial and
    economic toolkit to constrain dangerous Iranian behavior and
    encourage responsible Iranian activity. In fact, this is an
    alternative to war.
        And just briefly, Mr. Chairman, this means forcing Iran to
    deal with the demands of the international marketplace on their
    own and addressing the underlying conduct that has proven
    problematic and continuously risky.
        The United States will need to rely on sanctions and
    financial measures even more in the future, and we should be
    doing everything possible now to reinforce the strength and
    endurance of these powers--against Iran, against its proxies,
    and against other rogues in the international system.
        Thank you, Mr. Chairman.
        Chairman Shelby. Thank you.
        Mr. Dubowitz.

    STATEMENT OF MARK DUBOWITZ, EXECUTIVE DIRECTOR, FOUNDATION FOR
    DEFENSE OF DEMOCRACIES' CENTER ON SANCTIONS AND ILLICIT FINANCE

        Mr. Dubowitz. Chairman Shelby, Ranking Member Brown,
    Members of the distinguished Committee, on behalf of the FDD
    and its Center on Sanctions and Illicit Finance, thank you for
    the opportunity to testify. And it is certainly an honor to be
    testifying with Juan and Michael and Liz, whose work I greatly
    admire and whose service to our Nation I am thankful for.
        Iran is engaged in a robust effort to legitimize its
    financial sector despite a decades-long rap sheet of financial
    crimes that it shows no sign of curbing. Since the conclusion
    of the JCPOA, the Obama administration has missed numerous
    opportunities to push back against this legitimization
    campaign. Instead of using non-nuclear sanctions to deter and
    punish Iran's continuing malign activities, the Administration
    runs the risk of being seen as the Islamic Republic's Trade
    Promotion Authority.
        Iran complains that it has not received the sanctions
    relief it was promised, and the White House seems to think that
    it is our responsibility to deliver. But the regulatory and
    economic realities are very different. The Administration
    honored its commitments on Implementation Day in lifting or
    suspending the entire ``nuclear-related'' sanctions
    architecture. Iran, in fact, has already received an economic
    windfall: The JCPOA (as well as the interim agreement) provided
    Iran with economic relief that helped Tehran avoid a severe
    economic crisis and even initiate a modest recovery. The
    lifting of restrictions and access to $100 billion in overseas
    assets and Iran's return to oil markets have all given Tehran
    hard currency to settle its outstanding debts, begin to repair
    its economy, build up its foreign exchange reserves, and ease a
    budgetary crisis. This has now freed up funds for financing
    terrorism.
        Meanwhile, Iran continues ballistic missile development,
    regional destabilization, and egregious human rights abuses,
    and all of these have become just as problematic or, in fact,
    have gotten worse since the agreement.
        Administration officials repeatedly pledged to you that
    they would continue to enforce non-nuclear sanctions to deter
    and punish Iran's dangerous activities. But in response, Iran
    has threatened to walk away from the deal and snap back its
    nuclear program if any meaningful sanctions are imposed for any
    reason.
        Congress should reject this nuclear blackmail and hold the
    Administration accountable for its commitments. Sanctions
    against Iran's many malign activities are not JCPOA violations,
    as Iran claims, but, rather, an affirmation of U.S. policy as
    Secretary Kerry himself as articulated to ``oppose Iran's
    destabilizing policies with every national security tool
    available.''
        But it does not appear that the Administration is going to
    stand behind its own policy. Since the nuclear deal was signed,
    only nine individuals and nine entities have been added to
    Treasury's sanctions for all of Iran's ongoing illicit
    activities. These measures include ineffectual missile
    procurement sanctions imposed in response to repeated missile
    tests, and at the United Nations, the Administration has backed
    away from using the term ``violations,'' instead arguing that
    the missile tests are inconsistent with Security Council
    Resolution 2231.
        I would note Iran is in flagrant violation of 2231, which
    is the implementation resolution of the JCPOA. So I ran is not
    in compliance unless you draw an artificial distinction between
    the deal and the U.N. Security Council resolution that
    implements the deal.
        Moreover, while the Administration has talked about human
    rights sanctions as a necessary tool to counter the regime's
    domestic oppression, that oppression has only intensified. And,
    in fact, the Administration has designated no individuals or
    entities for human rights abuses since the nuclear deal was
    reached and, in fact, only one individual and two entities
    since President Rouhani came into power in the summer of 2013.
    And now in response to Iranian pressure, as Mr. Zarate has
    said, the Administration is considering a new unilateral
    concession: direct or indirect access to dollarized financial
    transactions. This concession undercuts the effectiveness of
    our entire non-nuclear sanctions strategy which depends on the
    private sector's fear of the risks involved in transacting with
    Iran because of its illicit financial conduct. Allowing
    dollarized transactions aids Iran's push to legitimize its
    financial sector without ceasing the terrorism and missile
    financing, money laundering, and sanctions of Asian activities.
        The JCPOA gave Iran a patient pathway to nuclear weapons
    capability by placing limited, temporary, and reversible
    constraints on its nuclear activities. It turned the regime
    from a nuclear pariah into a nuclear partner, without requiring
    it to come clean on its illegal weaponization activities. The
    regime is now trying to follow the same legitimization strategy
    by trying to gain international acceptance without demonstrable
    change in its illicit conduct. Change has to go far beyond a
    mere exercise in checking the box on technical requirements
    from the Financial Action Task Force related to money
    laundering and terror financing, and it has to require
    substantive changes in behavior. As long as Iran continues to
    fund Hezbollah, Tehran should never be legitimized as a
    responsible financial actor.
        Let me conclude with this: Secretary Lew recently argued
    that sanctions are an effective instrument to address illicit
    activities, but they must be lifted when the illicit behavior
    changes. This is a very important principle, but it misses a
    crucial detail: Iran has not addressed the underlying illicit
    behavior that prompted many of the U.S. sanctions in the first
    place.
        Thank you for the opportunity to testify today. I look
    forward to your questions.
        Chairman Shelby. Thank you.
        Mr. Elleman.

      STATEMENT OF MICHAEL ELLEMAN, CONSULTING SENIOR FELLOW FOR
      REGIONAL SECURITY COOPERATION, INTERNATIONAL INSTITUTE FOR
                      STRATEGIC STUDIES--AMERICAS

        Mr. Elleman. Yes, thank you. Chairman Shelby, Ranking
    Member Brown, distinguished Members of the Committee, and the
    panel, I thank you for the opportunity to speak before you
    today.
        As background, I wanted to say that my statement is
    informed by over two decades working as a missile scientist at
    Lockheed Martin's research laboratories and more than 25 years
    observing and writing about ballistic missile proliferation. In
    2010, I authored a dossier by the International Institute for
    Strategic Studies on Iran's ballistic missile capabilities. I
    continue to monitor missile developments around the world.
        Ballistic missiles are central to Iran's deterrence posture
    and will remain so for the foreseeable future. This priority
    assigned to ballistic missiles is reflected by the size and the
    scope of Iran's arsenal. Given this importance, Iran is highly
    unlikely to surrender its current stockpile of systems. Even if
    Iran acquires advanced military aircraft, ballistic missiles
    will continue to play a primary role in Iran's force structure.
        Iran's missiles can reach targets throughout the region.
    When armed only with conventional warheads, the missiles have
    limited military utility because they lack the accuracy to be
    able to predictably and reliably destroy a specific target.
    They can, however, be used to disrupt operations at key air
    bases, ports, and military facilities. Missile strikes against
    major cities could sow terror, potentially weaken the political
    resolve of Iran's adversaries and our partners. Iran exploits
    this fear of missile attacks by frequently brandishing its
    capabilities, including flights tests. In so doing, it seeks to
    deter, decouple the U.S.-Gulf partnership and intimidate
    regional rivals.
        Ballistic missiles no doubt would be the preferred delivery
    platform should Iran ever acquire an atomic weapon. There is no
    formal definition of what constitutes a nuclear-capable
    missile, although the range-payload thresholds established in
    the Missile Technology Control Regime offer a broadly accepted
    classification measure. The MTCR restricts the transfer of
    missiles capable of delivering a 500-kilogram warhead to 300
    kilometers.
        Iran's Shahab, Qiam, Ghadr, Emad, and developmental Sajjil
    missiles all fit under this threshold definition. Iran
    possesses more than 300 nuclear-capable ballistic missiles.
        Flight tests are an essential element of any missile
    program. Because Iran views ballistic missiles as a critical
    instrument of statecraft, deterrence, and warfighting, it will
    continue to test missiles. Sanctions are unlikely to prevent
    them from testing.
        The pace of missile testing by Iran last year and this year
    is consistent with past practices. But Iran did not conduct any
    nuclear-capable missile launches in 2005, 2013, and 2014, when
    serious nuclear negotiations were underway. From 2006 to 2012,
    when the talks were going nowhere, Iran averaged roughly five
    tests per year. Three tests were performed last year, and five
    have occurred this year.
        I have seen no evidence to suggest that Iran is trying to
    actively develop an intermediate- or intercontinental-range
    ballistic missile. I cannot speak to a covert program. The need
    to flight test missiles before they are made operational
    provides advanced warning of any new capabilities. Flight
    trials historically require 3 to 5 years, sometimes many more.
        Available evidence, including the recent debut of the Emad
    missile in October of 2015, indicates that enhancing missile
    accuracy supersedes Iran's quest for longer-range systems.
        Iran has used large rockets, however, to launch satellites
    into space. Satellite launch activity could in principle be
    used as the springboard to developing an intercontinental-range
    missile. But no country has ever converted a satellite launcher
    into a long-range missile. Iran is highly unlikely to develop
    and deploy an operationally ready intermediate-range missile
    before the end of this decade or an ICBM before 2022.
        Iran possesses the technical, project management, and
    industrial capacity to develop and field ballistic missiles
    that it desires within reason. However, Iran is not fully self-
    sufficient. It must still import key components, materials, and
    technology to support the production and development of
    missiles. These vulnerabilities can and should be exploited.
        Containing the program. Past multilateral sanctions appear
    to have slowed the development of Iran's Sajjil medium-range
    missile. The U.N. Panel of Experts on Iran sanctions played an
    important role in this success by enhancing international
    awareness and investigating violations of Resolution 1929. The
    Panel does not exist under Resolution 2231. It should.
        The success of unilateral sanctions against Iranian
    enterprises and individuals is historically ambiguous. As Iran
    enters into the international trade, unilateral sanctions may
    or may not be more effective. It is difficult to predict.
        The Proliferation Security Initiative, initiated under the
    Bush administration, is an international effort to disrupt the
    flow of WMD items, technologies, and related materials and
    could be an effective tool for intercepting shipments from
    North Korea, Iran's principal if not sole source of liquid
    propellant missile engines. Joint missile defense exercises
    with our Gulf partners--and Israel--offer a tangible counter
    narrative to Iran's missile tests and will enhance defense
    effectiveness in the long run.
        And, finally, Iran has said that it does not need missiles
    with a range exceeding 2,000 kilometers. The U.S. should
    explore options that, at a minimum, would codify legally that
    range limit. Other limitations may be ripe for negotiation,
    including those that increase the transparency of Iran's space
    program, which would limit its ability to break out and create
    an ICBM.
        Thank you. I look forward to your questions.
        Chairman Shelby. Thank you.
        Ms. Rosenberg.

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

        Ms. Rosenberg. Chairman Shelby, Ranking Member Brown, and
    distinguished Members of the Committee, thank you for the
    opportunity to testify today on the role of sanctions under the
    Iran deal.
        The Iran sanctions regime was, and remains, the most
    comprehensive program of U.S. and international sanctions
    commensurate with the grave security concerns regarding Iran's
    nuclear proliferation activities, its regional destabilization,
    ballistic missile program, support for terrorism, and abuse of
    human rights. Many U.S. and international sanctions on Iran
    were waived on Implementation Day, the milestone of the nuclear
    agreement, recognizing Iran's completion of its major initial
    nuclear commitments.
        However, the United States maintains sanctions authorities
    relevant to Iran as part of the deal as well as a wide array of
    sanctions on Iran outside the scope of the deal, and the
    existing architecture of Iran's sanctions remains very powerful
    and affords an enormous amount of leverage to pursue Iran's
    security provocations and destabilization.
        Following Implementation Day, Iran was able to expand its
    oil sales and has established new oil trading contracts in
    Europe and more deliveries to Asia. It also now has access to
    $100 billion of its formerly frozen assets, as has been
    mentioned by my fellow panelists. Additionally, the United
    States, the EU, and the U.N. together removed hundreds of
    designated Iranian entities from sanctions lists, including
    Iranian banks, that then gained access to European financial
    institutions. Some Iranian banks are reestablishing branch
    licenses and correspondent relationships in Europe and are
    renewing their ties with Asian counterparts as well. Iran's
    charm offensive to market new deals for trade and investment,
    including in areas such as automobiles and airplanes, has also
    met some success internationally.
        However, there are various reasons why Iran will expand its
    links to the international financial system only very slowly.
    The cumbersome unraveling of nuclear sanctions restrictions at
    banks and companies around the world in order to engaged in now
    permitted business with Iran is only one factor. Remaining
    sanctions on Iran for its terrorist and ballistic missile
    activities are a deterrent to those who would contemplate
    business with Iran along with prudential concerns related to a
    history of corruption and a lack of transparency and
    maneuverability for foreign firms in Iran's financial system.
    So for reasons of political and security risk, existing
    sanctions, and the serious financial challenges associated with
    attempting business in Iran, many global banks have made it
    clear that they do not plan on doing business in this
    jurisdiction.
        In pursuing Iran's sanctions now and in the future, U.S.
    policymakers must prioritize the important work of isolating
    Iranian entities engaged in dangerous and illicit behavior
    through aggressive implementation of existing sanctions
    authorities. This means continuing and expanding sanctions
    designations targeting Iran's provocative and dangerous
    ballistic missile program and its reprehensible support for
    terrorism and abuse of human rights. This is particularly
    important with regard to the work of targeting the insidious
    and dangerous activities of the IRGC within and beyond the
    borders of Iran, including exposing the financial activity and
    holdings of the IRGC, its agents and instrumentalities, and
    Iran's regional terrorist proxies whenever feasible. The U.S.
    Government should designate the IRGC under its terrorism
    authorities, and it should urge EU counterparts to deny access
    to European airports for Mahan Air, given its involvement with
    Iranian support for terrorism.
        Beyond designating more targets independently and in tandem
    with international partners, U.S. policymakers should also
    continue and expand educational outreach to highlight Iran's
    self-imposed financial problems, and this should be paired with
    a strategy to facilitate and encourage remediation of these
    problems by U.S. and foreign experts.
        With regard to sanctions relevant to oversight of the
    nuclear deal, policymakers will now want to ensure that
    sanctions authorities are primed for use so that the United
    States and international allies are able to reimpose sanctions,
    in part or in whole, if Iran violates its nuclear commitments.
    Keeping authorities up to date means reauthorizing the Iran
    Sanctions Act before it expires at the end of the year.
    Additionally, it means readying potential additional
    contingency measures, including new approaches to sanctions
    enforcement or possible new sanctions authorities if Iran fails
    to uphold its commitments under the nuclear deal and if such
    new authorities are deemed absolutely necessary.
        Thank you for the opportunity to testify today. I look
    forward to answering any questions you may have.
        Chairman Shelby. Thank you very much.
        I will start with Mr. Dubowitz. In your testimony, Mr.
    Dubowitz, you discuss in detail a campaign run by Iran to
    legitimize its financial structure. Would you elaborate on what
    Iran is trying to accomplish and why we should be concerned?
        Mr. Dubowitz. Thank you, Chairman Shelby. Iran is trying a
    legitimization strategy similar to the one that it did on the
    nuclear side, which involves basically denying, deceiving, and
    then demanding. And on the nuclear side, it denied illicit
    conduct, it deceived the international community, and it
    demanded escalating concessions.
        On the financial track, Iran is doing the same thing. They
    are denying their illicit financial conduct, they are
    continuing that conduct, and now they are demanding new
    concessions to legitimize their financial sector. And
    greenlighting the greenback or dollarizing transactions using
    our currency would be a big win for Iran. It would give them
    the legitimacy that they seek without actually changing that
    fundamental conduct.
        Chairman Shelby. Mr. Zarate, in recent months both Acting
    Under Secretary Szubin and Secretary Lew denied that Iran would
    be given access to the dollar. In fact, Mr. Szubin testified
    before this Committee right here, and I quote, that ``no
    Iranian banks can access the U.S. financial system, not even to
    execute a dollarized transaction where a split second's worth
    of business is done in a New York clearing bank.'' Those are
    his words.
        Secretary Kerry, however, is on a worldwide mission to
    clarify how large non-U.S. banks can engage with the Iranian
    financial system.
        My question: Do you believe there is a disconnect between
    Treasury and State or the White House with regard to the
    implementation of the Iran deal? And what is going on here? If
    so, and why?
        Mr. Zarate. Mr. Chairman, I think what is reflected in
    those comments that are contradictory and in tension is the
    fundamental tension in the JCPOA, which is that we intend to
    continue to use sanctions, and if that is the case--against
    underlying illicit conduct of the Iranian regime, then that
    means we are going to not only have to deny Iran access to the
    dollar and the U.S. financial system but actually proactively
    try to encourage others to unplug them from the international
    financial system. That has been the essence of the financial
    constriction campaigns post-9/11 that have been so effective.
    And that has been, frankly, Treasury's playbook.
        That does not meet neatly with the diplomatic demands that
    the Iranians are placing on the U.S., and I think the Secretary
    of State and the State Department are doing their best to
    demonstrate that the U.S. is adhering to the spirit and letter
    of the JCPOA, in part by encouraging reintegration of the
    Iranian economy. And so there is a disconnect in that regard.
        With respect to the specific dollar issue, I think the one
    question that remains is whether or not the U.S. is going to
    encourage offshore dollar clearing. There are ways of allowing
    Iran access both for reputational reasons, as Mr. Dubowitz
    mentioned, but also for transactional reasons, to have access
    to dollars offshore which would not touch the U.S.
        Chairman Shelby. In other words, go in the back door, not
    the front door?
        Mr. Zarate. The back door, with layers of opacity, which
    makes it even harder to understand the transactions, and given
    the track record of the Iranian Government to use shell
    companies, front companies, that is a dangerous proposition and
    incentive for them to do business globally.
        Chairman Shelby. Mr. Elleman, you have testified that Iran
    already has shorter-range nuclear-capable missiles in its
    arsenal, which it continues to test. Could Iran develop and
    field a long-range missile capable of delivering a nuclear
    weapon to Europe or the United States before the Iran deal
    sunsets?
        Mr. Elleman. The short answer is probably, and probably
    yes. Iran has two pathways to developing an intercontinental-
    range missile or one that could strike Western Europe. They can
    use their existing systems that they have and just cluster them
    together, such as they have done with their space launch
    vehicle. Or they could pursue a more difficult, challenging,
    but fruitful path, and that is, leverage the solid propellant
    technology it is working on today. That would allow them to
    build missiles that are optimized and designed to need.
        Chairman Shelby. Thank you. Senator Brown.
        Senator Brown. Thank you, Mr. Chairman.
        Ms. Rosenberg, I would like to ask you a series of
    questions--and I would prefer short answers, if you can--on
    JCPOA. By Implementation Day, had Iran dismantled two-thirds of
    the installed centrifuge capacity and reduced its enriched
    uranium stockpile by over 95 percent?
        Ms. Rosenberg. Yes.
        Senator Brown. Did Iran destroy the core of its heavy-water
    reactor by filling it with concrete, cutting off its path to
    producing significant amounts of weapons-grade plutonium? And
    did it ship out excess heavy water to meet its commitments to
    hold no more than necessary for research?
        Ms. Rosenberg. Yes.
        Senator Brown. Did Iran implement all the JCPOA's
    verification measures, including allowing continuous monitoring
    of its necessary facilities and subjecting its centrifuge
    production in uranium mills and mines to surveillance by
    inspectors?
        Ms. Rosenberg. Yes, as confirmed by the IAEA.
        Senator Brown. In your view, do these actions move Iran
    further away from a nuclear weapon, making Israel and the
    region safer?
        Ms. Rosenberg. Yes, and I think proliferation security
    experts around the world all consider that the case.
        Senator Brown. Finally, has there been any indication from
    IAEA that Iran has cheated on its commitments under the JCPOA?
        Ms. Rosenberg. Not to our knowledge.
        Senator Brown. OK. Thank you for that.
        Let me ask you a more detailed question. I know it is
    complicated because it is Iranian internal politics, but it
    seems that in Iran there are hardliners who have never
    reconciled with the nuclear agreement and are trying to
    sabotage it, and there are others who want more economic
    engagement with the outside world. That is the sort of
    political tension in that Nation's politics.
        You have warned that new congressional sanctions could
    threaten JCPOA implementation. As you may know, there are bills
    before this Committee that would require additional mandatory
    sanctions against Iran and in some cases would reimpose a
    version of the old sanctions that the Administration agreed to
    waive as part of JCPOA.
        How do you see such measures that some want to move through
    Congress, how do you seem them threatening JCPOA, the
    international community's agreed-upon process for dismantling
    and monitoring Iran's nuclear program?
        Ms. Rosenberg. So new sanctions, particularly if they are
    mandatory, will be broadly perceived as sanctions that
    undermine the deal. So the signatories to the deal agreed that
    they would not reimpose sanctions removed--nuclear sanctions
    removed as part of the deal. So reimposing those would
    undermine it and could potentially cause Iran to walk away from
    the deal.
        However, the problems also exist with the other parties,
    the P5+1 parties. So these are important--they include
    important security allies, international allies of the United
    States. And if they perceive that the United States has
    willfully attempted to undermine the deal in this way, it will
    undermine transatlantic political cooperation as well as
    potentially the ability for those partners to work together to
    monitor evasion of sanctions and go after it.
        Senator Brown. If these bills were to pass the Senate and
    the House and become law, what would that mean in domestic
    Iranian politics? Which side in Iran would be bolstered by
    enactment of these sanctions bills?
        Ms. Rosenberg. Well, it certainly strengthens the narrative
    of hardliners in Iran who believe that the United States was
    disingenuous in negotiating this deal and causing Iran to make
    the concessions it has on its nuclear program and that the
    intent was never to see a successful case of nuclear diplomacy
    and the deal move forward.
        Senator Brown. So the hardliners in Iran would have
    fulfilled what they predicted all along if we were to do that.
        Ms. Rosenberg. Yes, and it would strengthen the narrative
    of others outside of Iran who also believe that to be the case.
        Senator Brown. The questions I asked you, the first series
    of questions--and thank you for answering them concisely--would
    the P5+1, if I were to ask the Ambassadors and the foreign
    ministers and the experts on sanctions in their countries,
    would they have given the same answer, by and large?
        Ms. Rosenberg. Yes, and they have indicated previously that
    they would view the U.S. imposing new sanctions as unhelpful
    and a serious act of undermining the deal.
        Senator Brown. OK. Thank you. One last question. I know you
    have written about why you think existing U.S. legal authority
    for sanctions are sufficient to combat Iran's continuing
    destabilization activities outside of the nuclear arena.
    Briefly describe the full range of these legal authorities.
        Ms. Rosenberg. They are vast. There are terrorism
    authorities, proliferation authorities, which include not just
    nuclear capabilities but missile and other weapons capabilities
    as well; authorities related to Syria that would block support
    for Assad and the Syrian Government. There are authorities that
    deal with Yemen and support the Houthis there. Kingpin,
    narcotrafficking authorities; transnational organized crime;
    cyber; the gravity EO that deals with--the word escapes me at
    this moment, but human rights authorities, the sanctions evader
    EO, as well as the variety of statutes passed by this Congress
    and the previous one and before that which also deal with the
    variety of authorities the Administration can implement with
    regard to Iran.
        Senator Brown. And these sanctions are sufficient?
        Ms. Rosenberg. They cover basically the entirety of
    concerns that we would have with Iran and want to pursue, and
    they are not limiting. The IEEPA and TWEA also give additional
    authorities to the Executive to go after new instances of
    evasion or activities of threat and concern that we might want
    to target with such authorities.
        Senator Brown. Thank you.
        Thank you, Mr. Chairman.
        Chairman Shelby. Senator Rounds.
        Senator Rounds. Thank you, Mr. Chairman.
        As I am listening to the testimony here, I think there are
    short-term and there are long-term consequences to any deal
    that you make. Our country turns 250 years old in the year
    2026, less than 10 years away. And yet we are looking at a deal
    with has been put together here, which was designed to slow
    down the Iranian nuclear program.
        Mr. Elleman, as you know, under the JCPOA, Iran's U.N.
    ballistic missile restrictions will be lifted 8 years after the
    JCPOA adoption day or until the IAEA confirms the broader
    conclusion. My question is: If Iran continues testing missiles
    and satellites at its current rate, how would you assess Iran's
    ballistic missile capability at the completion of the JCPOA?
        Mr. Elleman. Well, it's difficult to predict, primarily
    because there will be decisions for Iran to make over the
    course of the next decade. Iran presently is focused on trying
    to increase the accuracy or the military utility of its
    ballistic missiles. In fact, we are seeing an evolution in
    their missile doctrine from one of just simply being able to
    punish an adversary or foe to one where they can actually deny
    an adversary military, you know, space, territory, or
    capability.
        This is going to be a long, difficult process for them. I
    do not see them achieving it within the next decade to actually
    make them accurate enough with some sense of reliability. We
    have seen no evidence, at least in the public domain, of them
    pursuing an ICBM yet. That could change tomorrow. There could
    be a covert program.
        What I can say is that if they were to attempt to develop
    longer-range systems that could threaten Western Europe or the
    United States mainland, they would have to do some testing of
    that system, and that test program would last likely in the 3-
    to 5-year time span, sometimes more.
        Senator Rounds. How much would assistance from another
    Nation State help Iran progress toward a nuclear-capable
    missile?
        Mr. Elleman. Well, in my view--and not all of my colleagues
    support this conclusion, but in my view, Iran is not capable
    yet of manufacturing on its own the liquid propellant engines
    that power almost all of their missiles. That shortfall can
    really only be filled by importing engines from Korea, North
    Korea. It is possible they could import them from Russia, but I
    do not think Russia is in any mood to sell that type of weapons
    system, at least in the open market.
        So I would say that this is one of the fundamental
    limitations that they will have, and this is why I made the
    point that the Proliferation Security Initiative could be a
    very effective tool in denying them the ability to produce
    greater numbers of missiles than they already have.
        Senator Rounds. Thank you.
        Mr. Dubowitz, the Iran deal suspended sanctions on Iran's
    economy in exchange for a reversible rollback of certain
    Iranian nuclear activities. It does not, however, preclude the
    United States from enforcing non-nuclear sanctions.
        As Iran has made abundantly clear through its repeated
    provocative actions, the nuclear deal did not address Iran's
    illicit activities, including ballistic missile development,
    support for terrorism, regional destabilization, and human
    rights abuses. What is the message Congress should be sending
    international businesses that seek to reenter the Iranian
    market?
        Mr. Dubowitz. Well, Senator, I think it is the complete
    opposite of the message that was part of the last exchange with
    Ranking Member Brown, which is that the JCPOA does not preclude
    non-nuclear sanctions, and the notion that Iran can threaten to
    snap back its nuclear programs and, therefore, deter us from
    using those non-nuclear sanctions actually contradicts the
    commitments that President Obama, Secretary Kerry, Under
    Secretary Sherman, then-Under Secretary Cohen, and Acting Under
    Secretary Szubin have made to Congress and to the American
    people, which is that they are going to use the full course of
    power of American economic and nonmilitary might to deter Iran
    from these destabilizing and dangerous activities. That is the
    message we should be sending not only the Iranians, but we
    should be sending it to the international community that Iran
    is engaged in dangerous, malign, and illicit conduct, and that
    the U.S. Government and U.S. Congress is not going to be shy
    about using all instruments, of course, of powering, including
    sanctions, to stop that activity.
        Senator Rounds. Thank you.
        My time has expired. Thank you, Mr. Chairman.
        Chairman Shelby. Senator Menendez.
        Senator Menendez. Thank you, Mr. Chairman. And thank you
    all for your testimony.
        Let me ask, we have had Secretary Kerry, we have had
    Assistant Secretary--I think that is his title, the number two,
    Tom Shannon, and we have had others probably most significantly
    before the Senate Foreign Relations Committee, and they have,
    in the questions that I have posed to them and others, said
    that any new sanctions that are not within the nuclear
    portfolio but continue to pursue the issues of Iranian malign
    actions, whether that be missile technology in violation of
    U.N. Security Council resolutions, whether that be its
    promotion of terrorism, whether that be the destabilization of
    the region, that those are not a breach of the P5+1. Is that
    your understanding, Mr. Zarate?
        Mr. Zarate. Yes, Senator.
        Senator Menendez. And how about you, Mr. Dubowitz?
        Mr. Dubowitz. Absolutely, Senator.
        Senator Menendez. Mr. Elleman.
        Mr. Elleman. I would agree.
        Senator Menendez. Ms. Rosenberg.
        Ms. Rosenberg. Using existing authorities to go after those
    activities you were talking about?
        Senator Menendez. Using any new sanctions to go after those
    activities outside of the nuclear portfolio. They are not a
    violation of the JCPOA. Is that correct?
        Ms. Rosenberg. I do not view them as such.
        Senator Menendez. OK. So it is a reaffirmation by the
    private panel of what the Administration itself has told us.
        Now, would it be fair to say that one of the driving
    elements of what brought Iran to the negotiating table was the
    comprehensive sanctions that the Congress led and the
    Administration enforced? Would you say that, Mr. Zarate?
        Mr. Zarate. Absolutely, Senator. In fact, President Rouhani
    said that the sanctions were moving Iran into the economic
    stone age.
        Senator Menendez. Mr. Dubowitz.
        Mr. Dubowitz. Absolutely, Senator, because of the secondary
    sanctions' impact that actually reinforces the President's
    IEEPA power.
        Senator Menendez. So if, in fact, the sanctions brought us
    to the point where the Iranians were willing to negotiate, it
    shows that it has a force in changing attitudes and actions.
    Now, I may not have agreed with the JCPOA, but putting that
    aside, I am not going to relitigate it. The question is I think
    it is pretty clear that, but for the sanctions, the Iranians
    were on a path that they would have continued without feeling
    any consequence to pursue their nuclear program far beyond what
    we would want to see, far beyond any peaceful activity, and,
    obviously, for the purposes of nuclear weapons.
        So if that is the case, then I do not understand at a time
    in which we seem to be making Iran's case for it, we seem to be
    working toward helping them--I mean, if I could strike a deal
    with somebody and have them, my other counterpart, implement
    all the elements that I need for my deal, whether it is buying
    heavy water or whether it is making sure that I get access to
    the international financial markets, boy, I wish I could make a
    deal like that anytime where my counterpart actually is doing
    everything necessary to make the deal possible. But if I am
    going to do that, I should have an expectation that other
    things that we are concerned about that Iran is going to change
    its behavior, and it has not. It flouts international will,
    forget about U.S. will, in terms of its missile firings,
    including a missile that says, ``Death to Israel''. It is out
    there pursuing one of the worst humanitarian disasters we have
    in Syria because of its interests in having Hezbollah be a
    strong entity as its surrogate, so it does not care how many
    Syrians die until it can get a regime, whether it be Assad or
    anyone else, who guarantees that. And it continues to
    destabilize the entire region, and it continues to export
    terrorism.
        So is there anything then that we should not be pursuing--
    in my view, that we should be pursuing a new set of sanctions
    outside of the nuclear portfolio, having nothing to do with the
    JCPOA, to try to get Iran to change its positions on these
    critical elements that is in the national interests and
    security of the United States? Is that a fair statement, Mr.
    Zarate?
        Mr. Zarate. It is a fair statement, Senator, and I would
    also say that it is not only a given that Iran is engaged in
    these underlying activities and dangerous activities, but it
    also comes at a time when we are heightening our scrutiny in
    terms of financial integrity with respect to corruption, with
    respect to human rights, with respect to beneficial ownership,
    which the Administration just published a final rule on.
        We are actually heightening international expectations in
    terms of how transparency and integrity is undertaken in the
    international system, and Iran is doing the exact opposite. And
    so there is an inherent tension in that message as well. So not
    only can we and should we use sanctions as we have in the past
    against these underlying activities, but there are heightened
    expectations moving forward that should be placed on Iranian
    banks, Iranian companies, beneficial ownership, that should
    heighten scrutiny, not lessen it, with respect to Iranian
    behavior.
        Senator Menendez. One last question. Mr. Dubowitz, I hear
    many of my colleagues say we should keep Iran's feet to the
    fire, but if there is no fire, how do you keep their feet to
    it?
        Mr. Dubowitz. Well, Senator Menendez, absolutely, and if
    you give Iran what effectively is a nuclear snapback, which is
    this ability to threaten us every time that we are going to use
    non-nuclear sanctions to deter the behavior, then,
    unfortunately, they have the upper hand, and their nuclear
    snapback ends up being a lot more powerful than our economic
    snapback, which means our ability to enforce the deal and deter
    Iranian behavior is much weaker.
        Senator Menendez. Thank you, Mr. Chairman.
        Chairman Shelby. Senator Toomey.
        Senator Toomey. Thank you, Mr. Chairman, and thank you very
    much for having this hearing. This is a very, very important
    discussion.
        I remain strongly opposed to this deal that turns over
    something on the order of $100 billion to the world's leading
    State sponsor of terrorism, a very dangerous and violent regime
    that is very hostile to the United States. But not only did we
    release all of that money, but we lifted substantial sanctions,
    allowed Iran to retain important components of its nuclear
    infrastructure. And I would just like to ask a question for the
    record. Mr. Zarate, has the Iranian parliament ratified this
    agreement?
        Mr. Zarate. To be honest, Senator, not to my knowledge.
        Senator Toomey. To your knowledge, have the top political
    authorities in Iran signed the agreement?
        Mr. Zarate. I do not think so, Senator. I have not seen
    evidence of that.
        Senator Toomey. In fact, doesn't the Administration argue
    that this is not a legally binding agreement with respect to
    Iran but, rather, a set of political commitments?
        Mr. Zarate. That is right. They argue that this is not
    technically a treat.
        Senator Toomey. Yeah. It seems a rather amorphous
    commitment on the part of the Iranians, despite the very real
    changes and concessions that the United States has made with
    the financial release, with the relief of sanctions, with
    permitting Iran to retain this infrastructure. But let me
    follow up on a line of questioning that Senator Menendez
    pursued.
        Mr. Zarate, you went through a pretty powerful list in your
    written testimony of the ways in which Iran has behaved, as Mr.
    Dubowitz put it, ``dangerous, malign, and illicit conduct''
    post-JCPOA, right? Including the repeated ballistic missile
    tests, the fact that Iran remains a leading State sponsor of
    terror, the deployment of troops to Syria to support the Assad
    regime, Iranian continued human rights abuses, detention of two
    American citizens, arresting American sailors at gunpoint,
    continuing to develop and engage in malicious cyberattacks.
        Now, I share the view of Senator Menendez that in response
    to these really outrageous and aggressive behaviors, we have
    every right--in fact, responsibility, really, to impose the
    kind of sanctions that might dissuade these behaviors. But not
    only does the Administration disagree, it seems, with this
    approach, but would it be fair to say that the Administration
    appears to believe that it should be the United States'
    responsibility to facilitate the reintegration of Iran into the
    world economy?
        That is what it looks like to me, and that strikes me as a
    bad idea, but, Mr. Zarate, I would like your thoughts on that.
        Mr. Zarate. Senator, absolutely, and I warned about this
    danger when I testified during the JCPOA debate before you,
    that this was a potential trap, that the Iranians were going to
    push the United States to help rehabilitate their image, their
    economy, their reintegration, and that they would argue that
    the spirit and letter of the deal required it.
        Senator Toomey. Which is exactly what the Administration--
    --
        Mr. Zarate. Exactly what is happening.
        Senator Toomey. And what is the problem with that? Why is
    that a bad thing for the U.S. Government to be facilitating the
    reintegration of this very hostile regime into the world
    economy?
        Mr. Zarate. Well, there are three fundamental problems:
    One, it takes Iran off the hook of dealing with the underlying
    conduct itself that is problematic--support to terrorism,
    support to Assad, human rights abuses.
        Senator Toomey. Arguably, could it not be seen to be
    rewarding that kind of outrageous behavior?
        Mr. Zarate. Potentially, and that is the second problem,
    which is creating sort of dual standards. Why are we creating
    exemptions for the Iranians when, as I said before, our
    expectations are heightened with respect to what financial
    integrity and transparency looks like in the international
    system? We are fining major global banks billions of dollars,
    and yet we are now promoting the integration of Iranian banks,
    which we know have been used and will continue to be used for
    these illicit purposes? Why? It does not make any sense. So
    there is an inconsistency there.
        And, third, we are giving up the strategic opportunity in
    putting the onus on Iran to resolve these issues themselves, to
    explain themselves to the market. That actually could promote
    reforms internally. It could force very hard decisions within
    Iran itself for the reformers, the moderates, to say, ``We can
    no longer use our banks, our economy in this way.'' So we are
    taking the hard decisions off the table and taking Iran off the
    hook.
        Senator Toomey. And it appears implicitly to be virtually
    condoning the behavior.
        But, Mr. Dubowitz, did you have any comment you would like
    to make on this?
        Mr. Dubowitz. Well, very quickly. I mean, the U.S.
    Government did not promise Iran financial and economic
    outcomes. They specifically did not negotiate outcomes.
        The second is that there is this prevailing and persistent
    myth that somehow we have to economically seduce the hard men
    of Iran, this despite the fact that President Obama's former
    DCI, Leon Panetta, said the CIA assessment is that there are no
    moderates in the regime and that the U.S. negotiator, Wendy
    Sherman, has specifically said since the deal, publicly, that
    in this regime there are hard-liners and hard-hard-liners, and
    President Rouhani is a hard-liner.
        So this notion that somehow there is--that continues to
    persist even today--an octogenarian--hard-line octogenarian was
    just appointed to the Assembly of Experts who is going to pick
    the Supreme Leader after Ali Khamenei, I do not know why this
    notion continues to persist in the halls of Congress and
    outside, that there are moderates who we should economically
    seduce. These are hard-hard-liners or hard-liners who continue
    to hold their people hostage and continue to engage in very
    dangerous and destabilizing activities.
        Senator Toomey. Thank you very much.
        Thank you, Mr. Chairman.
        Chairman Shelby. Senator Donnelly.
        Senator Donnelly. Thank you, Mr. Chairman.
        I want to start out today by addressing what I see as a
    very big problem as we talk about sanctions against Iran, North
    Korea, Russia, or any other adversary of the United States: the
    fact that Adam Szubin has now been waiting more than a year for
    confirmation as Treasury's Undersecretary for Terrorism and
    Financial Crimes.
        Despite bipartisan support, despite being an undisputed
    expert in his field, despite our repeated calls for leadership
    on sanctions policy in this Administration, some of my
    colleagues refuse to give him a vote on the floor of the
    Senate. I hope we confront the irony of this situation head-on
    in tomorrow's hearing when Mr. Szubin testifies and answers our
    questions, still serving only in an acting capacity on matters
    we all agree are critical to national security. We are doing
    this man and our Nation a great disservice by our failure to
    act.
        And I would like to put this question to all the members of
    our panel here today. What are your views on Mr. Szubin's
    nomination and do you have any concerns about his
    qualifications? Mr. Zarate.
        Mr. Zarate. I know Adam Szubin personally. I worked with
    him directly. I have deep respect and affection for Mr. Szubin.
    I have no question about his integrity and I think he would do
    a great job.
        Senator Donnelly. Mr. Dubowitz.
        Mr. Dubowitz. I similarly know Mr. Szubin personally and
    have worked with him closely, and I think he is eminently
    qualified for that position.
        Senator Donnelly. Thank you. Mr. Elleman.
        Mr. Elleman. I do not know him and I am not intimately
    familiar with what he does, but I also----
        Senator Donnelly. That is still OK.
        [Laughter.]
        Mr. Elleman. ----but I have heard no reservations expressed
    by many of my colleagues.
        Senator Donnelly. Ms. Rosenberg.
        Ms. Rosenberg. I, too, have had the pleasure of working
    quite closely with Mr. Szubin. He is a dedicated public
    servant. He is knowledgeable. He is respected by those with
    whom he works and those who disagree with him. Not confirming
    him undermines his ability to do his job, which is far beyond
    the scope of the Iran deal, sanctions, and encompasses a much
    broader array of anti-money laundering and terrorist financing
    activities that are in our broader national interest to have
    him address.
        Senator Donnelly. Thank you.
        Mr. Elleman, in my other role as Ranking Member of the
    Armed Services Subcommittee on Strategic Forces, I have
    dedicated a lot of time to studying Iran's missile program and
    the threat it poses to our homeland, our forward-deployed
    forces, and our allies in the Middle East and Europe. I spent a
    week earlier this year meeting with U.S. military leaders and
    foreign officials in Israel and across the Gulf States. One of
    our unifying concerns is that Iran continued to grow the size
    and sophistication of its ballistic missile arsenal even under
    the heaviest years of sanctions.
        I am a firm believer we must invest in U.S. and allied
    missile defense systems to counter the threat posed by Iran's
    ballistic missiles. However, I am also interested in your views
    on how we can establish more effective sanctions related to
    Iran's missile program. So what are your top recommendations
    for improving our sanctions policy and enforcement on Iran's
    ballistic missile activities?
        Mr. Elleman. Well, I think for the sanctions to actually
    retard or erode Iran's capacity to grow the size of their
    arsenal or the capabilities of its arsenal, the sanctions would
    have to be international. You know, the U.S. applying certain
    restrictions will probably not do it because we are not trading
    with Iran and they are primarily relying on equipment--
    manufacturing equipment and components that have been obtained
    from Europe and other countries. So it has to be multilateral.
        But I would also say the--you know, the primary provider of
    necessary technologies has been North Korea in the past. I am
    not aware of significant transfers of equipment or technology
    over the past 10 years or so.
        Having said that, if Iran truly wants to expand the size of
    its arsenal, it is going to have to get missile engines from
    someone--and North Korea would be the most likely source--and
    the Proliferation Security Initiative would probably be the
    best tool to approach that.
        Ms. Rosenberg. Mr. Senator.
        Senator Donnelly. Yes?
        Ms. Rosenberg. May I speak to this issue as well?
        Senator Donnelly. You may.
        Ms. Rosenberg. Thank you.
        I agree that internationalization and partnering with
    international jurisdictions to go after Iran's dangerous and
    concerning ballistic missile activities is certainly a strong
    direction for the sanctions program, as well as going after the
    procurement networks, a number of which the components--a
    number of which you have just mentioned.
        Furthermore, additional efforts outside of the sanctions
    realm would certainly be beneficial, including interdiction
    efforts as well, which is a matter for different areas of
    Government.
        Senator Donnelly. What is your opinion on--Ms. Rosenberg--
    on how our counterterrorism sanctions can become more
    effective? What are your best ideas on that?
        Ms. Rosenberg. Thank you for the question. I have offered a
    couple of ideas in my testimony, including naming the IRGC in
    its entirety under Executive Order 13224, the terrorism
    authority, and going after, aggressively, agents,
    instrumentalities of the IRGC inside and outside of Iran, and
    asking foreign counterparts in other jurisdictions,
    specifically the EU, to mirror U.S. sanctions wherever possible
    in that domain.
        Senator Donnelly. Thank you.
        Thank you, Mr. Chairman.
        Chairman Shelby. Senator Scott.
        Senator Scott. Thank you, Mr. Chairman.
        Mr. Dubowitz--is that right?
        Mr. Dubowitz. Dubowitz, yes.
        Senator Scott. Dubowitz. OK, great.
        In a recent televised interview, you compared the Iran deal
    to the North Korean deal in the 1990s. Obviously, that deal was
    flawed and we are still dealing with the serious ramifications
    of that deal. What specific similarities do you see in the two
    deals? And how strongly do you feel that 10 years from now we
    will be dealing with as volatile of a situation in Iran as we
    now see in North Korea?
        Mr. Dubowitz. Thank you, Senator. Well, I think some of the
    similarities are certainly significant flaws and loopholes with
    respect to the reversibility of the nuclear restrictions.
        The upfront sanctions relief nature of both deals--in fact,
    as I think Mr. Zarate can tell you even in more detail, one of
    the biggest mistakes that the Bush administration made was
    trading away extensive economic leverage that was established
    through the designation of Banco Delta Asia for a continuation
    of that--of that nuclear agreement and North Korean nuclear
    concessions that not only ended up being reversible but that
    the North Koreans violated egregiously.
        And so the deal itself was fundamentally flawed in its
    architecture, just like the JCPOA--reversible concessions, big
    loopholes, and trading away significant economic leverage.
        Senator Scott. A second question to you, sir. How important
    is enforcement of the sanctions against Iran that remain in
    place? And can you--can you supply any evidence that Iran
    believes that we, as a country, are serious about our
    enforcement mechanisms? It certainly seems to me to be--if I
    were in Iran, I would not take what we have done so far very
    seriously since they have already tested some ballistic
    missiles, from my perspective.
        Mr. Dubowitz. Well, certainly the Iranians have made it
    clear that the procurement sanctions that have been imposed by
    the U.S. Treasury Department are meaningless, because these
    procurement networks can be reconstituted. And I would like to
    just provide a bit more detail on these ballistic missile
    sanctions.
        For many years people said that you could not use powerful
    economic sanctions to change the risk-reward calculus of the
    Iranian regime with respect to its nuclear program. I think
    Congress proved that wrong. I think the U.S. Treasury
    Department proved that wrong.
        I think with respect to ballistic missiles, as opposed to
    these narrow procurement sanctions we should look at sectors of
    the Iranian economy that actually support the ballistic missile
    program--mining and metallurgy, energy, automotive, telecom,
    electronics, construction, and the research institutions that
    back it up. All of these sectors of Iran's economy provide
    vital technologies, parts and components for Iran's missile
    program. If we were to impose sectors-based sanctions on those
    essential sectors that support the missile program, I think we
    would have a chance of actually changing this calculus.
        So I believe that we need to look at much more coercive
    sanctions, permissible by the JCPOA, to change the mindset of
    the reigning regime with respect to its missile program.
        Senator Scott. Thank you.
        Mr. Zarate or Mr. Dubowitz, Treasury officials stated
    recently that they are not planning on issuing general license,
    but this contradicts earlier statements by the Obama
    administration that general license were a possibility. What
    are some of the specific hazards the U.S. could encounter if it
    grants a general license to Iran?
        Mr. Zarate. Senator, the relief to allow Iran to deal in
    dollars for international trade would give not only a stamp of
    legitimacy to Iranian behavior but would facilitate their
    reintegration into international trade, given the fact that the
    dollar is the predominant currency, the currency that is used
    in the oil trade in particular but also internationally.
        And so this could take a variety of forms. It could be a
    general license. It could be a specific license. But it could
    be some form that allows an offshore facility that then allows
    Iran to access dollars in some way that then would give the
    markets confidence to be able to do business with Iran. That is
    what Iran wants and it is certainly something that the
    Secretary of State seems to be suggesting that we should be
    offering.
        And I think the Treasury officials are trying to back away
    from that, in particular given the fact that, if we give this
    concession in the context of the JCPOA, we are admitting that
    our ability to withdraw the access to the dollar, which is a
    principal and important financial tool for us, becomes embedded
    in the JCPOA itself. And then we cannot use it for other
    reasons.
        And so the Iranians are very smart about this. They have
    been gaming this throughout to get as much maximum benefit from
    U.S. concessions and the spirit and letter of the deal as
    possible.
        Senator Scott. Thank you.
        Mr. Dubowitz. Senator, if I could just add to that?
        Senator Scott. Yes.
        Mr. Dubowitz. Tomorrow at the hearing, when the Government
    witnesses are here, please do not get distracted about these
    commitments about access to the U.S. financial system. Also, do
    not get distracted by the notion of general licenses.
        What I think the Administration is doing is they are using
    a class-of-transactions approach to sort of step by step, drip
    by drip begin to dollarize Iranian transactions. You have seen
    that with heavy water. You have seen that with aircraft
    licenses. You have seen that with the return of restricted oil
    escrow funds. You have seen that with possible humanitarian
    transactions.
        So it is a class-of-transactions approach where the
    Administration will attempt to dollarize Iranian transactions,
    not through a wholesale general license but by these classes of
    transactions, so by the end of the Administration the Iranians
    have effectively gotten access to the U.S. dollar and used that
    legitimization as a way to get themselves out from under the
    strictures that they have been imposed.
        Senator Scott. Thank you very much.
        Chairman Shelby. Senator Warren.
        Senator Warren. I think Senator Tester is up next.
        Chairman Shelby. OK.
        Senator Tester. Well, you are very gracious, Senator
    Warren. Thank you. And thank you, Mr. Chairman. And thank you
    all for your testimony.
        I want to go back to one of the questions asked of you, Mr.
    Elleman, about Iran's testing of missiles. And I do not want to
    put words in your mouth. Did you say they are testing them at
    the same rate since the JCPOA as they were before, or did you
    say something different?
        Mr. Elleman. What I said was the resumed testing since
    October of 2015 is a historic norm for the way they have
    tested. But I did also note that they did not conduct tests in
    2005, 2013, or 2014 when nuclear negotiations were making
    process.
        Senator Tester. OK. All right. So they are--I mean, they
    are basically acting the same way they did before the JCPOA was
    put into effect as far as missile capabilities?
        Mr. Elleman. In terms of missile capabilities that is
    correct.
        Senator Tester. OK. And so from a sanctions standpoint, do
    you advocate putting more sanctions on because of the missile
    testing they have done? Or do you not have a position on that?
        Mr. Elleman. Well, I think sanctioning the individuals and
    enterprises directly involved in the program is----
        Senator Tester. OK.
        Mr. Elleman. ----is an appropriate measure. Whether it is
    effective or not----
        Senator Tester. OK.
        Mr. Elleman. ----is probably another story.
        Senator Tester. OK, thank you.
        Elizabeth, the last Iranian election, do you know anything
    about that? I mean, did the moderates win or did the hard-
    liners win? What happened there?
        Ms. Rosenberg. There was a relatively strong showing for
    what we might characterize as somewhat more pragmatist rather
    than hard-liner representatives. Nevertheless, the vetting that
    occurs in order to allow candidates to stand already selects
    out potential candidates who are on the more hard-line
    spectrum. Nevertheless, there were a relatively good showing by
    pragmatists.
        Senator Tester. So let me dig into this a little more
    because I think it goes back to Mr. Dubowitz's answer, and that
    is that would you classify the last election as being a
    different step than they had taken in previous elections, or
    same old same old stuff?
        Ms. Rosenberg. We could characterize it as in line, broadly
    speaking, with the election of President Rouhani, which is to
    say an expression of public sentiment that is veering a bit
    more toward pragmatic interest in international engagement,
    including economic relief.
        Senator Tester. And do you attribute that to anything
    specifically?
        Ms. Rosenberg. Extreme economic difficulty over the last
    several years and desire to see change, including getting out--
    --
        Senator Tester. OK.
        Ms. Rosenberg. ----from under sanctions.
        Senator Tester. OK.
        Senator Menendez talked about sanctions, and you talked
    about the fact, Michael, that the sanctions needed to be
    multilateral, whatever we do. Do you think the sanctions that
    we put on Iran would have been effective--would have been
    effective if it would have just been the United States and EU,
    and China and Russia would not have been onboard?
        I am talking to Michael.
        Mr. Elleman. In terms of their nuclear and missile
    programs, likely not.
        Senator Tester. OK. So you believe it was critically
    important that the P5+1 truly had to stick together on the
    sanctions?
        Mr. Elleman. Yes.
        Senator Tester. Do you agree with that, Elizabeth?
        Ms. Rosenberg. I do.
        Senator Tester. OK. Let me ask all of you, the Ranking
    Member went through a list of things that Iran had done.
    Elizabeth answered yes to all of them. Would any of you
    disagree with Elizabeth's answers?
        Mr. Dubowitz. Yeah, I would disagree. I mean, again, I made
    this point before.
        Senator Tester. You do not think that they have removed the
    nuclear material?
        Mr. Dubowitz. No, I would disagree with the conclusion that
    Iran is in full compliance with the JCPOA.
        Senator Tester. OK, that is not what he asked. He asked if
    they had removed the material, if they had filled the reactors,
    if they got rid of the heavy water. Would you agree with that?
        Mr. Dubowitz. I would----
        Senator Tester. Would you agree that they are still two to
    3 months away from having access to a nuclear bomb that they
    were when we ratified the JCPOA?
        Mr. Dubowitz. No. Based on the assessment of David
    Albright, they are 6 to 7 months away from having a nuclear
    weapon because they have the ability to reconstitute, replace,
    and reinstall the P1 centrifuges that did not get dismantled
    but actually just got warehoused. So we gained about 3 or 4
    months in terms of nuclear breakout.
        Senator Tester. What about the heavy water?
        Mr. Dubowitz. Well, in terms of the heavy water, the
    Iranians continue to produce heavy water. They continue to
    actually improve their capability to produce heavy water. And
    when all the restrictions on heavy water and plutonium reactors
    and reprocessing go away, Iran will be in a stronger position
    to actually develop a plutonium bomb.
        Senator Tester. OK.
        In the heavy water realm, Elizabeth, would you classify it
    better in our hands, or Russia and China's hands?
        Ms. Rosenberg. The United States has a strong record on its
    ability to handle dangerous nuclear materials. I feel more
    confident in the United States' experts managing heavy water in
    this jurisdiction----
        Senator Tester. Yeah.
        Ms. Rosenberg. ----rather than enabling States of
    proliferation concern to have access to that material.
        Senator Tester. All right.
        Thank you, Mr. Chairman. Thank you, all of you, for your
    testimony.
        Chairman Shelby. Senator Cotton.
        Senator Cotton. Thank you all for appearing today.
        Mr. Zarate, you worked with Stuart Levey at the Treasury
    Department. Is that correct?
        Mr. Zarate. I did, Senator.
        Senator Cotton. How long did you all work together?
        Mr. Zarate. We overlapped for a year and then I went to the
    White House to serve as Deputy National Security Advisor while
    he served as Undersecretary of the Treasury for Terrorism and
    Financial Intelligence.
        Senator Cotton. And he is now the chief legal officer of
    HSBC Holdings.
        Mr. Zarate. That is correct.
        Senator Cotton. Did you read Mr. Levey's Wall Street
    Journal op-ed a couple of weeks ago in the aftermath of John
    Kerry traveling Europe, acting as the Iranian Chamber of
    Commerce president?
        Mr. Zarate. I did read the op-ed, sir.
        Senator Cotton. He said in that op-ed that, Washington is
    pushing non-U.S. banks to do what it is still illegal for
    American banks to do. Do you agree with that statement?
        Mr. Zarate. Based on press reports and what I have read,
    yes.
        Senator Cotton. Could you elaborate a little bit on what
    Mr. Levey might have meant? What is Washington pushing non-U.S.
    banks to do that U.S. banks cannot do?
        Mr. Zarate. I think the concern was, based on the meetings
    that the Secretary of State was having in addition to some of
    the road shows that had been deployed on behalf of the U.S.
    Government, that there have been messages sent to European
    banks that there are no longer major restrictions to doing
    business in Iran and that they can manage the risks of doing
    business with or in Iran.
        Senator Cotton. And a nearby article the same day suggested
    that Secretary Kerry was not successful in persuading those
    European banks to do such business. And Mr. Levey concluded his
    op-ed by saying, quote, ``Our decisions''--HSBC--``will be
    driven by the financial-crime risks and the underlying conduct.
    For these reasons, HSBC has no intention of doing any new
    business involving Iran. Governments can lift sanctions but the
    private sector is still responsible for managing its own risk
    and no doubt will be held accountable if it falls short.''
        Mr. Zarate. Right.
        Senator Cotton. Do you agree that that is a--that private
    actors face genuine risk of being held accountable for doing
    what the current Administration is encouraging them to do?
        Mr. Zarate. Absolutely, Senator. As part of my private
    practice I work with banks like HSBC and others, dealing with
    the regulatory and real risks in the sanctions and financial
    crime environment. And they worry every day that not only are
    they going to be second-guessed but they will be fined billions
    of dollars, and that their access to U.S. markets will be put
    at risk if they do not manage their risk.
        And so there is a sense in the private sector that there
    are mixed messages coming from the U.S.--strict adherence to
    U.S. norms and values and laws, and then a push to deal with
    what is an inherently risky jurisdiction in Iran at a time when
    those expectations are actually higher than ever before; 2016
    presents heightened risk for banks to do business in
    financially risky environments, not less risk.
        Senator Cotton. So you say mixed messages, so not just risk
    that a future Administration or future Congress may view the
    matter differently but actually different messages from
    different parts of the United States Government at this very
    moment.
        Mr. Zarate. Absolutely, and not just the U.S. Government
    but also State and local authorities and regulators. New York
    authorities have placed some of the most stringent and heavy
    sanctions and enforcement actions against U.S. and European
    banks. And so banks are very worried about not just what the
    U.S. Treasury says or what the State Department says, but what
    New York and other regulator--other regulators have to say
    about this.
        In addition, there is the real risk that what banks have to
    worry about, which is transparency and accountability, is
    absolutely absent in the Iranian market. And so the promotion
    of banking and any commercial activity in that environment is
    completely anathema to the message that the U.S. Government has
    been sending internationally for the last 15 years.
        Senator Cotton. So these banks, and for that matter other
    companies that might wish to do business with Iran, in your
    professional judgment, face grave financial, legal, political,
    and reputational risks?
        Mr. Zarate. Enormous risks, in fact heightened risks after
    implementation day, as opposed to less risk.
        Senator Cotton. Would you counsel any responsible member of
    a board of directors or a corporate general counsel for such
    banks or companies to accept those risks when the world may
    look very differently in a mere 7 months?
        Mr. Zarate. I would not because the sanctions environment
    is confused. The risk of Iranian cheating is high. The
    realities of Iranian lack of transparency, corruption,
    financial crime, and money laundering is incredibly high. And
    the inability for banks to actually understand who their
    customers are, who their counterparties are at a time when we
    are putting out new regulations just this month with respect to
    understanding beneficial ownership in shell companies,
    especially in the wake of the Panama Papers, is an incredibly
    risky proposition to go into Iran at this point.
        Senator Cotton. OK.
        And my time is nearly expired. Mr. Dubowitz, just one
    question about the total value of sanctions relief that Iran
    can expect to receive under the JCPOA. The President himself
    has suggested it could be as high as $150 billion. Secretary
    Kerry and other Administrations have suggested it may be a low
    as 3 or $5 billion. Other Administration officials have accused
    Members of Congress of lying by going with figures closer to
    the president's own figure than with Secretary Kerry's figure.
    What would you estimate, based on your calculations, is the
    total amount of sanctions relief that Iran can expect to
    receive under the JCPOA?
        Mr. Dubowitz. Well, in terms of restricted oil escrow
    assets and frozen assets that are returned, they will have
    access to $100 billion, of which they will have about $55
    billion in liquid assets and the remaining $45 billion to pay
    off their debts.
        But, Senator, as you know, if I give you $100 and you
    pocket $55, and you take $45 and you pay off your credit card,
    right, the net benefit to you that you have got to report to
    the IRS is $100. So that is the net benefit from the frozen
    assets.
        In addition, Iran is going to receive hundreds of billions
    of dollars of additional sanctions relief based on oil exports,
    petrochemical exports, the expansion of its auto sector. And
    already Iran is predicted to have GDP growth of 3 to 4 percent.
    Inflation has gone down from 40 percent to about 11 percent.
        So Iran has actually already received a significant
    economic windfall from both the JCPOA and the interim agreement
    numbering in the hundreds of billions of dollars in terms of
    its macroeconomic stability and recovery.
        Senator Cotton. But from the JCPOA itself somewhere in the
    neighborhood of $100 billion?
        Mr. Dubowitz. $100 billion in the access to frozen assets
    and restricted oil funds.
        Senator Cotton. Yeah. And then of course there is the
    additional benefits of economic growth since the JCPOA and the
    Obama administration have brought 6 percent growth to Iran
    while leaving us with 2 percent growth.
        Mr. Dubowitz. And the Obama administration helped Iran
    avoid a balance-of-payments crisis and a severe economic crisis
    in 2013 through the interim agreement and through blocking
    legislation that this Committee and other committees have
    forwarded.
        Senator Cotton. Thank you very much.
        Chairman Shelby. Senator Warren.
        Senator Warren. Thank you, Mr. Chairman.
        Iranian officials are complaining about what they see as
    the slow pace of sanctions relief and the lack of additional
    foreign investment that they expected to see as a result of the
    nuclear deal. Now, if Iran complies with its obligations under
    the nuclear deal, they will get the sanctions relief that they
    bargained for. But Iran has a long history of money laundering,
    terrorist financing, corruption, which are among the reasons
    that Iran remains a pariah State in the eyes of the
    international community.
        Ms. Rosenberg, instead of blaming the United States for its
    failure to emerge from economic isolation, what steps should
    Iran be taking if it wants to become a responsible member of
    the international financial and commercial system?
        Ms. Rosenberg. Thank you for the question.
        To begin with, it could stop funding terrorism----
        Senator Warren. Yeah, that would be a good one.
        [Laughter.]
        Ms. Rosenberg. ----and additionally, use this newly passed
    criminalization of terrorism law to prosecute cases of this,
    working with the IMF and the FATF to improve controls and risks
    in its system related to money laundering and terrorist
    financing.
        It must address a variety of prudential risks related to
    capital adequacy, corporate governance, tax and financial
    disclosure, and furthermore, on a political level, to cease
    engaging in the kind of provocative regional behaviors that are
    a disincentive to those who would invest in the jurisdiction.
        Senator Warren. All right. Well, thank you. That is very
    helpful. You know, that is a long laundry list of reasons why
    companies are still reluctant to invest in Iran right now that
    have nothing to do with the nuclear deal. Iran is ranked 130th
    on the world Transparency International's Corruption
    Perceptions Index. It is ranked 118th on the World Bank's Ease
    of Doing Business Index. It is ranked 108th on the
    International Property Rights Index.
        Ms. Rosenberg, if Iran complies with the nuclear deal, gets
    the sanctions relief it bargained for under that deal but fails
    to address systemic problems under these key economic metrics,
    is it realistic for them to expect to be reintegrated into the
    international financial system or to see serious and sustained
    economic growth in the country?
        Ms. Rosenberg. I think, as has been pointed out, that there
    is potential for growth even under these difficult
    circumstances. However, few would believe that they are in any
    way living up to the potential that geological assets, a well-
    educated youthful population could provide if they were
    actually managing their risks.
        Senator Warren. Well, that is very helpful because, you
    know, it is no secret that there are some people in Congress
    who are committed to seeing the Iran nuclear agreement fail at
    any price, and we are hearing a lot of rumbling from them about
    holding up sanctions relief even if Iran complies with the
    deal.
        Now, that might be good politics for some senators, but let
    us be clear: Such a move will play right into the hands of
    hard-liners in Iran who want to blame the West for their
    economic woes.
        Here is the truth: We could give Iran all of the relief
    contemplated under the nuclear agreement tomorrow and Iran
    would still need to implement significant structural reforms
    and change its regional behavior in order to attract the
    sustained investment and reintegrate itself into the
    international financial and commercial system. Iran must
    implement serious structural reforms, crack down on money
    laundering, as you said, and stop sponsoring terrorism. Our job
    here is to keep the pressure on the Iranians to make sure that
    those changes are made, and not give them an excuse to avoid
    making those changes. Our job is to make sure that if Iran
    rejects comprehensive reforms, that it has no one to blame for
    its economic troubles other than itself. Now, there is one more
    thing I would like to ask you, and that is Adam Szubin is the
    Acting Undersecretary for Terrorism and Financial Crimes at
    Treasury. He is in charge of enforcing our sanctions against
    countries like Iran and targeting the financial networks of
    terrorist groups like ISIS. It has been more than a year since
    Mr. Szubin was nominated to this position and the Republicans
    who control the Senate have still not held a vote to confirm
    him.
        Ms. Rosenberg, given the critical importance of Mr.
    Szubin's work to our national security, is there any credible
    reason for Republican senators to continue blocking his
    confirmation?
        Ms. Rosenberg. I think there is no credible reason to block
    his nomination--his confirmation. And in fact, it undermines
    broad national security interests in a variety of areas--
    proliferation, terrorist financing, the beneficial ownership
    and CDD rule that was mentioned earlier on the panel--if we do
    not--if he is not confirmed to this position.
        Senator Warren. So a delay undermines our national
    security.
        Ms. Rosenberg. I agree.
        Senator Warren. Thank you.
        Thank you, Mr. Chairman.
        Chairman Shelby. Thank you all your appearance today. This
    has been a good hearing. And the Committee will be meeting--
    continue to meet on this issue. Thank you very much.
        [Whereupon, at 12:03 p.m., the hearing was adjourned.]
        [Prepared statements and responses to written questions
    supplied for the record follow:]
                      PREPARED STATEMENT OF JUAN C. ZARATE
              Chairman and Cofounder, Financial Integrity Network
                                  May 24, 2016
        Chairman Shelby, Ranking Member Brown, and distinguished Members of
    the Senate Committee on Banking, Housing, and Urban Affairs, I am
    honored to be with you today to discuss the role and significance of
    sanctions in the Iran nuclear deal, the Joint Comprehensive Plan of
    Action (JCPOA). The JCPOA is an ongoing and unfolding agreement, with
    significant implications for how the United States continues to
    leverage its economic and financial influence to affect Iranian
    behavior and counter its nefarious activity. This is an important
    moment for the United States to examine Iranian activity around the
    globe soberly and determine how best to proceed with the agreement and
    against the Iranian threat.
        When the JCPOA was being debated, I expressed deep concerns and
    reservations about its structure, demands, and effects on U.S.
    interests, especially in anticipation of increased Iranian belligerence
    and adventurism. In detailed testimony before both this Committee and
    the Senate on Foreign Relations Committee, I explained that the JCPOA
    was fundamentally flawed, in part because it would empower and enrich
    the regime and ultimately constrain our ability to use the most
    effective financial and economic tools of isolation to counter
    dangerous Iranian behavior.
        With strategic patience, Iran can march toward a weaponized program
    with greater capabilities, breakout capacity, and more economic
    resources, resilience, and connectivity to the global oil markets and
    commercial system. Even if Iran complies with all elements of this
    deal, Tehran will end up with an unfettered opportunity to break out
    and weaponize its nuclear program, overtly or covertly, along with an
    ability to arm itself and its allies more openly and aggressively. The
    end state of the agreement takes us far afield from the declared goal
    of successive Administrations at the start of negotiations.
        The structure, processes, and nature of this agreement give Iran
    the benefit of the doubt that it is pursuing a peaceful program, when
    the onus should remain on Iran to prove the peaceful nature of its
    program, as constructed in the prior, relevant UN Security Council
    Resolutions (UNSCRs).
        Ultimately, what we negotiated and promised was Iran's
    reintegration into the global economic system. The JCPOA sacrifices the
    ability of the United States to use its financial and economic power
    and influence to isolate and attack dangerous and problematic Iranian
    activity--beyond the nuclear program. Beyond simple sanctions relief,
    we negotiated away one of our most important tools of statecraft--the
    very financial and economic coercion that helped bring the Iranian
    regime to the table. Though ``non-nuclear'' sanctions were supposedly
    off the table, the spirit and letter of the agreement neuters
    Washington's ability to leverage one of its most powerful tools--its
    ability to exclude rogue Iranian actors and activities from the global
    financial and commercial system.
        As I explained last year, promising Iranian reintegration into the
    global system was not possible unless we were willing to defang our
    sanctions regime and ignore Iranian behavior; rehabilitate the
    perception of the Iranian regime ourselves; and take the most effective
    tools of financial isolation off the table.
        This is a critical point as Iran continues the range of dangerous
    activities that have been the subject of sanctions and international
    opprobrium. In the wake of the JCPOA implementation, these activities
    have included the following:

      1.  Iran has conducted repeated ballistic missile tests in violation
            of UN resolutions, including earlier this month according to
            Iranian news reports, and promises further tests. The launch in
            March also coincided with Vice President Biden's visit to
            Israel.

      2.  Qassem Soleimani, the head of the Iranian Revolutionary Guard
            Corps' (IRGC) Qods Force, traveled twice to Moscow in
            contravention of international travel bans to coordinate
            military cooperation with the Russian Government, to include
            the delivery of the S-300 system to Iran and defense of the
            Assad regime in Syria.

      3.  Iran remains the leading State sponsor of terror and has
            continued its direct support to terrorist proxies throughout
            the region, to include Hizballah's activities in Lebanon and
            Syria, as well as Iraqi Shi'ite militias who were responsible
            for the deaths of hundreds of Americans in Iraq and are now
            deployed in Syria to fight for the Assad regime. Iran's support
            of terrorist proxies is intended to destabilize regional
            Governments allied with the United States, and the Gulf States
            have uncovered and interdicted Iranian arms shipments to
            militias. In recent months, international naval forces have
            interdicted Iranian arms shipments likely headed to Houthi
            rebels in Yemen.

      4.  Iran has deployed troops--regular and from the IRGC--to Syria to
            fight for and defend the Assad regime, with reports of
            thousands on the ground. Qassem Soleimani continues to appear
            at key battlefronts throughout Syria, and the Iranians help
            funnel Iraqi, Afghani, and Pakistani Shi'ite militias into the
            battlefield.

      5.  Iran has continued to engage in human rights abuses and the
            restriction of democratic norms. In the run up to recent
            parliamentary elections, Iran disqualified thousands of
            individuals from running \1\ and continues to hold the leaders
            of the Green Movement under house arrest.
    ---------------------------------------------------------------------------
         \1\ Sam Wilkin, ``Iran Excludes Most Candidates in Elite Assembly
    Election'', January 26, 2016 (http://www.reuters.com/article/us-iran-
    election-candidates-idUSKCN0V419V).

      6.  Iran detained two Iranian-American citizens, a father and son, in
            October 2015 and February 2016, and continues to hold them. In
            addition, Robert Levinson remains missing after disappearing on
    ---------------------------------------------------------------------------
            Kish Island on March 9, 2007.

      7.  On January 12, 2016, Iranian naval forces arrested American
            sailors at gunpoint, broadcasting the video of their detention,
            and subsequently mocking the sailors through a reenactment at a
            rally commemorating the anniversary of the Iranian Revolution.
            The Iranians detained the American sailors days before the
            implementation of the JCPOA, and hours before the President's
            State of the Union address.

      8.  Iran continues to develop its cyber capabilities and has engaged
            in malicious cyberattacks against U.S. Government sites, the
            U.S. private sector, and specific individuals. In March 2016,
            the Department of Justice indicted seven individuals who worked
            for the IRGC and carried out attacks on forty-six (46) American
            banks (including JPMorgan Chase, Bank of America, Capital One,
            and PNC Bank), the New York Stock Exchange, AT&T, and the
            Bowman Dam in a suburb of New York. In February 2014, Iran
            launched a cyberattack against the Las Vegas Sands Corporation.

        Much of this activity is not a surprise, but it cannot be dismissed
    as simply the bad behavior of a recalcitrant IRGC or extremists within
    the Iranian system. In the Iranian system, these actions are blessed by
    the Supreme Leader, designed to promote the interests of the regime,
    and calculated to test the will of the West.
        Importantly, the nature of the regime, its control of the economy,
    and its willingness to use the financial system to pursue all its goals
    internally and externally has not changed. The Iranian system is
    corrupt, lacks transparency at all levels, and is centrally controlled
    by the regime. This--along with the uncertainty of how the JCPOA will
    unfold--ultimately creates enormous risk for legitimate international
    actors and companies considering doing business in or with Iran. This
    explains why there has not been a wave of Western businesses investing
    aggressively or operating directly in Iran. It further explains why the
    Iranian leadership continues to complain that the United States has not
    satisfied its side of the bargain.
    Exposing the Risky Nature of the Iranian Regime
        The risks are real for the international business and banking
    communities, given the nature of the regime, the opacity of its
    economy, its continued dangerous and threatening activities, and
    remaining sanctions.
        The constriction campaign that brought Iran to the negotiating
    table was premised on the suspicion of Iran's behavior and use of its
    financial and commercial system for illicit and dangerous purposes. The
    U.S. Treasury targeted Iran's banks by using Iran's own conduct--its
    proliferation activity, support for terrorist groups and Shi'ite
    militias, and lack of anti-money laundering controls, as well as the
    secretive and corrupt nature of the regime itself--as the cornerstone
    of the campaign. Iran's suite of suspect activities and attempts to
    avoid international scrutiny spurred the private sector to stop doing
    business with Iran. No reputable bank has wanted to be caught
    facilitating Iran's nuclear program or helping it make payments to
    Hizballah terrorist cells around the world. If they did, they would be
    caught and sanctioned, with enormous reputational and business
    consequences. These concerns continue.
        This produced a virtuous cycle of isolation that reduced Iranian
    access to the international financial system more and more over time.
    The more the Iranians tried to hide their identities or evade
    sanctions, the more suspect their transactions would appear and the
    riskier it would become for banks and other financial institutions to
    deal with them. Over time, bank accounts, lines of credit, and
    correspondent accounts were shut down. Iran's own actions to avoid
    scrutiny and obfuscate transactions led to greater financial
    constriction.
        The Iranians deepened their greatest vulnerability. They blended
    legitimate business transactions with illicit ones by funneling them
    through similar conduits. The Iranian regime often tried to hide the
    nature of its transactions and the identities of the Government
    entities involved. They used front companies, cut-outs, and businessmen
    to acquire items and goods abroad that were hard to purchase,
    sanctioned, or tied to their nuclear ambitions or their weapons
    programs.
        At the same time, the Iranian military was taking greater control
    of the Nation's economy. Importantly, the predominant economic player
    was Iran's IRGC, the elite military and security unit founded in 1979.
    The IRGC has gained more power and influence over time as the protector
    and exporter of the revolution and reports directly to the Supreme
    Leader, Ayatollah Ali Khamenei.
        The IRGC is an economic juggernaut, with responsibilities related
    to the development of weapons of mass destruction, missile systems, and
    overseas operations. It is deeply involved in the Iranian nuclear
    program, and its international arm, the Qods Force (IRGC-QF), is
    responsible for providing support to terrorist proxies and exporting
    the Iranian Revolution. Between them, the IRGC and its Qods Force are
    responsible for all the activities--weapons proliferation, terrorist
    support, and militant activity--for which Iran was sanctioned in the
    past.
        The IRGC--with its vast network--has embedded itself into more
    industries within Iran, ultimately building what has been called a
    veritable business empire. \2\ The regime and the IRGC's control of
    ``charitable'' foundations--known as bonyads--with access to billions
    of dollars of assets in the form of mortgages and business interests
    for veterans of the Iranian military--served as the baseline of its
    economic power, along with its ability to construct infrastructure
    through a corps of engineers. The reach of the IRGC's economic empire
    now extends to majority stakes in infrastructure companies, shipping
    and transport, beverage companies, and food and agriculture companies.
    \3\
    ---------------------------------------------------------------------------
         \2\ Frederic Wehrey, Jerrold D. Green, Brian Nichiporuk, Alireza
    Nader, Lydia Hansell, Rasool Nafisi, and S.R. Bohandy, ``The Rise of
    the Pasdaran: Assessing the Domestic Roles of Iran's Islamic
    Revolutionary Guards Corps'' (Washington, DC: RAND Corporation, 2009).
         \3\ Emanuele Ottolenghi, ``The Pasdaran: Inside Iran's Islamic
    Revolutionary Guard Corps'' (Washington, DC: Foundation for Defense of
    Democracies, 2011), pp.44-45.
    ---------------------------------------------------------------------------
        In 2006, the IRGC acquired control of the Iranian
    telecommunications sector, and it began to control more elements of the
    Nation's energy sector, including the development of pipelines and the
    valuable South Pars oil field. This allowed the IRGC to exclude
    competition and make it more difficult for legitimate international
    businesses to operate. Some estimates note that the IRGC controls
    between 25 and 40 percent of Iran's gross domestic product (GDP). \4\
    The IRGC is deeply involved in building Iran's infrastructure, pursuing
    projects such as deep-water ports and underground facilities important
    to Iran's defense and economy. These projects and industries give the
    IRGC political power and access to profits and capital.
    ---------------------------------------------------------------------------
         \4\ Ibid, p.43.
    ---------------------------------------------------------------------------
        The IRGC intervenes in Iran's economy through three principal
    channels: The IRGC Cooperative Foundation (its investment arm), the
    Basij Cooperative Foundation, and Khatam al-Anbiya Construction
    Headquarters. The Khatam al-Anbiya (KAA), a massive IRGC conglomerate,
    was designated by the United States as a proliferator of weapons of
    mass destruction. \5\ It is Iran's biggest construction firm and,
    according to some estimates, ``may be its largest company outright,
    with 135,000 employees and 5,000 subcontracting firms.'' \6\ The value
    of its current contracts is estimated to be nearly $50 billion, or
    about 12 percent of Iran's gross domestic product. \7\ KAA has hundreds
    of subsidiaries in numerous sectors of Iran's economy including its
    nuclear and defense programs, energy, construction, and engineering.
    The company is also involved in ``road-building projects, offshore
    construction, oil and gas pipelines, and water systems.'' \8\ EU
    sanctions against the company will be lifted after 8 years, whether or
    not the IAEA concludes that Iran's nuclear program is peaceful.
    ---------------------------------------------------------------------------
         \5\ Department of State, Office of the Spokesman, ``Fact Sheet:
    Designation of Iranian Entities and Individuals for Proliferation
    Activities and Support for Terrorism'', October 25, 2007 (http://2001-
    2009.state.gov/r/pa/prs/ps/2007/oct/94193.htm).
         \6\ Parisa Hafezi and Louis Charbonneau, ``Iranian Nuclear Deal
    Set To Make Hardline Revolutionary Guards Richer'', Reuters, July 6,
    2015 (http://www.reuters.com/article/2015/07/06/us-iran-nuclear-
    economy-insight-idUSKCN0PG1XV20150706); Emanuele Ottolenghi and Saeed
    Ghasseminejad, ``The Nuclear Deal's Impact on Iran's Revolutionary
    Guards'', Foundation for Defense of Democracies, July 17, 2015 (http://
    www.defenddemocracy.org/media-hit/emanuele-ottolenghi-the-nuclear-
    deals-impact-on-irans-revolutionary-guards/).
         \7\ Benoit Faucon and Asa Fitch, ``Iran's Guards Cloud Western
    Firms' Entry After Nuclear Deal'', The Wall Street Journal, July 21,
    2015 (http://www.wsj.com/articles/irans-guards-cloud-western-firms-
    entry-after-nuclear-deal-1437510830).
         \8\ Ibid.
    ---------------------------------------------------------------------------
        These three companies are direct shareholders of almost three
    hundred known businesses. My colleagues at the Foundation for Defense
    of Democracies have created a database of these companies and board
    members and provided it to the U.S. Government. \9\ As a result of the
    IRGC's control of the economy--control that has grown over time--
    together with sanctions relief, the risk of regime control over the
    economy will grow. In addition, the reality and risks of Iranian
    sanctions evasion, money laundering, the lack of transparency, and
    other financial crimes--the subject of international concern and U.S.
    regulatory action against Iran under the USA PATRIOT Act Section 311--
    will increase, not decrease over time.
    ---------------------------------------------------------------------------
         \9\ Iranian Official Journal, accessed July 20, 2015 (http://
    www.gazette.ir/).
    ---------------------------------------------------------------------------
        With the IRGC in control of an increasing share of the Iranian
    economy, including its infrastructure, telecommunications, and oil
    sector, risks of doing business in and with Iran will increase. The
    regime will continue to use its control of the economy not only to
    further enrich itself but also to suppress internal opposition brutally
    and ensconce its rule. The concerns over human rights abuses and regime
    kleptocracy will grow.
        As I have noted in the past, sanctions relief will increase risks
    over time, and Iran's foreign policy will continue to challenge and
    threaten U.S. interests.
        From the U.S. perspective, the blend of IRGC and regime activities
    created the ultimate vulnerability, particularly the blurred lines
    between legitimate industry and support for Iran's nuclear program and
    terrorist groups. Wire transfers to terrorist groups and front
    companies flooding money into the coffers of the Revolutionary Guard
    were actions seen to threaten not only international security but also
    the integrity of the financial system. The nefarious nature of the
    activities, tied with the IRGC's attempts to hide its hand in many of
    its economic dealings and operations, made Iran's financial activity
    inherently suspect. This has not changed.
        As part of past efforts to exclude Iran from the financial system,
    the U.S. Treasury made the argument directly to banks and companies
    around the world that it was too risky to do business with Iran, since
    no one really knew who was lurking behind corporate veils, pulling the
    strings, and accessing bank accounts and funding in Tehran. Would banks
    be willing to risk their reputations by doing business, even
    inadvertently, with the IRGC or the Qods Force? Could their compliance
    officers guarantee that they knew who was behind their Iranian
    customers and transactions? Was trade with Iran worth the risk of
    access to American markets and banks?
        All of this was amplified by parallel national legislation, UNSCRs,
    greater scrutiny from authorities around the world, and enforcement
    actions, led by the United States. The United States created a layered
    sanctions regime, with overlapping Executive Orders, designations, and
    eventually legislation, focused on the key elements of the Iranian
    regime and economy facilitating illicit and dangerous behavior. Each
    U.S. action spurred private sector and allied responses. The effects of
    this suspicion and isolation--driven by the private sector's risk
    calculus and Government actions--had a real world impact.
        Iranian banks, including its central bank, could no longer access
    the international financial system; its shipping lines could not
    traverse ports easily or obtain insurance to operate; and--thanks to
    congressional and international action--its oil sales and revenues were
    suspended. Iran had to create workarounds, evasion schemes, and
    bartering arrangements to continue to do business.
        The Central Bank of Iran (CBI) itself has been designated in part
    because of broader sanctions evasion facilitation on behalf of the
    Iranian banking system. Treasury issued a finding in November 2011,
    under Section 311 of the USA PATRIOT Act that Iran, as well as its
    entire financial sector including the CBI, is a ``jurisdiction of
    primary money laundering concern.'' \10\ Treasury cited Iran's
    ``support for terrorism,'' ``pursuit of weapons of mass destruction,''
    including its financing of nuclear and ballistic missile programs, and
    the use of ``deceptive financial practices to facilitate illicit
    conduct and evade sanctions.'' \11\ The country's entire financial
    system posed ``illicit finance risks for the global financial system.''
    \12\ Those concerns persist and are not alleviated by the JCPOA or any
    Iranian nuclear commitments or actions.
    ---------------------------------------------------------------------------
         \10\ U.S. Department of the Treasury, Press Release, ``Finding
    That the Islamic Republic of Iran Is a Jurisdiction of Primary Money
    Laundering Concern'', November 18, 2011 (http://www.treasury.gov/press-
    center/press-releases/Documents/Iran311Finding.pdf).
         \11\ Ibid.
         \12\ U.S. Department of the Treasury, Press Release, ``Fact Sheet:
    New Sanctions on Iran'', November 21, 2011 (http://www.treasury.gov/
    press-center/press-releases/Pages/tg1367.aspx).
    ---------------------------------------------------------------------------
        The concerns about the integrity of the Iranian financial system
    are international in nature. The Financial Action Task Force (FATF),
    the global standard setting and assessment body for anti-money
    laundering, counterterrorist financing, and counterproliferation
    financing, has labeled Iran--along with North Korea--``a high risk and
    noncooperative jurisdiction.'' FATF has called on its members to
    ``apply effective countermeasures to protect their financial sectors
    from money laundering and financing of terrorism (ML/FT) risks
    emanating from Iran.'' \13\
    ---------------------------------------------------------------------------
         \13\ The Financial Action Task Force, Public Statement, ``FATF
    Public Statement 19 February 2016'', February 19, 2016 (http://
    www.fatf-gafi.org/publications/high-riskandnon-
    cooperativejurisdictions/documents/public-statement-february-
    2016.html).
    ---------------------------------------------------------------------------
        As recently as February 19, 2016, FATF issued a statement warning
    that Iran's ``failure to address the risk of terrorist financing''
    poses a ``serious threat . . . to the integrity of the international
    financial system.'' \14\ The international community recognizes that
    Iran--regardless of the status of its nuclear program--poses a real and
    serious threat to the integrity of the global financial system.
    ---------------------------------------------------------------------------
         \14\ Ibid.
    ---------------------------------------------------------------------------
        This financial and economic isolation was premised on the actions
    and nature of the Iranian regime itself. Since the announcement of the
    JCPOA, neither has changed. On the contrary, Iran has demonstrated its
    desire to continue its aggressive activities and support to causes and
    groups directly antithetical to U.S. interests.
        The risks from Iran are real and will increase in an environment of
    sanctions unwinding under the JCPOA for a variety of reasons.
        In the first instance, the unfettered return of funds to the
    Iranian regime will allow Tehran the flexibility to fund its allies and
    proxies and flex its muscles in the region. Regardless of amounts
    available to the regime or percentage used to support terrorist
    proxies, there will be an infusion of terrorist financing into the
    global system. The Administration has acknowledged that some of the
    unfrozen funds will go to support terrorist and militant groups, like
    Hizballah, HAMAS, Iraqi Shi'ite militias, and the Houthis in Yemen.
    This is certainly the expectation of Iran's allies. Iran could even use
    its capital to support the Taleban and al Qaida, with which Iran has
    maintained a relationship and provided support in the past.
        With Iran expanding its reach and presence throughout the Middle
    East, and IRGC commanders and proxies positioned from the Golan to
    Yemen, there will be more concern about Iran's misuse of the economy,
    the benefits of sanctions relief, and the international financial and
    commercial system for dangerous and illicit activities. The infusion of
    cash as a result of sanction relief will relieve budgetary constraints
    for a country that had only an estimated $20 billion in fully
    accessible foreign exchange reserves prior to November 2013 \15\ but
    was spending at least $6 billion annually to support Assad. \16\
    ---------------------------------------------------------------------------
         \15\ Mark Dubowitz and Rachel Ziemba, ``When Will Iran Run Out of
    Money?'' Foundation for Defense of Democracies and Roubini Global
    Economics, October 2, 2013.
         \16\ Eli Lake, ``Iran Spends Billions To Prop Up Assad'',
    Bloomberg, June 9, 2015 (http://www.bloombergview.com/articles/2015-06-
    09/iran-spends-billions-to-prop-up-assad).
    ---------------------------------------------------------------------------
        The regime itself, and its core institutions like the Ministry of
    Intelligence and the IRGC, will benefit most immediately and deeply.
    Iran is a theocratic regime that controls the key elements of the
    economy. The mullahs have used their control of the economy--through
    bonyads and the Supreme Leader's vast financial network, known as Setad
    or EIKO, and which is worth tens of billions of dollars, to enrich
    themselves and exert more control over the country.
        Despite the notion that the JCPOA resolves all ``nuclear-related''
    concerns, it does not address real concerns over continued Iranian
    proliferation, to include missile and arms trade. With the allowance
    for an Iranian nuclear program, infrastructure, and research, the deal
    will likely increase (not decrease) the risk of proliferation--with
    potential Iranian trade and exchange with rogue third countries like
    North Korea.
        The dangers, challenges, and risks from Iran on a regional and
    global scale will only increase over time. In the wake of the JCPOA,
    Secretary of State Kerry stated that we will need to ``push back''
    against Iran's provocative and dangerous policies and tactics. CIA
    Director John Brennan said that the United States will ``keep pressure
    on Iran'' and ``make sure that it is not able to continue to
    destabilize a number of the countries in the region.'' \17\
    ---------------------------------------------------------------------------
         \17\ ``CIA Director Says U.S. Will Keep Pressure on Iran over
    Nuclear Capabilities No Matter Outcome of Ongoing Talks'', Fox News,
    March 23, 2015 (http://www.foxnews.com/politics/2015/03/23/cia---
    director---says---us---will---keep---pressure---on---iran---over---
    nuclear---capabilities/).
    ---------------------------------------------------------------------------
        Indeed, the United States will need to push back, especially
    against increasing risks and threats from Iran. This has been evident
    in the wake of the JCPOA Implementation Day. To do this, the United
    States will want to use its financial and economic tools and strategies
    to make it harder, costlier, and riskier for Iran to threaten the U.S.
    and our allies. This will mean devising and deploying aggressive
    strategies to exclude key elements of the Iranian regime and the IRGC,
    Qods Force, and Ministry of Intelligence from the global financial and
    commercial system.
    The Risks of Doing Business in Iran
        On January 16, 2016, the United States, the European Union, the
    United Nations, and other countries unwound a substantial number of
    sanctions on the Islamic Republic of Iran as part of their obligations
    under the JCPOA. Most notably, many EU and UN sanctions, as well as
    many U.S. ``secondary'' sanctions, will no longer remain in force.
    ``Primary'' U.S. sanctions programs barring almost all U.S. persons
    from doing Iran-linked business remain. \18\
    ---------------------------------------------------------------------------
         \18\ Primary sanctions are those that apply directly to (1) the
    activities of U.S. persons (including persons located in the United
    States), (2) non-U.S. persons who cause U.S. persons to violate U.S.
    sanctions regulations, (3) activities taking place within the United
    States, and (4) transfers of U.S.-regulated goods, services, and
    technologies. Secondary sanctions apply to non-U.S. persons where the
    United States lacks jurisdiction to impose primary sanctions. Such
    sanctions often include privileging a company's access to U.S. markets
    on compliance with U.S. sanctions regulations.
    ---------------------------------------------------------------------------
        In the wake of Implementation Day and with remaining sanctions and
    financial crime concerns, important questions exist regarding what
    doing business in or with Iran now means and how to evaluate and manage
    such risk.
        As Iran attempts to reintegrate into the world economy, many
    challenges remain for companies considering doing business in the
    Islamic Republic, with Iranian counterparties, or supporting customers
    operating in Iran. Dealing with the spectrum of risk--financial crime,
    regulatory, reputational, and policy--in the Islamic Republic will
    require that U.S., European, Asian, Middle Eastern, and other firms
    clearly understand the patchwork of sanctions that will remain in place
    on the country, as well as many of the systemic issues, such as
    corruption, impacting various Iranian business sectors. Companies must
    also factor into their business decisions the risk that sanctions may
    ``snap back'' in the medium or long term.
        The risks are amplified by Iran's long history of sanctions
    evasion, illicit finance and corruption, and opaque financial and
    commercial practices. In 2015, Emanuele Ottolenghi produced a report
    \19\ for the Center on Sanctions and Illicit Finance at the Foundation
    for Defense of Democracies detailing the various illicit and suspicious
    methods used by the Iranian regime to operate in the global financial
    and commercial system--including the establishment of sophisticated
    procurement networks and use of gatekeepers to facilitate financing.
    ---------------------------------------------------------------------------
         \19\ Report available upon request.
    ---------------------------------------------------------------------------
        This complicated risk environment has dissuaded most legitimate
    companies from reentering and investing in the Iranian economy. While
    Iranian markets may appear attractive, companies considering
    transacting with persons in Iran or doing business in Iran are
    proceeding with caution. The recent parliamentary elections in Iran
    have not altered this analysis or trajectory fundamentally. Companies
    considering doing business in Iran or with Iranian persons must contend
    with at least eight sanctions and financial crimes-related risks:
        1. Primary U.S. Sanctions. Most U.S. primary sanctions, which
    broadly prohibit U.S. persons from conducting transactions in Iran,
    with persons resident in Iran, or with the Government of Iran, will
    remain in force. These U.S. primary sanctions pose significant risks
    for any multinational company considering doing business in Iran. U.S.
    jurisdiction is broad and U.S. regulators can use it to target
    transactions that may not initially appear to touch U.S. markets or
    involve U.S. persons.
        U.S. jurisdiction applies to all U.S. individuals (including U.S.
    citizens and permanent resident aliens, wherever located, as well as
    persons located in the United States) and entities (including any
    entity located or operating in the United States, organized under the
    laws of the United States, as well as foreign branches of U.S.
    entities). Further, the United States may impose penalties (civil or
    criminal) on any foreign person who causes a U.S. person to violate
    sanctions regulations. \20\
    ---------------------------------------------------------------------------
         \20\ See 50 U.S.C. 1705.
    ---------------------------------------------------------------------------
        For example, if a Middle Eastern, European, or Asian financial
    institution conducts transactions on behalf of an Iranian company and
    the transaction involves a U.S. bank or a correspondent account located
    in the United States, U.S. regulators will likely have jurisdiction
    over the transaction and can impose penalties on the non-U.S. financial
    institution. Similarly, if a Middle Eastern exporting company with U.S.
    offices relies on those offices for back office functions for
    transactions related to Iran or with an Iranian, the U.S. offices
    providing back office support will be engaged in the prohibited
    exportation of services to Iran (and can be subject to OFAC penalties).
    Where the Middle Eastern entity caused the U.S. offices to provide the
    services without knowledge of the Iranian nexus, U.S. regulators could
    impose fines on that Middle Eastern entity for causing the U.S. offices
    to violate the sanctions.
        Even those U.S. companies taking advantage of the new General
    License H--which permits foreign subsidiaries of U.S. companies to
    engage in certain activities in Iran--will face significant sanctions-
    related risks. While these subsidiaries may be allowed to conduct those
    activities, if the U.S. parent company is involved in any Iran-related
    business or transactions, it will likely be exposed to U.S. primary
    sanctions. \21\ Multinational companies must build a firewall between
    U.S. parents and any foreign subsidiary doing business with Iranian
    persons or in Iran, which may be difficult to effectively do in
    practice.
    ---------------------------------------------------------------------------
         \21\ Note that U.S. parent companies are permitted to establish
    policies and procedures that allow these foreign subsidiaries to
    conduct business in Iran and with Iranian persons, though after the
    initial decision to reengage in Iran-related business and the
    establishment of procedures for doing so, U.S. persons cannot be
    involved in the activities of their foreign subsidiaries relating to
    transactions with Iranian persons or in Iran. Similarly, U.S. companies
    can make their automated computing, accounting, and communications
    systems available for their subsidiaries conducting permitted
    activities in Iran. In effect, this permits foreign subsidiaries doing
    permitted business in Iran to continue to use the same computer systems
    as their parent companies. Note however that provision does not allow
    U.S. parents to otherwise be involved in those activities in any way.
    ---------------------------------------------------------------------------
        Because the breadth of U.S. jurisdiction is expansive, companies
    based in Europe and Asia must be aware that any engagement with Iran
    may still expose them to remaining U.S. sanctions. Companies,
    particularly ones operating across borders, have to pay careful
    attention to whether they may be subject to U.S. jurisdiction, which
    might pose one of the most pressing regulatory risks that any company
    considering entering Iranian markets will face.
        2. Remaining U.S. Secondary Sanctions. Foreign businesses
    considering doing business in Iran will continue to face the risk of
    violating remaining ``secondary sanctions'' on Iran, which prohibit
    foreign financial institutions and other non-U.S. headquartered
    companies from doing certain business with Iran. While many of the
    secondary sanctions imposed since 2010 have been unwound, \22\ non-U.S.
    persons are still at risk for violating remaining U.S. secondary
    sanctions if they engage in transactions with any one of more than 200
    people and entities listed as Specially Designated Nationals (SDNs)
    including the IRGC and its affiliates.
    ---------------------------------------------------------------------------
         \22\ Following Implementation Day, non-U.S. entities can now
    conduct certain transactions with:
        The financial and banking industry in Iran, including maintaining
    correspondent accounts for non OFAC-designated Iranian financial
    institutions, the provision of financial messaging services, dealing in
    the rial and in Iranian sovereign debt, and issuing credit cards for
    Iranians;
        Insurance-related activities consistent with the JCPOA, including
    payment of claims to non-U.S. persons;
        The energy industry;
        Shipping, shipbuilding, and port operations;
        Precious and raw/semi-finished metals dealers; and
        The automotive industry, insofar as non-U.S. goods, technology,
    and services are involved.
    ---------------------------------------------------------------------------
        These restrictions pose additional and significant risks because
    under U.S. law, entities owned or controlled 50 percent or more by
    designated persons--so-called ``shadow SDNs''--are by law also
    considered SDNs. For example, if a foreign financial institution
    processes transactions on behalf of an entity that is owned or
    controlled by the IRGC (whether or not that entity is listed on
    national or international lists of designated parties), it could be
    subject to U.S. secondary sanctions. This creates significant risk for
    financial institutions and other companies wishing to do business in
    Iran, given that the IRGC controls a significant portion of the
    economy. \23\ This risk is further exacerbated by Iranian attempts to
    create a ``gold rush'' psychology in the marketplace and to muddy the
    waters regarding what restrictions may apply to specific transactions.
    We should expect Iranian customers and counterparties to alter
    ownership interests, names of entities, and ownership structures in an
    attempt to hide links to designated parties. This would match past
    practices of sanctions evasion and obfuscation of financial
    transactions in the past.
    ---------------------------------------------------------------------------
         \23\ Estimates vary on how much of the Iranian economy is
    controlled by the IRGC, with many analysts suggesting the IGRC controls
    as much as 35 percent.
    ---------------------------------------------------------------------------
        Determining whether a customer, partner, or counterparty is owned
    or controlled by a designated person will be a challenging task,
    further complicated by the fact that the Office of Foreign Assets
    Control (OFAC) at the United States Department of the Treasury has
    provided limited guidance on how companies looking to do business in
    Iran can determine whether they are inadvertently doing business with
    the IRGC. OFAC recommends only that ``a person considering business in
    Iran or with Iranian persons conduct due diligence sufficient to ensure
    that it is not knowingly engaging in transactions with the IRGC or
    other Iranian or Iran-related persons on the SDN List and keep records
    documenting that due diligence.'' Businesses looking to enter the
    Iranian market must make their own determinations about what
    constitutes ``sufficient'' due diligence without more precise guidance
    and while the structure of civil and criminal penalties for sanctions
    violations remains in place.
        Further, non-U.S. persons still need to be aware of remaining U.S.
    export controls. For example, restrictions still apply regarding the
    facilitation of Iranian acquisition or development of weapons of mass
    destruction. In addition, transfers of certain potential dual-use
    materials must be approved via the procurement channel established by
    the JCPOA. U.S. origin goods, technology, and services also are subject
    to the Export Administration Regulations, which retain prohibitions on
    exports and reexports to Iran.
        3. Remaining EU and UN Sanctions. While most EU and UN sanctions on
    Iran have been unwound, a number of important restrictions remain in
    place. \24\ Under EU law, trade restrictions on the sale, export,
    provision, or servicing of goods deemed to be ``internal repression
    equipment,'' or used for ``telecommunications surveillance and
    interception,'' remain in place. Likewise, the EU will continue to
    impose asset freezes and prohibitions on business and trade with
    individuals and entities designated for committing human rights abuses
    and restrictions on the trade of certain items related to nuclear
    proliferation.
    ---------------------------------------------------------------------------
         \24\ Under EU law, several engagements previously prohibited,
    including associated services, are now allowed so long as they avoid
    dealing with listed Iranian persons:
        Financial, banking, and insurance measures involving Iranian
    entities--including the provision of insurance to Iranian oil and gas
    shipments--are now permitted by EU law and do not require prior
    authorization;
        The import, purchase, swap, and transport crude oil and petroleum
    products, gas, and petrochemical products from Iran, and the export of
    equipment to Iran for use in the energy industry are now permitted;
        Engagements with the Iranian shipping, shipbuilding, and transport
    sectors are no longer restricted;
        Trade with Iran involving gold, other precious metals, banknotes,
    and coinage is now permissible;
        While the sale or transfer of certain graphite and raw/semi-
    finished metals to any Iranian entity is no longer prohibited, such
    activity is subject to an authorization regime; and
        While the sale or transfer of Enterprise Resource Planning
    software to any Iranian entity for use in activities consistent with
    the JCPOA is no longer prohibited, such activity is subject to an
    authorization regime.
    ---------------------------------------------------------------------------
        Like the United States, the EU has also delisted certain entities
    that are thus no longer subject to its asset freeze, prohibition to
    make funds available, and visa ban. However, certain financial
    institutions such as Ansar Bank, Bank Saderat Iran, Bank Saderat PLC,
    and Mehr Bank remain listed by the EU.
        UN Security Council Resolutions that imposed sanctions on Iran for
    its nuclear program were terminated on Implementation Day. Thus, the
    United Nations no longer imposes limits on providing insurance and
    reinsurance products to Iranian entities, and no longer prohibits the
    opening of new Iranian bank branches or subsidiaries outside Iran (nor
    is there a mirrored prohibition on entities from UN member States doing
    the same within Iran). However, a UN arms embargo and UN sanctions on
    Iran's ballistic missile program remain in place. Further, some
    individuals designated by the UN for participating in nuclear and
    ballistic missile programs remain designated. \25\ The recent missile
    tests and Iranian promises for more simply exacerbate the risk that
    additional sanctions will be applied.
    ---------------------------------------------------------------------------
         \25\ Pursuant to the terms of United Nations Security Council
    Resolution (UNSCR) 2231 (2015) (which endorsed the JCPOA), all prior
    United Nations Security Council Resolutions mandating sanctions on
    Iran--namely, UNSCR 1696 (2006), 1737 (2007), 1747 (2007), 1803 (2008),
    1835 (2008), 1929 (2010), and 2224 (2015)--were formally terminated
    upon receipt of the IAEA's report verifying that Iran has met its
    nuclear-related obligations under the JCPOA. Through UNSCR 2231, the UN
    continues to impose certain restrictions on nuclear, conventional arms,
    and ballistic missile-related activities involving Iran.
    ---------------------------------------------------------------------------
        4. Likely Additional Sanctions. Businesses interested in entering
    Iran should be aware that additional designations and sanctions are
    likely as the United States Congress continues to focus on illicit
    Iranian behavior and as Iran continues with activities such as
    ballistic missile testing and the provision of support to terrorist
    groups. Congress has explored additional sanctions legislation, in
    particular related to more stringent sanctions tied to the IRGC and its
    ownership and control interests. Though the Administration will resist
    actions that appear to reimpose lifted sanctions, both the House of
    Representatives and the Senate appear interested in pursuing
    legislation that directly or indirectly impacts Iran, including the
    recent legislation imposing additional sanctions on Hizballah.
        The Administration has wanted to demonstrate its willingness to
    sanction non-nuclear Iranian behavior, both to stave off additional
    congressional action and address Iranian threats to U.S. interests. It
    has not wanted, however, to impose sanctions or financial measures that
    would allow Iran to claim that the United States had violated the terms
    of the JCPOA. Since Implementation Day, the Treasury Department has
    twice used ballistic missile-related designations--in January 2016,
    designating 11 entities and individuals involved in procurement on
    behalf of Iran's ballistic missile program, and then again in March
    2016, designating additional parties tied to the missile program.
    Companies are aware that additional Iranian individuals, companies, and
    related networks could be designated, effectively requiring an end to
    any financial or commercial relationship.
        This risk increases as Iran engages in activities that spur
    additional U.S. and possibly EU sanctions. In addition to its support
    to terrorist groups and the Assad regime, its ballistic missile
    program, and human rights abuses, there are other risks attendant to
    doing business with Iran. Iran's link with North Korea, and in
    particular its cooperation on proliferation and ballistic missile-
    related issues, increases the likelihood that the United States and the
    European Union will impose additional sanctions on the Islamic
    Republic. For example, in late January, France requested the European
    Union consider imposing additional sanctions on Iran for its continued
    ballistic missiles activities.
        5. Iran's Potential Cheating on the JCPOA. If the United States or
    other members of the P5+1 conclude that Iran is cheating on its
    obligations under the JCPOA, they can snap back many of the sanctions
    into place. In the context of any potential snapback, OFAC has made
    clear that there will be no ``grandfather'' clause for pending
    transactions, meaning foreign companies doing business in Iran would
    need to very quickly wind down their operations, potentially at a
    significant loss. While the Obama administration will be unlikely to
    push for a comprehensive snapback of sanctions unless there is a
    serious, material breach of the JCPOA, Treasury Department officials
    have made it clear that they have developed more limited snap back
    mechanisms in the case that Iran pushes the envelope and engages in
    activities that violate its obligations. Similarly, depending on the
    outcome of the U.S. presidential election in November 2016, candidates
    have expressed a desire to reimpose sanctions on Iran. Such action
    could pose serious risks for foreign companies doing business in the
    Islamic Republic.
        6. Sanctions Violations Enforcement Posture. The United States
    Department of the Treasury has indicated it will continue to
    aggressively enforce regulations remaining in place. For example,
    acting Under Secretary of the Treasury for Terrorism and Financial
    Intelligence Adam Szubin noted, following Implementation Day, that
    ``[w]e have consistently made clear that the United States will
    vigorously press sanctions against Iranian activities outside of the
    Joint Comprehensive Plan of Action--including those related to Iran's
    support for terrorism, regional destabilization, human rights abuses,
    and ballistic missile program.'' Indeed, the day after JCPOA
    Implementation Day, the U.S. Government imposed sanctions on entities
    and individuals in the Middle East and Asia for supporting Iran's
    ballistic missile program. These types of sanctions will be used to
    help demonstrate to Iran and U.S. allies that Washington remains
    prepared to use economic measures to enforce existing sanctions. In
    addition, Iran's history of using a variety of financial and commercial
    measures to hide its hand to evade sanctions and the scrutiny of the
    international community adds additional risk that sanctions may be
    applied.
        7. Regulatory Risk From Multiple Enforcement Agencies. From a
    regulatory and enforcement perspective, it is important to note that
    the Treasury Department and OFAC are not the only arbiters of sanctions
    violations and requirements. The United States Department of Justice,
    the Securities and Exchange Commission, State prosecutors, and various
    New York authorities, such as the Department of Financial Services,
    will all play a significant role in how existing sanctions regulations
    and related laws are enforced. Local authorities may elect to take a
    more aggressive enforcement posture with respect to sanctions
    violations, which would fall outside of the Federal Government's
    control. Any company considering doing business in Iran or with Iranian
    individuals or entities will need to pay close attention to the
    regulatory and enforcement postures taken by these other Government
    agencies.
        8. Financial Crimes Risks in Iran. Though the recent business
    attention on Iran has understandably focused on sanctions-related
    issues, banks and businesses must remember that other financial crimes
    concerns in the Islamic Republic remain pervasive. In particular, the
    nature of the Iranian economy and the role of the Government within the
    economy present serious risks related to bribery and corruption, money
    laundering, and illicit financing. Iran ranked 130 of 175 countries in
    Transparency International's Corruption Perceptions Index as of 2015.
        In 2011, the U.S. identified Iran as a jurisdiction of primary
    money laundering concern pursuant to Section 311 of the USA PATRIOT
    Act. The FATF first raised concerns over Iran's lack of a comprehensive
    anti-money laundering/countering the financing of terrorism (AML/CFT)
    framework in 2007, and it still urges Iran to meaningfully address AML/
    CFT deficiencies and will consider urging stronger countermeasures
    later this year. OFAC also has made it clear that activity inconsistent
    with a wide range of Executive Orders imposing sanctions on Iran
    (including for providing support to terrorism, undermining the
    stability of Yemen, and other behaviors) could still subject U.S. and
    non-U.S. persons to sanctions. Now, the Iranian Government has
    indicated that it will begin to target ``financial corruption,'' and
    has sentenced Iranian billionaire Babak Zanjani, who helped the regime
    evade oil-related sanctions, and two others to death for corruption.
    Attention on the issue of corruption will now grow, as Iran attempts to
    do business with the world. Any companies looking to do business in
    Iran must be acutely aware of serious financial integrity risks beyond
    those posed by remaining sanctions.
        As some of the sanctions on Iran are unwound, many European, Asian,
    and Middle Eastern companies understandably want to reengage in the
    Iranian economy. The risk appetites of companies will likely vary by
    sector, with large oil, aerospace, auto, infrastructure, and equipment
    companies likely more willing to enter Iranian markets more quickly and
    with a higher tolerance for risk. For example, Airbus has already
    agreed to sell Iran 114 airplanes, and Boeing has obtained a license
    from OFAC to begin commercial discussions with Iranian airlines.
        In contrast, other sectors will have a more conservative risk
    approach. Shipping insurers have already recommended a greater degree
    of caution. For example, the London Protection and Indemnity Club, a
    member of the International Group of Protection and Indemnity Clubs,
    the main association of global tanker insurers, has recommended
    shipping insurers not enter contracts or fixtures involving previously
    sanctioned Iranian trade or entities without performing extensive due
    diligence. Similarly, financial institutions will be more reluctant to
    reenter Iranian markets, given recent enforcement actions targeting
    their activities and the stricter financial crime compliance
    environment globally.
        A significant challenge will be how financial institutions wary of
    the risks of doing business in Iran respond to pressure from clients
    with greater risk appetites to provide financial services for
    activities in Iran. Iran has already complained that European banks
    have remained reluctant to engage in commercial activity with Iran, and
    is now asking the IMF to help assuage such concerns with a report
    slated for release in 2018. Additional pressure and statements from
    Iranian leadership, including the Iranian Central Bank Governor, are
    echoing the charge that the United States is not fulfilling its
    obligations under the ``spirit and letter'' of the nuclear deal. The
    Iranian charge is that the U.S. sanctions and narrative of Iranian risk
    are still scaring away investment and financial dealings.
        The desire in and from Tehran to see the fruits of the nuclear
    negotiations, especially with more banking activity with the West, will
    add pressure to those institutions that remain cautious. For example,
    some financial institutions, including at least one major Japanese
    bank, have begun processing nondollarized transactions for clients
    operating in the Islamic Republic. Others have begun to flirt with the
    Iranian market, with South Korean commercial bank, Woori Bank,
    indicating it wants to turn its Tehran presence into a branch office,
    and Austrian Raiffeisen Bank International (RBI) signing a memorandum
    of understanding with Iran's Department of Environment. Importantly, it
    appears that the Iranians realize that in order to do business
    legitimately with the West, they must meet the standards demanded in
    the Western banking world for transparency and accountability. But the
    Iranians are intent to force the United States and Europe to resolve
    this issue for them and to mark this as an essential part of JCPOA
    implementation.
    Keeping the Burden of Persuasion and Reform on Iran
        In implementing the deal, the United States should not fall into
    the trap of helping Iran rehabilitate itself. Throughout this deal, the
    onus should remain solely on Iran to alleviate concerns about its
    activities, lack of transparency, and failure to meet heightened global
    standards of financial integrity in the banking and commercial worlds.
    Iran should not get a free pass on the reforms, modernization, and
    accountability necessary for acceptance as a legitimate actor in the
    world--diplomatically and economically. This posture should force the
    Iranians to turn inward to determine how they can meet international
    expectations, instead of trying to compel the United States and Europe
    to alter their standards or dictate to the private sector where and
    with whom they should do business.
        Unfortunately in the desire to appear to be complying with the
    deal, some U.S. actions have created the impression that the United
    States and European Governments have assumed the burden of
    reintegration of the Iranian economy into the global system. There are
    some examples worth noting:
        1. There have been reports that the United States might offer Iran
    the ability to access offshore dollar-clearing facilities, to allow for
    dollar-denominated transactions and ease Iran's ability to trade
    internationally. Though such a maneuver would not allow Iran direct
    access to dollar clearing in the United States, it could be structured
    in a manner to create the same effect. Iranian trade would then be
    facilitated in a way not contemplated in the JCPOA. The United States
    should not be offering special exemptions or measures to assist Iran
    with access to dollars while Iran remains a leading State sponsor of
    terror, subject to serious sanctions, and designated as a ``primary
    money laundering concern.''
        In addition, if the United States were to provide Iran with access
    to U.S. dollars for offshore transactions, then the United States would
    lose the ability to threaten this access in response to a range of
    Iranian provocations in the future. In effect, by couching access to
    the Western financial system and the U.S. dollar as part of the nuclear
    deal, the United States would no longer be able to cut Iran off from
    this benefit if it significantly increased its support for terrorism,
    as Iran would claim that such an attempt at coercion would violate the
    letter of the nuclear agreement. This would further give away coercive
    financial leverage without any bargained-for concession by Iran. Iran's
    underlying conduct outside of the nuclear issue was not on the table
    during negotiations. The United States and the international community
    should not open the door to broad benefits of relief from financial
    exclusion that the Iranians neither negotiated nor deserve.
        2. The U.S. Government has been sending delegations around the
    globe to clarify existing sanctions and obligations and apparently to
    explain how business may be undertaken with the Iranian regime. Though
    regulatory clarity is important, the United States should not be
    launching road shows attempting to dampen concerns about the risks of
    doing business in or with Iran, especially when those risks are
    increasing. The burden instead should fall on Iran to demonstrate to
    Governments, the private sector, and the markets that its activities,
    policies, and use of its financial and commercial system are
    legitimate, transparent, and meet international standards. Iran should
    be concentrating on necessary reforms, hard policy decisions, and its
    own road shows to prove that it can be trusted as a responsible
    international player. Until then, Iran will be seen as a risky
    jurisdiction in which to invest and do business. It should not be the
    responsibility of the United States or Europe to prod businesses and
    banks to enter the Iranian market.
        3. The United States has announced that it plans to buy heavy water
    from the Iranian nuclear system, thus enabling Iran to produce more
    heavy water than it needs and facilitating the economic uses of a
    nuclear program built in violation of previous international sanctions.
    This also legitimates Iran's nuclear program in a way that is not
    obligated in the JCPOA and promotes Iran's expanded nuclear program.
    Aside from not encouraging and promoting the Iranian nuclear program
    beyond what is required in the JCPOA, the United States should not be
    serving as Iran's market safety valve for the sale of heavy water,
    displacing existing supplies to the United States from legitimate
    suppliers like Canada and Argentina. As with any Iranian economic
    activity, Iran should be forced to deal with the international markets
    on its own, meeting relevant market and regulatory demands directly.
    The United States should not usher Iran into the global economy
    artificially, especially not in the nuclear markets, and allow Iran
    benefits that were not negotiated in the JCPOA and for which the
    international community has not received consideration.
        4. It has been important that the U.S. Treasury and other U.S.
    Government officials have reiterated the commitment to enforcing
    existing sanctions vigorously and maintaining the ability to use the
    tools of financial coercion to affect Iranian behavior. These
    commitments, however, are undercut when the United States modifies its
    messaging to suggest that our sanctions regime should not constrain or
    affect the risk calculus of the private sector. Though intended to
    demonstrate that the United States is upholding its end of the JCPOA
    bargain, softened language appears to suggest that the United States is
    already backing away from its willingness to use existing sanctions
    against Iran. Recently, Secretary Kerry met with European banks and
    noted that European businesses should not use the United States as an
    excuse not to invest in Iran. European businesses should be encouraged
    to listen to and account for U.S. regulatory, enforcement, and policy
    concerns--not ignore longstanding and legitimate concerns.
        The United States cannot alter this commitment to enforce
    sanctions, weaken its call for heightened global standards for
    financial integrity, or jump every time Iran complains about its
    inability to access the global financial system. The United States
    cannot mute itself or its willingness to use some of our most effective
    financial and economic tools against dangerous Iranian activity.
    Unfortunately, the United States has quieted its voice too often in the
    face of Iranian aggression and violations in the hopes of a nuclear
    deal--from the deafening silence as the Green Movement was crushed
    brutally to current vacillation on whether recent ballistic missile
    tests violate the letter and spirit of the JCPOA and the related UN
    Security Council Resolution 2231.
        The United States cannot be in the position of rehabilitating the
    Iranian economy and image. This proves highly problematic and
    undermines U.S. credibility and power internationally if this is done
    without concern for the underlying issues and conduct that drove its
    isolation in the first place--proliferation, support for terrorism,
    human rights violations, and development of weaponry and programs of
    concern controlled by the IRGC. It is the threat to the international
    financial system of the illicit and suspect flows of money that is the
    baseline for Iran's isolation. Iran should be forced to deal with these
    risks directly.
    The Strategic Use of Sanctions Moving Forward and Targeted Unwinding
        The United States should treat the JCPOA and its implementation as
    an ongoing process, where sanctions and sanctions unwinding form a
    strategic part of U.S. and international efforts to enforce the deal,
    maintain economic and financial leverage, push back on dangerous
    Iranian activity, and force the Iranians to make hard decisions about
    their role in the world. Sanctions and financial measures in this
    regard are not just tools that were used to get Iran to the table, but
    are essential levers of influence moving forward. Indeed, how sanctions
    are deployed and unwound could affect the internal dynamics of Iran in
    furtherance of U.S. and allied interests.
        In the first instance, the United States should not shy away from
    the use of sanctions against Iranian behavior and underlying conduct
    that is already subject to sanctions. The U.S. Government has the
    authority and ability to apply sanctions for the full suite of
    nefarious Iranian behavior--to include human rights violations and
    malicious cyber activity. This includes enforcement of existing
    sanctions and application of new measures to constrain Iranian behavior
    and discipline the international system. The United States retains the
    power and credibility to do this. The effects of U.S. actions are
    global and set the international norms for acceptable behavior. Absent
    U.S. action, attention, and enforcement, Iranian provocations will
    likely not be met with credible international push-back. If U.S.
    financial and economic measures are based on facts and can be explained
    credibly as furthering U.S. legal requirements and international norms,
    the impact will remain global and the effect real.
        In addition, the United States should not diminish its ability to
    use targeted unwinding tools to force Iran to make hard choices about
    its behavior in the international system. If implementation of the
    JCPOA is viewed as an ongoing and long-term process, then the United
    States should be thinking creatively about how to use these targeted
    unwinding measures to effectuate its strategic goals.
        The JCPOA attempts to unwind sanctions tied to the nuclear file,
    but the unwinding is difficult and complicated given the interconnected
    nature and effects of such sanctions. In some instances, the unwinding
    can be managed. In many other cases, the unwinding schedule and some of
    the scheduled delistings implicate actors and activities beyond the
    nuclear file, complicating our ability to easily unwind sanctions and
    threatening our ability to impose coercive leverage in the case of
    Iranian malfeasance beyond the nuclear file. The delisting of some key
    Iranian entities that have facilitated a range of Iranian illicit
    activities and the cessation of sanctions prohibitions against them,
    especially terrorism financing, raises serious challenges to U.S.
    ability to affect Iranian behavior of concern.
        There is no question trying to unwind any effective and global
    sanctions regime is difficult. Unwinding intertwined, conduct-based
    sanctions for a regime that uses its economy for various dangerous and
    nefarious activities of international security concern is incredibly
    challenging. But tearing down sanctions bluntly--particularly when
    pulling down the nuclear sanctions also threatens to pull down U.S.
    leverage related to issues of missile proliferation and terrorism--
    without addressing that underlying and related conduct creates real
    risks and does damage to the ability to use the very same tools against
    Iranian individuals and entities in the future.
        In light of the risks of doing business with Iran, the
    reintegration of Iranian banks into the global financial system,
    including via the SWIFT bank messaging system, presents perhaps the
    most concerning issue. For example, Bank Sepah was designated under
    U.S. authorities not simply because of its facilitation of the Iranian
    nuclear program and procurement but also its role in financing arms and
    missile deals, activities that should remain a concern and are subject
    to UN sanctions.
        The JCPOA explicitly called for the lifting of sanctions on
    ``[s]upply of specialized financial messaging services, including
    SWIFT, for persons and entities . . . including the Central Bank of
    Iran and Iranian financial institutions.'' \26\ The European Union
    lifted SWIFT-related sanctions for the Central Bank of Iran and all
    Iranian banks \27\ originally banned from SWIFT. \28\
    ---------------------------------------------------------------------------
         \26\ ``Joint Comprehensive Plan of Action'', Vienna, July 14,
    2015, paragraph 19(iv) (http://eeas.europa.eu/statements-eeas/docs/
    iran_agreement/iran_joint-comprehensive-plan-of-action_en.pdf).
         \27\ On Implementation Day, the EU lifted sanctions on the Central
    Bank of Iran and Bank Mellat, Bank Melli, Bank Refah, Bank Tejarat,
    Europaische-Iranische Handelsbank (EIH), Export Development Bank of
    Iran, Future Bank, Onerbank ZAO, Post Bank, and Sina Bank. Separately,
    the EU also lifted sanctions on Bank Sepah and Bank Sepah
    International. On Transition Day, the EU will also lift sanctions on
    Ansar Bank, Bank Saderat, and Mehr Bank. See Attachment 1, parts 1 and
    2 and Attachment 2, parts 1 and 2 (http://eeas.europa.eu/statements-
    eeas/docs/iran_agreement/annex_1_attachements_en.pdf.)
         \28\ The Council of the European Union, ``Council Regulation (EU)
    No. 267/2012 of 23 March 2012 Concerning Restrictive Measures Against
    Iran and Repealing Regulation (EU) No. 961/2010'', Official Journal of
    the European Union, March 24, 2012 (http://eur-lex.europa.eu/legal-
    content/EN/TXT/?qid=1406807228342&uri=CELEX:32012R0267).
    ---------------------------------------------------------------------------
        By allowing most of the Iranian banks back into the international
    financial order without dealing with their underlying conduct or
    controls, the United States and the international community assumed the
    good faith of the Iranian regime. This has heightened the risk that the
    Iranian banking system would be used by the regime to finance and
    facilitate other issues of significant national security concern.
        Instead, we should consider a process of targeted unwinding that
    meets our strategic goals--and could even provide Iran relief if it is
    willing to abide by international rules and norms regarding
    transparency and accountability of its financial system. For Iranian
    banks, this would mean a stricter, monitored reentry into the financial
    system, given continued concerns about their facilitation of illicit
    and dangerous activities by the regime. This could be effectuated
    through a program--led by the European Union--to create a monitoring
    system through SWIFT (akin to the Terrorist Financing Tracking Program)
    to monitor all Iranian cross-border transactions and allow for the
    tracking and analysis of suspect Iranian banking activities. Instead of
    the blunt unwinding measure of plugging all Iranian banks (minus a few)
    back into the global banking messaging system, an aggressive monitoring
    program could provide a ``halfway'' house for reintegration of Iranian
    banks over time while managing the risk of more Iranian money
    traversing the banking system.
        This type of system might actually force the Iranian regime to make
    some hard choices about not using its banks to facilitate illicit or
    dangerous activities that would be subject to monitoring and exposure.
    A system of targeted unwinding could advance the strategic goal that
    Iran not misuse its economy and financial system to benefit terrorists,
    proxies, and accelerate its nefarious international ambitions and
    capabilities. If such a system could prove effective, it might spur
    responsible reform within Iran as it tries to reintegrate into the
    global system. This in turn would give global banks and businesses some
    assurance that the Iranian banking system is maturing and under some
    degree of scrutiny. Scrutiny over such financial activity and reforms
    could help alleviate concerns by legitimate banks that they are being
    exposed to dangerous risk, especially if legitimate and trusted
    Government agencies (like financial intelligence units) are involved in
    the monitoring. This, in turn, could blunt Iranian claims that the
    United States was de facto continuing the imposition of sanctions by
    scaring Western banks away from doing business in Iran or with
    businesses interested in doing business in Iran.
        The current tension with Iran over the unwinding of sanctions
    underscores that the implementation of the JCPOA and ``negotiations''
    with Iran will be ongoing. In this regard, we should take full
    advantage of the leverage we have and devise new mechanisms to ensure
    we meet our strategic goals. We should be reinforcing this power and
    capability, not undermining it.
    Faulty Assumptions
        The current state of sanctions unwinding reveals certain
    misconceptions about the state of play regarding the JCPOA and the
    position of the United States to strike a better bargain. There are
    many assumptions articulated at the time that need to be questioned,
    and there are a few that are clearly incorrect. It is important that
    this be clarified as the JCPOA unfolds and expectations and precedents
    are formed.
        At the time of the negotiations, the financial and economic
    pressure campaign was not faltering, and the U.S. was not at risk of
    losing its ability to squeeze and influence Iran in the short term.
        The regime and the economy were affected by cascading isolation and
    falling oil prices. During the period of the negotiations, the pressure
    was increasing--belying the notion that the United States was facing a
    cracking sanctions coalition and system. Quite the opposite was
    occurring. The ayatollahs' concern over the strangulation of the
    Iranian economy--in concert with lingering fears of the ghosts of the
    Green Movement--is ultimately what brought them to the negotiating
    table and launched them on the charm offensive that allowed them to
    turn the tables on the West. The sanctions pressure was not sustainable
    for the regime. President Rouhani admitted that these measures
    threatened to drive Iran into an economic ``Stone Age.''
        The regime needs access to capital, new technologies, and
    connectivity to the oil markets and the global economy to maintain and
    sustain itself. That is what it lost over the past decade. It is what
    the Iranians negotiated to regain in the JCPOA. This is now the source
    of Iran's most significant complaint.
        There was also never a neat divide between ``nuclear'' and ``non-
    nuclear'' sanctions when the constriction campaign launched in 2005.
    This campaign was intended to use the illicit, dangerous, and
    illegitimate nature of Iranian activity as the driver for unplugging
    Iran from the global financial and commercial system. This is something
    I tried to articulate in my testimonies before the Senate last year.
    The sanctions were focused on the fact that the Iranians were
    leveraging their own economy to profit the regime and allow the
    construction of a suspect nuclear infrastructure and ballistic
    missiles, support terrorists and militias, strengthen Assad in Syria,
    engage in financial obfuscation, and perpetrate massive human rights
    abuses. Other than the nuclear issues, the underlying conduct was not
    on the table during the JCPOA negotiations. Without resolution of those
    issues, the triggers for financial isolation remain. Thus, we are
    witnessing the difficulty of unwinding sanctions that have been
    triggered by underlying Iranian conduct that has yet to change.
        Moreover, the JCPOA has not resulted in the diplomatic unity
    promised or rewards for good behavior. Russia has quickly made its own
    deals and pacts with Iran--expanding coordination and cooperation in
    Syria and Iraq and signing deals for weapons systems. The United States
    has been forced to assuage skeptical allies in the Gulf and Israel and
    mend diplomatic wounds. European countries are engaging at different
    levels and pace with Iran, sending mixed messages about what is
    expected by the international community. With the varied sanctions
    regimes, American companies are disadvantaged by the commercial opening
    provided to European companies. Legitimate companies concerned about
    real and reputational risks sit on the sidelines while less responsible
    actors dive into the Iranian market. Our closest allies are worried,
    and the responsible actors are losing market opportunities.
        Finally, it is not clear that the JCPOA has opened a channel
    through which Iran can constructively engage with the international
    community and address the other serious concerns about its dangerous
    policies and behavior. On the contrary, Iran appears intent and willing
    to exacerbate those risks and tensions across the board. The JCPOA may
    have emboldened the regime to take more aggressive steps, exacerbating
    concerns among U.S. allies that Iran is being given free rein to expand
    its influence and threaten their interests. Just as important, the
    United States seems not to have a plan as to how to use the JCPOA
    implementation to drive broader strategic goals of constraining Iranian
    adventurism and sparking internal reforms.
        The Iranians need to decide that they are willing and able to
    address those issues of concern and change their behavior--to include
    issues of financial transparency, terrorist financing, and corruption.
    The Iranians must find tangible ways to demonstrate that necessary
    reforms are possible before they can expect to be treated as legitimate
    actors in the financial and commercial systems. This is the source of
    their isolation.
    Conclusion
        In the short term, the aversion to the risks of doing business in
    and with Iran will continue, especially if Iran continues to
    demonstrate an unwillingness to stop its provocative and dangerous
    activity. More importantly, Iran will not be in a position to join the
    international community completely, if it does not demonstrate clearly
    that it can engage as a trusted and transparent actor in the financial
    system. The onus to prove this should be on Iran's shoulders. Any
    complaints about lack of access to capital, markets, or investment
    should be posed to the clerical regime. Iran has to decide whether it
    will abide by international standards, norms, and obligations. Absent
    this, it will remain a risky environment in which to do business, no
    matter how attractive the opportunities.
        The United States must be willing to use its financial and economic
    toolkit to constrain dangerous Iranian behavior and encourage
    responsible Iranian activity. This means forcing Iran to deal with the
    demands of the international market place on its own and addressing the
    underlying conduct that has proven problematic and risky. The United
    States must continue to isolate rogue Iranian activity--and that of its
    proxies--through the use of sanctions and financial measures that
    exclude such actors from the global financial and commercial system.
    The United States cannot abandon its use of these tools, especially as
    the JCPOA unfolds and Iran continues to test the bounds of U.S. will.
    The United States will need to rely on sanctions and financial measures
    even more in the future, and we should be doing everything we can to
    reinforce the strength and endurance of these powers--against Iran and
    other rogue actors in the international system.
                                     ______

                      PREPARED STATEMENT OF MARK DUBOWITZ
     Executive Director, Foundation for Defense of Democracies' Center on
                         Sanctions and Illicit Finance
                                  May 24, 2016

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                      PREPARED STATEMENT OF MICHAEL ELLEMAN
          Consulting Senior Fellow for Regional Security Cooperation,
            International Institute for Strategic Studies--Americas
                                  May 24, 2016
        Chairman Shelby, Ranking Member Brown, distinguished Members of the
    Committee, I am pleased to testify before you today about Iran's
    Ballistic Missile Program and the role of sanctions under the Iran
    Deal.
        My statement is informed by two decades of work as a missile
    scientist at Lockheed Martin's R&D laboratory, and more than 25 years
    observing and writing about ballistic-missile proliferation. I have
    participated in technical exchanges and visited missile production and
    testing facilities in at least seven countries, and have worked
    missile-related issues with technical experts from throughout the
    world. Over the past decade I have interviewed, formally and
    informally, Russian and Ukrainian missile experts who have worked in
    Iran and witnessed first-hand the status of its missile program and its
    indigenous capabilities. In 2010, I authored a dossier by the
    International Institute for Strategic Studies on Iran's Ballistic
    Missile Capabilities, which was a collaborative study supported by
    missile specialists from Russia, Germany, France, Israel, and the U.S.
    I continue to monitor missile developments around the world.
        My statement today reflects my views and not necessarily those of
    any organization to which I consult.
    Iran's Ballistic Missile Doctrine and Capabilities
        Ballistic missiles are central to Iran's deterrence posture and
    will remain so for the foreseeable future. The priority assigned to
    ballistic missiles is reflected by the size and scope of Iran's
    arsenal, the largest and most diverse in the region. Given this
    importance, Iran will not surrender its current systems, except,
    possibly, under the direst of circumstances. Even if Iran acquires
    advanced military aircraft in the near future, ballistic missiles will
    continue to play a prominent role in its force structure.
        Iran's pursuit of ballistic missiles predates the Islamic
    revolution. Ironically, the shah teamed with Israel to develop a short-
    range system after Washington denied his request for Lance missiles.
    Known as Project Flower, Iran supplied the funds and Israel provided
    the technology. The monarchy also pursued nuclear technologies,
    suggesting an interest in a delivery system for nuclear weapons. Both
    programs collapsed after the revolution.
        Under the shah, Iran had the largest air force in the Gulf,
    including more than 400 combat aircraft. But Iran's deep-strike
    capability degraded rapidly after the Islamic Revolution and the break
    in ties with the West limited access to spare parts, maintenance, pilot
    training and advanced armaments. Consequently, Tehran turned to
    missiles to deal with an immediate war-time need after Iraq's 1980
    invasion, and the subsequent air and missile attacks on Iranian cities.
    Iran acquired Soviet-made Scud-Bs, first from Libya, then from Syria
    and North Korea. It used these 300-km missiles against Iraq from 1985
    until the war ended in 1988.
        In Tehran's view, ballistic missiles played a critical role in
    responding to Iraqi missile attacks, and deterring future ones. The
    Iranian regime also witnessed how quickly the U.S-led coalition
    devastated the Iraqi army in 1991, the same army Iran battled to a
    standstill during an 8-year war. The only notable response from Iraq
    during Operation Desert Storm came in the form of ballistic-missile
    attacks against Israel, Saudi Arabia, and other Gulf countries. The
    diversion of coalition aircraft to the ``Scud-hunting'' mission, and
    away from the assault on Iraqi troops and equipment, further informed
    Tehran's thinking.
        Throughout the 1990s and beyond, Tehran steadily expanded its
    missile arsenal. It invested heavily in its own industries and
    infrastructure to lessen dependence on unreliable foreign sources, and
    is now able to produce its own missiles, although some key components
    still need to be imported. Iran has demonstrated that it can also
    significantly expand the range of acquired missiles, as it has done
    with Nodong missiles acquired from North Korea. Iran's missiles can
    already hit any part of the Middle East, including Israel. Tehran has
    established the capacity to create new missiles to address a most of
    its strategic objectives.
    Iran's Arsenal
        The Islamic Republic's arsenal now includes several types of short-
    range and medium-range missiles. Estimates vary on specifics, and Iran
    has exaggerated its capabilities in the past. There is widespread
    consensus that Tehran has acquired and creatively adapted foreign
    technology to continuously increase the quality and quantity of its
    arsenal. It has also launched an ambitious space program that works on
    some of the same technology. The arsenal includes:
        Shahab missiles: Since the late 1980s, Iran has purchased
    additional short- and medium-range missiles from foreign suppliers and
    adapted them to its strategic needs. The Shahabs, Persian for
    ``meteors,'' were long the core of Iran's program. They use liquid
    fuel, which involves a time-consuming launch. They include:
        The Shahab-1 is based on the Scud-B. (The Scud series was
    originally developed by the Soviet Union). It has a range of about 300
    km or 185 miles, and carries a one-ton warhead.
        The Shahab-2 is based on the Scud-C. It has a range of about 500
    km, or 310 miles, but with a 720-kg warhead. In mid-2010, Iran is
    widely estimated to have between 200 and 300 Shahab-1 and Shahab-2
    missiles capable of reaching targets across the Gulf. Iran began
    modifying its Shahab-2s in 2010 to create the Qiam missile. The Qiam
    can fly roughly 600 km and has a detachable warhead, making it more
    difficult to detect and track using missile-defense radars.
        The Shahab-3 is based on the Nodong, which is a North Korean
    missile. It has a range of about 900 km or 560 miles. It has a nominal
    payload of 1,000 kg. A modified version of the Shahab-3, renamed the
    Ghadr-1, began flight tests in 2004. It theoretically extends Iran's
    reach to about 1,600 km or 1,000 miles, which qualifies as a medium-
    range missile. It carries a smaller, 750-kg warhead.
        Although the Ghadr-1 was built with key North Korean components,
    Defense Minister Ali Shamkhani boasted at the time it first appeared,
    ``Today, by relying on our defense industry capabilities, we have been
    able to increase our deterrent capacity against the military expansion
    of our enemies.''
        A modified version of the Ghadr-1 missile, known as Emad, was
    tested in October 2015. Emad has four fins mounted at the base of the
    detachable warhead. In principle, the fins can steer the warhead toward
    the target as it descends through the atmosphere. In practice, however,
    full development of the Emad will take a decade or more, and scores of
    flight tests. The Emad's appearance indicates that Iran seeks to
    improve the accuracy of its missiles, a priority that supersedes the
    need to develop longer-range missiles. Iran has repeatedly said that it
    does not need missiles with a range of greater than 2,000 km, or 1,200
    miles.
        Sajjil means ``baked clay'' in Persian. The Sajjil-2s are medium-
    range missiles that use solid fuel, which offers many strategic
    advantages. They are less vulnerable to preemption because the launch
    requires shorter preparation--minutes rather than hours. Iran is the
    only country to have developed missiles of this range without first
    having developed nuclear weapons.
        The Sajjil-2 is domestically produced. It has a range of about
    2,000 km or 1,200 miles when carrying a 750-kg warhead. It was test
    fired in 2008 under the name, Sajjil. The Sajjil-2, which is probably a
    slightly modified version, began test flights in 2009. This missile
    would allow Iran to ``target any place that threatens Iran,'' according
    to Brig. Gen. Abdollah Araghi, a Revolutionary Guard commander.
        The Sajjil-2 appears to have encountered technical issues and has
    not been fully developed. No flight tests have been conducted since
    2011. If Sajjil-2 flight testing resumes, the missile's performance and
    reliability could be proven within a year or two. The missile, which is
    unlikely to become operational before 2017, is the most probable
    nuclear delivery vehicle--if Iran decides to develop an atomic bomb.
        Space program: Iran's ambitious space program provides engineers
    with critical experience developing powerful booster rockets and other
    skills that could be used in developing longer-range missiles,
    including ICBMs.
        The Safir, which means ``messenger'' or ``ambassador'' in Persian,
    is the name of the carrier rocket that launched Iran's first satellite
    into space in 2009. It demonstrated a new sophistication in multistage
    separation and propulsion systems.
        The Simorgh, which is the Persian name of a benevolent, mythical
    flying creature, is another carrier rocket to launch satellites. A
    mock-up was unveiled in 2010. The Simorgh may have been flight tested
    in April 2016, though it either failed, or only the first stage was
    launched. The first stage is powered by a cluster of four-Nodong
    engines.
    Military and Strategic Utility of Iran's Missiles
        Iran's ballistic missiles have poor accuracy. The successful
    destruction of a single fixed military target, for example, would
    probably require Iran to use a significant percentage of its missile
    inventory. Against large military targets, such as an airfield or
    seaport, Iran could conduct harassment attacks aimed at disrupting
    operations or damaging fuel-storage depots. However, the missiles would
    probably be unable to shut down critical military activities. Missile
    defenses would further degrade the military utility of Iran's missiles.
        Without a nuclear warhead, Iran's ballistic missiles are likely to
    be more effective as a political tool to intimidate or terrorize an
    adversary's urban areas, increasing pressure for resolution or
    concessions. Such attacks might trigger fear, but the casualties would
    probably be low--likely less than a few hundred, even if Iran unleashed
    its entire ballistic missile arsenal and a majority succeeded in
    penetrating missile defenses.
        The technology adopted for use on the new Emad indicates that Iran
    hopes to improve the precision of its larger missiles. Substantial
    improvements in missile accuracy will take years, if not a decade, to
    materialize.
        Ballistic missiles no doubt would be the preferred delivery
    platform should Iran ever acquire an atomic weapon. There is no formal
    definition of what constitutes a ``nuclear-capable missile,'' although
    the range-payload threshold established in the Missile Technology
    Control Regime (MTCR) offers a broadly accepted classification measure.
    The MTCR restricts the transfer of missiles capable of delivering a 500
    kg payload to 300 km.
        Iran's Shahab, Qiam, Ghadr, Emad, and developmental Sajjil missiles
    exceed the MTCR performance threshold. Under this definition, Iran
    possesses more than 300 nuclear-capable ballistic missiles.
        Flight tests are an essential element of any missile program.
    Flight tests are used to:

        Validate the design, performance and reliability of a
            missile, under a variety of operational conditions;

        Verify the quality of indigenously produced missiles;

        Ensure reliability as the missiles as they age;

        Provide troop training and ensure readiness;

        Strengthen the credibility of a Nation's deterrence
            capabilities;

        Threaten and coerce rivals.

        Because Iran views ballistic missiles as a critical instrument of
    statecraft, deterrence, and war-fighting, Tehran will very likely
    continue with missile testing. Sanctions are unlikely to deter Iran
    from testing its missiles.
        The pace of missile testing by Iran last year and this year is
    consistent with past practices. Iran did not conduct a nuclear-capable
    missile launch in 2005, 2013, or 2014, when serious nuclear
    negotiations were underway. From 2006 to 2012, when talks were going
    nowhere, Iran averaged roughly five test launches per year. Three
    flight tests were performed in 2015, and five have occurred this year.
        To place this in perspective, the U.S. and Soviet Union, on
    average, conducted more than 10 flight tests per year for each
    operational system throughout the Cold War. Given the number of systems
    deployed, each side conducted about one test a week.

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    Long-Range Missiles
        I have seen no evidence to suggest that Iran is actively developing
    an intermediate- or intercontinental-range ballistic missile (IRBM or
    ICBM, respectively). I cannot speak to a covert program. The need to
    flight test missiles before they are made operational provides advanced
    warning of new capabilities. Flight trials involve a dozen or more test
    launches, and historically require 3 to 5 years to complete, sometimes
    more.
        Available evidence, including the recent debut of the Emad medium-
    range missile, indicates that enhancing missile accuracy supersedes
    Iran's quest for longer-range systems.
        Iran could attempt to use Sajjil technologies to produce a three-
    stage missile capable of flying 3,700 km or 2,200 miles. But it is
    unlikely to be developed and actually fielded before the Sajjil-2
    missile is fully developed.
        Iran could elect to develop a ``second-generation'' intermediate-
    range missile of 4,000 km to 5,000 km, or 2,500 miles to 3,100 miles,
    using solid-fuel technology. This path would provide a basis for also
    developing an ICBM. However, Iran's engineers would need to design,
    develop and test a much larger rocket motor to support IRBM and ICBM
    projects. Large motor development typically requires 2 to 3 years, and
    involves many ground tests to validate design and production, as well
    as performance and reliability. Ground testing would necessarily be
    followed by at least 3 years of flight trials. Thus, there is little
    reason to believe that the Islamic Republic could field an IRBM before
    2020. Moreover, Iran would still have to rely on imported technologies,
    production materials, components and technical assistance.
        Iran's past missile and space-launcher efforts suggest that Tehran
    would probably develop and field an IRBM before trying to develop an
    intercontinental ballistic missile capable of reaching the United
    States more than 9,000 km or 5,600 miles away. If development of an
    intermediate- and intercontinental-missile are pursued in tandem, Iran
    could conceivably field an operational ICBM in 2022, at the earliest.
    If done sequentially, Iran will struggle to achieve a viable ICBM
    capability before 2025.
        Iran could attempt a short-cut to an IRBM or ICBM capability.
    Satellite launch activity could, in principle, be used as a springboard
    to developing an IRBM or ICBM. However, no country has converted a
    satellite launcher into a long-range ballistic missile. There are sound
    reasons why such a conversion has not materialized.
        Without question, rockets designed to boost a satellite into orbit
    and long-range ballistic missiles employ many of the same technologies,
    key components, and operational features. There are, however, key
    characteristics that differentiate satellite launchers from ballistic
    missiles, apart from the payload itself. Firstly, ballistic missile
    payloads must survive the rigors of reentry into the earth's
    atmosphere. Protecting a long-range missile's payload from the extreme
    heat and structural loads experienced during reentry requires the
    development and production of special materials, as well as testing and
    validation under real conditions.
        Secondly, satellite-launch vehicles and long-range ballistic
    missiles employ distinctly different trajectories to fulfil their
    respective missions. The different trajectories call for different
    propulsion systems for optimal performance. One cannot simply swap out
    one engine for another and expect the missile to perform with high
    dependability. Multiple flight tests of the new configuration are
    needed to validate performance and reliability.
        A third, less obvious difference lies with the operational
    requirements. Before flight, satellite launchers, unlike their
    ballistic missile counterparts, are prepared over a period of many
    days, if not weeks. Components and subsystems are checked and verified
    prior to launch. The mission commander has the flexibility to wait for
    ideal weather before initiating the countdown. If an anomaly emerges
    during the countdown, engineers can delay the launch, identify and fix
    the problem, and restart the process.
        In contrast, ballistic missiles, like other military systems, must
    perform reliably under a variety of operational conditions with little
    or no warning. These operational requirements impose a more rigorous
    validation scheme, which includes an extensive flight-test program.
    Normally, only after successfully completing validation testing is a
    missile deemed to be combat ready. This latter requirement, and the
    need to ensure prelaunch survivability, explain why the Soviets and
    Americans never converted a satellite launcher into a ballistic
    missile, though the reverse process occurred frequently. China
    developed its early long-range missiles (DF-3, DF-4, and DF-5) and
    satellite launchers (CZ-2 and CZ-3) in parallel. However, running the
    developmental programs in tandem did not obviate the need to conduct a
    full set of flight trials over many years for the military missiles.
    Nor did the parallel programs shorten the development timeline
    significantly.
        Iran's Safir and Simorgh rockets are optimized to lift a satellite
    into orbit. The second stages used by the Safir and Simorgh are powered
    by low-thrust, long-action time engines, which accelerate the satellite
    along a path that parallels the earth's surface. A ballistic missile
    trajectory must climb to higher altitudes to optimize its range
    capacity. An underpowered second stage would necessarily fight
    gravitational forces over a longer time, robbing the payload of
    velocity and thus range. Iran would likely modify the Simorgh by
    replacing the second stage's propulsion system with a Scud or Nodong
    engine.
        Iran could opt to modify the Simorgh satellite-launch platform for
    use as a ballistic missile, though the transformation would not be
    simple or quick. There would still be a need to flight test the
    transformed Simorgh in a ballistic missile mode. If Iran built a
    ballistic missile using the Simorgh's first stage, and replaced the
    second stage with a Nodong, the notional missile might achieve a
    maximum range of 4,000 to 6,000 km, depending on configuration details
    and the payload. To reach the continental U.S., a powerful third stage
    would have to be developed and added to the first two stages of the
    Simorgh. The notional missile would remain poorly suited for use as a
    ballistic missile, because it would be too large and cumbersome to
    deploy on a mobile launcher. It would therefore have to be placed in a
    silo, making it an attractive target for adversaries possessing advance
    reconnaissance and strike capabilities.
        Nonetheless, Iran could elect to upgrade and modify its Simorgh.
    The Soviet Union considered an analogous upgrade in 1957, when the
    Yangel Design Bureau suggested combining the main boosters of the R-12
    and R-14 missiles to create the R-16 ICBM. The R-16 was successfully
    developed, but only after substantial redesign, including the
    development of new engines using more energetic propellants. The Soviet
    experience suggests that Iran would find it challenging and time
    consuming to build an operational ICBM derived mainly from Simorgh
    hardware. A new missile design seems more plausible.
    Indigenous Capabilities
        Iran possesses the technical, project-management and industrial
    capacity to develop and field the ballistic missiles it desires. But
    development of new systems will require sustained investment, years of
    patience and a tolerance for failed projects.
        The modifications of the Shahab-2 and Shahab-3, to create the Qiam
    and Ghadr missiles, respectively, demonstrate Iran's technical prowess
    and ingenuity. North Korea has no equivalent, suggesting that Iran is
    slowly surpassing its original supplier of systems, components and
    technology. Iran has also leveraged Shahab-3 technology to develop the
    Safir and Simorgh satellite launchers. Finally, Iran has, over the
    course of three decades, mastered many key aspects of solid-propellant
    motor production.
        However, Iran is not fully self-sufficient. Available evidence
    indicates that Iran cannot fabricate reliably the Scud and Nodong
    liquid-propellant engines that power its operation missiles. This may
    change in the future, although the history of ``reverse-engineering''
    complex equipment suggests otherwise. The Soviet Union, for example,
    could not successfully clone the German V-2 missile after the war,
    despite have access to much of the original production line, the
    original blueprints and many of the key German specialists that
    developed the V-2. Similarly, the Soviet attempt to reverse-engineer
    the American B-29 bomber resulted in a Tu-4 which did not perform like
    the original. It seems much more likely than not that if Iran wishes to
    expand its arsenal of liquid-fueled missiles, it will have to import
    additional engines from North Korea. North Korea's liquid-fueled
    engines were very likely fabricated in the Soviet Union in the 1980s
    and 1990s.
        Iran's development of the Sajjil-2 missile appears to have stalled,
    partly because it cannot indigenously produce some of the key
    ingredients used in the manufacture of solid-propellant motors. Iran
    has successfully imported key ingredients, though disruptions to the
    supply chain have forced it to use multiple providers. Relying on
    different suppliers, each of whom produces key ingredients to different
    standards, introduces many new variables to the solid-propellant
    production process, which is challenging enough under the best of
    circumstances. The challenges are amplified many fold as the size of
    the rocket motor to be produced grows. Iran's reliance on foreign
    suppliers creates opportunities for those countries that seek to slow
    the development of large missiles propelled by solid propellant.
    Iran-North Korea Missile Cooperation
        North Korea supplied Iran with ballistic missiles and technology
    beginning in the mid-1980s and receding in the late 1990s. The
    relationship was highly transactional; missiles and missile
    technologies were exchanged for cash. Evidence over the past decade
    indicates that North Korea-Iran cooperation is limited in both scope
    and depth. Some testing data may have been exchanged in the early
    2000s, as Iran began efforts to modernize the design of the Nodong/
    Shahab-3 to create the Ghadr missile. North Korea is not known to have
    tested an equivalent version of the Nodong, although imprecise mock-ups
    of a missiles having a nosecone geometry similar to the Ghadr's were
    shown during a military parade in Pyongyang in late 2010.
        Sharing of blueprints and other sensitive information seems
    unlikely, primarily because of security issues. Interviews with Russian
    and Ukrainian missile specialists who worked in Iran during the late-
    1990s, and early-2000s reveal that Tehran heavily compartmentalizes its
    most valued weapons programs. This was done to prevent foreigners from
    understanding the scope and status of Iran's missile endeavors, its
    indigenous capabilities, and its technology import requirements. It
    seems reasonable that the same security standards and practices are
    applied to the North Koreans who may continue to assist Iranian
    efforts. The barriers erected to preserve security would also, by
    definition, impede cooperation.
        Signs of minimal cooperation are also evidenced by the missiles and
    satellite-launch vehicles developed by the two countries. North Korea's
    Taepo-dong 1 satellite launcher, which overflew Japan in 1998, was a
    three-stage system. Iran's Safir launch vehicle uses two stages. North
    Korea abandoned the Taepo-dong 1, in favor of the larger Taepo-dong 2
    (Unha) launcher, after only one (unsuccessful) flight. The Safir has
    been used at least seven times since 2008, with just over half of the
    launches resulting in success.
        Iran's Simorgh launch vehicle, like the Safir, is a two-stage
    rocket. North Korea's Unha is a three-stage system. And while it is
    true that the first stage of the Unha and Simorgh are powered by a
    cluster of four Nodong engines, the two designs are significantly
    different. South Korea recovered from the ocean two Unha first stages,
    the first from the December 2012 flight, the second from the February
    2016 launch. After analyzing the recovered debris, the South Korean
    Government concluded that in addition to the four main engines, four
    small ones were also used to steer the Unha during first-stage
    operation. Each of the steering engines received its fuel and oxidizer
    by tapping into the plumbing that feeds an adjacent main engine. This
    arrangement reduces slightly the thrust output of the main engines by
    depriving it of the propellant flow diverted to the steering engines.
    The small reduction in thrust is compensated, though not fully, by the
    thrust generated in the steering engines. The Unha configuration is a
    reasonable, low-risk design.
        Photographs of the Simorgh's first stage show that it too employs
    four steering engines for flight control. However, a separate pump--
    scavenged from a Scud engine--is used to deliver fuel and oxidizer to
    the four steering engine. The Iranian design provides the Simorgh's
    first stage with an extra 13 tons of thrust when compared to the Unha's
    first stage. The different designs indicate that North Korea and Iran
    do not share blueprints for their respective satellite launchers. Given
    the more sensitive nature of ballistic missile designs, it is
    reasonably safe to conclude that the two countries do not codevelop
    military missiles.
    Containing Iran's Ballistic Missile Program
        Multilateral sanctions, most notably UN Resolution 1929, likely
    played a prominent role in retarding development of the Sajjil medium-
    range missile. Technical challenges and the deaths of several key
    personnel in late-2011 may also contributed to the delays. The apparent
    success of the sanctions, which disrupted the supply of critical
    ingredients used to produce solid fuels, was facilitated by the UN
    Panel of Experts on Iran. The Panel was responsible for investigating
    potential violations. The investigations, and reporting to the Panel by
    Governments interdicting proscribed shipments to Iran, raised
    international awareness of the sanctions. The Panel's work also
    identified illicit networks and pathways, which further underscored the
    international community's role in enforcing Resolution 1929.
        However, the Panel does not exist under Resolution 2231. The U.S.
    should work with the Security Council to reinstate the Panel, with a
    focus on enforcing the trade restrictions contained in Resolution 2231.
        The success of unilateral sanctions, especially those leveled
    against Iranian enterprises and individuals, is historically ambiguous.
    Iran creates new trading companies to replace those that have been
    sanctioned. As Iran renews international trade under the relief granted
    by the JCPOA, unilateral sanctions may or may not become more
    effective. It is difficult to predict.
        The Proliferation Security Initiative--and international effort to
    disrupt the flow of WMDs and related technologies--could be an
    effective tool for intercepting shipments from North Korea, Iran's
    principle, if not sole source for missile engines. Without a supply of
    additional engines from North Korea, Iran will find it difficult to
    expand its arsenal of liquid-fueled missiles. This may drive Iran to
    seek greater self-reliance, but the cost of developing and qualifying a
    production line for these engines will be high.
        In response to the growing threats posed by Iran's ballistic-
    missile arsenal, the Pentagon has worked tirelessly with our Gulf
    partners, Israel and NATO to deploy regional-missile defenses for
    protection. Joint missile-defense exercises with our Gulf partners--and
    Israel--offer a tangible counter narrative to Iran's missile tests, and
    possibly deter Iranian use of missiles. Joint-exercises will also serve
    to enhance the capabilities and effectiveness of the missile-defense
    systems deployed in the region.
        Iran has said it does not need missiles with a range exceeding
    2,000 km. The U.S. should explore options that, at a minimum, would
    legally codify that range limit. Other limitations may be ripe for
    negotiation, including those that increase the transparency of Iran's
    space program.
                                     ______

                   PREPARED STATEMENT OF ELIZABETH ROSENBERG
     Senior Fellow and Director, Energy, Economics, and Security Program,
                       Center for a New American Security
                                  May 24, 2016
        Chairman Shelby, Ranking Member Brown, and distinguished Members of
    the Committee, thank you for the opportunity to testify today on the
    role of sanctions under the Iran deal.
        Sanctions on Iran created the pressure necessary to compel Iran to
    agree to a deal with the international community last year. In exchange
    for economic relief, the Iranian Government agreed to curb its nuclear
    weapons capability. The effectiveness of Iran sanctions can be traced
    directly to the diligence and creativity of policymakers in Congress
    and in this Administration, as well as the previous one. Specifically,
    the leadership of U.S. lawmakers and executive branch implementation
    and enforcement officials helped to craft a coherent international
    message regarding Iran's threatening proliferation behavior, a
    multilateral coalition to isolate Iran diplomatically and financially,
    and the collective financial leverage so critical to delivering the
    Iran nuclear deal. This deal was a major step forward in proliferation
    security in the Middle East and I applaud the work of this Committee
    for your important role in facilitating effective nuclear diplomacy.
        The Iran sanctions regime was, and remains, the most comprehensive
    program of U.S. and international sanctions, commensurate with the
    grave security concerns regarding Iran's nuclear proliferation
    activities, as well as its ongoing regional destabilization, ballistic
    missile program, support for terrorism, and abuse of human rights. Many
    U.S. and international sanctions on Iran were waived on Implementation
    Day, the milestone of the nuclear deal recognizing Iran's completion of
    its major initial commitments to ship out nearly all of its enriched
    uranium, disassemble thousands of centrifuges, and submit to a much
    more comprehensive inspections regime. However, the United States
    maintains sanctions authorities relevant to Iran as part of the deal,
    as well as a wide array of sanctions on Iran outside the scope of the
    deal, including those that bar U.S. companies and citizens from doing
    business with Iran. The existing architecture of Iran sanctions remains
    very powerful and affords an enormous amount of leverage to U.S.
    policymakers to pursue Iranian security provocations and
    destabilization.
    Unwinding Nuclear Sanctions Under the Iran Deal
        On Implementation Day the removal of many EU sanctions and the
    exercise of U.S. sanctions waivers and issuance of licenses permitted
    Iran to expand its oil sales and access $100 billion in frozen assets.
    \1\ Additionally, the United States, the EU, and the UN together
    removed hundreds of designated Iranian entities from sanctions lists,
    including Iranian banks that then gained access to European financial
    institutions. Iranian institutions have been able to expand their
    international ties since January, though this expansion is far from the
    tidal wave of new economic activity that many hoped for or feared. Iran
    has established new oil trading contracts in Europe \2\ and expanded
    oil deliveries to Asia. \3\ Several Iranian banks are reestablishing
    branch licenses and correspondent relationships in Europe and are
    renewing their tics with Asian counterparts. \4\ Additionally, Iran's
    charm offensive to market new deals for trade and investment, including
    in areas such as automobiles and airplanes, have met some success
    internationally. \5\
    ---------------------------------------------------------------------------
         \1\ ``Written Testimony of Adam J. Szubin, Acting Under Secretary
    of Treasury for Terrorism and Financial Intelligence United States
    Senate Committee on Banking, Housing, and Urban Affairs'', U.S.
    Department of the Treasury, press release, August 5, 2015, https://
    www.treasury.gov/press-center/press-releases/Pages/j10144.aspx.
         \2\ ``Italy's Renzi Signs Potentially Huge Business Deals in
    Iran'', Reuters, April 12, 2016, https://www.reuters.com/article/us-
    iran-italy-idUSKCN0X91I2.
         \3\ Chen Aizhu, ``Exclusive: Iran Renews Oil Contracts With China,
    Taps New Buyers'', Reuters, December 3, 2015, http://www.reuters.com/
    article/us-china-iran-oil-idUSKBNOTM0CN20151203.
         \4\ Martin Arnold, ``British Regulators Help Iranian Banks Come in
    From the Cold'', Financial Times, January 31, 2016, http://www.ft.com/
    intl/cms/s/0/54144ec2-c692-11e5-b3b1-7b2481276e45.html#axzz45ojdIkOv.
         \5\ Mehrnosh Khalaj and Michael Stothard, ``Peugeot Agrees Deal To
    Revive Iran Partnership'', Financial Times, February 7, 2016, http://
    www.ft.com/intl/cms/s/0/71b1acd8-cdbb-11e5-831d-
    09f7778e7377.html#axzz45oJdIkOv.
    ---------------------------------------------------------------------------
        There are various reasons why Iran will expand its links to the
    international financial system slowly, however. The cumbersome
    unraveling of nuclear sanctions restrictions at banks and companies
    around the world in order to engage in now-permitted business with Iran
    is only one factor. Remaining sanctions on Iran for its terrorist and
    ballistic missile activities are a deterrent to those who would
    contemplate business with Iran, along with prudential concerns related
    to a history of corruption, and a lack of transparency and
    maneuverability for foreign firms in Iran's financial system.
    Beneficial ownership information for Iranian legal entities is
    notoriously unavailable and confusing, and there is a lack of
    confidence in Iranian due process mechanisms for foreign entities
    conducting business there. Iranian banks also lag behind many emerging
    market peers in compliance with global tax, financial reporting,
    capital requirements, and anti-money laundering standards, a fact
    tacitly acknowledged by Iranian financial overseers. \6\ The Financial
    Action Task Force has pointed out risks associated with Iran's economy
    in grave terms, \7\ Transparency International ranks Iran 130 out of
    168 on their corruption index, \8\ the World Bank's Ease of Doing
    Business Ranking puts Iran at number 118 out of 189, \9\ and the
    International Monetary Fund has recently called attention to Iran's
    troubled banking system. \10\ These various factors represent
    tremendous impediments to foreign investment in Iran and the creation
    of new commerce for the Iranian regime and people.
    ---------------------------------------------------------------------------
         \6\ Barbara Slavin, ``Central Bank Governor: Iran Expects Access
    to U.S. Financial System'', Al-Monitor, April 15, 2016, http://www.al-
    monitor.com/pulse/originals/2016/04/iran-expects-limited-access-us-
    financial-system.html; Patrick Clawson, ``Iran Locks Itself Out of the
    International Financial System While Blaming Washington'', The
    Washington Institute, Policywatch 2600, April 5, 2016, http://
    www.washingtoninstitute.org/policy-analysis/view/iran-locks-itself-out-
    of-the-international-financial-system-while-blaming-w.
         \7\ ``FATF Public Statement--19 February 2016'', FATF, High-risk
    and noncooperative jurisdictions, February 19, 2016, http://www.fatf-
    gafi.org/publicacions/high-riskandnon-cooperativejurisdictions/
    documents/public-statement-february-2016.html.
         \8\ ``Corruption by Country/Territory: Iran'', Transparency
    International, accessed April 14, 2016, https://www.transparency.org/
    country/#IRN.
         \9\ ``Ease of Doing Business Index'', World Bank, Accessed April
    14, 2016, http://data.worldbank.org/indicator/IC.BUS.EASE.XQ.
         \10\ ``Islamic Republic of Iran--2015 Article IV Consultation--
    Press Release; Staff Report; and Statement by the Executive Director
    for the Islamic Republic of lran'', International Monetary Fund, IMF
    Country Report No. 15/349, December 2015, http://www.imf.org/external/
    pubs/ft/scr/2015/cr15349.pdf.
    ---------------------------------------------------------------------------
        Beyond Iran's self-imposed financial troubles, its escalating
    regional provocations and continued aggression through proxies make the
    specter of future confrontation with its neighbors or the United States
    a real possibility. Iran has the largest, most lethal ballistic missile
    arsenal in the Middle East and has stepped up missile tests in recent
    months. \11\ It has also expanded its material support to the Houthis
    in Yemen and continues to support other proxies that destabilize the
    region, including Hezbollah. Iran's aggressive rhetoric and flagrant
    disregard for the United Nations' restrictions on ballistic missile
    activity is a red flag to potential partners, who are already wary of
    the reckless behavior of Iran's revolutionary leaders.
    ---------------------------------------------------------------------------
         \11\ Kambiz Foroohar, ``U.S. Frowns on New Iran Sanctions by
    Congress After Missile Test'', Bloomberg, April 13, 2016, http://
    www.bloomberg.com/news/articles/2016-04-13/u-s-argues-against-more-
    iranian-sanctions-after-missile-tests.
    ---------------------------------------------------------------------------
        For reasons of political and security risk, existing sanctions, and
    the serious financial challenges associated with attempting business
    with Iran, many global banks have made it clear that they do not plan
    on doing business with Iran. In addition, as HSBC has pointed out, the
    different rules for U.S. banks and foreign banks when it comes to
    dealing with Iran is another road block for many foreign banks that
    work to create institution-wide compliance protocols across all the
    jurisdictions in which they operate. \12\ It can be too difficult,
    risky, or impractical to have different compliance practices for U.S.
    business units by comparison to those for business units outside the
    United States, and foreign banks reasonably fear that creating
    different standards may expose them to complicated and expensive
    regulatory actions in the future if policy changes. The financial
    institutions and companies that will attempt new Iran business are
    generally moving slowly with actual contracts and deals, biding time to
    discover what market pitfalls or potential future sanctions may mean
    for their business. Furthermore, many of these banks are regional banks
    with a relatively smaller capacity to handle trade and structured
    finance, and retail services. They may also be more concentrated in
    Asia, with more limited exposure to the U.S. financial system than
    their European counterparts.
    ---------------------------------------------------------------------------
         \12\ Stuart Levey, ``Kerry's Peculiar Message About Iran for
    European Banks'', The Wall Street Journal, May 12, 2016, http://
    www.wsj.com/articles/kerrys-peculiar-message-about-iran-for-european-
    banks-1463093348.
    ---------------------------------------------------------------------------
    Overseeing the Nuclear Deal and Addressing Non-Nuclear Concerns With
            Iran
        The core technical work of overseeing the Iran deal falls to
    nuclear experts involved in compliance and verification activities. The
    International Atomic Energy Agency (IAEA), the lead institution on this
    effort, has so far given Iran fair marks for upholding its nuclear
    commitments under the deal. In February, it issued its first monitoring
    report following Implementation Day, raising no concerns about Iran's
    activities. \13\
    ---------------------------------------------------------------------------
         \13\ ``Verification and Monitoring in the Islamic Republic of Iran
    in Light of United Nations Security Council Resolution 2231 (2015)'',
    IAEA, February 26, 2016, https://www.iaea.org/sites/default/files/gov-
    2016-8-derestricted.pdf.
    ---------------------------------------------------------------------------
        For sanctions officials, overseeing the nuclear deal involves two
    primary lines of effort. The first is education and outreach to the
    global community to clarify what new business activities are permitted
    under the nuclear deal and what remain off limits pursuant to existing
    sanctions. This educational initiative is, by necessity, ongoing, given
    the dynamic nature of sanctions and evasion techniques that designated
    entities may pursue. The U.S. Government has sent delegations around
    the world in this effort, but much more must be done to address
    confusion within the global private sector about what business is now
    allowed with Iran and the appropriate controls that must be in place to
    prevent sanctions violations in the future. \14\
    ---------------------------------------------------------------------------
         \14\ Ladane Nasseri, ``Executives Are Confused by Iran
    Sanctions'', Bloomberg, May 17, 2016, http://www.bloomberg.com/news/
    articles/2016-05-17/iran-s-allure-tempered-by-confusion-on-sanctions-
    survey-shows.
    ---------------------------------------------------------------------------
        The second primary effort for sanctions officials overseeing the
    nuclear deal is ensuring that sanctions authorities are primed for use,
    so that the United States and international allies are able to reimpose
    sanctions in part or in whole if Iran violates its nuclear commitments.
    Keeping authorities up to date means the reauthorization of the Iran
    Sanctions Act before it expires at the end of the year. Additionally,
    it means readying potential additional contingency measures, including
    new approaches to sanctions enforcement or possible new sanctions
    authorities, if Iran fails to uphold its commitments under the nuclear
    deal.
        Using sanctions to address non-nuclear concerns with Iran is
    distinct from oversight of the nuclear deal. Unique authorities exist
    for sanctioning Iran's support for terrorism and use of ballistic
    missiles, its involvement in narcotics trafficking and malicious
    cyberattacks, as well as its human rights abuses. The Treasury
    Department has announced scores of designations under these authorities
    over the years, including a number of designations during negotiations
    on the nuclear deal. In recent months the Obama administration
    announced sanctions on Iran for its ballistic missile procurement
    activities and tests, including new sanctions on Implementation Day.
    \15\ It also announced designations highlighting Iran's support for
    terrorism, including through designations of entities and individuals
    that support Mahan Air, in March, and Hezbollah, in January and April.
    \16\ This is important work and I urge the Administration to expand its
    sanctions implementation and enforcement in these areas. This is
    particularly important with regard to the work of exposing and
    targeting the insidious and dangerous activities of the IRGC within and
    beyond the borders of Iran, including exposing the financial activity
    and holdings of the IRGC, its agents and instrumentalities, and Iran's
    regional terrorist proxies, whenever feasible. The U.S. Government
    should, at a minimum, designate the IRGC under its terrorism
    authorities.
    ---------------------------------------------------------------------------
         \15\ ``Treasury Sanctions Those Involved in Ballistic Missile
    Procurement for Iran'', U.S. Department of the Treasury, press release,
    January 17, 2016, https://www.treasury.gov/press-center/press-releases/
    Pages/jl0322.aspx.
         \16\ ``Treasury Sanctions Supporters of Iran's Ballistic Missile
    Program and Terrorism-Designated Mahan Air'', U.S. Department of the
    Treasury, press release, March 24, 2016; ``Treasury Sanctions Key
    Hizballah Money Laundering Network'', U.S. Department of the Treasury,
    press release, January 28, 2016, https://www.treasury.gov/press-center/
    press-releases/Pages/jl0331.aspx; ``Publication of the Hizballah
    International Financing Prevention Act of 2015 Related Sanctions
    Regulations; Counter Terrorism Designations Updates; Syria Designations
    Updates'', U.S. Department of the Treasury, April 15, 2016, https://
    www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/
    20160415.aspx.
    ---------------------------------------------------------------------------
        Beyond designating more targets, sanctions officials in the
    Administration should pursue non-nuclear concerns with Iran by urging
    foreign counterparts to match U.S. sanctions measures related m Iran's
    support for terrorism and use of ballistic missiles, as well as its
    human rights abuses. This includes outreach to European officials in
    the position to enhance EU sanctions lists to include more IRGC targets
    and entities involved in Iran's ballistic missile program and support
    for terrorism. As a specific example, outreach to the Europeans should
    include encouraging EC authorities to use sanctions restrictions to
    deny access to European airports for Mahan Air, given its involvement
    with Iranian support for terrorism. Expanding transatlantic unity on
    sanctions targeting Iran's continued security provocations and
    destabilizing regional role will send an important message to Iran: the
    international community, led by the United States and Europe, broadly
    condemns Iran's threatening behavior and is expanding its campaign to
    expose, interdict, and counter it through security and diplomatic
    means.
        Alongside this additional sanctions implementation and coordination
    activity, U.S. policymakers and their European counterparts should also
    specifically and publicly identify Iran's self-imposed financial
    problems. Doing so will make clear to Iran and the global community
    that Iran bears significant responsibility for improving its economic
    conditions, and that the removal of sanctions under the nuclear deal
    cannot independently deliver a windfall to Iran. The strongest and most
    credible strategy to highlight Iran's need to improve its financial
    transparency and accountability is for technical experts inside the
    U.S. Government, as well as outside at institutions such as the
    International Monetary Fund, the Financial Action Task Force,
    Transparency International and elsewhere, to point out the technical
    problems in the anti-money laundering, counterterrorist financing, and
    countercorruption domains that Iran must address. Additionally, such
    experts should be encouraged and allowed, by license if they are U.S.
    persons, to offer technical guidance to Iranian financial institutions
    to conduct this work. This will support U.S. policy interests in
    achieving greater transparency in the Iranian financial industry, and
    it will clearly demonstrate that the United States is not the roadblock
    to economic reform. It could help to reinvigorate private business in
    Iran to better challenge the insidious control of the IRGC over
    significant parts of the Iranian economy. Also, it could allow Iran to
    reap the economic benefits of the nuclear deal, thereby strengthening
    this important proliferation security accomplishment.
    A Strategy for Powerful, Sustainable Sanctions on Iran
        In pursuing Iran sanctions now and in the future, U.S. policymakers
    must prioritize both the important work of isolating Iranian entities
    engaged in dangerous and illicit behavior, as well as a methodological
    approach to sanctions as a policy tool that supports sanctions'
    continued cogency and sustainability. Given that Iran sanctions
    authorities are already extraordinarily extensive and powerful, this
    means focusing on aggressively using existing authorities and avoiding
    the creation of new authorities that might sow confusion or undermine
    existing ones.
        There are three particular hazards that U.S. sanctions policy
    officials must avoid. First, policymakers must refrain from the
    reimposition of sanctions waived under the nuclear deal. Parties to the
    Iran deal agreed to refrain from reimposing sanctions waived under the
    accord. \17\ Reimposing these sanctions would be seen at best as
    undermining confidence and adherence to the deal and at worst as
    contravention and grounds for throwing out the deal, a significant
    setback to proliferation security. Second, policymakers must avoid
    creating new standards, terminology, or timelines that do not line up
    with existing statutes and create significant confusion for those
    working to implement and abide by sanctions. The establishment of
    mismatched standards or terminology may be accidental, but can be
    difficult to correct and unintentionally harmful to the private sector
    or policy interests.
    ---------------------------------------------------------------------------
         \17\ Joint Comprehensive Plan of Action, July 14, 2015, 13-14.
    ---------------------------------------------------------------------------
        The third hazard that sanctions policymakers must avoid is one of
    strategic and wide-ranging national security significance. Policymakers
    must be careful not to put in place new sanctions that so significantly
    alter international financial flows and banking activities that they
    undermine the attractiveness or primacy of the U.S. financial system
    and the dollar as a reserve currency. If powerful new sanctions cause
    companies and banks to leave U.S. jurisdiction out of a desire to avoid
    confusing, cumbersome, expensive, and threatening sanctions
    restrictions, then U.S. security and intelligence leaders will have
    less insight into illicit financial flows and will face a less
    transparent international financial system. Additionally, the reach and
    leverage of U.S. sanctions will shrink and this critical security tool
    will be dulled. Treasury Secretary Lew has warned against the overuse
    of sanctions multiple times in recent weeks, urging his colleagues and
    successors in the sanctions arena not to use them lightly as ``they can
    strain diplomatic relationships, introduce instability into the global
    economy, and impose real costs on companies here and abroad. And of
    course they carry a risk of retaliation.'' \18\ Policymakers could
    diminish the power of the U.S. financial system with zealous overuse of
    the tool.
    ---------------------------------------------------------------------------
         \18\ ``Remarks of Secretary Lew on the Evolution of Sanctions and
    Lessons for the Future at the Carnegie Endowment for International
    Peace'', U.S. Department of the Treasury, press release, March 30,
    2016, https://www.treasury.gov/press-center/press-releases/Pages/
    jl0398.aspx; ``Treasury Secretary Jacob J. Lew Remarks at Council on
    Foreign Relations: America and the Global Economy: The Case for U.S.
    Leadership'', U.S. Department of the Treasury, press release, April 11,
    2016, https://www.treasury.gov/press-center/press-releases/Pages/
    jl0415.aspx.
    ---------------------------------------------------------------------------
        Policy proposals to create new sanctions restrictions on Iran's use
    of the dollar in all financial transactions may be an instance of
    flirtation with the hazards outlined above. It is not the most
    effective way to draw attention to Iran's significant illicit
    activities of concern, and it adds little additional bite to U.S.
    sanctions on Iran while lending strength to the argument that the
    United States seeks to undermine the nuclear deal by making it
    difficult for Iran to reap the economic benefit of its bargain.
    Furthermore, it may undermine the strength of the U.S. financial system
    over the longer term. As background, in 2008 U.S. policymakers barred
    so-called U-Turn transactions for Iranian entities--the transfer of
    funds by a foreign bank through a U.S. financial institution to a
    second foreign bank for the benefit of an Iranian bank. Since that
    time, Iran has been able to use the U.S. dollar if a transaction does
    not touch a U.S. bank or citizen. In practice this means that Iranian
    banks or companies cannot deal in dollars for any transaction of
    significant size or for any significant number of transactions, as any
    transaction (or series of transactions) of scale must be cleared
    through a U.S. financial institution and would therefore violate the U-
    Turn rule. In simplest terms, Iran is virtually barred from use of the
    U.S. financial system because of the U-Turn prohibition. In response to
    recent rumors that the Administration might be considering loosening
    this prohibition, President Obama made clear that the United States has
    no plans to do so. \19\
    ---------------------------------------------------------------------------
         \19\ ``Press Conference by President Obama, 4/1/2016'', The White
    House, press release, April 1, 2016, https://www.whitehouse.gov/the-
    press-office/2016/04/01/press-conference-president-obama-412016.
    ---------------------------------------------------------------------------
        The U-Turn rule is highly consequential for global financial
    institutions. Attempts to circumvent it have proven expensive and
    caused tremendous reputational damage, as shown by some of the big bank
    sanctions violations cases of the last decade. \20\ The aggressive
    enforcement posture of U.S. financial officials in these cases has
    contributed to a tendency among foreign banks to aggressively avoid
    U.S. sanctions violations by refusing business with Iran, even when
    permissible under sanctions rules and when it could involve very small
    dollar amounts that may not need to be cleared through a U.S. financial
    institution. Banks' so called derisking behavior, which has
    accelerated, not abated, even as nuclear tensions with Iran have
    receded somewhat, underscores the inaccessibility to Iran of the U.S.
    financial system.
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         \20\ Patricia Hurtado, ``BNP Paribas Pleads Guilty in U.S. to
    Violating Sanctions'', Bloomberg, July 9, 2014, http://
    www.bloomberg.com/news/articles/2014-07-09/bnp-paribas-pleads-guilty-
    in-u-s-to-violating-sanctions.
    ---------------------------------------------------------------------------
        ln this context, anxiety about Iranian use of the U.S. dollar may
    be overstated in many instances and discussion of new dollar-related
    sanctions can distract from the grave and urgent need to focus more
    directly on Iran's terrorism and regional destabilization activities.
    Furthermore, such new sanctions would not serve U.S. nuclear security
    interests if they are construed as seeking to disable Iran's ability to
    use the international financial system and collapse the nuclear deal.
    Also, if new sanctions remove or restrict waiver authority for the
    President, it will make the sanctions less flexible, and less of a true
    bargaining chip for the Administration to use with Iran to coerce
    policy change from Tehran. Finally, introducing a chilling new
    restriction on dollar activity in the financial system may cause some
    global banks to shrink their footprint in U.S. jurisdiction to avoid
    exposure to threatening penalties. Over the long term this may have
    negative implications for U.S. financial system strength and the reach
    of sanctions.
    The Key Leadership Role for Congress on Iran Policy
        Congress has a number of critical roles to play on Iran policy. A
    primary one is providing current and future oversight of the deal,
    ensuring that the IAEA is adequately funded to sustain its nuclear
    inspection and verification activities in Iran. Congress should fully
    support the office of the Coordinator for Iran Nuclear Implementation.
    Additionally, lawmakers should provide sanctions investigators,
    implementers, and enforcement officials at the Treasury and State
    Departments and in the intelligence community sufficient resources to
    carry out their activities related to the Iran deal as well as Iranian
    activities beyond the scope of the deal. In addition to these resource
    issues, Congress should continue to play an important role in helping
    to conceive of and prepare for additional sanctions measures related to
    Iran if it breaches the nuclear deal. This includes eventual
    reauthorization of the Iran Sanctions Act.
        Aside from sanctions measures, Congress has several other important
    responsibilities in the successful execution of an effective Iran
    policy. Through appropriations and authorizations processes it must
    ensure that the United States has adequate ballistic missile defense
    capabilities in the Middle East. It should also provide an oversight
    role to ensure that the United States makes available these
    capabilities to partners in the region and engages with them in robust
    partner capacity building and cooperation in counterterrorism
    activities and interdiction efforts to expose and halt Iran's material
    support to Hezbollah, the Assad regime, and the Houthis in Yemen.
    Congress should also expand its support to Israel, a key ally in the
    Middle East, in intelligence-sharing and military aid arenas.
    Conclusion
        Iran sanctions are a powerful tool in the U.S. security arsenal and
    have delivered successful nuclear diplomacy and a historic deal. Even
    while many sanctions have recently been rolled back as part of this
    deal, the regime is still extensive and strong. Policymakers should
    continue to forcefully implement sanctions on Iran to address its
    destabilizing regional role and support for terrorism. But they must
    avoid undermining the availability of sanctions by diminishing the
    strength and reach of the U.S. financial system. As a tool of first
    resort, sanctions are an essential part of the U.S. security
    infrastructure, and policymakers must prioritize a sustainable approach
    to ensure the cogency and effectiveness of sanctions as a central part
    of U.S. policy toward Iran in the future.
           RESPONSES TO WRITTEN QUESTIONS OF SENATOR HEITKAMP
                        FROM ELIZABETH ROSENBERG

    Q.1. What steps, if any, should Congress take to ensure the
    United States maintains sufficient authority to pressure Iran
    in non-nuclear areas?

    A.1. The array of authorities available to U.S. implementers
    and enforcers of sanctions covers a wide range of Iran's
    illicit non-nuclear activity of concern, including support for
    terrorism, regional destabilization, human rights abuse,
    evasion of sanctions, and others. Additionally, statutory
    authorities, primarily including IEEPA, are available to
    enforcement officials to quickly and creatively target
    potential new Iranian activities of concern in the non-nuclear
    space. It is not necessary for Congress to create additional
    authorities to target illicit Iranian activity of concern given
    the broad scope of these combined current authorities. However,
    it is important and appropriate for Congress to closely monitor
    Iran's malign activity to ascertain if and when a previously
    unforeseen need may arise to develop additional sanctions
    authorities to pressure Iran in the non-nuclear sphere.

    Q.2. What risks would the United States encounter if the Iran
    Sanctions Act is not reauthorized by the end of the year?

    A.2. A number of important sanctions authorities that have been
    used to target Iran are encompassed in the Iran Sanctions Act,
    including many that were waived pursuant to the JCPOA on
    Implementation Day in January. Reauthorizing the Iran Sanctions
    Act before its expiration at the end of 2016 may be useful to
    keep the sanctions authorities contained in this statute close
    at hand in case Iran violates its commitments under the nuclear
    deal and international leaders decide to reimpose sanctions.
    However, it is not necessary to reauthorize the Iran Sanctions
    Act in order to have access to all the same sanctions targeting
    capabilities. The IEEPA statute includes sufficient authority
    for Administration policymakers to move quickly to pressure
    Iran with sanctions even without the Iran Sanctions Act
    remaining part of U.S. law. Furthermore, to the extent that
    reauthorizing the Iran Sanctions Act may create ill will and
    negative political provocation with Iran and among P5+1
    partners, it may undermine the nuclear deal. This in turn can
    be counterproductive to the important goal of advancing
    proliferation security though the nuclear deal.