[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


                   SANCTIONS AND FINANCIAL PRESSURE: 
                     MAJOR NATIONAL SECURITY TOOLS

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 10, 2018

                               __________

                           Serial No. 115-107

                               __________

        Printed for the use of the Committee on Foreign Affairs
        
        

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                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         BRAD SHERMAN, California
DANA ROHRABACHER, California         GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio                   ALBIO SIRES, New Jersey
JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas             THEODORE E. DEUTCH, Florida
TED POE, Texas                       KAREN BASS, California
DARRELL E. ISSA, California          WILLIAM R. KEATING, Massachusetts
TOM MARINO, Pennsylvania             DAVID N. CICILLINE, Rhode Island
MO BROOKS, Alabama                   AMI BERA, California
PAUL COOK, California                LOIS FRANKEL, Florida
SCOTT PERRY, Pennsylvania            TULSI GABBARD, Hawaii
RON DeSANTIS, Florida                JOAQUIN CASTRO, Texas
MARK MEADOWS, North Carolina         ROBIN L. KELLY, Illinois
TED S. YOHO, Florida                 BRENDAN F. BOYLE, Pennsylvania
ADAM KINZINGER, Illinois             DINA TITUS, Nevada
LEE M. ZELDIN, New York              NORMA J. TORRES, California
DANIEL M. DONOVAN, Jr., New York     BRADLEY SCOTT SCHNEIDER, Illinois
F. JAMES SENSENBRENNER, Jr.,         THOMAS R. SUOZZI, New York
    Wisconsin                        ADRIANO ESPAILLAT, New York
ANN WAGNER, Missouri                 TED LIEU, California
BRIAN J. MAST, Florida
FRANCIS ROONEY, Florida
BRIAN K. FITZPATRICK, Pennsylvania
THOMAS A. GARRETT, Jr., Virginia
JOHN R. CURTIS, Utah

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

               Jason Steinbaum, Democratic Staff Director
                            
                            
                            C O N T E N T S

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                                                                   Page

                               WITNESSES

The Honorable Juan C. Zarate, chairman and co-founder, Financial 
  Integrity Network (former Assistant Secretary for Terrorist 
  Financing and Financial Crimes, U.S. Department of the 
  Treasury)......................................................     3
Mr. Derek Maltz, executive director, Governmental Relations, Pen-
  Link, Ltd. (former Special Agent in Charge, Special Operations 
  Division, Drug Enforcement Administration, U.S. Department of 
  Justice).......................................................    26
Mr. Adam Szubin, distinguished practitioner-in-residence, Johns 
  Hopkins University School of Advanced International Studies 
  (former Acting Under Secretary for Terrorism and Financial 
  Intelligence, U.S. Department of the Treasury).................    37

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Juan C. Zarate: Prepared statement.................     6
Mr. Derek Maltz: Prepared statement..............................    29
Mr. Adam Szubin: Prepared statement..............................    40

                                APPENDIX

Hearing notice...................................................    84
Hearing minutes..................................................    85
The Honorable Steve Chabot, a Representative in Congress from the 
  State of Ohio, and chairman, Subcommittee on Asia and the 
  Pacific: Material submitted for the record.....................    87
The Honorable Gerald E. Connolly, a Representative in Congress 
  from the Commonwealth of Virginia: Prepared statement..........    90
The Honorable William Keating, a Representative in Congress from 
  the Commonwealth of Massachusetts: Questions submitted for the 
  record.........................................................    92

 
    SANCTIONS AND FINANCIAL PRESSURE: MAJOR NATIONAL SECURITY TOOLS

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                      WEDNESDAY, JANUARY 10, 2018

                       House of Representatives,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The committee met, pursuant to notice, at 10:09 a.m., in 
room 2172, Rayburn House Office Building, Hon. Ed Royce 
(chairman of the committee) presiding.
    Chairman Royce. We will call the committee to order.
    Today the hearing is on ``Sanctions and Financial Pressure: 
Major National Security Tools.'' And I will begin by saying 
that this committee has played a leading role in applying 
sanctions and related elements of financial pressure to address 
major U.S. national security threats. We have used America's 
economic might to help stop terrorists, to counter Iran and 
North Korea's nuclear programs, and to respond to Russian 
aggression and the degradation of democracy in Venezuela.
    Today we are joined by three former officials with unique 
experience in using these economic tools, and their testimony 
will help us ensure that the sanctions we have enacted are 
fully implemented while improving our ability to draft tough, 
effective legislation going forward.
    Last summer, in response to the ongoing threats from Iran, 
Russia, and North Korea, it was this committee that put 
together legislation, it was Congress that enacted the 
Countering America's Adversaries Through Sanctions Act to 
affect all three. The administration faces a deadline to 
implement key elements of this act by the end of the month. It 
is this committee's expectation that this deadline be met.
    Meanwhile, later this week the President faces a decision 
on the Iran nuclear agreement. Senior members of this committee 
were united in bipartisan opposition to the Obama 
administration's deeply flawed deal which handed over roughly 
$100 billion in sanctions relief in return for temporary 
restrictions on Iran's nuclear program. This sunset flaw and 
other serious problems need to be fixed. We must make certain 
that international inspectors have access to possible nuclear 
sites, particularly those on military bases.
    And at the same time we have got to continue to counter the 
full range of threats posed by the corrupt and dangerous regime 
in Teheran that is--at this moment--brutally cracking down on 
the people of Iran. And that is where the committee has already 
taken the lead, because yesterday on the House, and many of the 
members here spoke on that issue, we passed a resolution, 415 
to 2, which we drafted, calling for additional sanctions on 
those responsible for human rights abuses.
    Additionally, we have passed legislation through the House 
targeting Iran's ballistic missile program, and we are working 
with our colleagues in the Senate to strengthen the Hezbollah 
International Financing Prevention Act. This is a landmark bill 
enacted 2 years ago to target Iran's top terror proxy, 
Hezbollah. The Obama administration let up on Hezbollah in 
order to get the Iran nuclear deal, and one of our witnesses 
will note how this legislation can keep that from happening 
again.
    And yesterday, two of our members, Chairman Mike McCaul, 
Representative Ted Deutch, they introduced a bill to target 
Iranian officials involved in human rights abuses and hostage 
taking. The committee is also working on a bill designed to 
help push the Revolutionary Guards out of Iran's economy and 
deny them the revenue that they use to destabilize Iraq and 
destabilize Syria and Lebanon, all while continuing to threaten 
Israel. And this is the abuse and corruption and the expensive 
interference in neighboring countries that brave Iranians have 
taken to the streets to protest.
    So our efforts against the Revolutionary Guards and 
Hezbollah are prime examples of how what we often call 
``sanctions'' are really a broader set of tools, from 
disclosure and due-diligence requirements to civil and criminal 
investigations.
    When it comes to the threat from North Korea, I have called 
for the ``primary money laundering concern'' designation 
against large Chinese banks that continue to do business with 
the Kim Jong-un regime. As another of our witnesses knows, this 
major tool was used with great effect when the Treasury 
Department targeted Banco Delta Asia in 2006. We must stop Kim 
Jong-un from building a reliable nuclear arsenal capable of 
striking the United States.
    Sanctions are rooted in Article I power to regulate 
commerce with foreign nations. So it is not surprising that 
Congress has had to push successive administrations to 
effectively use these national security tools. No matter how 
tough the language of our sanctions bills, they are only as 
strong as their enforcement. And that is why we must work 
together to ensure that the executive branch not only has the 
political will, but also the growing resources, as well as the 
expertise needed, to implement stronger sanctions. So we look 
forward to hearing from our witnesses on how to do exactly 
that.
    We are going to come back later for the opening statement 
from our ranking member, who is on his way. But let me go now 
to the introduction of our witnesses, our distinguished panel 
here.
    Mr. Juan Zarate is the chairman and co-founder of the 
Financial Integrity Network, and previously, as the members of 
this committee well know, Mr. Zarate was the Assistant 
Secretary of the Treasury for Terrorist Financing and Financial 
Crimes.
    Mr. Derek Maltz is the executive director of government 
relations at Pen-Link. Previously, Mr. Maltz led the Drug 
Enforcement Administration's Special Operations Division in 
actively targeting narcotics trafficking tied to Hezbollah.
    And both of these gentlemen were involved in other 
operations that involve those of us on the committee as well. 
We appreciate their service, as we do Mr. Adam Szubin, because 
he also has assisted this country mightily in these endeavors. 
He is a distinguished practitioner-in-residence at Johns 
Hopkins School of Advanced International Studies. And 
previously he was the Acting Undersecretary of the Treasury for 
Terrorism and Financial Intelligence.
    Without objection, the witnesses' full prepared statements 
will be made part of the record. Members here will have 5 
calendar days to submit any questions that you might have or 
extraneous materials for the record.
    So if you would, Mr. Zarate, please open, and feel free to 
summarize your remarks. And after your 5 minutes and each of 
the panel members speak, we will go to questions.

  STATEMENT OF THE HONORABLE JUAN C. ZARATE, CHAIRMAN AND CO-
    FOUNDER, FINANCIAL INTEGRITY NETWORK (FORMER ASSISTANT 
 SECRETARY FOR TERRORIST FINANCING AND FINANCIAL CRIMES, U.S. 
                  DEPARTMENT OF THE TREASURY)

    Mr. Zarate. Well, Mr. Chairman, thank you for the 
invitation to be here today before you and this committee. I 
want to thank you and the distinguished members of this 
committee for holding the hearing and for your time and 
attention.
    Before I start, Mr. Chairman, I want to thank you for your 
years of service. As a proud native son of Orange County, 
California, I am proud of your service, grateful for it, and 
know that I have had the privilege of working with you on these 
very issues that we will be discussing today.
    And, in fact, Mr. Maltz and I had the privilege of working 
on the issue of Viktor Bout, of which you played a major part 
in making sure that he was eventually captured and put in jail 
here the United States.
    I want to thank you for your years of service to this 
country.
    [Applause.]
    Chairman Royce. I thank you, Mr. Zarate. I appreciate that 
very much.
    I do notice a constituent of mine over your shoulder. Would 
you care to introduce your sister?
    Mr. Zarate. I would love to, Mr. Chairman. I am not used to 
having family members with me, but I am really honored and 
pleased to have my sister with me, Marisa Zarate Zweiback. She 
is moving from Pasadena, California, actually.
    She just retired after nearly three decades of service as a 
Los Angeles County deputy district attorney. And she has 
devoted her life to public safety and security, and I am 
privileged to have her as my sister.
    Chairman Royce. We would like to welcome her here as well. 
Thank you.
    Mr. Zarate. Mr. Chairman, this is an important moment, as 
you know, to take stock of the critical role that financial 
measures, including sanctions--not just sanctions, as you 
indicated--play in our national security. These measures have 
become the tools often of first resort and even our central 
strategies in dealing with the hardest national security 
challenges facing our country.
    And as we rely and the international community relies more 
heavily on economic coercion in statecraft, it becomes critical 
to ensure their effectiveness and that the U.S. can continue to 
lead and use them effectively on an international basis. 
Congress, obviously, plays a key role in this endeavor.
    This is especially important as the targets of U.S. 
measures adapt to pressure, and they do. The financial and 
economic environment globally grows more interdependent and 
complicated, and they leverage that. Competitors and 
adversaries seek to displace or even undermine U.S. dominance 
as well as the U.S. dollar in the international financial 
system. And as we see new technologies come online in the 
fintech space and with cryptocurrencies, the question of 
whether or not illicit activity is further enabled globally 
becomes a challenge.
    So this is an important moment to talk about the principles 
and issues tied to the use of these measures. Let me just 
indicate some core principles to how I think we should deploy 
these measures.
    In the first instance, strategy matters, Mr. Chairman, as 
you know. Any attempt to use sanctions or financial measures 
has to nest and sit within a coherent strategy and cannot stand 
alone.
    Second, the economic toolkit must be seen as a broader set 
of coercive tools that are more effective when deployed in 
concert to shape the environment.
    Third, for financial pressure to actually work it must be 
applied and enforced constantly to identify and isolate 
targeted behavior. It is like weeding a garden. It has to be 
done consistently to shape the environment.
    Fourth, there must be a focus on conduct-based activities 
that violate international norms and principles. We are 
beginning to see that more and more in the context of human 
rights abuses, corruption, and violation of international 
sanctions.
    Fifth, there has to be a recognition and an understanding, 
I think it is critical for legislation, that a core pillar of 
not just the system but what makes these measures work is that 
we are also protecting the integrity of the financial system. 
That means that financial regulations tie very neatly and are 
dependent on sanctions and vice versa.
    In addition, we have to have creativity and flexibility in 
our approach and application. It is not a one-size-fits-all 
approach to sanctions and it is not always a maximalist 
approach that will get you the best results.
    Finally, the United States has to play the leading role 
still, I believe, in enforcing these measures and in setting 
the norms internationally. That is what will endure in terms of 
our ability to use these tools effectively.
    Mr. Chairman, there is urgency in action to make sure we do 
this right given the weight put on these tools and strategies. 
In the case of North Korea, there must be an all-out campaign 
to leverage financial information, sanctions, interdictions, 
related financial measures, to squeeze the regime's finances 
and access to capital.
    More importantly, these measures should be used to attempt 
to alter the dynamics with China by putting fundamental Chinese 
interests at risk--without needing to threaten China directly--
so they use their leverage to affect Pyongyang's 
decisionmaking.
    With Iran, as you indicated, Mr. Chairman, measures to 
isolate and pressure the Revolutionary Guard and regime 
leadership, in part by spotlighting human rights abuses, 
corruption, support to terrorism and militant proxies, progress 
on a ballistic missile program which is still subject to U.N. 
sanctions, all of that can be undertaken right away and with 
great vigor regardless of one's view on the JCPOA and what 
should happen next with respect to that deal.
    With Russia, the U.S. must retain escalatory dominance, 
along with European allies, in the use of sanctions and 
economic statecraft. With sanctions and measures against a 
major G20 economy, we have to be conscious of the measures that 
Russia takes in counter and in defense of these measures. And 
we have to then deal with Russian aggression in Ukraine, 
Putin's corruption, support for Assad's regime in Syria, 
related human rights abuses, and, of course, malicious cyber 
activity.
    Finally, Mr. Chairman, with transnational issues like 
proliferation finance, cyber hacking, kleptocracy, there is an 
opportunity here to drive financial isolation and the use of 
these measures to get at the core regimes and actors we want to 
isolate from the financial system.
    The regimes we care most about, the North Koreans, the 
Iranians, the Russians, are corrupt to the core, and corruption 
itself is an international norm and standard that we can begin 
to drive more effectively as a core national security strategy.
    Mr. Chairman, I am over my time. I have more to say. I am 
happy to reserve for questions and answers. But I would just 
say there is more we can do currently to increase the amount of 
attention, urgency, and resources to applying these sanctions 
and measures effectively. Part of that is ensuring the 
interagency is working together, with full force. Part of that 
is constant enforcement, as I mentioned. And part of that has 
to do with being more creative with how we use these tools, 
both in application and in unwinding.
    I think I will leave it there, Mr. Chairman. Thank you, 
again, for this opportunity.
    [The prepared statement of Mr. Zarate follows:]
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    Chairman Royce. Thank you, Mr. Zarate.
    Mr. Maltz.

STATEMENT OF MR. DEREK MALTZ, EXECUTIVE DIRECTOR, GOVERNMENTAL 
  RELATIONS, PEN-LINK, LTD. (FORMER SPECIAL AGENT IN CHARGE, 
 SPECIAL OPERATIONS DIVISION, DRUG ENFORCEMENT ADMINISTRATION, 
                  U.S. DEPARTMENT OF JUSTICE)

    Mr. Maltz. Chairman Royce and distinguished members of the 
committee, I would like to thank you for this opportunity to 
discuss these important topics for our national security.
    Chairman Royce, after hearing the news this week, I want to 
echo Juan's comment. I wanted to congratulate you and your 
family for an outstanding career in public service and all you 
have done for our Nation.
    And I know firsthand, as Juan already alluded to, that you 
were very much the leader behind helping us get Viktor Bout, 
and put him in jail, and take him out of the battle space. So 
thank you in words, not action--I am sorry, action, not words, 
Congressman.
    Chairman Royce. Thanks, Derek.
    Mr. Maltz. I was the agent in charge at the Special 
Operations Division for almost 10 years and I am in daily 
contact with all my friends in law enforcement around the 
globe. I am very focused in on the threats to this country and 
how they impact our national security.
    As you remember, I lost my brother Michael in the U.S. Air 
Force Pararescue unit in Afghanistan. So I am extremely 
passionate about public safety and national security and 
accountability. My days at SOD, I witnessed tremendous 
successes, unbelievable workers. My last success was when El 
Chapo Guzman was captured by the Mexican authorities based on a 
total U.S. interagency success. So I was very, very excited 
about that.
    But we will never be safe in this country unless we get 100 
percent full information sharing. I know that is kind of like a 
stretch to try to get 100 percent, but we could do a lot 
better. We need everyone on the same page, and that is to keep 
America safe. Everyone has equities, but we have to have them 
on the same page.
    The topic of unity effort has been my priority ever sense I 
buried my brother and will continue to be until I am done. And 
that means that I am going to try hard to unite the people, not 
divide them.
    I watched this threat grow all the years in the Special 
Operations Division, but luckily I got some good support and we 
expanded the operation from 9 to 30 agencies, to include our 
partners in the NYPD who are out there on the front lines every 
day trying to protect us.
    I remain committed to work with Congress, this committee, 
and I want to help provide recommendations and solutions. I 
don't want to be the doom-and-gloom guy that is just going to 
just keep bothering people and kind of blaming people.
    We can't beat these sophisticated criminal networks working 
in silos. We have myopic views at times in this country. And 
people are working very, very hard. So we want to put it all 
together. We want synergy.
    With the latest controversy in the news regarding Project 
Cassandra and the DEA's multiagency operation against 
Hezbollah, let me make this clear. I want to offer suggestions, 
and I hope that Project Cassandra and the terror cases can 
result in productive discussions to develop better ways ahead.
    I would like to see our dedicated men and women in law 
enforcement, the intelligence community, and DOD come together 
in attacking Hezbollah. The government already has a solid 
transnational organized crime strategy. When are we going to 
put it into action and hold people accountable?
    The government has been looking at this for many years. 
This isn't rocket science, right? These are bad guys trying to 
destroy our way of life. Now we have to go after them in unity. 
We need to carry out President Trump's executive order and push 
hard against these biggest threats.
    I really don't believe it is productive to start playing 
the blame game and wasting time going back and forth, 
criticizing the past administration. We have to be more 
effective in the future. The threats to this country are moving 
at lightning speed and we need more of a sense of urgency.
    There is an old saying: Opportunities come and go. Well, in 
my personal opinion, having been the guy in charge of the 
Special Operations for 10 years, we lost a golden opportunity 
to crush Hezbollah. And that is what we want to do.
    And the guys and ladies in the law enforcement community 
and the other agencies are doing this job right now as we sit 
here today. So we need to support them and give them the 
resources. It makes no sense to play that political ping-pong 
game going back and forth because no one is going to win and 
the bad guys are going to win.
    So let's look at the mud that they are stuck in with the 
politics and the bureaucracy and let's start bringing people 
together. That is what we need to do.
    Terrorists are going to continue to tap into the 
unbelievable funding streams of criminal activities. One case 
after another we see this. But we still have our terror 
investigators and our crime investigations going down two 
separate paths. We need to break down the walls. Who is going 
to do it? Who is going to step up and do it?
    We can't be effective if we don't eliminate these walls. We 
need the AG, the DHS secretary, the DOD leaders, the 
intelligence community, committees like this to step up and 
tell people what they are going to do and what they are 
expected to do for the public. Let's make a commitment to the 
taxpayers that we are going to eliminate these barriers.
    Let's build up capabilities like these sanctions, because 
Viktor Bout would probably still be out there if it wasn't for 
the sanctions. We exposed him, we created a vulnerability, and 
then law enforcement came and took him off the playing field, 
right?
    So, sadly, 16 years after 9/11, we are still talking about 
information sharing. It is a disaster. We have to stop it. 
Terrorists are ruthless criminals and they are looking to 
destroy our way of life.
    We are not going to stop it with just DOD engagement, 
sanctions, and intelligence collection. We need robust law 
enforcement prosecutions, pursuant to the rule of law, to bring 
these people back to face justice and get full debriefings. The 
American people expect us to do this.
    We need action and a sense of urgency. Thanks to this 
committee, I think we are going to be on the right path.
    We need to have a mutually supportive framework so the IC 
equities and the law enforcement equities are all met.
    The poor families awoke to the news of the 241 Americans 
that were killed in Beirut 34 years ago, right? Admiral 
Stavridis, General Kelly, they have been testifying for years 
about this emerging threat. How many more warning signs do we 
need? Michael Chertoff said they made al-Qaeda look like the 
minor leagues. I mean, what are we doing? We have to wake up 
and go after them hard. We are missing the accountability 
piece.
    So what I would like to see is: Who is responsible in the 
U.S. Government to be accountable for these interagency task 
forces? Who is going to make sure that American interests are 
protected? Not any one agency. So that is what I would like to 
see. There has got to be open and collaborative efforts.
    In my view, the worst thing the country needs now is to 
spend taxpayers' money on another coordination center when we 
have a facility sitting out in northern Virginia, right here in 
our backyard, with 30 agencies, 3 countries. There are probably 
more than 30 agencies now. We need to stop the madness, and I 
am going to help try to do that in my capacity.
    Cannot stand alone. Sanctions cannot stand alone, all 
right? They have to be applied and enforced. Your statement--
and I am done, I promise--only as strong as the enforcement, 
right? The same thing in these strategies. You can write 
strategies all day long. Who is enforcing the strategies? 
Because they are good strategies.
    Thank you very much.
    [The prepared statement of Mr. Maltz follows:]
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    Chairman Royce. Thank you, Mr. Maltz.
    Mr. Szubin.

  STATEMENT OF MR. ADAM SZUBIN, DISTINGUISHED PRACTITIONER-IN-
    RESIDENCE, JOHNS HOPKINS UNIVERSITY SCHOOL OF ADVANCED 
   INTERNATIONAL STUDIES (FORMER ACTING UNDER SECRETARY FOR 
 TERRORISM AND FINANCIAL INTELLIGENCE, U.S. DEPARTMENT OF THE 
                           TREASURY)

    Mr. Szubin. Thank you, Chairman Royce, Ranking Member 
Engel, distinguished members of the committee. Thank you for 
convening the important hearing.
    This committee has long been a strong advocate for the 
smart use of economic tools and for my former office at 
Treasury, the Office of Terrorism and Financial Intelligence. I 
want to thank you for that. And I want to particularly thank 
the chair and ranking member personally for their leadership 
and unfailing support.
    If the policymaking community was too dismissive of 
sanctions 15 years ago, I am concerned that the pendulum has 
shifted and the tool is being used too readily now and in ways 
that risk undercutting its effectiveness. In my written 
testimony, I set out seven recommendations that I believe are 
key to preserving the power and influence of U.S. economic 
measures for decades to come, and I will outline them just very 
briefly here.
    First, fund the effort. Even after some growth, the entire 
Treasury team that covers sanctions has fewer than 500 people, 
and that includes the intelligence, regulatory, licensing, 
targeting, compliance, enforcement, legal, and policy teams, 
administering every sanctions program from al-Qaeda to 
Zimbabwe. The staff are among the most dedicated you will find 
in government, but if we want them to continue to deliver 
highly professional and impactful results, Congress must equip 
them to succeed.
    Two, strengthen our relationships abroad. Sanctions are not 
an alternative to diplomacy, they are an exercise of diplomacy. 
We need strong political leadership across the State 
Department, experienced career diplomats, and staffed 
Embassies, if we are to marshal the sanctions pressure we need 
in a globalized world.
    Three, control sanctions policy. More than 30 U.S. States 
have passed sanctions laws that differ and depart from Federal 
law implicating Iran, Burma, Syria, Sudan. These States seek to 
alter the behavior of foreign governments but they are not 
subject to any congressional oversight. And State legislatures 
target not Iranian or Sudanese companies, but European and 
South Asian companies that are doing business in sanctioned 
countries--business, I would add, that is fully legal under 
their home laws and under U.S. Federal law.
    I do not believe that individual States should be allowed 
to substitute their foreign policy judgment for that of 
Congress and the President. Congress should explicitly preempt 
the States in this field, or, at the very least, withhold its 
endorsement for State divestment and sanctions laws. Foreign 
policy is an area where we, as a country, must speak with one 
voice.
    Four, enforce coherently. The success of sanctions, as we 
have heard today, depends on tough and rigorous enforcement. 
But we undermine our objectives when a constellation of local, 
State, and Federal agencies simultaneously assert jurisdiction 
over sanctions violations and do not coordinate their 
activities.
    There is no excuse for piling on with redundant penalties, 
and there is no reason for sanctions enforcement at any level 
to be occurring without the knowledge and input of OFAC, the 
agency that writes and interprets Federal sanctions.
    Five, honor our word. It will be, as you all know, 
extraordinarily difficult to persuade North Korea to come to 
the negotiating table over its nuclear program. But we will 
have made a difficult challenge impossible if we are seen as a 
country that does not honor its promises when it comes to 
sanctions.
    Regardless of one's view of the Iran nuclear deal, if we 
are perceived to be playing games with or discarding our 
sanctions commitments, while Iran is adhering to its 
commitments on the nuclear side, it would be foolish to expect 
North Korea to come to the table for a promise of U.S. 
sanctions relief.
    I would note that when I say honoring our word, that does 
not mean taking the pressure off of Iran's malign activities 
outside of the nuclear sphere, to include the human rights 
violations we have witnessed so blatantly in recent weeks, 
their sponsorship of terrorism, notably Hezbollah, the IRGC, 
the Quds Force, and their missile program.
    Six, ensure flexibility. Congress has enacted vitally 
important sanctions laws, helping the cause on Iran, on Sudan, 
on Russia. Historically, though, Congress recognized that 
statutory sanctions tend to be nearly impossible to repeal and 
provided waiver and licensing authorities so that the executive 
branch could deal with foreign threats as they evolved. This 
practice currently seems to be at risk.
    Sanctions that cannot be eased without an affirmative joint 
resolution of Congress are a problem. They will be viewed by 
the target as written in stone and will be treated as a cost to 
be factored in rather than as an inducement to change behavior.
    I urge Congress to adhere to its historical practice of 
providing waivers and licensing authority to the executive 
branch regardless of the sanctions context.
    Finally, preserve our financial leverage. Russia and other 
adversaries have realized that the dominance of the West's 
financial system is a strategic liability when sanctions are 
imposed against them.
    President Putin has pressed other countries to turn away 
from the West's banks and financial system and away from the 
dollar and the euro, but he has largely failed in this effort 
so far. Our institutions are known to be more capable, our 
markets more dependable, and our currency more attractive than 
any in the world.
    To preserve this leverage, though, we must take care not to 
unintentionally drive governments and businesses away. As 
discussed, we have to be coordinated and clear in implementing 
sanctions so that foreign banks and businesses know that our 
system is tough but fair. We need to maintain our foreign 
relations and strive wherever possible to act in concert with 
others.
    And, as tempting as it may be to tell the world that it can 
choose to do business in the U.S. dollar or with X country, we 
should be imposing secondary sanctions exceedingly rarely. If 
foreign actors come to see that the cost of doing business in 
the dollar is a wholesale adoption of U.S. foreign policy, we 
will have lost leverage and done our adversaries' work for 
them.
    To conclude, the U.S. enjoys many strategic advantages in 
the sanctions arena. If we preserve those strengths and act 
responsibly, I know that economic sanctions will help to 
advance our security and global security into the years and 
decades to come.
    Thank you. I look forward to your questions.
    [The prepared statement of Mr. Szubin follows:]
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    Chairman Royce. Thank you, Adam.
    I will go now to the ranking member, Mr. Engel, for his 
opening remarks.
    Mr. Engel. Thank you, Mr. Chairman. And thank you, once 
again, for calling this very important hearing.
    I have to say we are kicking off the committee's work for 
2018 on a somber note, Mr. Chairman. As we all know by now, 
this will be your last year in the House. You and I took our 
respective positions on this committee at the same time, 5 
years ago, and since then you have run this committee in a way 
that makes us the most bipartisan committee in Congress.
    I know you know that I have deeply valued our partnership 
and our friendship, and I am proud of the work that we have 
done together, and I look forward to our final year of working 
together. So thank you, Mr. Chairman.
    Chairman Royce. Thank you, Mr. Engel. I appreciate it.
    Mr. Engel. To our witnesses, welcome back to the Foreign 
Affairs Committee. We are grateful for your time and eager to 
hear your views on how we can make sanctions more effective.
    Mr. Maltz, tell me you are from New York.
    Mr. Maltz. I am from Mobile, Alabama, sir. Just a joke.
    Mr. Engel. Well, I am from the Bronx, so I can pick up that 
accent any time with my eyes closed.
    Mr. Maltz. Are you a Yankee fan?
    Mr. Engel. Well, I root for both of them. I will give you a 
politician's answer. I like the Mets too.
    I consider sanctions to be an important tool for dealing 
with problematic actors on the global stage. We know that if we 
use them well, sanctions can help change harmful behavior. This 
committee, under the chairman's leadership, has passed numerous 
sanctions bills and we have worked with successive 
administrations to see these measures put in place all over the 
world. And these are the areas I would like to focus on today.
    First, there is North Korea. The root of this challenge, of 
course, is the Kim regime's nuclear ambitions. Congress has 
done its part to deal with this challenge, thanks largely to 
the leadership of Chairman Royce, by ratcheting up sanctions 
again and again on Pyongyang and the regime's supporters.
    I remember being in North Korea many years ago as a North 
Korean high government official said to us: Saddam Hussein 
didn't have nuclear weapons, and look where he is now. So it 
was clear, even way back then, that they regarded nuclear 
weapons as their chip, and nothing has really changed.
    But as the danger escalates, we are seeing that U.S. 
sanctions are only one piece of the puzzle. China is key to 
enforcement. But China is prone to cheating. And at the same 
time, the United States has been reluctant to sanction big 
Chinese financial institutions. And even if there were 
universal enforcement of sanctions around the world, there is 
little to believe sanctions alone, particularly in the short-
term, would push Kim to give up his nuclear weapons.
    So, in the case of North Korea, I think diplomacy is a key 
complement to a sanctions package. And here, I fear, the 
administration is making things worse. The President's comments 
on North Korea have been inflammatory, most recently with the 
President's button-measuring contest over Twitter. These 
actions increase the risk of miscalculation. And when we are 
talking about nuclear weapons on the Korean Peninsula, or 
anywhere else, there is absolutely no margin for error.
    As Mr. Szubin points out in his testimony, we need smart, 
reasoned diplomacy to go hand-in-hand with our sanctions. And 
if we don't have that, if we don't have a diplomatic strategy, 
aren't we just raising tensions and raising the risk of a 
military conflict?
    Secondly is Iran. This committee, again under the 
chairman's leadership, has done more with Iran than I think all 
other committees combined. Here is an example when sanctions 
were essential for bringing Iranians to the negotiating table.
    Now, I wasn't pleased with the outcome. The Iran nuclear 
agreement, everyone here knows I voted against it. But there is 
no doubt that without international sanctions these talks would 
never have gone forward.
    And, even though I disagreed with the nuclear deal, I think 
we need to keep up our end of the bargain. That means we should 
shy away from sanctions that would cause the United States to 
violate the terms of the agreement. This is no longer 2015, it 
is 2017, and I think we ought to keep the agreement and enforce 
it.
    However, we should use every tool at our disposal to go 
after Iran's other harmful activities: Support for terrorism, 
ballistic missile development, human rights abuses. Again, this 
committee has passed numerous sanctions bills targeting the 
regime and its supporters. We want to see these sanctions fully 
implemented, and we should keep looking for ways to tighten the 
screws even more.
    And, lastly, Russia. We have imposed--again, this committee 
has been at the helm--we have imposed a range of sanctions 
against Russia, responding to the seizure of Crimea, to the 
ongoing conflict in eastern Ukraine, to the serial abuse of 
human rights by the Putin government.
    Yesterday, our Ambassador to Russia, Jon Huntsman, met with 
our members on the Foreign Affairs Committee and he telegraphed 
a potential shift in policy, which I interpreted as possibly 
scaling back sanctions to incentivize Putin to change his 
behavior.
    I don't agree with that. I think that is a misguided 
approach. I think we need to go back to the well again and 
again to let Putin know he is leading his country into 
isolation. And that path must include sanctions dealing with 
Russia's attack on American democracy.
    A year has gone by since our intelligence agencies gave us 
the details about Russian meddling in the 2016 election. This 
administration has held no one accountable, and that is just 
baffling.
    We are now, once again, in an election year and by the 
administration's own admission, Russia is going to use that 
playbook once again. CIA Director Pompeo said so. Ambassador 
Huntsman said so.
    We passed new sanctions on Russia last year to deal with 
this. This committee was essential in passing those new 
sanctions, so it is law, but the administration has yet to use 
them. How can we possibly hope to deter this sort of behavior 
if we leave our best tools sitting on the shelf?
    Maybe we need tougher measures that would force the 
administration to act, like the bill I introduced with Mr. 
Connolly, the SECURE Our Democracy Act. One way or the other, 
we need to do something because right now the door is wide open 
to another attack on our democracy, and that should trouble all 
of us.
    So I hope our witnesses will shed additional light on these 
issues. We have heard their opening statements and look forward 
to your answering our questions.
    I thank the chairman, and I yield back.
    Chairman Royce. Thank you, Mr. Engel.
    I would like to start with Mr. Zarate, a statement you 
made, and Mr. Szubin.
    Mr. Zarate, you testified that over the past 15 years 
sanctions have become the tools of first resort and even our 
central strategies in dealing with the hardest national 
security challenges we face.
    And Mr. Szubin, you characterized sanctions as having the 
odd distinction of being both the most popular and least well-
resourced tool of statecraft in our Government. And you raised 
the concern about not having enough resources to carry out 
sanctions.
    So do Treasury and other agencies involved in implementing 
sanctions have the manpower and other resources, like modern IT 
infrastructure, that they need to fully enforce the sanctions 
bill that this committee has championed?
    Mr. Zarate, if you would like to start.
    Mr. Zarate. Mr. Chairman, I think Adam and I are coincident 
in the conclusion that these strategies and tools fit within 
that gap between diplomacy and kinetic action and then enable 
all the other things that matter in terms of our national 
security, our intelligence gathering, our law enforcement, our 
diplomacy, et cetera, and our military action.
    I think a key challenge here is we are now at a point where 
we are potentially depending too much on these tools, assuming 
they will be a silver bullet to respond to every aggravation or 
problem. And I see this in three ways.
    One is I think there is a lack of creativity as to how you 
then use financial measures in concert with other tools. And I 
think that has played out over time in the context of North 
Korea. It has played out to a certain extent with Iran, 
although I think our Iran campaign was one of the most 
sophisticated the U.S. Government has ever deployed. It is 
playing out in the context of Russia where response to Russian 
aggression be it in the virtual world or in the physical world 
can be both in the virtual and physical world and can include 
financial measures. So I think there is a lack of creativity as 
to how you deploy them.
    Your question on the resources is an important one because 
I think we are underresourced in three ways. One is--I agree 
with Adam--we don't have enough people or resources at 
Treasury. This is the war room for how we deploy these 
strategies which are now essential to our national security. 
Let's resource it in a way that is appropriate.
    Two, we don't have the information-sharing and technology 
infrastructure to allow the government now to aggregate data, 
to use predictive analytics, to begin to use artificial 
intelligence, to understand where there are systemic 
vulnerabilities and ties between the networks that matter to 
our national security.
    And, third, we are not putting enough energy and resources, 
to Derek's point, into bringing together task forces that bring 
Federal agencies, as well as State and local agencies, that 
then get you to the consistency of approach and enforcement 
that we want, and, frankly, the urgency around North Korea, 
Iran, Russia, et cetera.
    Why we don't have task forces up and running on all of 
these issues, using the full weight and force of our 
authorities, is beyond me. I know there is a ton of work 
happening. I don't want to suggest that that is not happening. 
But there needs to be an all-out effort if we are to try a 
maximalist approach, for example, with North Korea, to avoid 
war and to try to change behavior.
    Chairman Royce. And I will go to Mr. Szubin so you can 
raise again your concerns about having sufficient resources to 
carry out sanctions given your experience in that position.
    Mr. Szubin. Mr. Chairman, I agree with you wholeheartedly. 
I think the effort needs more resources.
    And when I would sit around the National Security Council 
table, if there was a tasking that went back on the defense 
side, had this massive apparatus. The same with intelligence, 
the same with diplomacy, although to a lesser extent. And then 
there was Treasury and we were sort of the little brother at 
the table, but over the years keep being asked to do more and 
more, sometimes by Congress, sometimes by the executive branch.
    And these days it is really tough to think about a national 
security or foreign policy threat where we are not using 
sanctions and where we are not----
    Chairman Royce. But you were partly--you are partly a 
victim of the successes. I mean, when we captured Viktor Bout, 
when we were successful in terms of bringing pressure on Iran, 
when we found we were having impact in slowing the race to 
weaponry in North Korea, all of this created this incentive to 
double down with the one thing that was working in order to 
really stretch the ability of these regimes to have access to 
the resources they wanted to carry out terror. And that was 
what you do.
    And I don't think there is a sufficient comprehension in 
the other agencies of government in terms of the linchpin here. 
And that is one of the things I would like to drive through 
this hearing today. And I appreciate, again, your all calling 
attention to this.
    I am out of time. I am going to go to Mr. Engel for his 
questions.
    Mr. Engel. Thank you.
    I want to raise something that I raised in my opening 
statement and something that we have talked about a great deal 
in this committee since we were really responsible for the 
legislation. So let me throw this out to any of the witnesses 
who would care to answer.
    Has the U.S. sanctioned anyone in Russia for the election 
interference that CIA Director Pompeo said is ongoing? And, if 
not, do any of our witnesses know why not?
    And do you think this inaction, this total failure to hold 
Russia accountable, has contributed to Russia's ongoing efforts 
to interfere with our democracy again, as CIA Director Pompeo 
recently said.
    And, finally, do you think sanctions would be an effective 
way to punish those who carry out this attack and deter future 
operations along these lines?
    Anyone who would care to answer that.
    Mr. Szubin. I am happy to start, Congressman.
    Toward the end of my time, toward the end of the Obama 
administration, we did, indeed, issue sanctions against a 
number of Russian entities who we believed, and who were, 
responsible for interference in the 2016 election. That 
included their intelligence agencies and some of the related 
fields and companies who were enabling them from a cyber 
perspective.
    The bottom line, though, I think, of your question is, have 
we done enough? And to that, I agree, we have not. Neither this 
administration nor the prior administration have done enough to 
ensure that we will be safer in next year's coming elections, 
or in elections in 3 years, from Russian interference.
    And I think this has to be much bigger than just sanctions. 
Yes, we should continue to put economic pressure on Russia. But 
as Juan was saying earlier, it has to be a whole-of-government 
approach, both in defending our electoral systems against cyber 
attacks and in making clear to Russia and other would-be 
interfering countries, this is unacceptable.
    Elections are at the core of our country, and if the 
American people lose faith, lose trust in the integrity of 
those elections, I, frankly, fear for what that does to our 
country. We have to make a strong stand.
    Mr. Engel. Thank you. Especially since this Congress passed 
the authority of the President to impose new sanctions, and 
they are just waiting there, they haven't been done.
    Anybody else? Mr. Zarate?
    Mr. Zarate. Ranking Member Engel, I would like to address a 
couple of your points.
    I am a firm believer that sanctions can be incredibly 
effective in the cyber domain to deter actors who are willing 
to use malicious cyber activity to affect U.S. interests.
    This is a field, though, that grows more complicated as we 
have to then demonstrate with evidence and proof both in the 
context of the application of sanctions and then the public 
disclosure the attribution of the attacks.
    And so, though I am a firm believer that we should be using 
sanctions targeted to dissuade and deter actors from affecting 
our democratic systems or trying to attack our systems, whether 
it is Russia, North Korea, Iran, all of which have done that 
very same thing, it has to be recognized that this is a more 
difficult task and often one filled with more sensitivities for 
the intelligence community.
    So I just want to mention that there is great promise in 
their use but also great complication.
    Another point is I think it is critical that we think about 
the use of other sanctions programs to deter the Russians or 
any other actor that is trying to affect U.S. interests. This 
administration has designated Russian actors under other 
sanctions programs. For example, in aid of North Korea there 
have been Russian entities designated. So I think that is an 
important dimension as well.
    And then the physical dimension is critical too. The fact 
that we have made now a decision, the administration has made a 
decision to send anti-tank weaponry to Kiev is actually an 
incredibly important signal and a deterrent to Russia that we 
are taking very seriously not just what they are doing in 
Ukraine, but also what they are doing to affect U.S. interests.
    And so I think this has to be viewed holistically, in part 
because the Russians, the Chinese, and others don't view this 
just in a cyber domain or in a physical domain or in the 
context of particular silos, but as a whole approach for their 
national security.
    Mr. Engel. Thank you.
    Mr. Szubin, let me ask you this about Iran. To what extent 
do you believe that sanctions have been effective, since the 
announcement of the JCPOA, in changing Iran's calculus vis-a-
vis Iran's non-nuclear destabilizing activities? Is there room 
for improvement in our sanctions regime?
    Mr. Szubin. There is always room to do more, and I am 
confident that my former colleagues at Treasury and across the 
administration are working very hard at identifying additional 
strategies and targets, whether on the ballistic missile side, 
on the support for terrorism, human rights, and on and on.
    To what extent has the JCPOA framework been effective, been 
successful? I think it has done what it was designed to do, 
which is we had a nuclear deal, we had commitments on the 
nuclear side, and in exchange we lifted nuclear sanctions only, 
keeping a very robust set of measures, U.S. sanctions that 
prohibit almost all dealings between Iran and the United States 
and secondary sanctions that still in place today for any 
foreign company or bank that does business with the IRGC, with 
the Quds Force, with a ballistic missile company.
    These sanctions have kept the pressure on Iran's other 
activities, and in some ways you can look at the protests that 
have gone on in recent weeks in Iran as being a reflection 
where the Iranian people say, wait a minute, we didn't get full 
sanctions relief, we were promised an economic turnaround and 
it didn't come.
    And Iran has its own leadership to blame when it comes to 
why that opening didn't come. The leaders were not ready to 
make commitments to bring themselves into compliance with 
international expectations on terrorism, on ballistic missile. 
On the more technical levels, they were not ready to introduce 
transparency and financial sector reforms so that foreign 
investors could know who they are actually doing business with 
when they touch down in Tehran.
    In all of these levels, I think the Iranian leadership has 
disappointed its own people, and you see that frustration 
coming out now. Our sanctions are a continued reflection of 
where Iran continues to not do what it needs to do.
    Mr. Engel. Thank you.
    Thank you, Mr. Chairman.
    Chairman Royce. Thank you.
    We will go to Ileana Ros-Lehtinen.
    Ms. Ros-Lehtinen. Thank you so much, Chairman Royce. And I 
echo the ranking member's words of praise about your bipartisan 
leadership in this committee, Mr. Chairman, and you will be 
missed. We want to see your portrait up here. Thank you so 
much.
    And this is an important and timely hearing because this an 
issue that Ranking Member Engel, Chairman Royce, I, and so many 
of our colleagues on this committee have been working on for 
quite some time, sanctions. I have authored sanctions bills 
that have become laws, including some of the strongest 
sanctions, like the Iran, North Korea, and Syria 
Nonproliferation Act and the Iran Threat Reduction and Syria 
Human Rights Act.
    And I have been doing that working with the chairman and 
ranking member. And, also, we have authored others that aim to 
help people around the world in their fight for freedom and 
democracy, such as the Venezuela Human Rights and Democracy 
Protection Act.
    And what is universally true for all of our sanctions law 
is that for sanctions to be truly effective, they have got to 
be fully implemented, vigorously enforced. And over the past 20 
years Congress has given administration after administration 
all the tools necessary to help achieve some of our foreign 
policy objectives.
    Unfortunately, not every administration has used these 
tools in order to maximize the impact of the sanctions. And 
most egregious was the Obama administration's fundamental 
misunderstanding of our Iran sanctions. The intent was not 
simply to bring Iran to the table. It was for Iran to abandon 
completely its nuclear weapons ambitions, to stop all of the 
enrichment, and to dismantle the nuclear program.
    And the result of this misunderstanding is what we see this 
week as this administration must make certain certifications 
and decisions on Iran sanctions because of this weak and 
dangerous nuclear deal. And many of the discussions, both 
leading up to and following the nuclear deal, have centered 
around how Congress can ensure that administrations are not 
able to ignore or evade a congressional intent.
    So with respect to our Iran sanctions or, like, INKSNA, or 
more generally, we need to find a way to close the loopholes or 
reconcile congressional intent with administrative 
implementation. And I hope this hearing gets us to where we 
want to be.
    But, Mr. Maltz, I wanted to ask you, there was a report 
last month alleging the previous administration impeded or at 
least did not pursue some efforts to go after Hezbollah 
activities. It was a big news item. It was abundantly clear 
that the administration's Iran policy was driven strictly by 
its pursuit of a nuclear deal with Iran. And then, once 
secured, what it wanted to do was to preserve it.
    But your testimony focuses on Project Cassandra and how we 
can improve going forward. Iran and Hezbollah's presence in the 
Western Hemisphere is pervasive and threatening. How can we 
improve the capabilities and cooperation of the governments of 
the region in making sure that they can stem this problem?
    Mr. Maltz. So thank you for the question. I mean, I know 
firsthand your level of engagement because when I was the head 
of SOD I frequently met with you and your people to discuss 
folks like Walid Makled and General Carvajal that were let go 
to go back to their country of Venezuela when you know, 
probably better than I, the connectivity to the military 
intelligence and the corruption and the weapons and the FARC. 
And also, as you know from studying this for years, they also 
had the connectivity of global drug trafficking around the 
world to generate funds.
    So, number one, let's talk about the resources. You need 
the right resources. Let's stop wasting government taxpayers' 
money by creating redundancies. People don't even know what we 
already have, like the centers like the Special Operations 
Division.
    I am not waving the flag for them, but I lived it for 10 
years. There are centers that actually do have some good 
foundation that we need to build on. We don't need to create 
new centers and waste money.
    For an example, to answer your question, we have the 
Australians, the Canadians, the Brits, who are all inundated 
with cocaine, for an example. Do you know that in Australia 
they are selling, still, cocaine, almost $250,000 a kilogram? 
And people wonder why terrorist organizations are moving 
cocaine. If you sell cocaine in America, it is like $35,000 I 
guess, $40,000. I am a little bit rusty on my updates. But I 
know for sure in Australia it is still up like $240,000. At one 
point, it was 300.
    So you have to bring these countries together too. Europol, 
they are doing tremendous work over in Europe to bring people 
together, to bring intelligence together. But we need sound 
prosecution. Go after them right here. Because they don't want 
to come back to America. And we have tremendous capabilities to 
get them, and we have tremendous laws. We have some really good 
prosecutors that are still out there that will help us.
    So if you get them back and you use, like--I don't want to 
pump up Adam, but OFAC and FinCEN, for an example. They are the 
ones that educated me on these powerful 981(k)'s, the 311 
actions. You have to put that on steroids, and you have to have 
somebody accountable. If you are not willing to designate 
somebody to be responsible to the taxpayer to pull this 
together, it is never going to work.
    Ms. Ros-Lehtinen. Thank you so much.
    Thank you, Mr. Chairman, Ranking Member.
    Chairman Royce. Mr. Brad Sherman.
    Mr. Sherman. I think we all want to associate ourselves 
with the remarks of the ranking member about our chairman. You 
will be missed, and we look forward to working with you for 
this year.
    Sanctions are derided because they are hostile. But those 
who prize peace should be informed that they are not a prelude 
to war but a substitute for it. They do indeed often harm the 
innocent, particularly the U.S. companies that can't do 
business and jobs cannot be created. But the blame for that 
must be on the rogue regimes that necessitate sanctions, not on 
those who propose them.
    Sanctions have worked. In fact, they have worked better 
over the last 50 years than major military interventions. We 
look to South Africa, and we look to Iran, where the only 
argument, a fierce argument, was whether sanctions got us a 
good deal or more sanctions would have gotten us a better deal. 
No one argued that we should have not had sanctions and allowed 
the Iranians to move forward unimpeded.
    Sanctions can work only if they are multinational. There is 
plenty of business to be done in Europe and Asia. We have to 
get their buy-in. And that can be done only through a 
combination of pressure and persuasion.
    As to persuasion, we need a robust State Department. It is 
being cut back. That is a national security issue.
    And, second, as we try to get the world to go along with us 
on issues important to our national security, all of our 
efforts in the world sphere should be designed to win friends 
and influence people. And even when we can't or choose not to 
go along with international consensus, doing so in a polite 
manner might be better than attacking, verbally and 
unnecessarily, most actors in the world.
    But you also need pressure. You look at the Iran sanctions. 
They cut off Iran from European and Asian banks. They did so 
because we persuaded Europe and Asia that we have legitimate 
concerns, and we pressured their banks with possible denial of 
access to the U.S. banking system. If either of those elements 
hadn't been there, it would not have been effective.
    And, finally, we have to have realistic objectives. We 
would not have gotten European and Asian support if we were 
demanding sanctions until there was regime change in Iran. 
Likewise, as we try to sanction North Korea, we will not have 
the support of China if they think that our objective is regime 
change. And, in addition, the regime itself is not going to 
reach a compromise with us due to sanctions if our objective is 
regime change.
    Mr. Maltz, I do partially disagree with you. You talk about 
the importance of sharing information. But we went too far 
when, then, Bradley Manning had access to everything. And I 
think we need to have the balance between sharing information 
among those involved in law enforcement and intelligence and 
guarding information. We went too far in one direction. Now we 
maybe go--certainly, if you have a private with access to 
everything, you have gone too far to the other.
    Many who have involved themselves in foreign policy their 
whole lives tend to support maximum executive branch power. 
Most have spent most of their time dealing with the executive 
branch. But Article I appears in our Constitution before 
Article II. And I think Mr. Szubin was arguing that our 
sanctions laws should give the maximum possible discretion to 
the executive branch. Perhaps I have that wrong. But if you 
didn't say that, somebody said it at some point, and I disagree 
with whoever that was.
    But one thing I noted was your belief that we should honor 
our word. And I will agree with you except, who is the ``our''? 
If we decide that any President can bind the American people 
permanently for anything they agree to, whether Congress votes 
in favor of it or not, even with a simple majority in both 
houses, then I think we have simply skipped Article I of the 
Constitution.
    And while I support continuing the Iran deal--which, of 
course, was not approved by Congress--that does not mean that I 
am going to support saying that the American people have given 
their solemn word and are bound forever by anything this 
President chooses to agree to with Putin or anyone else.
    So I hope that we would educate all of our international 
partners that we have a Constitution. They are welcome to read 
it. We will give them free copies. Call my office. We have got 
copies there. And that it provides, in effect, for both 
treaties and for legislative executive agreements, but it does 
not provide that the American people are bound because a 
President gives our word, a President gives his or her word. 
And if they want to give the word of the American people, they 
need to come to the United States Congress.
    And I have exceeded my time.
    Ms. Ros-Lehtinen [presiding]. Thank you, Mr. Sherman. Thank 
you very much.
    Mr. Rohrabacher of California.
    Mr. Rohrabacher. Thank you very much.
    And I appreciate your testimony today. It has been very 
thought provoking.
    Let me just note that we have the Magnitsky Act in place. 
Now, I didn't support naming it the Magnitsky Act, but I 
supported the act itself. And, with that, we now have the 
ability to single out individuals who are participating in 
human rights abuses in other countries, something I have long 
supported. And we now, thus, have the ability to take members 
of the Revolutionary Guard in Iran and making them what they 
are, criminals, and put them on the list of international 
criminals.
    I take it that you support that?
    Mr. Zarate. Yes.
    Mr. Rohrabacher. All right.
    Let me note that Iran, in terms of what comments we have 
had about the President and the Iranian arms deal, let me just 
note that the President of the United States, as part of the 
Iran deal, has been tasked with verifying compliance with that 
deal, okay?
    All our position should be is this President should tell 
the truth, whatever it is. If they are in compliance, they are 
in compliance, and if they are not, they are not. And we 
shouldn't be trying to just push the President in one direction 
or the other or claim that he is playing politics when he has 
been given that responsibility. So that is number two.
    But what I would really like to go into--and I am sorry for 
your brother's loss in Afghanistan. I have spent a lot of time 
and effort on Afghan issues, as people know.
    One of the things that has disturbed me during all of these 
years, we have a long time ago could have eliminated the poppy 
crops, the opium production in Afghanistan. We could have done 
that easily years ago. And I have been involved with some 
classified approaches to that and it would have been easy to 
do. We have not.
    Your brother and other people's sons and brothers from the 
United States have lost their lives because we have not cut off 
the funding, as we could have long ago, to opium production. 
And it seems to me that indicates that there are powerful 
economic forces at play preventing us from doing what is right 
by those who are going over there to defend us.
    Maybe you have some thoughts on that.
    Mr. Maltz. Well, the first thought is going back to Mr. 
Sherman's comment, because it has to be clarified. Everything 
we did at the Special Operations Division was pursuant to the 
rule of law. So we are 100 percent in support of the 
Constitution and to bring these people to justice in the 
greatest country of the world.
    We don't believe in information sharing to people that 
shouldn't have access to the information. But if you have a 
government task force set up to go after the threats to this 
country, we need to share information. You can't have a system 
where our terrorist investigators don't share with the criminal 
investigators. That is a recipe for disaster.
    And, by the way, 16 years after 9/11, what we did and what 
we implemented with information sharing is exactly what the 
American public would expect. There is no politics in 
information sharing.
    Mr. Rohrabacher. I have only got a minute and a half.
    Mr. Maltz. I am sorry, sir, but I had to address that, 
because that really was irritating.
    Mr. Rohrabacher. I wish you would have done in Brad's time, 
however, but that is okay, because we don't share information 
here.
    Mr. Maltz. But as far as Afghanistan, I am not an expert on 
eradicating the poppies. I am not saying I disagree or agree. 
We are on the operation side. We saw the nexus between the 
Taliban and the drug traffickers.
    Mr. Rohrabacher. Okay. Let me just note this. It is not 
just the poppies. What we have got is we know someone is 
financing ISIL, someone is financing these terrorists. There 
are huge financial interests to these international financial 
institutions that obviously are involved and we have let them 
go. We have not focused on them.
    Mr. Maltz. I agree.
    Mr. Rohrabacher. It is called blood money, especially when 
people like yourself and others have lost relatives and friends 
and sons and daughters to this terrorism.
    I would suggest we need to focus on the international 
financial institutions that are engaged in this, spend the same 
type of effort as we have talked about with the Magnitsky Act 
of focusing on those specific individuals that are engaged in 
this type of behavior that is financing terrorism.
    And the money is going somewhere, the crooked banks--or, 
excuse me, the crooked leaders from Third World countries that 
are being bought off by the Chinese to steal the minerals from 
those countries. It is disgraceful. We are letting that go. I 
have yet to see major banks having someone sent to jail for 
being an accomplice to terrorism and ripping off Third World 
countries.
    So anyway, with that said, thank you for your testimony 
today.
    Thank you, Ed, for your leadership on this and many others 
issues.
    Chairman Royce [presiding]. Thank you, Dana. Thank you.
    We now go to Mr. Gregory Meeks from New York.
    Mr. Meeks. Thank you, Mr. Chairman. I want to join the 
ranking member in saying it has been an honor serving on this 
committee with you. And you will surely be missed not being 
here with us after this term. Look forward to the best.
    So let me just first say that I was sitting here stretching 
my imagination trying to see or remember a unilateral sanctions 
deal that was successful. And I can't think of one where the 
Congress or anyone in the United States--we are the greatest 
country--where we do something unilaterally and it is 
successful.
    Any time sanctions have worked, it has been in conjunction 
in a multilateral agreement with other countries. That is how 
you put pressure on. So as big the military we have and 
everything else, it is working with other countries to figure 
out how we sanction someone to make them come to not just the 
United States' will, but the world's population.
    That is tremendously important. It is in my estimation the 
only reason why we have a sanctions bill that is working and is 
successful in Iran. So I am concerned about what may or may not 
take place next week.
    So I will go to Mr. Szubin first, because the 
administration is expected to decide whether or not to follow 
the agreements under the Iran nuclear deal and U.S. relevant 
sanctions on Iran.
    Now, I know that if we exit, our European allies will not, 
I have talked to them, I know that China and Russia will not, 
we have talked to them. And I am concerned that if the Trump 
administration decides that, despite the fact that the nuclear 
deal is working, it will impose sanctions anyway, and then the 
message to the world will be that America cannot be trusted to 
uphold the deal.
    So, Mr. Szubin, what do you see as the potential 
consequences if Iran sanctions are not waived in accordance 
with the Iran agreement, whether or not our allies will see 
this as a breach of the agreement and a breach of trust, and 
sanctions in Iran at this time would give hardliners.
    So my concern is, I want to help the moderates. I don't 
want to help the hardliners. But what message? Would this help 
the hardliners in Iran and hurt the current protesters in Iran 
because we have got to do this and lose the leverage, if you 
will, with Iran if the administration decides to waive 
sanctions?
    Mr. Szubin. Thank you, Congressman. And I very much agree 
with your objective and your outlook on the situation. I wrote 
an op-ed a couple of weeks ago called ``Don't Let Iran Out of 
the Box,'' and it was addressing exactly this point.
    Iran's leaders today find themselves in a box. On the 
nuclear side, they are hemmed in. Instead of being 2 to 3 
months away from enough enriched uranium for a nuclear weapon 
they are more than a year away, reversing where they had been 
in 2011, 2012, 2013, and that will be the case for the 
foreseeable you future.
    The inspectors are crawling over Iran and we have better 
data than we ever had about Iran's program and we don't have 
any information from any observer that Iran is in material 
breach of its commitments.
    Why would we let them out of that box? We have to let those 
nuclear constraints keep Iran subject to those nuclear 
constraints, on the one hand.
    On the economic side, this windfall that many predicted has 
not come to Iran. There never were $100 billion, $150 billion 
in assets. That is a make believe number. Iran's true benefit 
from the deal was significant, but it was nowhere near enough 
to get them out of the hole that they were in--a hole, by the 
way, that they dug for themselves. And that is what you see now 
playing out with the economic frustration in the streets of 
Tehran and in other cities across Iran.
    So Iran's rule letters are not riding high because of the 
nuclear deal. The nuclear deal is constraining their program 
and their economy is constrained. If we walk away from this 
deal, we are letting them out, maybe out of one, maybe out of 
both of those two boxes, and I think it would be very foolish 
and self-defeating for us as a country.
    Mr. Meeks. And hurting our leverage also.
    Mr. Szubin. Absolutely.
    Mr. Meeks. So the other--and I only have 29 seconds so--but 
the other issue that I am concerned with is the lack of funding 
of our State Department and the reshaping of Foggy Bottom. In 
particular, the position of sanctions coordinator was 
eliminated, and that was the person that would coordinate with 
our multilateral partners.
    And so not having that person in place so that we could 
make sure that sanctions are being applied in an appropriate 
way, particularly as we talk about the sanctions on Russia, 
does that not then give us a problem to ensure the enforcement 
of those multilateral sanctions on Russia are lived up to?
    Mr. Szubin. So on this point, I would say, Congressman, I 
worked in the field of sanctions and government for about 15 
years, and State has had different formulations in terms of who 
it asked, what office it asked to coordinate sanctions. 
Sometimes it asked its North Korea or its Iran office, 
sometimes there was a special envoy.
    The idea of an Ambassador to head up that function at State 
was relatively recent and it doesn't trouble me whether that 
position is done away with. What is important, in my view, is 
that there be somebody at a high level who is charged with 
seeing that mission through. Right now there is a very good 
official at the State Department who used to work with us at 
Treasury who is running that function at State, and I think it 
is in good hands.
    But to your broader point, yes, the State Department needs 
to be staffed, the political positions need to be filled, 
because sanctions don't work without a concerted global effort, 
and it is our Ambassadors who carry that message forward.
    Chairman Royce. Mr. Steve Chabot of Ohio.
    Mr. Chabot. Thank you, Mr. Chairman. And thank you for 
holding this important hearing.
    First, I would like to request that a recent Politico op-
ed, titled, ``The List That is Freaking Out Everyone in 
Moscow,'' be included in the record.
    Chairman Royce. Without objection.
    Mr. Chabot. Thank you.
    This op-ed discusses section 241 of the Countering 
America's Adversaries Through Sanctions Act, CAATSA, a bill 
that you, Mr. Chairman, introduced in our committee and 
President Trump signed into law last August.
    Section 241 requires the Secretary of the Treasury to issue 
a report identifying the most significant senior foreign 
political figures and oligarchs in the Russian Federation as 
determined by their closeness to the Russian regime and their 
net worth.
    Being named to the report could result in U.S. sanctions. 
The threat of being cut off from the banking system and network 
could have a significant impact on its own; however, even 
without sanctions being put on the list, would at the very 
least make it more difficult to do business with the West and 
the U.S. in particular.
    So it is my hope that the administration gives serious 
consideration to section 241 of CAATSA.
    Before I get to a question on that, let me add something 
separate.
    Mr. Szubin, while we understand the need--and this goes 
back to something that you apparently were discussing with Mr. 
Engel--we understand the need to provide licensing authority. 
It makes it more difficult to do so when an administration 
abuses that authority. For example, section 218 of the Iran 
Threat Reduction Act applied sanctions to foreign subsidiaries 
of U.S. companies engaging directly or indirectly with the 
Government of Iran.
    Using that authority that we provided the administration 
for licensing, the Obama administration's Treasury Department 
issued a general license, known as General License H, in an 
attempt to completely circumvent these statutory prohibitions. 
This was clearly not the intent of Congress. And I am not 
saying that we should not provide the authority, but an 
administration must not abuse that authority that we do 
provide.
    So would you comment on that?
    Mr. Szubin. Yes. Thank you, Congressman, for the question. 
And I think you are focusing in on why this balance between the 
different branches is so difficult.
    There is no question that Congress is given in the 
Constitution a key, a vital role when it comes to U.S. 
international commerce and there is no question that the 
executive branch has a key role when it comes to leading our 
foreign policy. And I think that over the many decades in which 
the two branches have been active and over the many years of 
sanctions laws we have seen, that is a balance that is 
difficult to get exactly right.
    But I think Congress has had historically the right outlook 
on it, whether you look at the Sudan laws, whether you look at 
the Iran laws, the NDAA, CISADA, whether you look at things 
like the Refusniks issue and the Jackson-Vanik Amendment that 
Congress passed which put pressure on the Soviet Union to 
release those who were oppressed and those who weren't allowed 
to practice their religion in the Soviet Union.
    Congress can and should put guardrails on the 
administration to both direct it to put more pressure on a 
target and to say, ``You can't turn the car around without 
coming to Congress.'' I use the metaphor of guardrails. But I 
think it can go too far when it becomes a straitjacket.
    Mr. Chabot. Thank you.
    Mr. Maltz and Mr. Zarate, I will turn to you. This is more 
a follow-up to the original thing I was saying.
    Would you comment on the possible impact of blacklisting 
Iran's shipping registry for noncompliance with U.N. Security 
Council resolutions with respect to North Korea? Either one of 
you or both.
    Mr. Zarate. I think that would be highly effective, 
Congressman. And I think going to this question of what 
pressure we can put on Iran, I think what we need to do is put 
full pressure on the elements of the IRGC's control over the 
economy. We need to demonstrate that the Iranians are engaged 
in nefarious behavior that is in violation of existing U.N. 
sanctions.
    Frankly, we need to revisit parts of the deal that didn't 
address questions of, for example, Iranian collaboration with 
North Korea in the context of the nuclear program. And I think 
that speaks to the need to think of any agreement we have with 
the Iranians, the nuclear side as a living document, especially 
one that is to persist for 10 to 15 years.
    I do want to point something out. The Iranians will claim, 
if we were to do exactly what you have described, which is 
completely legitimate and appropriate, the Iranians will claim 
that that is in violation of the JCPOA. And as I testified 
numerous times when the JCPOA was being debated, there is an 
inherent contradiction intentionally built into the deal.
    The Iranians think they agreed and got reintegration into 
the global financial and commercial system. That is not what we 
said, obviously. We said we can apply non-nuclear sanctions as 
needed. But the deal itself says that the Iranians are getting 
reintegration into the global financial and commercial system. 
The very essence of the power of our sanctions is the ability 
to unplug them from that system.
    And so there is an inherent tension in the very notion of 
the deal that I think we would just have to recognize. And we 
have to gird ourselves toward Iranian objections and maybe even 
European objections that if we decide to sanction the shipping 
lines or decide to list all of the companies that are owned and 
controlled by the IRGC, that are listed on the Tehran stock 
exchange, if we go out and enforce against what the Iranians 
are doing on terrorism or on other things, the Iranians are 
going to claim, ``You are seeking the same effects as you had 
before, which is a campaign to financially and economically 
isolate us.''
    And the reality is that is what we are intending to do. 
That is not what they think they got in the deal.
    Mr. Chabot. Thank you.
    Unfortunately, my time has expired, Mr. Chairman. Thank 
you.
    Chairman Royce. We go to Mr. Albio Sires of New Jersey.
    Mr. Sires. Thank you, Mr. Chairman. And thank you for being 
here. Mr. Chairman, I wish you nothing but the best in your 
future endeavors.
    You know, getting back to the Western Hemisphere, and I 
read an article a couple weeks ago about Venezuela and the 
horrible conditions that are there. And I am just wondering, 
how effective have some of the sanctions been that we have 
placed on Venezuela to help move it somewhere? Can anybody give 
me an assessment?
    Mr. Zarate? On the regime, you know.
    Mr. Zarate. I think it has made the regime's life much more 
difficult, especially given the ability or the lack of ability 
of the regime to access capital and to finance some of its 
operations given the sanctions that we have put in place.
    And this is, by the way, Congressman, where I would 
disagree directly with Congressman Meeks' assertion that 
unilateral sanctions have never worked. In the context of 
Venezuela sanctions, where we are far out ahead of certainly 
the United Nations or even the European Union, the measures we 
put in place to isolate those who are engaged in human rights 
abuses, corruption, and to deal with the ability of PDVSA and 
other Venezuelan key elements of the economy to access capital 
is actually really important.
    Now, there is no question that the economic disaster that 
we have seen in Caracas is the effect of poor governance over 
the years under the Chavista regime and now under Maduro, but 
the sanctions we put in place I think are making it much harder 
for them to deal with their situation.
    One other key point here, Congressman, and I think it is 
important for this committee, is the importance of the overlap 
of sanctions programs, because we tend to think of the 
Venezuela program here, we think of the Russia program here, 
the Cuba program there.
    These interrelate. How we unwind our sanctions and allow 
the Cuban Government to access capital impacts their ability 
then to support the Venezuelan Government. How we think about 
sanctions on Rosneft, for example, which is currently subject 
to sectoral sanctions on the Russia program, affects the debt 
and equity that they are now providing, have provided, to the 
tune of $6 billion to PDVSA.
    So we have to keep in mind and, frankly, leverage the fact 
that the sanctions environment and the sanctions we have in 
place actually overlap and give us an ability to impact the 
decisionmaking and, frankly, the access to capital that regimes 
like the Maduro government need.
    Mr. Sires. So, in your opinion, is the overlap where we can 
go a little bit further with sanctions?
    Mr. Zarate. Absolutely. And I think we have to be more 
creative about how we deal with these sanctions. I think we 
made a mistake in terms of how we tried to unwind the sanctions 
in the Cuban context in part because it relieved pressure on 
Cuba precisely at a time when we were putting pressure, wanted 
to put more pressure on Venezuela.
    So these have to be viewed in concert, and we have to worry 
about vulnerabilities, because the Russian Government and now 
Rosneft have provided debt and equity financing to the 
Venezuelan Government, allowing them some relief from pressure. 
And so we have to watch to see how that ownership and control 
interest impacts not just in Venezuela, but even PDVSA's 
interests in the United States through Citgo.
    Mr. Sires. Mr. Szubin, I was curious about your comments 
regarding State sanctions. You don't feel that they should be, 
how can I say, first in implementing sanctions in some of these 
places?
    Mr. Szubin. Implementing sanction, absolutely. But I was 
talking about when State legislatures formulate their own 
sanctions, independently of Congress and the President, where 
they say, ``We don't care whether Congress permits such and 
such activity. We are not going to allow companies in Europe or 
around the world to contract with us to obtain procurement or 
to receive investment from our State funds if they are doing 
such and such on the foreign stage.''
    And while as a general matter of course States need to be 
free to choose who they contract with, the objective here is a 
foreign policy objective. And as a result, we end up with 
different States pushing in different directions when it comes 
to America's foreign policy and I think that is a bad thing.
    It has not gotten a lot of attention. I think it will in 
the coming years, because I think now that the States have been 
encouraged and allowed to go in this direction, you are going 
to see more of it. You see state initiatives now with respect 
to BDS. I can imagine a world in which you have dueling States, 
some who say, ``We won't allow companies who have activities in 
the West Bank to contract with us,'' and others who say, 
``Anyone who doesn't recognize that the West Bank is a part of 
Israel isn't going to be allowed to contract with us.''
    That kind of thing should not be going on in 50 different 
ways across our country. I think we need to have a uniformed 
foreign policy and I think it has to be set here.
    Mr. Sires. Thank you, Mr. Chairman. My time is up.
    Chairman Royce. Thank you.
    I will go to Tom Marino of Pennsylvania.
    Mr. Marino. Thank you, Chairman. Thank you for your 
service. And, hopefully, when we are done here, we will see you 
at the State Department.
    Gentlemen, thank you for being here.
    Mr. Maltz, I want to get right to you. And if anyone wants 
to respond, please do so.
    As an 18-year prosecutor, both at the State and at the 
Federal level, a U.S. attorney, I have always had the concept 
of ``follow the money.'' ``Follow the money'' will take us to 
every one of those people involved, whether it is on a domestic 
basis or an international basis.
    Mr. Maltz, what can we do, what more can we do to follow 
the money of those not only growing drugs and distributing, but 
those also producing chemicals that are used for the end 
product?
    Now, let me give you one example quickly that I have. I was 
in Colombia not too long ago, and we were out in the coca 
fields, a helicopter went down in the fields, and saw how they 
were destroying, quote, deg. ``destroying coca 
plants.'' At one time they were U.S. money that we gave 
Colombia, were flying over the coca fields with Roundup, just a 
chemical that we used in our backyard to get rid of weeds.
    Well, the Colombian Government stopped that, because they 
said they were afraid it was causing cancer. I asked one of the 
members that were there, ``Are you not afraid of that big 
swimming pool size pit that you dump all the chemicals in to 
produce your cocaine and then it all seeps into the ground?'' 
And he didn't want to answer me on that.
    But what can we do internationally to follow the money?
    Mr. Maltz. Okay. So that is a great question. So let me 
answer this by saying that is exactly why I wrote a long paper 
on a case study to make America safer after we did the Lebanese 
Canadian Bank case, because it was a good model to move 
forward. However, we missed a lot of opportunities.
    So to give you an example, like these PATRIOT Act 311 and 
981(k) actions, gave us the ability to take $150 million out of 
an account in Lebanon. We actually ultimately forfeited $102 
million in that case.
    The issue is the U.S. Government needs more expertise on 
financial investigation. You are 100 percent correct when you 
talk about follow the money. The only way you are going to 
really shut these people down is if you take away their 
resources.
    And that is why what you hit on is exactly my number one 
passion. If terrorists are turning to criminal networks for 
their funding, how can we have a system where the terrorist 
investigators in the intelligence community and others are not 
communicating properly with the law enforcement agencies, State 
and local, Federal, and have this unity of effort to put it all 
together?
    Because it is so powerful. I was very impressed by the 
PATRIOT Act, just those two actions alone. And I am not an 
expert by any means. But I will tell you we learned from our 
partner at Treasury and other folks that were kind of educating 
us. But this is why a commingled, co-managed task force of the 
true experts in the country would be the most effective.
    Now, I keep going back to the Counter-Narcoterrorism 
Operations Center we have in SOD. The reason I talk about that 
center is because that center was developed and because the 
Attorney General, the FBI Director, and the DEA Administrator 
said back in 2001, 2002, we need one unit that can look at the 
finances and the crossover, the overlap, in these particular 
cases.
    So to really answer that--and thank you, that is a great 
question, and I wish that people would just focus on what you 
said, okay? Because if you get the right experts, like this guy 
and that guy, and there are people that are out there in the 
Beltway that can actually educate the law enforcement agents, 
train them.
    We have some really unbelievable financial contractors 
right now sitting at that CNTOC in Virginia. Those are the 
people that follow the money around the world. I would have had 
no idea.
    Mr. Marino. That kind of money has to leave a trail.
    Mr. Maltz. Exactly.
    Mr. Marino. No matter where it is at. And I have worked 
with DEA for 18 years, one of the best agencies, I loved 
working with the frontline people, the men and women. But then 
when we brought in Treasury and other departments, we were 
starting to bring the cocaine trade to its knees and we just 
must get back to following that money.
    Mr. Maltz. One hundred percent agreed. And really anything 
you could do to support that in this committee, that would be 
one of my top recommendations, get the resources to the follow 
the money strategy. Get the banks--like, right now what they 
are really doing, which is really effective, they are actually 
talking to the banks like they have never done before and 
briefing them on these different threats. A lot of these guys 
are cleared former Federal people that have the clearances to 
be able to understand now what to look for.
    Chairman Royce. We go to Mr. Ted Deutch of Florida.
    Mr. Deutch. Thank you, Mr. Chairman. I want to add my voice 
to the many others and tell you what an honor it has been to 
serve under your capable leadership. And I really look forward 
to continuing to work with you in whatever leadership roles you 
have in advancing our foreign policy.
    I want to refer back, gentlemen, to a speech that then-
Under Secretary of Terrorism and Financial Intelligence David 
Cohen gave in 2014. He delivered an address about virtual 
currency, about cryptocurrency, and he expressed then, although 
he acknowledged that it was still early in the development of 
these currencies, he expressed then concerns about illicit 
finance.
    He acknowledged that every year hundreds of billions of 
dollars of illicit funds come through the financial system--
this is what you have been focused on--fundraising by terror 
groups, money laundering, facilitation of nuclear and ballistic 
missile programs, including the transfer of WMD technology 
proliferators. And he talked about the specific threat that 
cryptocurrencies posed because of the anonymity. And a lot has 
happened since 2014 in the advancement of bitcoin and other 
virtual currencies.
    And I would like to hear from our panel how concerned you 
are about the extent to which these virtual currencies can be 
used for all of these illicit finance purposes and, as the New 
York Times reported just a week or 2 ago, can be used to avoid 
sanctions. In Venezuela they are talking about creating a 
petro, their own virtual currency, and Putin has suggested 
perhaps the same in Russia.
    Shouldn't we be concerned that as these cryptocurrencies 
explode in value that it makes it easier to avoid sanctions and 
that it makes it easier to transfer money, weapons, weapons 
technology? And what do we do about it?
    Mr. Zarate. Congressman, I am happy to take first crack at 
this.
    I sit on the board of advisors for Coinbase, which, as you 
know, is the largest U.S.-based coin exchange operator. I have 
worked for them for some time and have learned quite a bit from 
them.
    I think that we should be concerned. Any time you have 
access to value or the ability to move value or money across 
borders in a way that enables illicit actors and dangerous 
actors, you have to be concerned.
    And you have seen examples of this. You have seen obviously 
in the context of ransomware the use of bitcoin as the form of 
payment. You have seen the Liberty Reserve, the Silk Road case, 
the recent enforcement action and arrests in the BTC-e case. So 
there are examples.
    You also have the concern that you have a multiplicity of 
these kinds of currencies now. So it is not just bitcoin or 
Ethereum, but you have got a bunch of them in different 
platforms.
    So I would be concerned, but I wouldn't be hysterical, 
because I think there are opportunities here and opportunities 
to design the technologies and platforms, especially 
blockchain-based platforms, to actually make them traceable, to 
actually leverage their ability to monitor and track the access 
points in a way that is very interesting. And law enforcement, 
I think, is drawing some attention to that. The responsible 
actors in the space are cooperating. And I think that is an 
arena of some promise.
    Mr. Deutch. Can I follow up on that, though? You are 
suggesting making blockchain traceable. That is traceable by 
whom? You are not suggesting, are you, that--I mean, there is 
no oversight now, obviously, there is no Federal oversight of 
any of these virtual currencies. I don't believe that you are 
suggesting that. So who is it traceable by and how is that 
going to be done?
    Mr. Zarate. Well, just a correction. There is a regulation 
of exchange operators that act as money service businesses. So 
they are subject to the same regulations and requirements as a 
money service business, a Western Union, et cetera. So that is 
one thing. There is regulation and European authorities and 
others are putting regulation in place.
    The second point is I am talking about the legitimate 
adoption of the underlying technology that allows for payment, 
trade, finance, et cetera, that actually allows you to create 
within a closed system the ability to track who is involved, 
who is in and out of the system, and to define what is a 
legitimate transaction in the context of that blockchain 
platform. That is something the major global banks are 
exploring now, that is something that even central banks are 
exploring with their own currencies.
    But I think your point about the systemic risk is a good 
one, an important one, because we see Russia doing this, we see 
Venezuela doing this, trying to explore these as alternatives 
to the dollar.
    Mr. Deutch. If I could just ask, Mr. Szubin, do you share 
the concerns that your predecessor raised back then? And do you 
believe that having the identifying--finding ways to make these 
traceable will work without the absence of some role of the 
Federal Government?
    Mr. Szubin. I do share the concerns, I share the concerns 
that Mr. Zarate is raising. I think we need to have the same 
standards when it comes to transparency and reporting 
suspicious activity for virtual currencies as we do for regular 
currencies, for fiat currencies. It is as simple as that.
    And our regulatory system is strong. I think it is very 
well thought out, well designed. We just need to be holding 
anyone who is moving value, in regardless of what form it is, 
to the same standards.
    Mr. Maltz. Which we don't do now.
    Mr. Szubin. Well, FinCEN actually has, and it has said that 
if you are moving money, whether it is virtual currency or fiat 
currency, you are a money exchanger and you are responsible to 
report and file in the same way that a Western Union has.
    Mr. Deutch. Mr. Chairman, before I yield back.
    If you are right, that is for the good actors. And I hope 
perhaps we can have a hearing in the future about how it is 
that a terror group, for example, can utilize a virtual 
currency in order to acquire, in the worst case scenario, 
plutonium, WMD materials. That is, I think, a very serious 
concern that we should have and that I hope we can explore 
further.
    Chairman Royce. And I think Mr. Deutch makes a very valid 
recommendation here to me and Mr. Engel and we will do a 
hearing on that subject. Thank you.
    We now go to Mr. Ted Yoho of Florida.
    Mr. Yoho. Thank you, Mr. Chairman. And I ditto all those 
kind things everybody said about you.
    Mr. Szubin, let me ask you, because you are talking about 
preserving our financial system, the Western currency or the 
U.S. market. People want that because it follows the rule of 
law, it can be tracked, it is an honest way of doing business, 
as Mr. Deutch brought up. The good actors want that. It is the 
bad actors that we have to worry about.
    And then I worry about how much pressure can we use with 
the sanctions and how far can you go. And you said you weren't 
in favor of the secondary sanctions so much on maybe 
businesses.
    But when you have a situation like what is going on in 
North Korea, and we have Chinese companies or shell companies 
going through Hong Kong. I think I read an article not too long 
ago there are over 140 shell companies that were doing business 
for the sake of North Korea, but they weren't North Korean, and 
a lot of that money was going through China.
    So at what point do you go after the secondary or maybe 
even the tertiary from the government--up to the government and 
put that pressure on there?
    And the last thing I want to do is to put so much pressure 
where people don't want to use our system and we fall into the 
hands of Putin and they go to some other, which I hope I never 
see.
    How far can you go?
    Mr. Szubin. That is a critical question, Congressman. And I 
tried to be careful in how I phrased my concerns about 
secondary sanctions. I did not say we shouldn't ever use them. 
I think they were used to tremendous effect in the Iran case.
    Mr. Yoho. Right.
    Mr. Szubin. And what I said is they should be used 
exceedingly rarely. We just have to be very careful and know 
what we are doing before we deploy them. When you talk about 
North Korea, that is a threat of the first order, in my view.
    Mr. Yoho. Right. That is a world threat.
    Mr. Szubin. And I think it absolutely warrants the use of 
secondary sanctions. Forgive me if I wasn't clear about that. I 
want to be clear about that.
    Mr. Yoho. Okay. I just wanted to clarify. Because we have 
seen what China has not done. We have seen them be complicit 
with this. We have seen Russia. We have seen other nations. I 
think it is time that we have to do it.
    But as somebody else brought up, we can't do it 
unilaterally. We have to have the world buy into this. And with 
the 16 nations that voted unanimously against North Korea to 
put these sanctions, we have to come together as a world 
community and do that for the sake of humanity, I think, with 
the weapons that are on the table.
    Let me move over to Mr. Zarate. You were talking about 
weeding the garden with all your different tools when you get 
into sanctions and things like that. I come from an agrarian 
background and we use manual labor, you know, pulling them out, 
as I remember as a kid. You can burn it, you can use 
herbicides, fungicides, whatever you need to.
    What other tools do you need? And I think, Mr. Maltz, you 
brought this up too. We have plenty of agencies, we coordinate 
these, we don't need another agency or clearinghouse.
    But on the IT side, with China, again, advancing and Russia 
advancing ahead of us, or neck and neck, with artificial 
intelligence and moving into quantum computing, are we behind 
on that? Do we not have the technology? And if we don't, it 
just irritates the stew out of me, because we should be leading 
that.
    What are your thoughts on that? Where do we focus?
    Mr. Zarate. Yeah, Congressman, I think the first point is a 
critical one, which is we have to use all our tools, especially 
in critical cases like North Korea. So we need to be using law 
enforcement, financial regulations, sanctions, diplomacy, all 
of it in terms of identifying the vulnerability that North 
Korea has and then going after and weeding them out.
    But in terms of information sharing, you are absolutely 
right, I think we are behind the curve. And we are behind the 
curve in a couple ways, and I described it earlier.
    One is, I think we are behind in trying to figure out ways 
of applying new technologies to aggregate and analyze data on a 
real-time basis. So, for example, some countries, like 
Australia and Canada, pull in the data on cross-border wire 
information, the things coming in and out of their financial 
system. We obviously don't do that. The volumes are too high, 
there are privacy issues, of course.
    But we are not even near that. We are in a 20th century 
analog system in terms of waiting for reports from banks, 90 to 
120 days, right?
    Mr. Yoho. Right. We are operating on DOS.
    Mr. Zarate. And to Derek's point earlier, there is a hunger 
in the private sector to actually be more collaborative, 
because it helps them prioritize, they want to share 
information. And so we have to be creative internally as well 
as with the private sector.
    Mr. Yoho. What I would like to do is reach out to you 
individually, if we can, and how we can build sanctions 
provisions in the blockchains, as was brought up, and Mr. 
Deutch did a good job on that.
    I am going to run out of time here. Mr. Maltz, do you have 
anything you want to add into that?
    Mr. Maltz. I want to add something very important. When we 
talk about bitcoin----
    Mr. Yoho. You are from northeast Mobile, right?
    Mr. Maltz. Yes, sir, New York.
    I will tell you that I witnessed firsthand the amazing 
capabilities of the United States Government agencies crushing 
Silk Road and AlphaBay. Okay? These are the most sophisticated 
sites in bitcoin and cryptocurrencies, but when you put the 
best and brightest together and share the lessons learned and 
these techniques, we are unstoppable. So put them together. 
That is the key.
    Mr. Yoho. Okay. Appreciate it.
    I am out of time. Thank you, Mr. Chairman.
    Chairman Royce. Thank you.
    We go to Robin Kelly of Illinois.
    Ms. Kelly. Thank you, Mr. Chair. And I want to add my voice 
to the chorus and thank you for all of your wonderful service 
to the United States and to this committee. Thank you.
    Thank you, Mr. Chairman and Ranking Member, for holding 
this hearing on sanctions and financial pressure. The U.S. has 
sought to use targeted sanctions against countries that violate 
international norms and undermine U.S. interests. Following 
Putin's annexation of Crimea and invasion of Ukraine, the U.S. 
has sanctioned Russia under numerous bills, including the 
Countering America's Adversaries Through Sanctions Act. 
Altogether, the U.S. has sanctioned over 600 persons with close 
coordination between State and Treasury.
    These sanctions have had a real impact on the Russian 
economy. Following the 2014 sanctions, Russia went into a 
recession, with the value of the ruble plummeting and capital 
flight compounding a drop in oil prices.
    Mr. Szubin, one of the reasons that sanctions were so 
successful with Iran was our close coordination with the 
European Union. What type of coordination is there between the 
U.S. and the EU during sanction development? And how can the 
U.S. improve coordination with our allies to apply maximum 
pressure on countries like Russia that undermine U.S. 
interests?
    Mr. Szubin. That is probably the issue I spent more time on 
in my years at Treasury than any other. People think about 
doing sanctions as drafting up the sanctions, figuring out who 
the targets are, enforcing them, going after violators. That is 
all true and that is all a part of it. But building the 
international consensus takes a lot of patient work. It is not 
easy, but it is vital. Because as you point out, we don't 
succeed if we act alone when we have threats that are global.
    And the European Union has been a stalwart ally when it 
comes to the Russia sanctions. They have hung tough. It hasn't 
been easy for them. They have to get consensus from 28 member 
states. Every 6 months, all 28 have to agree to keep those 
sanctions in effect, which is a very challenging juggling act 
for the European Union. But they have done so when it came to 
the Ukraine and Crimea-focused sanctions and I give them a lot 
of credit for that.
    But we need them when it comes to election interference. 
Putin has threatened European elections just as much as he has 
threatened elections here. And I think he needs to be held to 
account for that.
    Ms. Kelly. I think the Prime Minister of England spoke 
about that and then the President of France. I just saw 
something about them mentioning Russia in their elections.
    The Countering America's Adversaries Through Sanctions Act 
gave the Trump administration flexibility to enforce sanctions 
against Russia, yet the Trump administration appears to be 
quite restrained in their use of their authorities.
    What next steps do you think Congress should take to ensure 
that the administration is properly enforcing CAATSA as 
Congress intended? And how should OFAC be strengthened or 
modernized to increase its efficiency and interagency 
collaboration?
    Mr. Szubin. In terms of next steps under CAATSA, Congress 
has set out an aggressive timetable for administration action, 
and I think the ball is right it now in the administration's 
court. There is a deadline coming up at the end of month for 
the administration to come forward with additional names, I 
think an additional report to Congress. So I think that is 
where the attention now is.
    And I think Congress' focus on this has, frankly, been very 
helpful. It has been bipartisan. And I think the sanctions work 
so much better when Congress acts in a bipartisan fashion.
    When you talk about strengthening OFAC, it harkens back to 
comments that the chairman made and that I included in my 
written testimony. We are asking so much out of this little 
office. Whether it is organized crime, narcotics, terrorism, 
Syria, Russia, Iran, Venezuela, you name it, we are asking this 
office to track down the bad guys and put economic pressure on 
them. And I think having Congress' support in getting 
additional resources would be incredibly helpful.
    Ms. Kelly. Thank you.
    Mr. Maltz, as a native New Yorker, I love how you sound.
    I yield back.
    Mr. Maltz. Thank you.
    Ms. Kelly. I yield back.
    Chairman Royce. Ann Wagner, Missouri.
    Mrs. Wagner. Thank you, Mr. Chairman. We are all grateful 
for your service to our Nation and look forward with 
anticipation to the future and how we can be supportive.
    I am grateful that you hosted this important hearing on 
sanctions tools. I had the privilege of visiting South Korea 
and China this August after voting for the Korean Interdiction 
and Modernization of Sanctions Act. And I am pleased that the 
administration had begun implementing secondary sanction on 
banks and companies that are facilitating trade with North 
Korea and I look forward to finding ways to address North 
Korea's sanctions evasions practices in 2018.
    Mr. Zarate, do you believe that the Trump administration's 
initial secondary sanction here that we talked about in 2017 
have been useful in altering China's financial calculous? And 
then, looking on, what is it that you are looking for in 2018 
from the administration?
    Mr. Zarate. Congresswoman, I think the mere threat of 
secondary sanctions is effective in terms of sensitizing the 
Chinese to the risks of continuing to do business with North 
Korea the way they have been.
    And I think the sense of urgency and the sword of Damocles 
of the secondary sanctions has been very effective actually in 
changing the landscape. You have seen U.N. Security Council 
resolutions that have been tougher, you have seen better 
compliance from the Chinese--not perfect by any stretch--
especially in terms of the mineral and coal trade. You have 
seen greater interdictions, we have seen two recently from the 
South Koreans, in terms of maritime concerns.
    And so I would say that the mere threat of secondary 
sanctions conditions the marketplace, and especially for those, 
for example, Chinese banks that want to operate in the United 
States. The legitimate actors realize they have to comply with 
U.S. laws and international norms.
    The more we can sensitize the environment, the better off 
we are. And the use of things like section 311, as was used 
against Dandong Bank, becomes very important to signal to the 
market where are the risks and what should you stay away from.
    Mrs. Wagner. I was in Dandong when that sanction came down 
and watching the trade back and forth, and I think it has been 
effective.
    Mr. Maltz, I appreciate your willingness to speak out on 
the Obama administration's obstruction of justice regarding 
Project Cassandra. The U.S. has a clear national security 
obligation to respond to Hezbollah's criminal and terrorist 
activities.
    To what extent can the Trump administration reverse the 
damage of the last 8 years and issue indictments against 
Hezbollah agents.
    Mr. Maltz. Again, going back to the fundamental point I 
have been saying all morning, is information sharing at 100 
percent, break down the damn walls between the terror and the 
crime investigators, okay? Provide the financial experts what 
they need and the resources.
    And to answer the other question about IT, we are in the 
Dark Ages and we need to upgrade those systems of collaboration 
and information sharing.
    But the thing is, is that we have to remember that 
prosecutions pursuant to the rule of law are powerful, and if 
you look back over time there weren't that many. As soon as you 
raise the name Hezbollah, it is a terrorist group. Well, no, 
they are international criminals, they are transnational 
criminals that are trying to destroy our country.
    Mrs. Wagner. That is right.
    Mr. Maltz. So you must pull together your experts in every 
area. It is not one thing. And that is where we have to really 
change our culture and thought process, and folks in this room 
can help do that.
    Mrs. Wagner. Well, I hope that the U.S. agencies have 
learned some lessons, like Homeland Security and DOJ.
    Mr. Maltz. No. They have not learned because----
    Mrs. Wagner. And I question that. Project Cassandra is a 
perfect example of those walls being built up between and they 
have not moved forward.
    Mr. Maltz. Like I have said over and over again, and think 
about this, put your taxpayer hat on, when we did that action, 
we actually identified hundreds of used car businesses in 
America sending cars to West Africa. We only included 30 in the 
311 action and the civil complaint because of limited sharing. 
Okay? So that is unacceptable, and when it somebody going to be 
held accountable for that?
    Mrs. Wagner. Thank you.
    In my limited time, Mr. Zarate, do you believe that the 
2017 U.N. sanctions will effectively cut into North Korea's 
profits from forced labor outside its borders?
    Mr. Zarate. I think so, and it was long overdue to cut off 
that source of funding. I think we have to put more diplomatic 
pressure on those countries that continue to host the guest 
workers because money continues to flow back. That is a source 
of revenue.
    And, Congresswoman, to your point about criminality, in the 
context of North Korea they give us a gift. This is a criminal 
Mafia state that engages in smuggling, money laundering, human 
rights abuses, sanctions evasion, abuse of the financial 
system. So this is the prime target to use the kinds of 
financial measures and tools that we have talked about and that 
work so well against Iran.
    Mrs. Wagner. Thank you.
    My time has expired, Mr. Chairman. I yield back.
    Chairman Royce. Brad Schneider of Illinois.
    Mr. Schneider. Thank you, Mr. Chairman. And I too want to 
associate myself with the many remarks commending you for your 
service and wishing you well in your future. You will be very, 
very much missed.
    And I want to thank the witnesses.
    In my limited time I want to, in a second, talk about the 
strategic application of sanctions, but first I want to touch 
on the concerns with our elections. Others have mentioned them 
before.
    Last year, or now in 2017, U.S. intelligence agencies found 
that Russia did in fact interfere in the 2016 election, and 
there is no doubt in my mind that they are going to seek to do 
it again this year. And I fear that the current 
administration's apparent lack of resolve to secure our next 
election is giving Russia an even greater opportunity to 
achieve some mischief.
    I also serve, in addition to the Foreign Affairs Committee, 
on the Judiciary Committee. And I had the opportunity to raise 
this question with the Attorney General, Deputy Attorney 
General, and FBI Director. And I will be honest, their answers 
left me more concerned that the United States isn't necessarily 
taking this threat seriously, and isn't doing what we need to 
do to secure our elections.
    In the time since Congress passed CAATSA earlier in the 
summer last year very few authorities for Russian sanctions 
have been used. Mr. Szubin, you mentioned that there were 
sanctions in 2016. But specifically we haven't got there.
    My question to the panel is, do you believe our apparent 
reluctance to move forward, our resistance to apply these 
sanctions is emboldening Russia to take more actions against 
our elections in the coming year?
    Mr. Zarate. Congressman, I don't have access to 
intelligence or information to be able to assess what the 
reaction of the Kremlin is. But I think we certainly have to 
apply whatever national measures we have and pressure to deter 
actors, be it the Russians, the Chinese, the North Koreans, the 
Iranians, from doing anything to affect our systems and our 
national economy, and certainly our electoral system as a 
critical infrastructure. So I am a firm believer of that.
    This is also where the Russians are giving us a gift by 
what they are trying to do to evade sanctions and pressure, 
where they are working with the North Koreans, according to 
open source reporting, to provide cyber access. That is a real 
problem, because the North Koreans have attacked Sony, they 
have engaged in cyber hacking of the Bank of Bangladesh, they 
have engaged in a whole host of things that we need to be 
worried about.
    And so it is not just about what happened in the prior 
election, it is about the threats that are coming, and it is 
where the Russians, North Koreans, Iranians are doing some real 
damage in cyberspace. And we have to apply all the tools we can 
to deter that activity.
    Mr. Schneider. I couldn't agree more. We have to understand 
what happened in the past, and apply it to lessons in the 
future so they don't succeed.
    Mr. Szubin, if you want to add anything briefly.
    Mr. Szubin. I agree wholeheartedly. I would only add on top 
of that this has to be more than just a U.S.-Russia issue. 
Russia's activities to interfere with elections have gone to 
other key democracies, to our allies.
    All democratic governments need to stand up to this and act 
as one. It is no less of a threat, to my mind, than is 
terrorism, than is nuclear proliferation, because it is a 
threat to such a core element of our system. It goes to 
citizens having confidence that their elected leaders really 
are their elected leaders. So I think we have to be very 
stalwart in this.
    If I could Congressman, I just wanted to say one thing in 
response to the assertions from Mrs. Wagner, from Congresswoman 
Wagner, when it comes to the last administration's activities 
on Hezbollah. Because I sat in a chair and I had at least a 
role when it came to going after Hezbollah, Hezbollah's 
financing in the last administration.
    And we were not sitting on our hands in any way. We issued 
dozens of designations against Hezbollah facilitators and 
officers. There were the indictments and forfeitures that Mr. 
Maltz referred to earlier against Lebanese Canadian Bank, 
against the Jemaah network. There were 311 actions against 
money exchange houses in Lebanon. All of this from the years 
2013 through 2016 during the Iran negotiations.
    So I saw no effort to slow. In fact, I saw quite a lot to 
encourage action against Hezbollah and against Hezbollah 
financing.
    Mr. Schneider. And I will share in 2014, with the help of 
the chairman and ranking member, and with my colleague Mark 
Meadows, we drafted the Hezbollah International Financing 
Prevention Act in legislation that ultimately passed, and 
became law. We have to do everything we can to make sure 
Hezbollah doesn't have the ability to project and raise their 
resources around the world through criminal activity, drug 
activity, and then in the region as an agent of Iran.
    I am out of time. I will say one more thing and I will 
follow up with written questions. But I think it is important 
you touched on the strategic application of sanctions as, Mr. 
Zarate, you said, a tool in the space between diplomacy and 
kinetic action. I think that is important to understand.
    But I think it is important to understand that these have 
to be driven by our national interests and our subsequent 
strategic goals and principles, which you all have laid out, 
and that they are constrained by the limits of our influence, 
relationships, reach, and resources.
    So I have more questions, I don't have time. But I will say 
it is important for our committee, for this Congress to make 
sure that we provide the resources, the consistency, follow the 
principles, and that for our administration and our Nation to 
continue to work to build the relationships.
    I am very concerned about cuts to our State Department, and 
the deemphasizing of diplomacy. Without that diplomacy, without 
the ability to reach out to our allies to apply sanctions, 
sanctions which have a half-life over time so we need to 
continually ratchet them up, that our ability to use this 
important tool will be diminished in the future.
    So I will follow up. But thank you for your time.
    And with that, I yield back.
    Chairman Royce. Thank you.
    We go to Mr. Lee Zeldin of New York.
    Mr. Zeldin. Thank you, Chairman. Congratulations on your 
retirement. Thank you for your incredible service. And I wish 
you the best of luck with everything that is ahead. Now when we 
visit you in the State Department, I hear that we will actually 
be visiting Marie. So congratulations there.
    Mr. Szubin, if I understand a couple of your comments over 
the course of this hearing correctly, it is your belief that 
Iran is abiding by its end of the JCPOA?
    Mr. Szubin. The consensus, to my mind, is that Iran is 
abiding by all of its commitments, all of its material 
commitments under the JCPOA, yes.
    Mr. Zeldin. So I will put this nicely, but maybe before the 
next time you appear before Congress, some items I would ask 
for you and some of your other former colleagues to look into 
before reiterating that again: Iran stockpiling more heavy 
water than they are supposed to; acquiring more IR-6 rotor 
assemblies than they are allowed to under the JCPOA; spinning 
more IR-8 assemblies than they are allowed to under the JCPOA; 
saying unequivocally they will not allow any access to any of 
their military sites; attempting to acquire carbon fiber that 
they are not allowed to; conducting mechanical testing of 
advanced centrifuges that they are not allowed to; refusing 
IAEA access to Sharif University; possessing chemically manmade 
particles of natural uranium.
    There was that one inspection of Parchin that showed the 
manmade particles. There was no follow-up allowed, no further 
access.
    So I can ask you to comment on all that. It is really 
important because there are a lot of people coming before 
Congress and to the American public and saying that Iran is 
abiding by its own end of the nuclear deal, and it is really 
important that all these violations of the letter of the deal 
are factored in before making that statement.
    Going back to your time with the administration, what is 
your understanding of the relationship between Iran and al-
Qaeda?
    Mr. Szubin. I want to be careful to respect any information 
that I learned from classified sources. Obviously, I wouldn't 
be able to speak to that in an open setting.
    But my understanding historically has been that Iran was 
willing to tolerate a physical al-Qaeda presence on their soil 
and there was something of a quid pro quo there.
    So we actually at Treasury designated a number of al-Qaeda 
officials and pinpointed their location as being in Iran at the 
time of the designation. So to describe it as a place where al-
Qaeda has found some safe haven would, to my mind, be accurate.
    Mr. Zeldin. And I very much appreciate your assessment, 
which I completely agree with, it was July 28th of 2011 that 
you made that designation. The raid of the bin Laden compound 
was May 2011. So the administration quickly assessed those 
documents, Treasury made that designation.
    There have been terms used like viewing Iran as a main 
artery or a core pipeline between in correspondence, documents 
that were gotten from that, received from that raid between al-
Qaeda and Iraq, and al-Qaeda, bin Laden, and the rest of the 
operation in Afghanistan and Southeast Asia. So I really do 
appreciate you saying that.
    There are some contradictory statements that have been made 
during this timeline. So between the May 2011 raid, the July 
28, 2011, Treasury designation, and us having this conversation 
today, there would be comments used like saying it is a 
baseless conspiracy theory, what we are talking about here. 
There were officials who said, ``Anyone who thinks Iran was or 
is in bed with al-Qaeda doesn't know much about either.''
    So that is another issue that I think it is very helpful 
that you are here and making the statement that you did, 
because there clearly was an active relationship between Iran 
and al-Qaeda that was greatly concerning. It was an active 
relationship right up until the time of that raid.
    For the public's awareness, they are becoming increasingly 
more aware of a decision to release 470,000 documents that were 
collected in that raid that weren't previously released before 
a few months ago, which is a decision that I strongly support.
    I appreciate all three of our witnesses being here for 
today's testimony.
    Chairman, again, best wishes--well, he is not here anymore.
    But, Chairman McCaul, I will yield back.
    Mr. Szubin. If I could, though, Congressman, just very 
briefly, I think you are right that the situation here has 
involved connections between al-Qaeda and Iran over the years. 
And you are right to point that out.
    I do see accusations that are a lot more sweeping and to my 
mind inaccurate. And so I think what is called for is just real 
precision and accuracy in what we are describing.
    Iran hasn't been a major funder, we never saw Iran pumping 
money to al-Qaeda. There are a number of other Sunni countries 
have been a lot more problematic when it came to charities and 
fundraising for al-Qaeda than Iran, which is of course a Shia 
country.
    So I don't want to whitewash their behavior when it has 
come to al-Qaeda. In fact, at Treasury we were involved in 
helping to call it out. I just think we need to be precise and 
accurate in how we describe those relationships.
    Mr. Zeldin. Right. And, again, it gets back to really, on 
both sides, on all sides, of analyzing this argument, because 
there were some people in the prior administration who were 
referring to this as a baseless conspiracy theory, what we are 
referring to, which is contradicting reality.
    And I think with regards to Iran offering financing and 
arms, the documents are showing more of an offer than what you 
are seeing as far as evidence of them actually providing 
financing and arms. But certainly a relationship and an artery.
    And I do yield back now. Thank you, Chairman.
    Mr. McCaul [presiding]. The Chair now recognizes Mrs. Norma 
Torres.
    Mrs. Torres. Thank you, Mr. Chairman.
    Mr. Zarate, last year I introduced the North Korea Follow 
the Money Act. The bill requires a national intelligence 
estimate on North Korea's revenue sources. This information is 
very important to ensure that our sanctions are effective.
    How confident are you that our North Korea sanctions are 
hitting the right targets? And do we know enough about this 
regime, how it operates, to actually be effective?
    Mr. Zarate. Congresswoman, first of all, thank you for that 
piece of legislation and your focus on trying to understand the 
financial networks of North Korea, because one of the 
challenges in this space has been the assumption that the 
Hermit Kingdom doesn't have economic or commercial 
vulnerabilities or capital. And that is completely wrong. They 
have relationships with banks. They have trading relationships. 
They have relied on forced labor in Western countries.
    And so mapping out their relationships and their 
dependencies is really important. We can never know enough 
about this regime. And I think one of the things we don't know 
enough about is how the regime leadership itself controls its 
own money, where it may have it even outside of the country.
    But I think we have done a better job of understanding its 
relationships with China, and in particular its trading 
relationship in Dandong. And I think the focus on the mineral 
trade is incredibly important.
    We have learned more, in particular, from nongovernmental 
sources how the North Koreans are using their shipping and 
proliferation to raise money. We know more about the volume in 
terms of the human rights abuses and the slave labor in parts 
around the world.
    And so we have a better tableau. And I think congressional 
legislation, the U.N. sanctions, have targeted on those 
vulnerabilities.
    The challenge is the North Koreans adapt. They adapted 
after Banco Delta Asia in 2006, which was, by the way, to 
Congressman Meeks' points earlier, a unilateral U.S. step that 
had global impact to isolate BDA at the time.
    But they will adapt. And they also then find areas of 
vulnerability in order to make money, to include now cyber. And 
you see the North Koreans now investing more resources in 
trying to find cyber vulnerabilities and to profit from it.
    Mrs. Torres. Right.
    Bringing it back to the Western Hemisphere, Mr. Szubin, as 
you know, right before Christmas, we saw the first Global 
Magnitsky sanctions come out. And I was very pleased and 
encouraged that a political figure from Guatemala was included 
in that list.
    Guatemala, as you know, is an ally of the U.S., and we are 
doing a lot of important work, investing taxpayers' dollars in 
infrastructure in the Northern Triangle. In Guatemala we are 
working very closely with the attorney general and CICIG. And 
as the founder and co-chair of the Central America Caucus, I 
have been very supportive of the work that they are doing in 
dealing with public corruption.
    But the political class and many individuals in the private 
sector have been doing a lot of work and a lot of damage to 
undermine the work of CICIG and the attorney general. I think 
we need to send a stronger message to those actors from the 
U.S.
    So what are our options for expanding targeted sanctions in 
a country like Guatemala that is so dependent on the U.S.?
    Mr. Szubin. Thank you, Congresswoman.
    I think the approach that you are describing is exactly the 
right one, work with those aspects of the society and the 
government that are for clean government, that are trying to 
serve their citizens, and try to marginalize or put pressure on 
those who are forces of corruption and of regression.
    Targeted sanctions can be a part of that strategy. And I am 
glad, as you say, that we have seen the administration 
harnessing that tool.
    I am no longer inside government, so I can't speak with any 
expertise as to where additional opportunities might lie, but I 
think that is a great conversation for you to have with my 
former office.
    Mrs. Torres. Right. It is troubling to me when the Vice 
President of that country makes a comment that if we are 
going--the U.S. is going to begin to impose sanctions on 
specific individuals, that they would be targeting every 
Guatemalan in country because they are all guilty of being 
corrupt at one point or another. I was born in Guatemala, and I 
took that as a very offensive comment that he would make toward 
people that he was elected to represent.
    More troubling is the fact that it has been so difficult 
for the U.S. to begin this process of ensuring that a country 
that we are investing so much in is able to produce the judges 
and to produce the legislative branch for themselves that they 
need in order to bring to trial some of these very bad actors.
    Thank you, and I yield back.
    Mr. McCaul. The gentlelady yields back.
    The Chair recognizes himself for 5 minutes for questions.
    Thank you for being here today. I just have a couple of 
questions.
    First, Iran. Ranking Member Eliot Engel and I visited 
Israel. The prime minister talked about the Shia Crescent, the 
movement into Iraq and Syria. We are seeing some very 
aggressive movements by Iran now in that region. I think also 
the lifting of the sanctions, I think a lot of that money is 
going into criminal enterprise now and terror organizations, 
Hezbollah being one of them.
    I think ISIS is spreading now to Africa, northern Africa. 
And I think Iran, as Mr. Zeldin pointed out, has had a very odd 
relationship with al-Qaeda and Sunni forces as well. And I 
think that transnational organization trade out of Africa into 
the Western Hemisphere is real and the tri-border area where I 
have been is real, and that puts it right in our backyard.
    And, I guess, Mr. Maltz, your experience with DEA, I mean, 
are we making any progress to stop the flow of this 
transnational criminal organization that Iran has been 
supporting?
    Mr. Maltz. We have made progress. I mean, that is why I 
wrote a long paper about the whole Lebanese Canadian Bank and 
some of the stuff that we did.
    However, we have so much work to do. They are working hard 
right now in these operations, and I know that they are going 
to have some more success.
    However, we will never make the progress that you are 
looking for if we don't get the expertise together. We have to 
have the unity of effort, like the strategy under Obama called 
for, President Obama. And under President Trump it is the same 
words. But the words are no good. You need the action. You need 
the experts together.
    And until that happens, we are going to be talking about 
this and hopefully nothing catastrophic happens. I mean, like I 
said, 2008, Michael Chertoff made it clear, Hezbollah makes al-
Qaeda look like the minor leagues, right? Jim Stavridis with 
his fireball slide, when Islamic narcoterrorists and extremists 
get together, that is a very bad nightmare. General Kelly has 
testified so many times about this emergence down in South 
America, Central America, the tri-border region, cocaine 
flowing into the Middle East. Money is being made all over.
    So until we get our teams together and hold people 
accountable, we are going to be talking about this forever.
    Mr. McCaul. As you know, I was a Federal prosecutor in 
counterterrorism. I remember one of the first cases in the 
United States was actually a cigarette/baby milk case from 
Hezbollah.
    Mr. Maltz. Well, it is funny you say that, because right 
now I am, like, obsessing over this ongoing problem with 
illegal cigarette trafficking, EBT fraud, drug paraphernalia, 
synthetic drugs. All these different smaller type crimes coming 
together, commingling in one place, and then moneys being sent 
through our financial system to Yemen, as an example.
    So until we get our experts to share that intelligence, sit 
in a room, break down the walls, we are going to be talking 
about this for a long time.
    Mr. McCaul. Well, and I think we have now, I think, 
reinforced our alliance with Israel, and now with the Saudis. 
So, hopefully,the enemy--your enemy is Iran, and hopefully they 
can provide some assistance.
    Mr. Zarate, I know we had a meeting in my office, and I 
have a conflict so we will have to reschedule. But for now I 
wanted to ask you the question really about sanctions. I mean, 
we lifted a lot of the sanctions in Iran. I had my differences 
with that position.
    As I look at the IRGC, which is really the terror arm--and 
Hezbollah too--the terror arm of Iran, would it be effective, 
sanctions, can sanctions be effective against them? What is 
your position on the utility of designating organizations like 
this a foreign terror organization?
    Mr. Zarate. Mr. Chairman, thank you. And I am sorry to miss 
you later, but it is great to see you again.
    Mr. McCaul. You too.
    Mr. Zarate. I think the designations are fine. The 
designations allow for authorities. The question is, what 
follows next?
    I think in the context of Iran and IRGC there are two huge 
advantages that we have. The IRGC, as you said, is the 
centerpiece of human rights abuses, support to terrorist 
proxies through the Quds Force, engaging in criminality with 
Hezbollah, and the center of gravity politically. They are also 
the center of gravity economically, along with the bonyads that 
the supreme leader and the clerics control.
    So that means they are a criminal state. They are a terror-
sponsoring state. And what you can do is economically isolate 
them in a way, akin to what we did in the nuclear context, 
through the use of sanctions and financial isolation by using 
sanctions, prosecutions, and all the full weight of things that 
we can do to isolate them from the formal financial and 
commercial system.
    That then affects the marketplace. This the why the 
Iranians have not felt relief. It is why they don't have 
transparency in their financial system. It is why they are 
having the riots in the streets. And it is precisely where we 
have a strategic lever that we can use.
    As I said earlier, the Iranians are going to squawk any 
time we try to do this kind of measure because they will argue 
that we are trying to reimpose the nuclear sanctions. We should 
be very clear about what the purpose of this is, and we should 
then enlist our allies in Europe and the rest of the world who 
care about human rights, who care about terrorism, who care 
about the issues we care about, to actually follow our lead. 
And so I think that is critical.
    A final point, and this is in my testimony, and I didn't 
mention it earlier but it is really important. To have OFAC and 
the financial regulators focusing on ownership and control 
interest is really important. This is where the market reacts 
to what is owned and control and what is the financial 
infrastructure and base for these organizations and these 
parties.
    We do a pretty good job of that currently, the U.S. 
Government, but not as good a job as we should. And you now 
have private sector organizations like FDD, C4ADS, and others 
that are trying to put out lists of the things that the North 
Koreans own and control, the things that IRGC controls. That is 
really important.
    So it is not just the designation at the top level as a 
criminal organization or a terrorist organization. It is what 
follows next. What do they own and control? And what can we 
isolate under principles that the international community 
understands?
    Mr. McCaul. Thank you.
    I just was notified we have about 3 minutes left on the 
clock for votes. I know, Ms. Titus, you are last but not least. 
But if we could make it a little brief, because I would like to 
make the votes. And thank you.
    Ms. Titus. Thank you, Mr. Chairman. I will be brief.
    We have heard a lot about the importance or the 
effectiveness of sanctions. But I question just how well they 
work if the administration is only kind of halfheartedly behind 
them.
    When CAATSA was passed overwhelmingly by this body, 
bipartisan, the President expressed concerns. He was reluctant 
to sign it. He got threatened with a veto override, and then he 
agreed to go along with it.
    But I wonder, Mr. Szubin, if you think that his public 
reluctance on the legislation, his slowness to implement the 
sanctions, missing deadlines, if that doesn't undermine their 
effectiveness and Russia just doesn't take them very seriously. 
You said sanctions are like guardrails on the highway that 
allow us to adjust speed. Do you think it is time for this 
administration to adjust its speed?
    Mr. Szubin. Well, I, first of all, agree with the premise 
of your question. Sanctions don't work if they are not very 
vigorously enforced. And the reason our sanctions have been 
able to have impact where they have is because companies in the 
U.S. and around the world know and fear our enforcement regime.
    With respect to CAATSA, I think we have to watch what the 
administration does. So a key deadline is coming up at the end 
of this month, and I expect Congress, and among them yourself 
and this committee, will be watching to see how aggressively 
the administration implements the new law.
    Ms. Titus. Thank you.
    Mr. McCaul. Thank you for your brevity.
    I want to thank the witnesses for your excellent testimony 
on sanctions and the way we can use law enforcement to 
effectuate our national security. And I think your testimony 
will help us in that effort. So, again, thank you.
    And this committee now stands adjourned.
    [Whereupon, at 12:25 p.m., the committee was adjourned.]
                                   

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