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




 
                          ADMINISTRATION GOALS

                      FOR MAJOR SANCTIONS PROGRAMS

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

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 26, 2018

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-119
                           
                           
                           
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                           
 
 
 
 
                           _________ 

                U.S. GOVERNMENT PUBLISHING OFFICE
                   
 32-370 PDF              WASHINGTON : 2018       
                           
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                     Shannon McGahn, Staff Director
               Subcommittee on Monetary Policy and Trade

                     ANDY BARR, Kentucky, Chairman

ROGER WILLIAMS, Texas, Vice          GWEN MOORE, Wisconsin, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
BILL HUIZENGA, Michigan              BILL FOSTER, Illinois
ROBERT PITTENGER, North Carolina     BRAD SHERMAN, California
MIA LOVE, Utah                       AL GREEN, Texas
FRENCH HILL, Arkansas                DENNY HECK, Washington
TOM EMMER, Minnesota                 DANIEL T. KILDEE, Michigan
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                CHARLIE CRIST, Florida
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 26, 2018...........................................     1
Appendix:
    September 26, 2018...........................................    25

                               WITNESSES
                     Wednesday, September 26, 2018

Billingslea, Hon. Marshall, Assistant Secretary for Terrorist 
  Financing, U.S. Department of the Treasury.....................     4

                                APPENDIX

Prepared statements:
    Billingslea, Hon. Marshall...................................    26


                          ADMINISTRATION GOALS



                      FOR MAJOR SANCTIONS PROGRAMS

                              ----------                              


                     Wednesday, September 26, 2018

                     U.S. House of Representatives,
                                   Subcommittee on Monetary
                                          Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:15 p.m., in 
room 2128, Rayburn House Office Building, Hon. Andy Barr 
[chairman of the subcommittee] presiding.
    Present: Representatives Barr, Williams, Huizenga, 
Pittenger, Hill, Emmer, Mooney, Davidson, Foster, Sherman, 
Green, Heck, Vargas, and Crist.
    Chairman Barr. The committee will come to order. Without 
objection the Chair is authorized to declare a recess of the 
committee at any time and all Members will have 5 legislative 
days within which to submit extraneous materials to the Chair 
for inclusion in the record.
    This hearing is entitled, ``Administration Goals for Major 
Sanctions Programs.'' I now recognize myself for 5 minutes to 
give an opening statement.
    Today we welcome the testimony of Marshall Billingslea, 
Assistant Secretary of the Treasury for Terrorist Financing who 
last appeared before this subcommittee in November of last 
year.
    That hearing, like the one we are holding today, was 
explicitly focused on the effectiveness of our sanctions 
programs. The Financial Services Committee has repeatedly made 
clear that sanctions are meaningful in the context of achieving 
particular goals. The committee has shown it is not averse to 
providing Treasury with the toughest authorities available, but 
we remain cautious when it comes to measures that fail to truly 
advance our policy objectives.
    In other words, our sanctions, like other government 
programs, have to be held accountable for results, and results 
are measured not merely in the number of designations by 
Treasury but by behavioral change on the part of foreign 
persons. Treasury's role in sanctions policy is central, not 
merely in implementation but in agenda setting as well.
    Having said that, with great power comes great 
responsibility. At a Senate Banking hearing in August, there 
appeared to be a view shared by both Republican and Democrat 
Members that Treasury could be more forthcoming with 
information.
    As for the House, we have been concerned by TFI's (Office 
of Terrorism and Financial Intelligence's) delays in providing 
us with materials that the committee sought in preparation for 
this hearing. In addition, questions for the record for Mr. 
Billingslea's last hearing have not been returned and a request 
earlier this month for technical assistance on a four-page bill 
went unanswered.
    That bill went on to pass the committee unanimously and is 
being considered on the House floor today.
    Let me be clear, this committee remains a strong supporter 
of TFI's work, and we applaud the efforts that Mr. Billingslea 
and his colleagues devote to preserving our national security. 
But we trust that no one wants to see bipartisan goodwill for 
TFI taken for granted.
    There are a number of areas where lawmakers should be 
working hand in hand with TFI, from adapting new authorities 
for Treasury, to working on appropriate resource levels, to 
streamlining reporting requirements. These all call for a 
greater level of engagement and I look forward to working with 
the Assistant Secretary on these issues collaboratively.
    As for sanctions policy itself, it is imperative for 
Congress to better understand what the administration's goals 
are and how Treasury's designations will bring about their 
achievement.
    Questions of special importance include the following: What 
is the endgame in Iran such that Tehran abandons its nuclear 
ambitions and ballistic missile development in the long term?
    We are all aware of the difficulties facing the Iranian 
economy following the reinstatement of nuclear sanctions but 
where is this supposed to lead and how specifically will 
economic pain take us from point A to point B?
    On Russia, how are Ukraine sanctions bringing about the 
changes on the ground, if any, how have the Russians responded 
as a result of Crimea related sanctions, and how is the 
experience informing our strategy?
    And if we are to deter Russia from political interference, 
chemical weapons attacks, and the like, what evidence do we 
have that our current measures are working? What evidence do we 
have that our current measures are countering Russian 
aggression, countering Russian disinformation, countering 
Russian malign activities? If they are not effective, how 
specifically is Treasury adapting its strategy?
    And finally on North Korea, I am pleased that pressure on 
Kim Jong-un's regime helped to bring about the President's 
Singapore Summit in June. At the same time, it is concerning 
that there have been few concrete commitments on dismantling 
North Korea's arsenal and the North's evasion of U.N. 
sanctions, often with the help of China and Russia, and that 
does continue and that does--that is troubling.
    How then is Treasury squeezing North Korea so as to render 
impossible the bait-and-switch approach it has undertaken for 
the past 2 decades across Republican and Democrat 
administrations alike?
    To be sure this administration's abandonment of the failed 
policy of strategic patience, the pressure campaign has had 
measurable results. We applaud the return of the remains of 55 
U.S. missing in action from the Korean Conflict; we applaud the 
release of the hostages; we applaud the fact that we are not 
seeing ballistic missile and nuclear tests, that the cessation 
of those malign activities by the North is progress, and we 
applaud the administration's sanctions policies as contributing 
to that progress.
    But we also want to continue to work with this 
administration to give the administration maximum leverage to 
achieve the Congress's objective, the administration's 
objective, and that is the peaceful, verifiable, irreversible 
denuclearization of the Peninsula.
    I hope this hearing will help us get answers to these 
questions. Again, I want to thank Assistant Secretary 
Billingslea for appearing today. We look forward to his 
testimony.
    The Chair now recognizes that the gentleman from Illinois, 
Dr. Foster, for 5 minutes for an opening statement.
    Mr. Foster. Thank you Mr. Chairman. And I would like to say 
how proud I am of the bipartisan support for the Sanctions 
Authority. I think it is--that for a long time has been one of 
our most effective tools. And I agree also with the Ranking 
Member on the need for Congress to understand the 
administration's thought process and especially the endgame and 
each of the areas where these sanctions are being applied.
    I personally believe that the effectiveness of sanctions is 
exponentially more effective if you have these--really with a 
strong multilateral support, and this is where I personally am 
most skeptical of the thought process of the administration, 
frankly.
    That it is all--it is fine and good for the U.S. to impose 
sanctions but unless we have strong cooperation with other 
countries of the world, the sieve rapidly is emptied. And 
there--so I really think that is what I will be paying 
attention to in your testimony and in future developments.
    I am also, frankly, skeptical and disappointed on the 
progress in North Korea. I am the only physicist in Congress so 
I look at the difficulty in verifying that North Korea has 
gotten rid of not only its nuclear production facilities but 
every nuclear weapon they may have made.
    And as most physicists will tell you, it is much more 
difficult to verify that a country has no nuclear weapons 
hidden than it is that they have no nuclear weapons factory 
operating because the signatures are so different. And so this 
is something where I think that we must have stronger 
multilateral effort on this, that U.S. sanctions alone are--
don't appear ever to be sufficient for that.
    Anyway, I look forward to your testimony and again, I am 
proud of the bipartisan support for the authorities we have 
given you.
    Chairman Barr. The gentleman yields back. Today we welcome 
the testimony of Marshall Billingslea, who was confirmed in 
June 2017 as Assistant Secretary of the Treasury for Terrorist 
Financing. In this role, he helps oversee the Trump 
Administration's efforts in administering economic sanctions 
programs globally.
    Prior to joining Treasury, Mr. Billingslea served as 
Managing Director for Business Intelligence Services at 
Deloitte Advisory. He had previously held positions at the 
Department of Defense, where he served as Deputy Under 
Secretary of the Navy and Principal Deputy Assistant Secretary 
of Defense for Special Operations and Low Intensity Conflict.
    Mr. Billingslea has also worked as NATO Assistant 
Secretary-General for Defense Investment and as a staff member 
on the Senate Foreign Relations committee. He is a recipient of 
the Defense Medal for Distinguished Public Service.
    Assistant Secretary, without objection your written 
statement will be made part of the record. The Honorable 
Marshall Billingslea, you are now recognized for 5 minutes.

             STATEMENT OF HON. MARSHALL BILLINGSLEA

    Mr. Billingslea. Thank you, Chairman, and Vice Chairman and 
Ranking Member. I appreciate the opportunity to appear before 
my oversight committee and have welcomed the opportunity to 
appear every time you have asked us to appear.
    I will, as a former committee staffer on the Senate side, I 
will dig into why questions have gone unanswered, because that 
is flatly unacceptable and we will make sure that we rectify 
that. You have absolute assurance.
    So, you have asked me to appear today to talk about the 
full range of authorities and tools that are being used to 
address the spectrum of national security challenges that we 
face, and I will--in my spoken testimony, I will focus mostly 
on Iran, with your permission.
    My prepared testimony has great details on the full 
spectrum. But let me start out by saying that each of these 
countries: Iran, Russia, and North Korea in particular, poses 
its own unique challenge to us, to our allies and to the 
international order, but there are some common threads that 
link them all together.
    For instance, Iran is the world's leading sponsor of 
terrorism, and they continue to squander their wealth through 
corruption and terrorism instead of helping the Iranian people, 
which is the focus of much of our work.
    Russia is providing weaponry and defense material to Iran, 
and extensive support to the Syrian regime that is enabling the 
brutal targeting by Assad of his own citizens. And, of course, 
as you mentioned, Chairman, Russia continues its occupation of 
Ukraine and Crimea and subversion of Western democracies, 
intolerable efforts to manipulate our elections and elections 
of NATO allies. And it is a permissive environment for North 
Korean procurement efforts in Russia and for efforts to 
circumvent the U.N. Security Council resolutions.
    And then, of course, North Korea continues, as you say, to 
evade deliberately international sanctions through the United 
Nations, as well as our own national sanctions, and they have 
not yet abandoned their weapons of mass destruction or their 
missile programs, though as you also indicated, Chairman, there 
are some promising indicators.
    So on the one hand all three of these countries are using 
some similar tactics to exploit the global financial system, 
particularly by establishing and employing front and shell 
companies to mask the origin and the true beneficial ownership 
of financial flows and to disguise the nature of any intent 
behind transactions.
    But, on the other hand, these three countries differ widely 
in terms of the size of their respective economies, the extent 
to which they have businesses that are intertwined within 
global supply chains, and in the degree to which their 
financial sectors are connected or not connected to the global 
financial system. And for these various reasons, our sanctions 
programs are active and complex but also very different and 
nuanced in each case.
    So turning directly to the matter of Iran in the time I 
have left, we are determined to greatly reduce Iran's capacity 
to conduct malevolent activities, including its far-ranging 
support for terrorism, its human rights abuses, its aggressive 
development of ballistic missiles, and the proliferation of 
missile technology and missiles to groups such as Hezbollah and 
the Houthis in Yemen, and other brazen activities that are 
unbefitting of a member of the international community, whether 
we are talking about efforts to counterfeit currency or 
assassinate political opponents and opposition figures in 
Europe.
    We have made clear to the Iranian regime that all of these 
activities must cease, and they must agree to an arrangement 
which has none of the egregious loopholes on nuclear weapons 
development such as those contained in the JCPOA (Joint 
Comprehensive Plan of Action).
    Until this occurs, sanctions are being re-imposed in two 
phases, the first of which occurred on August 7 as U.S. 
sanctions came back into full effect on the acquisition of U.S. 
dollars by the regime, trading in precious metals such as gold, 
participation in sovereign debt, and business in the automotive 
sector and metal sectors.
    On November 4 of this year, we will reimpose additional 
sanctions, including far-reaching measures on Iran's energy and 
shipping sectors and on foreign financial institutions that are 
conducting certain transactions with the Central Bank of Iran 
and designated Iranian banks, and we will aggressively enforce 
these actions.
    We will also continue to combat Iranian malign behavior 
with further targeted measures. On top of the re-imposition of 
the sanctions that were suspended under the JCPOA, we have 
issued 18 rounds of sanctions in 18 months, designating 146 
targets for a full range of activities, related again to these 
human rights abuses and the terrorism behavior and 
proliferation.
    A major focus of ours, as you might imagine, in this area 
has been Mahan Air, and I can discuss that in greater detail as 
you wish. But we are also determined to expose Iran's abuse of 
the international financial system. I mentioned the 
counterfeiting ring, which we disrupted, but also this past May 
you saw us take a very coordinated multinational effort, 
together with the United Arab Emirates and the Iraqis, to 
dismantle one of the main mechanisms by which the Central Bank 
of Iran was funneling money to Hezbollah. And I can provide, 
again, further details on that as you wish.
    I want, in closing, Chairman, to just offer one particular 
very poignant data point to the committee, which is this 
graphic here. Maybe a bit difficult to see, but what this 
depicts is the rapid decline in the value of the Iranian 
currency, the rial.
    The rial is effectively collapsing. It's lost two-thirds of 
its value over the past few months. And this is happening for a 
couple of very specific reasons, but in essence it is a 
combination of our ongoing sanctions programs as well as 
colossal corruption and economic mismanagement by the Iranian 
regime.
    And so what you see is a recognition on the part of the 
Iranian people that the rial is functionally going to become 
worthless because of the behaviors of the Iranian regime. Not 
only their own corruption and mismanagement, but the fact that 
all of their export of terrorism is now rebounding on them in 
force with the U.S. economic campaign.
    As you see here--the rial, by the way, now stands at the 
lowest level it has ever been since the Revolution. It is 
trading at 185,000 to the dollar.
    And, in essence, this provides the Ayatollah, a very stark 
choice: He can use his limited foreign exchange reserves to 
prop up the currency and fix his economy and help the Iranian 
people or he can continue to export his scarce dollars for 
terrorism, but he can't have it both ways.
    Thank you, Mr. Chairman. I look forward to answering the 
questions of the committee.
    [The prepared statement of Mr. Billingslea can be found on 
page 26 of the Appendix.]
    Chairman Barr. Thank you, Mr. Billingslea, and your time is 
expired. And the Chair will now recognize himself for 5 minutes 
for questioning.
    Since you were focusing there at the end on Iran, let me 
just start there very briefly. As you know, there have been 
defenders of the JCPOA, critics of the administration's 
decision to pull out of the deal and to reimpose sanctions.
    In a nutshell, and in brief form, could you basically 
describe the continued and accelerating malign activities that 
justify re-imposition of the sanctions?
    Mr. Billingslea. Yes, sir. So what the Iranians got was an 
ability to reattach themselves to the international financial 
system. And they used that access, instead of benefiting the 
economy and helping the Iranian people, they used that access 
to generate cash for terrorism. And their export of terrorism 
has hit an all-time high.
    They ship more than a $100 million a year to Palestinian 
terrorist groups. They ship $700 million or more a year to 
Hezbollah to underwrite their terror operations. What they are 
doing with the Houthis in Yemen--in fact, in total, over the 
past few years, they have spent $16 billion on terror 
activities in propping up Assad in Syria and Iraq.
    It is an enormous expenditure of funds by the Iranians, and 
it is absolutely crucial that we bring pressure to bear to 
cause this to cease.
    Chairman Barr. As you know, some of our European partners 
in the P5+1 have indicated their intentions to remain in the 
deal. What is the administration prepared to do to impose 
secondary sanctions or bring our European allies to the--to the 
process to impose maximum international pressure on Tehran?
    Mr. Billingslea. We have engaged in a significant 
diplomatic outreach program across the globe. Together with the 
Department of State, more than 30 countries, we have had 
detailed consultations with them. I myself have led 
negotiations with 13 countries, many of them in Europe.
    There is a difference of opinion within Europe. It is not a 
monolithic view on this issue and we are working with those who 
understand the security threats that we perceive that the 
Iranians pose. We have also made very clear that secondary 
sanctions are available and that it would be extremely unwise 
to continue to transact with the Iranians in the prescribed 
areas that I laid out where sanctions will be reapplied.
    Chairman Barr. Thank you, and then moving--shifting over to 
North Korea really quickly, just citing a public article--
publicly available article from The Wall Street Journal just a 
few days ago, it stated that a confidential new United Nations 
report says that Pyongyang, often with the help from people in 
Russia and China, has been able to circumvent restrictions 
rendering, quote, the latest U.N. sanctions ineffective, 
unquote.
    Citing U.S. intelligence, U.N. investigators found, quote, 
a massive increase, unquote, in fuel shipments to North Korea 
involving Russian and Chinese ships, as well as numerous 
examples of coal shipments to China from North Korea, and the 
U.N. report also called out Chinese companies for buying tens 
of millions of dollars of North Korean iron, steel, and other 
products. Chinese firms have maintained joint ventures with 
North Korean partners despite a U.N. ban last year
    And this--according to the report, it says this amounts to 
a serious setback to the maximum pressure campaign to isolate 
North Korea.
    Could you just respond to that and tell us what we are 
doing as part of our sanctions program to prevent actors in 
China, in Russia, and other places from circumventing our 
international sanctions so that--so that we can have the 
maximum leverage possible?
    Mr. Billingslea. We are holding them to account. We have--
and you may have noticed in the previous couple of months, we 
have engaged on almost a weekly basis in imposing sanctions on 
entities who are attempting--who are seeking to undercut U.N. 
Security Council resolutions on North Korea.
    I will give you just a couple of quick examples. We 
repeatedly warned the Russians that banks that continue to 
transact with North Korean financial facilitators will be 
targeted. They chose to ignore us, and as a result we have now 
designated a Russian bank just a few weeks ago, the Agrosoyuz 
Bank.
    We likewise have said, as you point out, that coal--
circumventing the coal embargo is unacceptable, yet a Russian 
port operator was willfully allowing the obfuscation of the 
origin of coal in a transshipment of coal and so we designated 
that port operator.
    We also went after shipping companies, jointly owned ships, 
some Russian shipping companies, and six Russian vessels, as 
well some Chinese entities. Just as a few examples of how we 
are targeting those who seek to undercut the Security Council 
and its resolutions.
    Chairman Barr. My final question, it was reported last 
month that Russia may be violating U.N. sanctions by issuing 
new work authorizations for North Korean laborers. Can you 
certify that Russia is complying with U.N. sanctions in this 
regard, and if not, what are you going to do to sanction the 
employers of these laborers?
    Mr. Billingslea. I cannot certify that. In fact, I have 
repeatedly warned--I said this when I appeared before this 
committee in November, that Russia was not actively and 
aggressively enforcing the U.N. Security Council resolutions.
    We are watching this matter very closely.
    Chairman Barr. Thank you. My time is expired, and the Chair 
now recognizes the gentleman from Washington, Mr. Heck.
    Mr. Heck. Thank you, Mr. Chair. I would like to start by 
saying what a pleasure it is to be a part of this subcommittee 
hearing in which the distinguished gentleman from Kentucky 
opened up by quoting classic and great American literature, 
namely Spiderman; ``With great power comes great 
responsibility,'' very erudite of you.
    Secretary Billingslea, thank you so much for being here. I 
am going to share my perspective on how it is, I think, 
sanctions can work best and then ask you a question. I think 
they work best--this is not an all-inclusive list--when they 
target specific activity connected--linked to specific behavior 
that we want to change, and furthermore, when the sanctions 
themselves actually harm the people who are in the 
decisionmaking roles or capacities so that they can see, feel, 
and touch the damage to deter them from continuing it.
    And so my question out of all of that--because it really 
isn't clear to me at all--is how is Secretary Kim Jong-un in 
any way damaged by the sanctions we have levied? Because it is 
not clear to me that he has suffered any damage. Indeed, I 
think, maybe the general population has; they are not in the 
decisionmaking seats.
    Mr. Billingslea. So in an absolute dictatorship, as we have 
in the case of North Korea, the key has been to impose 
significant financial costs that affect the broader economic 
situation. It is certainly the case that it will allow his 
people to starve while he continues to ensure that the elites 
in Pyongyang received their share of the wealth.
    But when you have a precipitous drop in revenue generation, 
as they have faced because of our sanctions and the U.N. 
sanctions, it is--the estimates are really difficult to come 
by, but at a minimum I would say 40 to 50 percent of the 
revenue they were generating has gone away. And that has led to 
some significant shortages in luxury goods for the elites and 
pressure on the regime itself.
    Mr. Heck. Do we have evidence of that? Because I am not 
aware of any.
    Mr. Billingslea. We do, and I would be happy to come back 
in a closed session--within a classified session with you on 
what we know, but again, it is a bit challenging to give you 
concrete econometric numbers, since they--
    Mr. Heck. Understood. I have the privilege also to serve on 
HPSCI, and I am aware of the challenges associated with this. 
It is still nonetheless not clear to me that he is feeling any 
of this.
    Mr. Secretary, as you know we passed CAATSA (Countering 
America's Adversaries Through Sanctions Act) by a vote of 
something like 515 to 4. It was ridiculously overwhelming. And 
the administration was pretty slow to actually pull the trigger 
on all of that and to move forward on the sanctions vis-a-vis 
Russia; why?
    Mr. Billingslea. Oh, I would--Congressman, I would have to 
disagree with that premise. We have imposed three times as many 
sanctions on Russia for cyber activities as the previous 
administration in just our first 20 months.
    Mr. Heck. Well because we passed CAATSA but you were very 
slow to do it, it took months and months and months.
    Mr. Billingslea. OK but on CAATSA, a couple of key points, 
one is the legislation is prospective so it is forward-looking, 
so we are building the case on a number--in a number of areas 
to use the CAATSA sanctions.
    But second when we have a target that we want to designate, 
like I mentioned the sanctions evaders in Russia, for the North 
Korea sanctions. We want to use whatever legal authority or 
executive order we have that gets us onto the target most 
efficiently and most rapidly so CAATSA--
    Mr. Heck. Let me interrupt Mr. Secretary and I am 
encouraged to hear that, I encourage you in the strongest terms 
possible to proceed. I do, however, want to point out that the 
sanctions have mostly been targeted against low-level 
operatives for example, in the internet research agency or 
Concord Catering and I harken back to what I said at the top of 
my questioning, which is they work best when the people who are 
in the decisionmaking capacities get whacked.
    And it is not at all clear to me that these sanctions have 
been taken to the degree to actually harm, injure and therefore 
deter the oligarchs or Mr. Putin himself as a matter of fact. 
Low-level people being sanctioned is not an effective 
deterrent.
    So from where I sit, it was slow and it went after low-
level people.
    Mr. Billingslea. Congressman, I couldn't agree with that 
characterization, here's why. When we targeted Oleg Deripaska, 
who is an oligarch that the previous administration was 
unwilling to touch, in part because he came to power through 
his Saint Petersburg connections and controls the world's 
second largest aluminum company.
    He has lost half his net worth. Viktor Vekselberg has lost 
$3 billion in our designation.
    Mr. Heck. And yet there's no evidence that those sanctions 
have been levied against enough people in decisionmaking 
capacities to change behavior. I am out of time and I thank you 
Mr. Chairman, incredibly erudite gentleman from Kentucky.
    Chairman Barr. Thank you, the gentleman's time has expired, 
the Chair now recognizes the Vice Chairman of the subcommittee, 
Mr. Williams from Texas.
    Mr. Williams. Thank you Mr. Chairman for holding this 
important hearing on this issue that you have passionately 
pursued throughout this Congress and Assistant Secretary 
Billingslea, I thank you for your testimony this morning there 
today and for your service to our Nation in such a critical 
capacity.
    Each day we are reminded which states are friends to the 
United States and which are not. Under the leadership of 
President Trump and this Republican Congress, I hope that in 
the end we will have more friends than ever before. That said, 
before there is a demonstrable shift from the actions and 
behaviors of regimes like Iran, North Korea, and Russia and 
Venezuela, we must maintain a vise grip on every bad actor.
    The aforementioned governments are not our friends as is 
evidence from the deliberate intent to destabilize the United 
States and her financial institutions, citizens, and 
businesses. So, Mr. Billingslea, once again, I thank you for 
your testimony and for your commitment to countering the 
persistent threats to our homeland and also please extend our 
gratitude to your counterparts at the Treasury Department.
    First question, as you know, I have introduced legislation 
H.R. 4324, the Strengthening Oversight of Iran's Access to 
Finance Act which requires a Treasury Secretary to submit a 
report to Congress regarding financial transactions authorized 
in connection with aircraft sales.
    HR 4324 passed the House last November with bipartisan 
support as you know, and at your hearing with us last November 
you were asked if Iran air had ceased all sanctionable 
activities. You replied that you would need to get back to the 
committee, but we haven't received that answer yet and can you 
tell us today whether Iran Air has ceased all sanctionable 
activities?
    Mr. Billingslea. I think the airline of, I am going to 
choose my words very carefully here because I don't want to 
stray into classified territory, but the airline with which we 
are most preoccupied but not exclusively preoccupied is Mahan 
Air.
    Mahan Air is the airline that the Quds force tends to rely 
on when they need to ferry weapons terrorists, explosives, or 
bulk cash to the Assad regime or other places.
    Mr. Williams. Watch that very closely, needless to say.
    Mr. Billingslea. Sorry sir.
    Mr. Williams. Watch that very closely, needless to say.
    Mr. Billingslea. Yes sir, yes sir.
    Mr. Williams. There seems to be a dividing line in Russia 
sanctions with sector-based measures on the one hand and on the 
other hand personalized sanctions are focusing on the 
oligarchs, these are very different approaches but they are 
being employed at the same time.
    So my question would be what is the relative effectiveness 
of one over the other and when it comes to influencing Moscow's 
behavior?
    Mr. Billingslea. I ultimately--these are critical 
questions, ultimately a lot of this I would defer to the 
Department of State to explain how sanctions are an enabler for 
the broader diplomatic efforts that we undertake.
    Sanctions in and of themselves are not the primary vehicle 
for our foreign policy but they do underpin much of what we are 
doing now vis-a-vis the Russians. We have decided that the 
nature of Russian malign behavior is unacceptable, and we will 
impose enormous costs and consequences on the inner circle 
surrounding President Putin.
    I think they have come to the realization that we are 
serious about this and that we will react forcefully if they 
continue these malign behaviors. The Russian stock market took 
a 9 percent dip when we acted in April and it has not recovered 
since the ruble is still trading near all-time--all-time lows 
for the past several years.
    Mr. Williams. Well, thank you again for your testimony. Mr. 
Chairman, I yield my time back.
    Chairman Barr. Gentleman yields his time, the Chair now 
recognizes the gentleman from Texas, Mr. Green.
    Mr. Green. Thank you Mr. Chairman, thank the witnesses for 
appearing as well and would ask about sanctions in terms of the 
messaging associated with the sanctions that are being imposed. 
What type of messaging are we engaged in when the President 
gives one impression about the efficacy of a circumstance and 
the intelligence community gives another?
    When the President talks in glowing terms about 
relationships with the leader of North Korea and the 
intelligence community is indicating to us that things that are 
to be done are not being done. How does that impact the 
effectiveness of the sanctions?
    Mr. Billingslea. So obviously we deliver a wide range of 
messages at different levels for different purposes but I think 
our messaging in the case of North Korea has been pretty clear 
and unambiguous as far as Treasury's posture, which is that 
sanctions will not only be maintained until North Korea 
denuclearizes but that we will combat North--continuing efforts 
by North Korea to evade our sanctions by interdicting or 
otherwise disrupting those conduits through our sanctions 
authorities and also through our financial diplomacy.
    Mr. Green. Similar circumstance with Russia. Intelligence 
community in a very explicit way indicated that there was 
involvement in our election. The President, on the other hand, 
was late to the game, if I may use such a term. How does that 
impact the messaging? How does that messaging impact the 
sanctions that we have imposed and then there's this little 
thing of the meeting that took place wherein it was indicated 
that this was all about adoptions, when clearly it was not.
    That language was taken out of context and put into another 
context so what--the messaging seems to be a little bit 
confusing, I think, to the people that we rely on to engage in 
sanctions with us when they see one message from the President 
and then another from the intelligence community.
    Mr. Billingslea. Thanks for the question Congressman. I 
think that as Congressman Foster noted in his opening statement 
and as you just alluded to, maintaining and engaging--
maintaining international support for our measures is really 
crucial and I am very pleased that we have been able to do so 
with regard to Russia sanctions and the European Union.
    And we have worked very, very closely. I was just in 
Scandinavia, we worked very closely with a number of those key 
countries to ensure that the EU stays tough on Russia together 
with us for Crimea, Ukraine, and other actions.
    I would simply note that our actions do, I think, speak for 
themselves. We have, we, the Treasury Department have engaged, 
we have targeted more than 223 Russian entities in our first 20 
months in office.
    That is in comparison, in our 20 months in office and 220 
entities, more than in 8 years the Obama Administration did 550 
sanctions. So, we are definitely proving, I think, that we will 
hold the Russians accountable.
    Mr. Green. Special purpose vehicle, the European Union. We 
have decided, by and through our President, that we will no 
longer be a part of what we have called the Iran deal and our 
allies have now taken the position that they will do things 
that in effect will circumvent the position that we have taken.
    The messaging seems to put us at odds with people that we 
may need at some point because really, there are only two ways 
to prevent Iran from having nuclear weapons. Iran can decide 
not to do it on their own volition or they can attempt to do it 
and we can take kinetic action.
    So this notion that we are somehow going it alone, what 
kind of message does that send to the allies that we depend on 
to enforce sanctions to make them efficacious?
    Chairman Barr. A brief answer, the gentleman's time is 
expired so a brief answer, please.
    Mr. Billingslea. Yes, Congressman I--again, you are 
touching on exactly the importance of working together in a 
multinational context, it is absolutely the case that we enjoy 
enormous support from our allies and our friends in the Middle 
East, the Gulf nations in particular who have joined us to 
impose sanctions on Hezbollah and other Iran proxy groups.
    I would--I think it is important to talk about the special 
purpose vehicle in these other matters and with the Chairman's 
just indulgence, suffice to say, I wouldn't get enormously 
worked up over the special purpose vehicle discussion because 
the European companies are voting with their feet.
    They recognize that a $20 trillion business opportunity to 
work with United States versus a $400 billion-dollar liability 
to work with the corruption in the Iranian economy, it is a 
pretty clear-cut case and so we have had more than a hundred of 
the major European companies make very clear, they are getting 
out.
    Chairman Barr. The gentleman's time has expired. The Chair 
now recognizes the gentleman from Ohio, Mr. Davidson for 5 
minutes.
    Mr. Davidson. Thank you Chairman and thanks for your 
comments, sir. I appreciate your service and really a critical 
national security component for our country, indeed economic 
security is as a vital component in national security and we 
have been able to leverage that with the sanctions regime.
    And as you allude to, one of the keys to that effectiveness 
has been engaging allies to unite against adversaries, one of 
the things that I am concerned about is our trade policy. Our 
trade policy is currently doing just the opposite, its 
multiplying our enemies instead of multiplying our allies and 
so I am personally exploring, how we could use the sanctions 
regime, which has achieved great results, to be much more 
targeted.
    In modern warfare, we do everything we can to minimize 
collateral damage and to focus everything on our adversaries 
and the nice thing about the sanctions toolkit is you don't 
even have to levy them against an entire country, you can levy 
them against a company or as you have alluded to already with a 
couple Russian oligarchs, against individuals.
    So I am curious as you look at adapting the International 
Emergency Economic Powers Act which gives this authority, it is 
historically been used for other foreign policy objectives but 
do you see any particular roadblocks to applying it in trade 
policy?
    Mr. Billingslea. Congressman, that is a--that is a very 
incisive question. I have to confess, I don't--trade policy's 
beyond my remit, I have a hard enough time just on the 
sanctions side of the house but I would actually like to 
explore this with you in greater detail to understand ways that 
we could work together on that.
    Mr. Davidson. Yes, thank you for that and so the logic 
would be that for similar purposes that we are currently 
engaging in unilateral action on tariffs, frankly, maximum 
collateral damage in the case of uniform tariffs, for example.
    Here we could be very precise and say target Chinese steel 
companies rather than taxing all the steel in the world, we 
could simply use the power of sanctions to target two specific 
companies, for example.
    I am curious, however, because the intent is very 
aggressive with our sanctions. Effectively once sanctions go 
into effect on a company, we are not anticipating a future for 
that company, in fact we are doing everything we can to disrupt 
their entire business model.
    I am concerned about the collateral damage that may happen 
as we impose sanctions so help me understand what happens if an 
American company is actually partnered with a company or 
individual that becomes subject to sanctions.
    In my preparation or study for how I would apply this to 
trade policy, I have come across some companies, some of them 
wholly owned by Americans but because they became involved with 
individuals or companies that were the targets of sanctions, 
they have found it impossible to even operate it, the business 
and, in general, when they can get a temporary relief with a 
license, it is really just to unwind the business.
    So for the policy, I anticipate with application to trade, 
you would have to focus this in a way that could have not 
necessarily a terminal effect but a painful one and how do you 
minimize the collateral damage for the American?
    Mr. Billingslea. Congressman, that is a great question. I--
one thing I would say at the outset is that our sanctions are 
designed fundamentally to induce a change in behavior and so we 
need to keep--we want to be mindful of--
    Mr. Davidson. Apparently at the country level more so than 
at the company level, correct?
    Mr. Billingslea. Company or individual but again, I think 
there are some instances where we have targeted companies, 
potentially very big ones, that were owned by some pretty 
nefarious actors and then immediately issued some licenses to 
allow them to extricate themselves from their ownership 
situation.
    The other thing I would offer to look at, we could explore 
this together further is how we crafted the Venezuela executive 
order that prohibited U.S. persons from engaging in any new 
debt or equity with the Venezuelan regime. As you mentioned the 
issue of blowback, one of the things that we saw in the case of 
the PDVSA bonds that were issued but as Maduro was stealing--is 
stealing from his oil industry, as we wanted to ensure that the 
secondary bond market was protected from the effects of that 
action.
    And that might be a very instructive model that we used in 
that particular case for what you are driving.
    Mr. Davidson. Yes, thank you for that. And just in general, 
let's say that U.S. Steel had partnered with Severstal in the 
U.S., we wouldn't want the employees in that company that are 
based in the United States to not be able to get payroll, for 
example.
    And right now, those licenses are necessary, what is a 
general timeline to get that work through for a company that is 
partnered?
    Mr. Billingslea. So that you are absolutely right, our goal 
is not to harm any U.S. jobs or and--or jobs in our friends or 
allies. I would have to get back to you with OFAC (Office of 
Foreign Assets Control) on the specifics on those licenses.
    Mr. Davidson. All right, thank you my time is expired. 
Chairman, I yield.
    Chairman Barr. Gentleman yields back, the Chair now 
recognizes the gentleman from Arkansas, Mr. Hill.
    Mr. Hill. I thank the Chairman, appreciate the Ranking 
Member, I want to echo Dr. Foster's comments that in my 3-1/2 
years or so of serving in Congress, it is been refreshing to 
see the strong bipartisan support, particularly in this 
committee and the full committee on how to use sanctions as a 
political and economic tool to compel change in behavior.
    Some successfully, some not so much. I do believe Iran is a 
reasonable case study though, where collectively multilateral 
sanctions and bilateral sanctions with the United States have 
been most successful along the way and I have always used as an 
example, particularly with my constituents, that if you look at 
other sanctions regimes, whether they are multilateral 
sanctions through the United Nations or bilateral sanctions 
imposed by the United States, either by action of the Secretary 
of the Treasury or legislatively, nothing compares to what we 
have done really on Iran.
    Only in the recent time President Trump's been in office 
pressing South Korea, have we seen anything that has risen to 
the amount of sanctions and the most encompassing of sanctions. 
Venezuela, no, not so much; other countries we have had 
problems with over the years, not so much so I think Iran was 
instructive to the world community on how to create a sanctions 
regime.
    So thanks for leading the effort. I believe we also would 
be very interested in new ideas that you are seeing in sanction 
design since we have had this intensive period in Iran and 
collaborated with our allies and the multilateral sources so 
that if you have new suggestions legislatively that would be 
helpful to aid to the United States, particularly the Secretary 
of the Treasury, we would be interested in those and be happy 
to meet in a classified session to discuss those if necessary.
    I want to talk a bit about South Korea, North Korea, and 
our sanctions there to complement the President's moves in 
North Korea. Sanctions are great when they are written down but 
only in their enforcement do we get the response that you are 
looking for.
    So according to the U.N. panel of experts, any vessel 
operator captained by a North Korean person is at risk of 
engaging in illicit activity, this is all consistent with the 
Security Council resolutions 2270 and 2321, as well as the work 
we have done under our Chairman's leadership with the Warmbier 
Nuclear Sanctions Act that we have proposed here in the House.
    Consistent with that panel of experts and the U.N. work and 
what the Treasury's been doing, how are you in achieving that 
blacklist regardless of who owns the ships themselves in order 
to again tackle this enforcement issue?
    Mr. Billingslea. Thank you Congressman. I would welcome the 
chance to explore with you additional tools and authorities. We 
are always on the hunt for the kind of flexibility that we need 
to do this job. On the shipping issue, you have put your 
finger, I think, on really if I had to pick the main area of 
concern, there are several areas of concern but the main area 
of concern we have regarding North Korean sanctions evasion, it 
is ship-to-ship transfers of oil and coal and other commodities 
out in the open ocean.
    And so disrupting and targeting those vessels, the vessel 
owners but also the flagging--the mechanisms by which they 
received their national flags and they received their insurance 
underwriting are all key things that we, together with the 
Department of State, have been focused on.
    And so I personally, for instance, have intervened with a 
couple of key flag-of-convenience nations to raise particular 
vessels with them and I have to say they have moved very 
swiftly when we do raise it to deflag and delist the vessel 
from their registries.
    We also through--well, we don't usually talk about that, 
that we do in my organization is we engage in some pretty heavy 
financial diplomacy and so we will get out into the field or 
use our attaches to pass intelligence information and we have, 
I think, very successfully seen the impounding of some of these 
vessels by the South Koreans, the Indonesians, and others. 
These vessels that were engaged in this illegal activity have 
then been seized in national waters. So those are just some 
examples.
    Mr. Hill. Thanks, let me switch gears in the few seconds 
remaining. The--again, staying on the same subject, Bank of 
Dandong and Bank of Delta Asia, those are fairly small 
financial institutions without a lot of clout. What are you 
doing to get the bigger players in finance in Asia?
    Mr. Billingslea. We are talking directly with them and 
their chief compliance officers; we have engaged in a data 
process with them that has alerted them to a wide range of 
entities that we believe are controlled by the North Koreans, 
and we are helping them take enforcement actions to expunge 
these accounts from their roles.
    Mr. Hill. I hope you will come back and keep the committee 
apprised of that, I think, that is--that will bear fruit if you 
press on that point. Thanks. I thank the Chairman.
    Chairman Barr. The gentleman yields back, and I think we do 
not have any other Members in the queue. I think we would like 
to proceed with the second round if the Assistant Secretary be 
willing to take those so I will recognize myself for a second 
round of questioning and Mr. Heck and Mr. Hill, if you all 
would like another round, we will recognize you all as well.
    Let me just stay on North Korea and foreign banks for a 
minute. When you testified last November, you made note of 
ship-to-ship transfers that enabled North Korea to continue its 
petroleum imports.
    According to a Washington Post report last week much like 
The Wall Street Journal report that I quoted earlier, the 
smuggling has continued and ``Russia and China have shown a 
little enthusiasm for cracking down on the profiteers who are 
helping supply crucial fuel for Pyongyang's vehicles and 
factories.''
    I would ask unanimous consent to enter this article into 
the record. I am concerned that making designations ship-by-
ship or individual-by-individual has not gotten us as far as we 
need to go. As you know, the legislation that was passed out of 
this committee and passed by the U.S. House 415 to 2, the Otto 
Warmbier North Korea Nuclear Sanctions Act.
    That legislation would target, would require a more 
comprehensive targeting of foreign banks. I am encouraged to 
hear you talking about working with the compliance officers of 
some of the larger Asian financial institutions to help them 
identify shell companies or North Korean controlled accounts.
    But can you elaborate on how Treasury is going after 
foreign banks, insurers, and registries that are doing business 
with these sanctions evaders and when can we expect an impact 
on the petroleum trade that is more comprehensive than just 
this individual-by-individual or ship-to-ship designation?
    Mr. Billingslea. You are absolutely right and when I when 
previewed the phenomena of the ship-to-ship transfers to this 
committee back in November, I would say the situation continues 
to be a big issue for us and perhaps has only intensified as an 
evasion technique.
    And so our response that has to be a whole-of-government 
response that employs not just our Treasury actions but our 
State Department demarcheing process but also the actions of 
our United States Navy and others.
    And then I would further add that our work with our key 
allies like South Korea and Japan to conduct surveillance 
overflights of the transfers to furnish that information, to 
follow the vessels and to impound them would be additional 
actions that are illustrative of how we are operating but, at 
the end of the day--at the end of the day, as Ambassador Haley 
has made clear at the United Nations, it is incumbent upon both 
the Russians and the Chinese to step up and enforce these 
Security Council resolutions.
    Chairman Barr. Well, we appreciate continued pressure on 
those Russian and Chinese banks to help enlist their 
cooperation. Can you tell us from the beginning of the maximum 
pressure campaign to date, how much is there--can you quantify 
the hard currency that we have denied to North Korea? Is there 
a--does Treasury quantify how much sanctions pressure since we 
have made this shift in policy?
    How much sanctions pressure has actually deprived North 
Korea of hard currency?
    Mr. Billingslea. Let me check, we have a rolling estimate, 
we attempt to quantify it, the hard data is very difficult to 
come by, we watch the currency valuation, we also watch basket-
of-goods estimates, we will need to get you the exact number 
for the record, a number for the record, it is not an exact 
number but like I indicated previously, we believe we have cut 
the regime's revenue generation by at least 40 percent if not 
more so that would translate into several billion dollars.
    They weren't generating tens of billions to begin with, so 
we have cut it by roughly half.
    Chairman Barr. I obviously don't want to get into any 
classified territory here but if it is--if you are able to 
answer this question, do you have an assessment of whether or 
not the sanctions has limited the capabilities of the North to 
maintain its nuclear program or is it in your best judgment, 
assessment of a voluntary response to the Singapore summit or 
the diplomatic work that has been done?
    In other words, have we actually degraded their capability, 
their nuclear and ballistic missile capabilities and that is 
why they haven't been engaged in these testing activities?
    Mr. Billingslea. So on the on the details, I defer to the 
intelligence community on some of that. I would say--I would 
say we believe we have certainly degraded their procurement 
efforts.
    Chairman Barr. OK, thank you. My time is running out but 
one final question. At last year's hearing, the committee 
discussed cutting off North Korean leaders' access to financial 
services, which you indicated something your office was working 
on. Ten months after that hearing, can you tell us if Kim Jong-
un's inner circle still enjoys access to assets abroad?
    Mr. Billingslea. I suspect they do, we are hunting it down, 
when we get indications as we made very clear and the actions 
we undertook in Latvia against the bank there, we had evidence 
of North Korean-related money laundering so we have been very 
active, but I couldn't give further details on that.
    Chairman Barr. Thank you, my time has expired. The Chair 
now recognizes the gentleman from California, Mr. Sherman.
    Mr. Sherman. When the crisis 10 years ago, we were told 
certain banks were too big to fail, then prosecutors told us 
some banks are too big to jail, are their banks in China that 
are too big to sanction? What we have seen is that in dealing 
with North Korea, you have been willing to sanction a small 
Chinese bank, the Bank of Dandong but have been unwilling to go 
after the Industrial and Commercial Bank of China, the China 
Construction Bank Corporation, or the Agricultural Bank of 
China.
    Is this because those banks don't do any business with 
North Korea or because they are too big to sanction?
    Mr. Billingslea. Thanks, Congressman, and we can pick up on 
the conversation we had just the other day on this in a 
different committee. I will reiterate when I said to them, 
which is there is no Bank that is too big for us to sanction if 
we determine that it is in our national security interest to do 
so.
    We would juggle a couple of considerations together, but as 
I also had indicated just a moment ago, we are working with a 
number of the very large banks to ensure that they are aware of 
and taking action against accounts that we believe are 
associated with North Korean front companies.
    Mr. Sherman. But you are saying that the three large 
Chinese banks I mentioned and, by the way, Chairman Yoho and I 
have sent a letter to the administration to urge and have not 
received a response. We sent the letter 2 or 3 months ago, I 
believe the letter was not addressed to you personally, asking 
for why these major Chinese banks had not been sanctioned.
    Are you here telling me that those three Chinese banks 
haven't done anything like what the Bank of Dandong did?
    Mr. Billingslea. I wouldn't want to comment on any 
particular bank or financial institution at this stage. I am 
told by staff that we believe, we have responded to the letter. 
I want to make sure you have it so--
    Mr. Sherman. We will work to make sure we get a response. 
For our best sanctions that are most effective have been 
banking sanctions. We introduced those against Iran I believe 
in 2013. My fear is that if you keep using the best hammer, you 
eventually break the hammer.
    Can Europe, will Europe invent a payment system for Iran in 
order to preserve the JCPOA that will make our banking 
sanctions less effective, not only against Iran but in future 
decades, future other targets?
    Mr. Billingslea. It's a crucial question and it is one that 
we spend a lot of time focusing on, there certainly is a lot of 
aspirational talk along these lines. At the moment, the United 
States dollar, or particularly with the strength that the 
dollar enjoys now, does remain the fundamental currency of 
choice for the banking system and for clearing financial 
transactions.
    Mr. Sherman. Now drug dealers use dollars, they put them in 
suitcases, why does that not work for Iran?
    Mr. Billingslea. The Iranians will not hesitate to try to 
move dollars in bulk cash for their malign activity.
    Mr. Sherman. But--OK, if they want to sell oil instead, 
they could accept euro currency or dollar currency, it doesn't 
take--those oil tankers come in empty so there's plenty of 
room.
    Mr. Billingslea. Right and this is why, in August, we 
prohibited transactions involving U.S. banknotes with the 
Iranians and it is why, in November, we will designate the 
Central Bank of Iran as well as a large number of Iranian banks 
to preclude exactly what you are--what you are talking about.
    Mr. Sherman. Let me point out that if sanctioning Iran is a 
good idea, the fact that we have chosen to do it for the one 
reason that Europe wouldn't support, which is the JCPOA instead 
of identifying, this is more on the foreign policy side, all 
the other wrongs that Iran is committing, which Europe regards 
as wrong, is the worst packaging and marketing of sanctions 
that I have seen.
    But finally, cryptocurrencies. Obviously often 
cryptocurrencies are used as a medium of exchange for a normal 
transaction, I remember one supporter of cryptocurrencies 
waving around an article that said 9 out of 10 times when 
there's a crypto transaction, it is legitimate and doesn't 
involve drugs or terrorists, but is there any advantage that 
cryptocurrencies have to the legitimate non tax evading 
business person or are they uniquely well-suited for those 
trying to evade sanctions and tax laws?
    Mr. Billingslea. So we definitely are seeing some of the 
cryptocurrencies being used for money laundering or other 
behaviors. I think we will arrive at a point in time where we 
have digital currencies that are tied to a fiat currency and I 
also definitely believe that the underlying technology, the 
distributed-ledger technology that underpins cryptocurrencies 
will have enormous benefit for the financial services industry.
    And so these are--
    Mr. Sherman. Nobody's against descriptive--distributed 
ledgers but what can you do with a cryptocurrency that you 
cannot do with a dollar? I assume a dollar can also be 
accounted for in a distributed ledger.
    Mr. Billingslea. Right, I am not assuming I know. I think 
that is a very valid point but because we believe the 
technology is here to stay and that it will continue to evolve, 
for this very reason we have decided to make the U.S. 
presidency of the Financial Action Task Force, which is a year-
long presidency that started in June, we have decided to make 
securing international agreement on a global standard for how 
we are going to regulate anti-money laundering regulations of 
cryptocurrencies to be one of the three priority areas for us.
    And I am optimistic, time will tell but I am optimistic 
that, at the FATF meeting in October, the nations will agree to 
such a standard, for exactly the reasons you are pointing to 
Congressman.
    Chairman Barr. The gentleman's time is expired but it was 
an interesting question and so I have wanted to provide Mr. 
Billingslea an opportunity to answer that question and the 
Chair now recognizes the gentleman from Minnesota, Mr. Emmer.
    Mr. Emmer. Thank you Mr. Chair. Thank you Mr. Billingslea, 
for being here. That last question was interesting. I would ask 
you this, when we are talking about the distributive ledger, 
the blockchain platform, wouldn't you agree with me that it is 
easier to track criminal behavior on a distributive ledger than 
perhaps a suitcase of cash that is being carried by an 
individual that is unknown?
    Mr. Billingslea. In general, yes as long as the ledger was 
not--as long as the blockchain in question was not designed 
specifically to be non-attributional.
    Mr. Emmer. Right.
    Mr. Billingslea. And so I think that is a key 
discriminating factor in the technologies.
    Mr. Emmer. Right.
    Mr. Billingslea. Very quickly, on Monday, the European 
Union announced that it would set up a special purpose vehicle 
to permit its companies to deal with Iran and avoid U.S. 
sanctions. How will you treat foreign companies that use this 
mechanism and is it accurate to say that they will still be 
subject to U.S. sanctions?
    Mr. Billingslea. Congressman, it is accurate to say and 
we--absolutely accurate to say, we have made crystal clear to 
companies around the world that they need to make a business 
calculation and if the business decision that they make is they 
want to trade with the Iranians in the prescribed sanctioned 
areas that we have laid out, that is their business decision.
    But they will not transact with the United States and they 
will not have access to the United States financial system if 
they so choose. I think the net effect of that is been pretty 
clear, the vast majority of multinational companies that were 
even just contemplating business with the Iranians have made 
clear, they are not interested at this stage.
    Mr. Emmer. Thank you. In an August report the research 
group C4ADS, using open-source information identified 125 North 
Korean restaurants in 14 countries, two-thirds of which are in 
China.
    Restaurants abroad have long been a source of hard currency 
for the regime, when can we expect appropriate designations by 
Treasury so that they are all put out of business?
    Mr. Billingslea. You are describing an issue of fundamental 
importance to me because what I did in the private sector 
before I came to the Treasury Department was I led the 
investigative arm of one of the big four that focused on using 
open-source information to reveal true beneficial ownership of 
entities.
    And I believe we can do a much better job in our government 
of using open-source information like you are laying out. That 
said, if we are going to hit the evidentiary standards 
necessary for a sanction, we are going to need multiple sources 
of information and press reporting alone is often insufficient.
    Mr. Emmer. But the question is when can we expect 
appropriate designations by Treasury or do I take by your 
answer that, that is in process because you have to figure 
out--
    Mr. Billingslea. Right.
    Mr. Emmer. A source you are talking about it.
    Mr. Billingslea. Figure out and often we found, 
particularly in the restaurant front, that engaging 
diplomatically with the host country in question can get us 
where we need to go. We have done that in the case of a couple 
of NATO countries, where they were operating restaurants or 
hostels almost right out of the backyard of their embassies.
    Mr. Emmer. OK, last, I would like to go through a few quick 
yes-or-no questions with respect to North Korea sanctions, if 
you don't mind. First, have any of China's largest banks 
including ICBC, Bank of China, and others knowingly engaged in 
sanctionable activities?
    Mr. Billingslea. I don't think we have determined 
knowingly.
    Mr. Emmer. OK, have any of China's largest oil companies 
including China petroleum and chemical corporation, China 
National Petroleum Corporation, and China National Offshore Oil 
Corporation knowingly engaged in sanctionable activities?
    Mr. Billingslea. I don't think we have made that 
determination.
    Mr. Emmer. Have any large Russian banks knowingly engaged 
in sanctionable activities with respect to North Korea?
    Mr. Billingslea. Yes, and we sanctioned very recently the 
Agrosoyuz Bank for exactly this reason.
    Mr. Emmer. Have any of Russia's largest oil companies 
knowingly engaged in sanctionable activities?
    Mr. Billingslea. I don't think we have made that 
determination, we are looking at all these topics.
    Mr. Emmer. Last, the U.N. panel of experts recently 
concluded that several dozen foreign companies have been 
operating joint ventures in North Korea, which is prohibited 
under U.N. sanctions. Under the Otto Warmbier Sanctions bill 
which the House passed last October by a vote of 415 to 2, each 
of those companies and their foreign banks would be subject to 
U.S. sanctions.
    Do you support such a measure and if so when can we expect 
designations from Treasury?
    Mr. Billingslea. So joint ventures with the North Koreans 
are prohibited under the U.N. Security Council's resolutions 
and I have to say and I am going to echo Ambassador Haley here 
but Russian efforts to water down the panel of expert reports, 
it is egregious behavior and it is unacceptable.
    And we are determined to protect the integrity of that 
process so that the panel of experts can advise all of us on 
what they see in terms of potential sanctions evasion.
    Mr. Emmer. Any timing on the designation?
    Mr. Billingslea. I don't want to tip our hand but, I think, 
if you look at the pattern of actions we have been taking, it 
is almost been an action a week or thereabouts in recent 
months.
    Mr. Emmer. Thank you very much, my time has expired.
    Chairman Barr. Gentleman's time has expired, the Chair 
recognizes gentleman from Washington, Mr. Heck for another 
round.
    Mr. Heck. Thank you Mr. Chairman. Mr. Secretary, as you 
know, gas from state-owned enterprise in Russia is currently 
constructing a gas pipeline in the Baltic Sea from Russia to 
Germany. Consensus is that, that will weaken the economic 
energy security, I should say of Europe so given that those 
profits feed right back into both the military and the 
intelligence operations of Russia, presumably to undertake 
activities such as the interference in our 2016 elections and 
on an ongoing basis.
    Why haven't we targeted Nord Stream 2, which is the name of 
the pipeline for sanctioned consideration?
    Mr. Billingslea. We have made--you are focused on a major 
issue. We have made crystal clear to the Europeans and Germans, 
in particular that we view the Nord Stream 2 project as 
extremely ill-advised and we oppose it and that message has 
come from the President all the way down.
    But I myself have engaged, the Baltic nations are extremely 
concerned about Nord Stream 2, Poland is extremely concerned 
about Nord Stream 2, was just talking with the Polish 
government about this last week.
    Likewise, there's concern in Scandinavia, I have talked--I 
told Finland we regretted the decision to approve the permits 
there. Denmark has not yet approved the permitting process for 
a Nord Stream 2 and I am hopeful that that they would not on 
the very grounds that you have laid out.
    I think if Nord Stream 2 comes online, the Russians will 
use it, they will weaponize fuel in Europe, and they will 
ultimately choke off the Ukrainians, so this is a big, big 
issue for us. Now that said, in terms of the actual sanctions 
authorities that you put into law through CAATSA, those 
authorities were delegated to the Department of State and I 
would have to defer to them on that matter.
    Mr. Heck. I am exceedingly encouraged to hear the basic 
policy premise for your view of this proposed pipeline. Can I 
assume that you are speaking on behalf of the administration 
since you honor the President?
    Mr. Billingslea. Absolutely.
    Mr. Heck. And can I reasonably conclude that, that 
therefore is the perspective of the Department of State as 
well?
    Mr. Billingslea. This comes from the President himself, he 
has been clear that he is not happy with the Nord Stream 2 
project.
    Mr. Heck. Well, we have sanctions that could be levied. Let 
me ask you and again, I am pleased to hear the position, would 
like to see some--some action to follow up. Is it too late to 
stop? Are we letting the cat out of the bag here? And I want to 
acknowledge, Mr. Secretary, it is complicated and it is big and 
we are talking about some kind of three-dimensional chess that 
would need to be played with traditional friends and allies.
    At least we used to think they were friends and allies, 
still do as a matter of fact, it just seems to me that time is 
not our friend and if we are serious in the way in which you 
describe the policy perspective and I will take your word, sir, 
then time is a-wasting.
    Mr. Billingslea. The challenge we face and again, I am not 
an expert, I am not a pipeline expert, I am not an energy 
expert. I am told that the Russians have alternative pathways 
for laying the pipelines that could go around the Danish 
waters, but I do think that a delay is on our side in the sense 
that we need to continue to push for other alternative energy 
independent sources for Europe. So that they are not held 
hostage to Russian natural gas.
    Mr. Heck. I am interpreting your answer to be that even if 
they have alternatives; if we were to, for example, sanction 
them and caused them to delay the current path, that would be a 
good thing.
    Mr. Billingslea. Again, on the matter of the sanction, I 
would--I really need the Department of State here with me but I 
would tell you that we need Europe to have non-Russian sources 
of energy, upon which they can rely.
    Mr. Heck. I couldn't agree more, it just seems to me that 
we can do something about it and we ought to. I yield back the 
balance of my time Mr. Chairman.
    Chairman Barr. Gentleman yields back and I will use one 
more round for myself if that is all right and I want to echo--
yes, I want to echo the sentiments expressed by my friend Mr. 
Heck, I share his concern and your concern and the 
administration's concern about the Nord Stream 2 and I think 
that sanctions, if there needs to be some collaboration with 
the State Department on this, I would urge the administration 
to sanction Nord Stream 2.
    And not just Nord Stream 2 but in our visits in a 
delegation to Vilnius and Lithuania, our allies in Lithuania 
expressed concern not only about Nord Stream 2 but the nuclear, 
the construction of a nuclear facility in Astravyets in 
Belarus, just 30 miles or so from Vilnius.
    And so if the strategic objective is energy independence 
for our Eastern European NATO allies, independence from Russian 
sources of energy, I think the menu should include Astravyets, 
Nord Stream 2, any other attempts by the Russians to create a 
dependency on the part of our Baltic friends or Eastern 
European allies to Russian sources of energy.
    I had a conversation with the Department of Energy also 
about using U.S. policy, not just on the sanctions side but 
also doing more in the way of exports of U.S. LNG and coal and 
other sources of energy that the Eastern Europeans would be 
willing to access in lieu of Russian sources of energy.
    So I want to work with you on that and again, give the 
administration bipartisan encouragement, as a member of the 
Baltic caucus, as someone who believes that this administration 
has been serious and is to be credited for countering Russian 
aggression.
    The Congress wants to work with this administration to 
ratchet up the pressure and help our NATO allies in that 
regard. Let me switch gears really quickly after that editorial 
comment to operational activities that OFAC and in your part of 
the Treasury Department.
    A 2015 audit report by the Treasury's Inspector General 
concluded, ``written standard operating procedures for many 
day-to-day functions of OFAC's sanctions programs have not been 
deployed or developed contrary to governmentwide internal 
control standards.''
    Moreover, OFAC's resistance to documenting a set of 
standard operating procedures is contrary to governmentwide 
internal control standards and Treasury policy. It is hard to 
understand OFAC's position given the importance of its mission 
to U.S. foreign policy.
    The IG also noted that OFAC lacked a lessons learned 
process as a result, ``OFAC lacks a viable way of identifying 
strengths and weaknesses in the administration of sanctions 
programs and could miss valuable opportunities to improve its 
effectiveness and efficiency.''
    Now, I understand we don't have an OFAC director as of now 
and these findings obviously, date from the previous 
administration, but can you help us understand how Treasury has 
been organizing the day-to-day workflow at OFAC and whether the 
IG's conclusions may still be relevant today and whether or not 
this administration has taken actions to remedy some of these 
deficiencies identified by the IG in 2015.
    Mr. Billingslea. Chairman, thank you for that. That does 
predate my time, I am happy that we do--the Under Secretary has 
appointed the new OFAC director and I think she just assumed 
office just very recently, couple of days ago.
    The--as far as what I see from my vantage point, OFAC has 
been, I think, highly successful at being able to handle a wide 
range of demands on them for the production of executive orders 
which was at the heart of the IG investigation and I have not 
seen them in my time suffering from any lack of standard 
operating procedures to generate those executive orders.
    And they are--of which there have been a multitude. I would 
want to take the rest of that back for action and get OFAC up 
here with you, to give you more details on how they have 
addressed the situation but from the policymaking standpoint, I 
have not--I have not seen an issue there.
    Chairman Barr. One final question on Iran and that is 
obviously, the second phase of Iranian position of sanctions is 
coming in November, we are interested in the kinds of 
incentives that are going to be built into the Treasury 
sanction policy and what behavioral change on the part of 
Iranians are you expecting?
    What does success look like? New talks, regime change, a 
cessation of the terrorists' activities, what is success with 
respect to a post-JCPOA policy?
    Mr. Billingslea. Sir, I want to be crystal clear, we are 
not pursuing regime change, what we want is an immediate end to 
the terrorism and the funding of terrorism, the support to the 
brutal Assad regime, the proliferation of missile technology to 
the Houthis who then launch attacks into Riyadh for instance.
    Ship attacks on shipping in the Gulf of Aden, that is got 
to stop. The effort to pursue ballistic missiles because again 
no nation has ever wanted ballistic missiles, that also hasn't 
wanted a nuclear warhead to go on, on the front end of that so 
the ballistic missile program needs to be terminated.
    And they need to return to the negotiating table to 
negotiate an agreement that is free from the deficiencies that 
were contained in the JCPOA. The Secretary of State has laid 
out in a speech, a few months ago, at a very detailed level, 
the actions that we expect the Iranians to undertake and until 
they agree to return to the negotiating table, they will face 
these economic consequences.
    Chairman Barr. I agree with all of those objectives and I 
would add another one and that is we need better verification 
in a future deal on the nuclear side. Access to international 
inspectors that includes military sites where nuclear--illicit 
nuclear activity is most likely to be taking place, that in my 
mind was a major deficiency of the JCPOA.
    Defenders of the JCPOA often talked about the 
denuclearization or the access to the inspectors but that was, 
in my mind, a major problem, so with respect to verification of 
ceasing nuclear activities, international inspectors need 
access, better access. With that, I think we have exhausted our 
time here today, we appreciate your time with us today 
Secretary Billingslea and we appreciate your testimony.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    [Whereupon, at 3:32 p.m., the subcommittee was adjourned.]

                            A P P E N D I X



                           September 26, 2018
                           
                           
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