[Senate Hearing 111-1081]
[From the U.S. Government Printing Office]
S. Hrg. 111-1081
IRAN SANCTIONS: WHY DOES
THE U.S. GOVERNMENT DO BUSINESS WITH
COMPANIES DOING BUSINESS IN IRAN?
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HEARING
before the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
MAY 12, 2010
__________
Available via the World Wide Web: http://www.fdsys.gov
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri JOHN ENSIGN, Nevada
JON TESTER, Montana LINDSEY GRAHAM, South Carolina
ROLAND W. BURRIS, Illinois
EDWARD E. KAUFMAN, Delaware
Michael L. Alexander, Staff Director
Troy H. Cribb, Counsel
Vance F. Serchuk, Foreign Policy Advisor, Office of Senator Lieberman
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Molly A. Wilkinson, Minority General Counsel
Luke P. Bellocchi, Minority Counsel
Trina Driessnack Tyrer, Chief Clerk
Patricia R. Hogan, Publications Clerk and GPO Detailee
Laura W. Kilbride, Hearing Clerk
C O N T E N T S
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Opening statements:
Page
Senator Lieberman............................................ 1
Senator Collins.............................................. 3
Senator Brown................................................ 17
Senator McCaskill............................................ 18
Senator Ensign............................................... 21
Senator Gillibrand........................................... 23
Prepared statements:
Senator Lieberman............................................ 27
Senator Collins.............................................. 29
Senator Burris............................................... 31
WITNESSES
Wednesday, May 12, 2010
Hon. Theodore E. Deutch, a Representative in Congress from the
State of Florida............................................... 5
Joseph A. Christoff, Director, International Affairs and Trade,
U.S. Government Accountability Office.......................... 8
Danielle Pletka, Vice President, Foreign and Defense Policy
Studies, American Enterprise Institute for Public Policy
Research....................................................... 10
Alphabetical List of Witnesses
Christoff, Joseph A.:
Testimony.................................................... 8
Prepared statement........................................... 63
Deutch, Hon. Theodore E.:
Testimony.................................................... 5
Prepared statement with an attachment........................ 32
Pletka, Danielle:
Testimony.................................................... 10
Prepared statement........................................... 79
APPENDIX
GAO report sent to Senators Lieberman, Collins, and Kyl, dated
May 4, 2010.................................................... 71
IRAN SANCTIONS: WHY DOES
THE U.S. GOVERNMENT DO BUSINESS WITH
COMPANIES DOING BUSINESS IN IRAN?
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WEDNESDAY, MAY 12, 2010
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 11:02 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Joseph I.
Lieberman, Chairman of the Committee, presiding.
Present: Senators Lieberman, McCaskill, Collins, Brown,
McCain, and Ensign.
Also Present: Senator Gillibrand.
OPENING STATEMENT OF CHAIRMAN LIEBERMAN
Chairman Lieberman. The hearing will come to order. We will
begin with an apology to our witnesses for starting late, but,
as my kids always say, ``It wasn't my fault.'' And it certainly
was not Senator Collins'. Sorry, the Senate staged these votes
at this time. This is an important hearing. We appreciate the
witnesses being here. Congressman, I thank you for your
patience.
The title of our hearing today really says it all: ``Iran
Sanctions: Why Does the U.S. Government Do Business with
Companies Doing Business in Iran?''
A prohibition on awarding Federal contracts to companies
that violate the Iran Sanctions Act of 1996 is one of the
actions authorized in that law. It was intended by Congress to
be a tool, a powerful tool, and it could be if it was ever
used. But it has not been up until this time, and that is now
14 years.
In the last fiscal year, the Federal Government spent $520
billion to buy goods and services, everything from basic office
supplies to parts for weapons systems to an extraordinary range
of services that are acquired.
Here is another example of the scope of Federal purchasing:
The Federal Government is the single largest purchaser of
energy in the world.
The U.S. Government's market power gives us the capacity, I
think, to influence the behavior of companies doing business
with Iran and to give them a choice between doing business with
us or doing business with Iran. We no longer should allow
businesses to do both.
But Presidents of both parties have failed to enforce the
existing law. As a result, many companies that make money from
the U.S. Government continue to do business with Iran and in
Iran, helping to sustain--directly or indirectly--the
fanatical, anti-American regime in Tehran that regularly
promises to bring ``Death to America.''
Today the Government Accountability Office (GAO) is
releasing a report which illustrates America's failure to use
the 1996 law as authorized.
Based on publicly available information, GAO has identified
41 foreign companies that have conducted commercial activity in
support of Iran's energy sector. While GAO reaches no
conclusion about whether these companies are in violation of
the Iran Sanctions Act--because that is not its
responsibility--the report does suggest strongly that many
companies see no downside to doing business with Iran in
violation of the law.
At the request of Senators Kyl, Collins, and myself, GAO is
releasing a follow-up report today on seven companies doing
energy business with Iran that also held Federal contracts
between fiscal years 2005 and 2009.\1\ These companies have
received combined payments of nearly $880 million from the
Department of Defense--including $319 million to Repsol of
Spain and $312 million to Total of France for the purchase of
fuel, and $111 million to Daelim Industrial Company of South
Korea for the construction of military family housing in Korea.
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\1\ The GAO report referenced by Chairman Lieberman appears appears
in the Appendix on page 71.
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The New York Times recently published its own analysis
showing that the Federal Government has awarded more than $107
billion in contracts, grants, and other benefits over the last
decade to foreign companies, as well as to foreign subsidiaries
of U.S. companies, that have engaged in commercial activity in
Iran. This includes $15 billion to companies that certainly
appear to me to have violated the Iran Sanctions Act.
Companies identified in the New York Times report include
Royal Dutch Shell, which has helped develop oil fields in Iran
and has received over $11 billion from the U.S. Government,
mostly through contracts for the purchase of fuel for the
Department of Defense.
I hope that this hearing this morning, the GAO report, and
the testimony of the witnesses send a clear message to those
companies: Either do business with Iran's $250 billion a year
economy, or do business with America's $13 trillion economy,
including our government, but you cannot do business with both.
And it is simply unacceptable for the Federal Government to
enrich foreign firms that are enriching the extremist,
repressive, terrorist Government of Iran.
Those companies should be put on notice--I hope they will
be today--that Congress is on the verge of passing tough new
sanctions legislation. The conference committee on which I am
privileged to serve just held a meeting this morning. What
cannot be sanctioned today can and will, I am confident, be
sanctioned tomorrow.
I note that both chambers have adopted provisions intended
to tighten the prohibition on American Government contracts to
companies that violate sanctions, which is based on legislation
originally introduced in both chambers by Senator Chuck Schumer
and in the House by Congressman Ron Klein.
I really want to thank our panel today, which I know will
help us better understand the scope of foreign commercial
activity in Iran, with a focus on its energy sectors, and the
nexus between these companies and U.S. Government contracting.
I look forward to the testimony and our discussion
afterwards.
Senator Collins.
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Thank you, Mr. Chairman.
We are at a critical juncture in our efforts to prevent
Iran from obtaining nuclear weapons, a capability that
threatens the stability of the region and, indeed, the world.
The conference committee on the comprehensive Iran Sanctions
Act is now underway, and I commend the Chairman for his
leadership on that legislation and for holding this oversight
hearing.
Like the Chairman, I am deeply troubled by recent reports
in the New York Times and by the GAO that the U.S. Government
continues to do business with companies that are, at least
indirectly, aiding and abetting Iran's nuclear program by
investing in the Iranian economy. GAO's report that the U.S.
Government entered into almost $880 million worth of contracts
with seven foreign firms that had investments in Iran's energy
sector is extremely troubling. Obviously, this practice goes
against our own national security interests.
The GAO report exposes evidence of potentially serious
violations of our current sanctions regime. In light of this
alarming information, we not only need to pursue rigorous
enforcement of our current laws but also to strengthen our
sanctions against Iran. Congress can assist by completing
conference negotiations on the Iran Sanctions Act. But the
State Department can take immediate action to improve our
efforts simply by enforcing current law.
Unfortunately, this lack of enforcement is not a new
problem. As far back as 1996, when the Iran Sanctions Act first
became law, Congress has attempted to extinguish investment in
the energy sector. Yet, despite clear evidence of violations of
that law, not a single company has ever been sanctioned. In
fact, many of the corporations that have reportedly done
business with Iran have continued to receive Federal contracts
or other benefits from our government.
This failure to enforce the law has sent a signal to the
Iranian leadership that we may be less than determined to bring
their nuclear program to a halt. Continuing lack of enforcement
may undermine our credibility as we seek tougher international
sanctions. And, most important, Iran has seized on our leniency
by continuing to enhance its nuclear weapons capability.
While the Federal Government continues to send mixed
messages, many States have taken much more forceful action. In
2007, Florida became the first State to divest its pension
funds from companies doing business in Iran and the Sudan. Many
other States have adopted similar divestment measures or have
imposed procurement restrictions on companies doing business in
Iran. For example, the State of Illinois requires State
contractors to disclose in each bid whether or not they are
engaged in operations in Iran's energy sector.
The Federal Government requires contractors to certify that
they do not conduct prohibited business operations with Sudan.
Unfortunately, no similar requirement is in place for
contractors doing business with Iran. At a minimum, it seems to
me the Federal Government should impose this requirement on its
contractors.
I have repeatedly expressed my concern about the Federal
Government's inconsistent actions to enforce and strengthen our
sanctions against Iran. And as the Chairman has pointed out,
this problem has gone across Administrations and involved both
Democratic and Republican Presidents. Along with our allies,
our Nation must be prepared to impose strong sanctions against
Iran if the U.N. Security Council fails to implement tough and
effective measures. But the fact is that the sanctions will
lack teeth if they are not enforced. Mere threats will not
prevent companies, including government contractors, from doing
business with the Iranian regime.
In light of the danger posed by the Iranian nuclear threat,
we must take every possible economic, political, and diplomatic
measure to demonstrate to Iran's leaders that the price for its
nuclear program has simply become too high.
As we consider broader sanctions to deter the nuclear
threat posed by Iran, I am reminded of the suffering endured by
the 66 American hostages seized by the Iranian Revolutionary
Guard and other militants in November 1979. These Americans
were held against their will for 444 days. To date, they have
received absolutely no compensation from the Iranian Government
for the brutality that they experienced. One of those hostages,
Moorhead Kennedy, lives in Maine and is here today. I am very
pleased that he is present for this hearing. His presence
reminds us that these Americans continue to be denied justice
from the Iranian regime, despite the intent of Congress.
Mr. Chairman, again, thank you for holding this hearing,
and I look forward to discussing these issues with our
witnesses.
Chairman Lieberman. Thanks very much, Senator Collins. I
thank Senator McCain and Senator Brown for being here. We will
go to the witnesses now who have been so patient in waiting.
First, Congressman Ted Deutch was elected to Congress to
fill an open seat last month by the voters of the 19th District
of Florida in quite an impressive victory, all the more
impressive to those who know because of the fact that he had
earlier in his career supported various of my campaigns, and
notwithstanding that, he went on to win a great victory.
Congressman Deutch is seated as a member of the House
Foreign Affairs Committee and the House Judiciary Committee, I
think showing the confidence that the leadership has in him.
But this morning we asked him to be here particularly to share
with us lessons from the State Senate in Florida where he has
served and where he led a successful effort to pass legislation
requiring the State pension fund to divest from companies doing
business in Iran. And I think the process followed there is
instructive and encouraging for us at the Federal level.
Congressman Deutch, congratulations again and welcome to
our Committee this morning.
TESTIMONY OF HON. THEODORE E. DEUTCH,\1\ A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Deutch. Thank you, Chairman Lieberman, Ranking Member
Collins, and Members of the Committee. I appreciate the
invitation to join you here today.
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\1\ The prepared statement of Mr. Deutch with an attachment appears
in the Appendix on page 32.
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The Iranian nuclear weapons program poses a grave and
growing national security threat to our Nation, risks a nuclear
arms race in the Middle East, threatens our allies in Europe
and beyond, and poses an existential threat to our critical
ally Israel.
I am grateful that the House and Senate have now both
passed new Iran sanctions legislation, and I firmly expect
strong language to emerge from the conference committee before
the end of this month.
It is important to note that States and local governments
have been at the forefront of the Iran sanctions movement for
years, highlighted by dramatic successes such as those in my
own State of Florida. I was elected to the Florida State Senate
in 2006, and recognizing the threat of the Iranian nuclear
program, I was determined to use every tool at my disposal to
put pressure on the regime. I crafted legislation that would
prevent the pension funds of Florida's workers from investing
in companies that conduct business within the energy sector of
Iran, consistent with the framework established by the Iran
Sanctions Act.
As the author of the Protecting Florida's Investments Act,
I laid out a procedure for identifying and engaging those
``violating'' companies who currently invest in the energy
sector of Iran above the thresholds in both the State and
Federal statutes. The Florida State Board of Administration
(SBA), subsequently worked with experts from across the country
to develop an effective course of action for divesting the
Nation's fourth largest pension fund.
Three years later, it is clear that this effort has been a
dramatic success. The State of Florida has divested nearly $1.5
billion from 24 companies that do or did business in the
Iranian energy sector, including Royal Dutch Shell, Total, Eni,
and others. This is $1.5 billion from Florida alone. But no
public worker, no retiree from any State or local government or
from any police force, fire department, or school district
should see his or her retirement savings invested in Iran's
nuclear program. Divestment must be expanded, and most
significantly for our collective efforts here today, the
companies must be identified.
While 19 other States and the District of Columbia have
passed similar divestment policies, Florida is the only State
to have successfully identified, named, and published on a
quarterly basis a list of violating companies, followed by a
full and successful divestment from them. Therefore, I would
urge Congress to look to Florida as one model for how to
identify those companies who are presently doing business in
Iran in contravention of international security. Once those
companies are identified, immediate economic pressure can be
brought to bear at the Federal level.
Now, SBA identifies potentially violating companies through
a thorough and multi-source research effort which relies on
their own analysis along with independent external research
providers. The SBA then sends written notification to any
company found to have active business operations with Iran
informing the company that it is now subject to divestment and
that it has 90 days to cease such activity.
In only a matter of months, Florida published a verifiable
and comprehensive list of companies and did so with a small
budget and minimal staffing levels. The Federal Government can
easily match and replicate the actions of Florida to create and
maintain its own list of violating companies that are presently
doing business in Iran.
The legislation that emerges from the House-Senate
conference must include a requirement that the Administration
provide a list of all companies that are in current violation
of the Iran Sanctions Act.
But in advance of these new legislative requirements, the
Administration should waste no time in creating its own
definitive list so that the American people can know
immediately which companies are choosing to risk international
security by investing in Iran. It would be highly imprudent to
waste time by waiting until after the new sanctions law takes
effect to compile this important list when, in fact, it can be
created quickly and easily today. In Florida, this research is
done by the pension fund administrators and their outside
consultants. I am aware that the State Department currently has
jurisdiction over this area, but it is worth noting that the
Energy Department is well positioned to publish such a list, as
these are ultimately factual findings, and the Department of
Energy has a long track record of publishing similar data
within their detailed reports that document energy activity in
specified countries, including Iran.
If the United States is serious about shining a light on
the companies that continually defy U.S. law, we must do
everything that we can to simplify this process. The easiest
way to gather information is to mandate that companies divulge
their business activities in Iran. I would like to commend the
Securities and Exchange Commission (SEC) Chairman Mary Schapiro
for her recent comments in support of strengthening the
disclosure requirements for companies engaged in such dealings
with Iran. It is apparent to a growing number of observers
that, under U.S. securities law, doing business in Iran should
properly be considered a material event that triggers mandated
disclosure on SEC filings. Stricter SEC disclosure requirements
have also been promoted by Florida's SBA and the not-for-profit
group United Against Nuclear Iran--whose president, Ambassador
Mark Wallace--circulated a letter recently favoring this new
understanding of materiality in the securities law context. I
would respectfully ask the Members of this Committee to join in
the call for more complete disclosure requirements. A company's
decision to do business in Iran at a time when the United
Nations, the European Union, and this Congress are all debating
various forms of economic sanctions certainly makes any such
Iranian investment material and worthy of full notice to the
company's shareholders and to the public.
The list of violating companies serves another role. We
must cease awarding any government contracts to companies that
invest in Iran. My colleague, Congressman Klein, has written
tough and important legislation in the House that is included
in this comprehensive Iran sanctions package currently in
conference committee.
As the Chairman referred to earlier, the New York Times
article confirmed over $107 billion of Federal Government money
has been awarded to companies appearing to be in violation of
the Iran Sanctions Act since its enactment. Further, as the
most recent GAO report states, the Federal Government spent
almost $880 million just in the last 5 years contracting with
companies currently doing business in the Iranian energy
sector.
This is unacceptable, and I am gratified that we are on the
verge of passing legislation to ban this practice going
forward.
Through both Democratic and Republican Administrations, the
sanctions regime under the Iran Sanctions Act has essentially
lay dormant. I am certain that Congress did not repeatedly
enact thoughtful and complex Iran sanctions for them never to
be used. This practice must end, and it is long past time for
these sanctions to be utilized as designed.
I am aware that in the world of international diplomacy it
is not polite to name names. I understand that foreign nations
do not want us telling their companies when and where to
invest, but the stakes are now too high for diplomatic niceties
to trump international security. It is time for our government
to name and publish the companies that are investing in Iran. I
am aware that many of those companies are based in countries
that are our allies. Nevertheless, there is no greater threat
to global security than the Iranian regime's quest for nuclear
weapons, and it is time we put proper pressure on our friends,
allies, and international competitors alike to end their
investments in Iran.
The government should be using every power at our disposal
to encourage, badger, demand, entice, and sanction companies to
remove their business interests from Iran.
We are at a crucial moment in history, and time is not on
our side. For many years, we waited for diplomacy to take hold
and for Iran to forgo its nuclear weapons program. Instead,
Iran is spinning more centrifuges and announcing the opening of
new nuclear facilities, while their president declares his
intent to wipe Israel off the map and publicly envisions a
world without America. We will have failed if our discussion
shifts toward containment and how to deter Iran from using
nuclear weapons. Our mission is clear: We must prevent Iran
from acquiring nuclear weapons. We must act now before it is
too late for economic sanctions to deliver genuine results.
Florida has shown that it is possible to identify violating
companies and to exert real economic pressure. Congress and the
Administration must now do the same. We can prepare that list
today and immediately move ahead with sanctions. We need not
and we cannot wait a moment longer.
Thank you, Mr. Chairman, for your dedication and commitment
to this vital national security interest, and thank you for
giving me this opportunity.
Chairman Lieberman. Congressman Deutch, thank you for a
very thoughtful, very strong, and ultimately very hopeful
statement about what the Federal Government can and should do.
Obviously we would love for you to stay for questions, but we
will understand if in light of the delay you have to return to
the House.
Mr. Deutch. Thank you.
Chairman Lieberman. Mr. Christoff of GAO, thanks for being
here. Thanks for the work that you have overseen. We now look
forward to a presentation on the findings of GAO on this
subject, and particularly the list of foreign firms engaged in
Iran's energy sector who also hold U.S. Government contracts.
Thank you.
TESTIMONY OF JOSEPH A. CHRISTOFF,\1\ DIRECTOR, INTERNATIONAL
AFFAIRS AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Christoff. Thank you, Mr. Chairman, Members of the
Committee. Thanks for inviting GAO to this important hearing. I
am here today to discuss our work on foreign firms that have
commercial interests in Iran's energy sector. The issue is
important because Iran needs foreign investments to develop its
energy sector, and the United States seeks to deter these
investments through additional sanctions.
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\1\ The prepared statement of Mr. Christoff appears in the Appendix
on page 63.
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Iran seeks investments from foreign firms to increase oil
and natural gas production and meet domestic energy needs.
According to the International Monetary Fund (IMF), Iran's oil
production has remained virtually flat in recent years and will
likely stagnate without more investment. In addition, Iran must
import about 130,000 barrels of gasoline each day to meet
domestic demand. Currently, oil revenues account for as much as
three-quarters of the Iranian government's revenues and one-
quarter of the country's gross domestic product (GDP).
The Iran Sanctions Act seeks to limit Iran's ability to
produce more oil and thereby deny it the financial resources it
needs to fund international terrorism and develop its nuclear
sector. Under the Act, foreign firms may lose U.S. Government
contracts if they invest more than $20 million in Iran's energy
sector within a 12-month period.
The only time the United States invoked the Iran Sanctions
Act was in 1998 when it determined that the investments of
three foreign energy firms were sanctionable. However, at that
time the Secretary of State waived the sanctions citing U.S.
national interests.
My statement today is based on two reports that we
completed for this Committee, one in March and one that is
being released today. In the March report, we found that 41
foreign firms had commercial activity in Iran's energy sector
between 2005 and 2009. These firms are located in 22 countries
throughout Europe, Asia, and South America. We defined
commercial activity as having either signed an agreement to
conduct business, invested capital, or received payment for
providing goods or services in Iran's energy sector.
To identify these 41 firms, we examined over 200 industry
publications, U.S. Government and trade associations reports,
and corporate statements. We also interviewed officials from
the Departments of Energy and State, and U.S. intelligence
agencies. We excluded sources that we deemed insufficiently
reliable because GAO's evidentiary standards require accurate
and credible information. Therefore, we excluded newspaper
reports and statements from the Iranian Government.
We included a firm only if its activities in Iran were
documented in at least three reputable industry publications or
in at least one industry publication plus a corporate
statement. Accordingly, the 41 firms represent a minimum number
of firms with commercial activity in Iran's energy sector.
We provided the firms an opportunity to comment on our
report. Thirteen of the 41 firms responded and confirmed our
findings. Since the report was released, four more firms have
responded, including one firm that stated that it had not yet
made an investment decision.
Mr. Chairman, it is important to note that we did not
determine whether the activities of these 41 firms meet the
legal criteria for an investment under the Iran Sanctions Act.
The Secretary of State is responsible for making such
determinations.
In the report released today, we found that seven of the 41
firms had contracts with U.S. Government agencies, and over the
past 5 years, U.S. agencies have obligated almost $880 million
to fund these contracts. About 90 percent of these funds
purchased fuel and petroleum products for U.S. military
operations overseas. Two firms--Repsol of Spain and Total of
France--accounted for nearly three-quarters of the $880
million.
To identify which of the 41 firms had U.S. Government
contracts, we took three steps. First, we obtained each firm's
unique registration number. Second, we used the registration
numbers to search the General Services Administration's Federal
Procurement Data System and identified the seven firms with
U.S. Government contracts. And, third, we searched a second
database, the Department of Defense's Electronic Document
Access System, to obtain copies of the documents and thereby
corroborate our findings.
In closing, let me note that our work for this Committee
continues. At your request we are developing a third report
where we identify firms selling gasoline, diesel, and other
refined petroleum products to Iran.
Mr. Chairman, Ranking Member Collins, that concludes my
statement. I look forward to your questions.
Chairman Lieberman. Thanks, Mr. Christoff. That is very
important, revealing work, and I look forward to the question
period.
Finally, we are delighted to have with us Danielle Pletka,
who is Vice President for Foreign and Defense Studies at the
American Enterprise Institute (AEI). I think Ms. Pletka will
offer some opinions about why the Iran Sanctions Act (ISA) has
not been enforced and hopefully suggest ways to strengthen our
sanctions policy. It is a pleasure to have you here this
morning.
TESTIMONY OF DANIELLE PLETKA,\1\ VICE PRESIDENT, FOREIGN AND
DEFENSE POLICY STUDIES, AMERICAN ENTERPRISE INSTITUTE FOR
PUBLIC POLICY RESEARCH
Ms. Pletka. Thank you, Mr. Chairman and Senator Collins,
Senator Brown, Senator McCaskill. I have to apologize in
advance, I am sick and so----
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\1\ The prepared statement of Ms. Pletka appears in the Appendix on
page 79.
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Chairman Lieberman. You are making me feel right at home
because whatever the ailment is, my wife has had it for the
past few days.
Ms. Pletka. Well, stay away from her, is all I can tell
you. [Laughter.]
Chairman Lieberman. You are asking a lot, really.
Ms. Pletka. I know her and I agree, but, boy, this is
horrible. In any case, thank you very much for including me in
this most important hearing.
The question that you posed in the title of the hearing,
``Why does the U.S. Government do business with companies doing
business in Iran?''--has a pretty simple answer: Because it
can.
As the Department of Defense (DOD) rightly noted in its
commentary on the GAO report released today, the companies in
question are qualified to bid on Federal contracts and are not
excluded by any U.S. law or by any regulations.
The New York Times, as we have mentioned repeatedly,
reported earlier this year that 74 companies have done business
with both the Islamic Republic of Iran and with the U.S.
Government over the past decade. Of those, 49 continue to do
business there, according to the New York Times, and have no
reported plans whatsoever to stop their business with Iran. The
GAO report does make clear that some of this business seems
necessary for either logistical or financial reasons; fuel
supplies, base building and similar endeavors can, though may
not necessarily, limit the choices available to DOD. But among
the benefits that some of these companies receive have also
been $4.5 billion in loan guarantees and loans from the Export-
Import Bank--loans which the bank leadership insisted were
fully vetted with the Department of State and other
Administration players.
The larger problem, as I think all of the witnesses and
you, the Members, have suggested, is that the U.S. Government
is for the most part indifferent as to whether beneficiaries of
U.S. taxpayer dollars are indeed doing business in Iran. And
that is entirely in keeping with the underlying trouble: For
the last decade and a half, the U.S. Government has not taken
the Iran sanctions legislation passed by the Congress
seriously.
Under the Iran Sanctions Act, there is a full menu of
measures available to sanction entities found to be doing
business with Iran, which range from a slap on the wrist to
punitive or crippling sanctions for a designated company.
Section 6 of the act targets two of the focuses of recent
articles and some of the things that we have actually been
talking about here today: The sanction in paragraph (1) offers
``denial of Export-Import Bank loans, credits, or credit
guarantees,'' and paragraph (5) offers a ``prohibition on U.S.
Government procurement from the entity.'' Had there been
designations in accordance with the Act by the Department of
State, it would not have been necessary for the taxpayer to
subsidize any of these Iranian business partners.
But since the passage of the Iran Libya Sanctions Act
(ILSA) back in 1996, as we have said, only three companies
taking part in one particular project have actually been
sanctioned. Those sanctions were immediately waived. And no
project bar that example has merited more than an inconclusive
and half-hearted investigation by the Department of State.
Several years ago, an amendment to the underlying law would
have required the President to make a determination within a
time certain about a particular case, but that was opposed by
the White House and was ultimately excluded from revisions to
ILSA. Indeed, this is the history of what we now call the Iran
Sanctions Act. Congress acts to force the Executive Branch to
seriously pursue a stringent sanctions regime against Iran, and
the Executive Branch--whether led by Democrat or Republican
Administrations--resists.
Congress' previous efforts to encourage Administration
implementation of the Iran Sanctions Act were really for
naught. And the Bush Administration was no more aggressive
against firms investing in Iran than was the Clinton
Administration--the intervention of September 11, 2001, Iran's
own progress toward a nuclear weapon, the election of Mahmoud
Ahmadinejad, and Iran's complicity in attacks on our troops in
Iraq notwithstanding.
By 2006, it had become clear to many in Congress that the
loopholes in the Iran sanctions legislation sufficed to
accommodate a State Department convoy driving through. And the
Iran Freedom and Support Act tried to close those loopholes,
also funding democracy activities in Iran and sanctioning
companies transferring weapons of mass destruction (WMD) and
conventional weaponry. In other words, it expanded beyond the
energy focus. It also set a 90-day time limit on a sanctions
determination--a clear congressional response to State's
failure to comply in good faith with the Iran Libya Sanctions
Act. The House version of the bill was even tougher still, with
a ban on foreign aid to countries whose nationals violated the
terms of the bill and an amendment closing the loophole which
allowed subsidiaries of U.S. companies to operate in Iran.
But the Bush Administration opposed the stronger language
with the stock claim that the bill failed to afford the
President sufficient flexibility. And as a result, a watered-
down version was ultimately passed--one that did not require a
determination about violators, but notably did provide support
for promotion of democracy in Iran, an activity largely
discontinued by the Obama Administration. The bill also
suggested that the Administration not conclude nuclear
agreements with countries known to have provided nuclear
technology to Iran. This last was a swipe at Russia, and yet
another ignored signal from the Congress. The Bush
Administration transmitted a so-called 123 Agreement for
nuclear cooperation with Russia to the Congress in May 2008,
rescinding it in the wake of the Russian attack on Georgia 3
months later. The Obama Administration reportedly retransmitted
that 123 Agreement to Congress yesterday.
As Members of this Committee are aware, Congress is once
again considering legislation intended to strengthen and expand
the Iran Sanctions Act. And once again, the administration in
power is seeking to weaken the provisions of the legislation.
I understand that the State Department is playing an active
role behind the scenes in conference seeking to weaken key
provisions of the legislation, including demands to create an
exemption for so-called cooperating countries. This, by the
way, has been something that they have been trying to get in
there throughout all of these years.
There is no question that there is no silver bullet to
address Iran's nuclear program. No single bill and no single
set of sanctions is going to deliver the government of the
Islamic Republic. But in light of this rather pathetic history
of Executive Branch evasion, one may legitimately wonder what
would have happened had the White House had less latitude to
ignore decades of investment in Iran's energy sector.
Successive administrations will argue that the track record
for discouraging investment in Iran is a good one. Indeed, by
the count at our own AEI IranTracker project, 18 companies have
pulled out of Iran in the last couple of years, including some
that are key to Iran's refining and energy production sectors.
But I would suggest that many of those decisions have been
prompted by aggressive divestment legislation now passing in
U.S. States--Congressman Ted Deutch being behind the first and
leading one of those--the terror-free investment movement,
Iran's own mafia-like business environment, growing fear of an
Israeli military strike, and changing perceptions in European
countries of the threat posed by Iran.
Looking at the list of companies that have reportedly
ceased business in Iran, it is striking that the vast
majority--13 of the 18--are located in the United States or
Europe.
Moreover, as the pattern of overall investment in Iran
shifts away from our European allies toward less responsible
stakeholders in the international system such as China, there
will be continuing opportunities to implement the Iran
Sanctions Act--and a growing imperative to do so.
The GAO has cautioned that its standards do not equate to a
determination by the Department of State. And that is fair
enough. Determinations by State will need to be careful;
companies themselves should absolutely be required to certify
that they are not engaged in sanctionable transactions with
Iran under the ISA. But if they are not asked, they are
certainly never going to tell.
Your efforts, Mr. Chairman, and those of your colleagues
who have pursued the question of U.S. indirect subsidies to
Iran and more effective sanctions legislation, are the
beginning of a very important process. We can no longer rely on
the good faith of a well-intentioned Executive Branch to ensure
that Iran is isolated using all means available. Rather, it
must be the Congress that sets the agenda, identifies the
problems, closes the loopholes and guarantees enforcement of
the law of the land.
Thank you very much.
Chairman Lieberman. Thank you very much, Ms. Pletka. That
was an excellent statement.
Each of the Members of the Committee will have 7 minutes on
this first round.
I want to begin with you, Ms. Pletka, and ask if you would
venture an opinion, and speak a little bit more than you have
already about how you explain the reluctance of the Executive
Branch, regardless of whether there have been Democratic or
Republican Presidents, to enforce the sanctions legislation.
What is going on? What is behind all this?
Ms. Pletka. I do not think there is a single answer.
Clearly, in the department of a very fair and just answer, it
is difficult to identify companies without a shadow of a
double. GAO identifies 40-plus companies. Our own IranTracker
list lists more than 200 companies. So clearly there is----
Chairman Lieberman. Two hundred companies that are doing
business----
Ms. Pletka. Companies worldwide that are doing business in
Iran.
Chairman Lieberman. Right.
Ms. Pletka. Florida listed a number of countries. I think
that the Executive Branch has always been very leery about
putting out false information. That being said, there is an
opportunity for them to investigate. They have always claimed
over the years that this complicates our diplomacy, that it
affords an ability by Iran to drive a wedge between us and our
European allies, between potential Security Council members who
will stand with us--Russia, China, and others--and that is
fine. Even the investigations, however, provide a chilling
atmosphere that could close off options for Iran, and they have
not done that.
The other problem is what my late boss, Senator Jesse
Helms, used to call the problem of the Foreign Service, and
that was about making the world safe for cocktail parties. What
will they say when I go and sit down and ask the Chinese why
their businesses are facilitating the Islamic Republic if I
also have to sit down and have some cheese with them and talk
about sanctions?
This is a big part of the problem from my perspective, and
I think that is why the Congress needs to be behind this.
Chairman Lieberman. Thanks. Let me go to the first possible
explanation, which is the possibility that it is difficult to
bring these lists together.
Mr. Christoff, let me ask you first, how long did it take
the GAO to compile the list of companies involved in commercial
activity in Iran?
Mr. Christoff. Well, we spent about 6 months with three
full-time people, first trying to develop a good methodology,
and then 2 solid months of searching the 200 industry
publications and coming up with a preliminary list.
Chairman Lieberman. And, likewise, Congressman Deutch, can
you tell us how long it took the State of Florida to generate a
similar list of firms doing business in Iran?
Mr. Deutch. Sure. The State Board of Administration reached
out to a number of organizations and research firms, first to
gather an initial list. They then ran that list through their
own risk management firms that they typically use, and then
ultimately scrubbed that list internally. The whole process
took them only months to compile.
I would, if I may, Mr. Chairman, point out that while there
is some discussion about whether a company belongs on the list
or not, certainly for those companies that the SBA in Florida
reached out to who confirmed that indeed they are doing
business in Iran, or for the 13 of the 41 companies that the
GAO has reached out to, who, in fact, have confirmed that they
are doing business in Iran, there is no reason for further
analysis, it seems to me. Those should be the initial countries
placed on that list.
Chairman Lieberman. Well said. I will come back to the
first point, which is that hearing the relative ease with which
GAO and the State of Florida assembled this list, leads me to
say that it requires a kind of willing suspension of disbelief
to think that the State Department has been investigating this
question for 12 years without making a single determination--
well, there were three during the Clinton years, but then those
three were immediately waived. And, look, a lot of good work
has been done in different administrations, particularly the
last two, by the Treasury Department to essentially put
pressure on firms and to stop them from doing business in Iran.
But overall the reality is that nothing we have done has, in my
opinion, affected at all the onward movement of the Iranian
nuclear weapons program. And perhaps this sorry record of
enforcement explains best of all why that is the case.
Congressman Deutch, let me ask you again, what has been the
reaction of companies that have been identified by the State of
Florida? And, particularly, have any of them tried to contest
Florida's actions in court?
Mr. Deutch. They have not. The response to the State Board
of Administration sounds comparable to the response that the
GAO received. There are some companies who defended their
actions and were very clear to point out that they do not
belong on a list, they are not doing business, and they wanted
to explain why. There are a number of companies who have
confirmed indeed they are doing business, and they understand
that the result is, according to the letters that the SBA
provided to them, that the State would then divest holdings in
those firms. And there are a significant number who have simply
ignored the SBA throughout the process. But there have been no
threats, there have been no lawsuits, and there is a growing
recognition, at least by some of these companies, that this is
something to which they need to pay attention.
Chairman Lieberman. Mr. Christoff, I think by my count you
said that 17 of the 41 firms responded in one way or another.
Give us a sense of what the response was.
Mr. Christoff. All 17 affirmed the information that we had
provided in our draft report.
Chairman Lieberman. They did. Right.
Mr. Christoff. I think it was interesting that some of the
firms corrected our understanding of what their agreements were
with the Iranian Government. Reports indicted that Royal Dutch
Shell, for example, had signed an agreement in which they had a
25-percent stake in developing a natural gas field. They wrote
back and said, no, it is 50 percent, it is not 25 percent, but
we are still deciding whether or not we want to pursue that
investment.
Chairman Lieberman. Was that the one that you referred to?
I believe you said in your testimony that one of the firms
contested what you said or denied that they were--or did I
misunderstand?
Mr. Christoff. No, none of the firms disputed what we had
found among those 17.
Chairman Lieberman. OK. I thank the three of you. My time
is up. Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Mr. Christoff, I want to follow up on the questions that
the Chairman was asking you about the State Department's
efforts over the past 12 years. I assume that during the course
of your study you contacted the State Department. Did you get a
sense of how far the Department has progressed in researching
which companies may be in violation of the Iran Sanctions Act?
Mr. Christoff. I think we have seen additional resources
that State is now dedicating to this effort vis-a-vis prior
Administrations. When we did our report in 2007, there was one
individual over at the State Department that was responsible
for trying to develop some information.
Senator Collins. Just one?
Mr. Christoff. Yes. There appear to be more individuals
that are trying to develop a list, but I am not certain when
that list will be offered to the Congress. I know you all have
sent letters to the State Department transmitting our list, and
the Congressional Research Service's list, and asking them to
comment. And I believe you are still waiting to hear back from
the State Department as well.
Senator Collins. What do you think is a reasonable time
frame for the State Department to compile a list similar to the
list that GAO compiled?
Mr. Christoff. If you assert a credible methodology, which
I believe GAO did--we spent 2 to 3 months using what we
believed to be a high threshold, a gold standard in terms of
identifying companies. One can develop a credible list in that
time.
Senator Collins. Congressman, you mentioned in your
testimony the efforts of the SEC to strengthen disclosure
requirements for companies engaged in business in Iran so that
potential shareholders are aware of whether or not a company is
doing business with Iran. I have pushed the Chairman, Mary
Schapiro, on this issue and did so in a recent Appropriations
Subcommittee hearing just a couple of weeks ago. And the fact
is the SEC has made very little progress in carrying out the
mandate that this information be disclosed to investors.
I wondered if you could comment on what steps you think the
SEC should take to strengthen the disclosure requirements.
Mr. Deutch. Sure. Thank you. If our goal is to have the
benefit of full information--and the party best able to provide
that information obviously is the company that is doing
business in Iran--for the SEC to determine that investments in
Iran are material, meet the materiality test and, therefore,
must be disclosed on their SEC filings, that disclosure would
then be made available to shareholders. It would be made
available to the general public. And as I said earlier, at a
time when sanctions are being discussed here and at the United
Nations, it seems certainly to me, and I think to most
observers, that the decision of a company to invest in Iran is
material and that its shareholders deserve to know that. That
would be the best way to make that information available
rapidly and almost immediately.
Senator Collins. Ms. Pletka, you talked about the
difficulty that the Federal Government has had over
administrations in this area. If the U.S. Government were to
deny Federal contracts to companies doing business in Iran, do
you believe that most of those corporations would cease their
activity? Is that a sufficient incentive, if you will, for them
to stop doing business with Iran?
Ms. Pletka. I think that many of them would think twice.
Part of the problem is that they have really never been forced
to make that choice. It has not been presented to them as an
either/or proposition.
Certainly there are some that would continue, and we have a
choice to make at that point. That is why there is a waiver in
the last. If, in fact, we are required to buy fuel for
Afghanistan, for example, from a particular company and we have
to do it for national security reasons, there is a waiver in
law. But companies could also be afforded the opportunity to
make the choice between the two governments.
I also want to add something, by the way, that has not come
up that is important. At the time of the 1998 decision on the
Gazprom-Total-Petronas investment in Iran, when the Secretary
of State at that time, Madeleine Albright, did a determination
and a waiver, foreign countries did threaten the United States
to take us to the World Trade Organization (WTO). And that is
another factor that I do want to highlight. It is not fair to
give a serious reason and a flippant reason and leave
everything out in between. That is an issue. Secondary
sanctions are opposed by many countries, and these are
perceived as secondary sanctions. So I just want to put that on
your radar screen as something worth understanding.
Senator Collins. Congressman, when Florida enacted its law,
did it have an impact on the decisions made by the corporations
that were no longer receiving investments from Florida's
pension funds, to your knowledge?
Mr. Deutch. Florida's decision alone to enact tough
divestment legislation was not sufficient to move any company
to withdraw from Iran. However, as a result of Florida's
efforts and those in 19 other States, there have been decisions
made not to proceed on contracts that had been signed, and
there were further statements that have been made about the
decision to withhold the decision to go forward to see how
these divestment laws continue to play out.
The point is--and I think this is a point that has been
made previously by other members of the panel--one of these
items alone, one layer of sanctions may not suffice to move
companies, but when you shine the light on these companies and
risk the various sanctions that we are discussing, then that
type of pressure might well move those companies to make
decisions which will ultimately impact the regime in Tehran.
Senator Collins. Thank you. Thank you, Mr. Chairman.
Chairman Lieberman. Thanks very much, Senator Collins.
Just for the information of Members, next is Senator Brown,
then Senator McCaskill, Senator Ensign, and we are honored to
have a guest appearance today by Senator Gillibrand.
OPENING STATEMENT OF SENATOR BROWN
Senator Brown. Thank you, Mr. Chairman, and thank you for
holding this very important hearing. Being new here, I am
flabbergasted, quite frankly, at the failure by the
administrations, without casting stones, to enforce our laws.
And I have always felt that we need to use draconian sanctions
immediately against Iran to ensure that they do not become
nuclear-capable and start exporting weapons and terrorism
throughout the region. I think it is critical, and I am shocked
that the present Administration is not devising a plan to
handle that or enforcing and really putting its foot down to
say, OK, it is time, we really need to get cracking here and
enforce our laws, and to send a very strong message that we are
not going to tolerate anymore people circumventing our laws or
just ignoring the fact that we need to get serious.
In the New York Times article, that came out is deeply
troubling. I know that triggered, obviously, us having a
hearing, Mr. Chairman. I was wondering if I could direct a
question to Ms. Pletka. As you know, over the past decade the
Federal Government has awarded $107 billion plus to companies
doing business in Iran, including $15 billion paid to companies
that defied American sanctions law, and the current law, as you
know, requires the U.S. Government to deny entry to aliens who
we reasonably believe will commit unlawful acts. Do you think
that non-American chief executive officers (CEOs) of companies
that do business in Iran and contravene our sanctions regime
should be denied entry on those grounds? And would this be an
effective sanctions tool if enforced? And the reason I ask that
is because we are exploring, hopefully in a bipartisan measure,
to propose legislation, and I am interested in working with my
colleagues on this that would, in fact, do that, to basically
deny visas to CEOs and their families as another tool in the
toolbox.
Ms. Pletka. Thank you, sir. I think that visa restrictions
are always a useful tool. They are personal, and they tend to
get people's attention very quickly.
I do think that offering that opportunity to the President
and whoever he delegates to carry out the law gives him an
opportunity to do that. I do not think that it is something
that would be effective were it applied in blanket fashion. But
I do think that it would enable companies to make a very sharp
choice between the opportunities that they see in Iran and the
desire to come to the United States for whatever purposes.
Visiting the United States is not a right. It is a privilege.
And I think that anytime that you can use that in a way that is
effective for our national security, you are moving in a good
direction.
Senator Brown. It seems to me that you have to follow the
money, as usual, and the fact that we could certainly involve
the United Nations to do certain things, but we really need to
get European involvement and make sure a lot of the European
Union countries that are actually doing very serious business
in Iran, ultimately recognize and have to determine whether
they want a nuclear Iran and whether that outweighs the
financial gains.
Do we need a new law, or should we just enforce the ones
that we have now? Or is it a combination of the above? What
type of solutions can any of you offer? And, Congressman, I
appreciate that is a great idea. That is certainly something we
can do.
Ms. Pletka. Successive presidents have enormous authorities
under the International Emergency Economic Powers Act (IEEPA),
to do all sorts of things to restrict. I think that when we
think about these things we do need to recognize that we live
in a world in which most of us believe in free trade and in
globalization. And I think that we need to understand that when
we go after companies and we go after company leaders, we do
invite retaliation by foreign governments against our own
company directors. And so we need to be careful and thoughtful
when we think about this.
One of the things that strikes me is that we have an
opportunity with companies that are engaged in some of the most
egregious activities--in other words, companies that are
helping Iran's nuclear program, helping Iran's missile program,
helping the Iranian Revolution Guard Corps to promote
terrorism--these companies should be a special carveout in my
estimation. There I think that you should feel very
enthusiastic about the notion of slapping visa sanctions on the
directors of those companies because those are the people that
are responsible for not just endangering American lives but for
the deaths of Americans over the years.
Senator Brown. Thank you. Mr. Chairman, thank you.
Chairman Lieberman. Thanks very much, Senator Brown. I
agree with you. Senator McCaskill.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. Thank you, Mr. Chairman.
Common sense tells me that what we ought to do is tell
every American President that they cannot stand in front of a
microphone and talk about sanctions against Iran ever again if
they do not begin to take the sanction laws that are on the
books more seriously than what this hearing has demonstrated.
And this is not the first time we have covered this subject
matter. I know that I had the opportunity to talk to General
David Petraeus about it at a hearing in the Armed Services
Committee. I know there was a hearing in the Armed Services
Committee about this. It is no wonder Iran is so disrespectful
if we cannot get our act together to enforce the laws that are
on the books. Passing more laws is not going to do any good if
we do not have the political will to do what we need to do.
I understand the issue of diplomacy and that part of the
problem is that, our friends do not want us to enforce, and,
therefore, if we do not enforce against them, then our not so
friendly nations say, wait a minute, you did not enforce
against them, so why are you now picking on us? And that is a
problem.
Mr. Christoff, in the GAO report, do you get a sense of the
deliberations that are going on in terms of this subject
matter? I am trying to get a handle on where is it in
government that people are sitting around a table and saying,
well, we got that law on the books, should we ignore it? Should
we try to enforce it? Is that conversation even going on
somewhere? And if so, where?
Mr. Christoff. I think it is starting at the State
Department. Some of the brief discussions that we had with the
new Administration and the office working these issues at the
State Department indicate that discussion is beginning. We did
not see any of these discussions when we issued a report in
2007 and looked at the State Department's enforcement of the
Iran Sanctions Act.
I would also note that the State Department is capable of
enforcing other aspects of sanctions against Iran. It has, as
we said in our 2007 report, issued sanctions against 111 firms
or entities that violated the nonproliferation portion of the
collective sanctions against Iran. Many of those companies were
Chinese companies. But it has not moved forward on that portion
of our collective sanctions that deal with the energy sector.
Senator McCaskill. So they are selectively picking out some
parts of the law they like and ignoring the parts of the law
they do not like, in essence?
Mr. Christoff. Well, I do not want to put those words in
their mouths, but by their actions, it appears that it is more
difficult for them to impose sanctions on energy companies
through ISA.
Senator McCaskill. What about the issue of changing names
of companies? I am a big believer that you have to have
accountability. Who is in charge of investigating whether or
not companies are changing their names in order to evade
sanctions? Where would the responsibility for that lie?
Mr. Christoff. That I do not know.
Senator McCaskill. Would you like to take a stab at it, Ms.
Pletka? You have been around this subject matter for probably--
--
Ms. Pletka. Too long.
Senator McCaskill [continuing]. More years than you want to
admit.
Ms. Pletka. Yes, that is probably true.
Senator McCaskill. Who in the grand labyrinth of government
is supposed to be in charge of even tracking what companies
fall under these sanctions much less enforcing them?
Ms. Pletka. That is an excellent question. In a quarter of
a century, I have never been able to figure out who actually
wears the chief's hat on this issue. Theoretically, the
intelligence community is tracking companies that change their
names. Lots of companies do not change their names and are
serial violators of our proliferation law and various Iran
sanctions, particularly Chinese companies.
It is absolutely remarkable that we together have been able
to generate an enormous amount of information that is
apparently entirely mysterious. And on the energy side, I think
that where you have seen a change for the good at the
Department of State, in this Administration we have seen a
change for the bad on the energy side. The Energy Information
Agency no longer provides significant amounts of information
about companies doing energy business in Iran. And so rather
than getting more information, we are getting less.
Senator McCaskill. Mr. Chairman, it seems like maybe what
we need to do is start with figuring out who is in charge. I
think maybe we have avoided accountability on this because we
have not flown down long enough to figure out who is the person
in government that is not doing their job, and as long as we do
not identify who that person is, they are not going to do their
job. It is mind-boggling to me that we do not know who to yell
at.
Yes, Congressman Deutch.
Mr. Deutch. Senator McCaskill, I worry that at least with
respect to identifying the companies, whether or not to impose
sanctions is the next step, but in terms of identifying the
companies, I think we have determined here that we have made
this a harder task than, in fact, it may be.
In Florida, on a quarterly basis, the Pension Board
publishes a list of companies who are doing business within the
energy sector in Iran, and part of that time is spent reviewing
exactly this issue of company name changes and subsidiaries,
and efforts sometimes to shield, sometimes just corporate
restructurings to ensure that the correct names remain on that
list. I am not sure ultimately who should have responsibility,
but the Department of Energy, again, as Ms. Pletka points out,
has published these reports on a regular basis, factual
reports. That might be a place to identify companies.
Senator McCaskill. Well, welcome to Congress. I think you
are going to be a great addition to the intellectual heft of
the body in which you serve, and clearly you have a great work
ethic, and we welcome you here.
Let me briefly talk about companies that claim to do
business with Iran on their Web sites. There is a company that
we have been trying to make accountable. Senator Collins is a
cosponsor of the Rocky Baragona law. Kuwait and Gulf Link
Transport (KGL) killed a soldier of ours in Iraq through their
negligence and have evaded responsibility for that by avoiding
personal jurisdiction in the United States, and we are trying
to fix that law by requiring companies that do business with us
to accept jurisdiction as part of their contractual obligation
to do government business with the United States.
KGL brags on its Web site that it does business with an
Iranian shipping company. And I am wondering, in Florida,
Congressman Deutch, would somebody bragging on their Web site
that they do business in Iran, would that be sufficient for the
officials in Florida to consider them a company that would not
be included?
Mr. Deutch. If, Senator McCaskill, they fall within the
requirements of the Florida act, which is titled the same as
the Iran Sanctions Act, then certainly as the Pension Board and
its outside research firms conduct their research, self-
disclosure by a computer would certainly warrant inclusion on
the list and would trigger the correspondence with that company
going forward.
Senator McCaskill. It seems like self-disclosure would be
the easiest way to nail them.
Mr. Deutch. It does.
Senator McCaskill. Thank you, Mr. Chairman.
Chairman Lieberman. Thanks, Senator McCaskill.
Senator Collins and I have been talking about what is an
appropriate follow-up, and one thing we are thinking about is
that we should direct a letter to, particularly, the Secretary
of State, also the Secretary of Defense, presenting the GAO
report and asking for a response. What are you going to do
about it? Why is this happening? But it strikes me that we
should start with a clear identification of who at the State
Department is responsible, so we will put that together, and we
will ask Members of the Committee to sign. Thank you.
Senator Ensign.
OPENING STATEMENT OF SENATOR ENSIGN
Senator Ensign. Thank you, Mr. Chairman. It is amazing how
much there is agreement going around the table today.
Senator McCaskill. Look out, it might catch on.
Senator Ensign. Yes, be careful. [Laughter.]
And I think it is because there is a lot of frustration.
There has been a lot of frustration over the years with
sanctions that have not been enforced, and I think that no
matter whether you are a Republican or Democrat, when you see
something that is wrong out there, it is very frustrating to a
lot of us.
One of the questions that I would like to get to is under
the Iran-North Korea-Syria Nonproliferation Act, the
Administration is supposed to submit a report every 6 months.
Do we know the last time that a report was submitted to the
Congress?
Ms. Pletka. It was 2 years ago, I think, they submitted a
report.
Senator Ensign. I think it was 2008, and from what I
understand, they have no plans to submit their next report.
This gets back to who at the State Department is responsible.
We pass these laws saying you must do this, but then there is
no penalty when they do not do it. And that is something that,
the Congress, really the only thing we have is basically the
purse strings if they do not do something like that, and that
is something that we should start considering when we
actually--do we really mean what we say when we want these
reports every 6 months?
This gets to my next question. You know, we have been
exploring how these entities have done business in Iran, how
they are still able to do business with the U.S. Government to
get contracts. In the course of the GAO study of this matter,
did the GAO make an assessment of why the State Department has
not sanctioned anyone under this act?
Mr. Christoff. No. You would have to go back to the 1998
decision when the State Department waived sanctions against
several foreign firms. Some of the reasons that the State
Department cited were: Concerns about maintaining solidarity
with the European Union; concerns about Strategic Arms
Reduction Treaty (START) negotiations with the Russians; and
the Asian financial crisis with the Malaysian firm. That is the
only evidence out there as to why the State Department has not
enforced the Iran Sanctions Act.
Senator Ensign. Ms. Pletka, you have been around this for a
long time. Do you have any idea of why the State Department has
not sanctioned anyone under this Act? Because they have
loopholes that they can--we used to say drive a truck through,
but maybe more of a freight train or an oil tanker would be
more appropriate.
Ms. Pletka. In fact, yes, the Chairman asked a similar
question, and I think that, frankly speaking, that is a
question best directed to State. There is always an excuse.
There is always something going on in diplomacy. Part of the
difficulty of the structure of our government is that when the
Department of State is responsible for the conduct of diplomacy
and the conduct of the imposition of sanctions and decisions,
they tend to weigh one against the other.
An interesting question was asked a moment ago, which is,
why are we so much more serious about the nonproliferation
violations than we are about the energy sanctions? And a lot of
that has to do, again, with the structure of the Department of
State. The Under Secretary for International Security and
Nonproliferation and that Bureau traditionally has been far
more serious about violations of the missile technology control
regime and our various Arms Export Control Act violations and
nuclear proliferation, then the Bureau of Near East Affairs has
been serious about problems with Iran.
It is a major challenge, and oversight is the answer.
Senator Ensign. This feeds right into my next question
about the current bill that is in conference, the Iran
Sanctions Act, to expand the authority of the President to
impose sanctions upon entities providing refined petroleum
products. There are reports out there to put into the bill a
cooperating country exemption, and so a couple of questions go
along that line. If there was a cooperation country exemption
put in the bill, could China be considered a cooperating
country under current law--or under a law like that?
Ms. Pletka. Well, it depends who you ask. If you ask me,
the answer is no. But there is a cooperating country exemption
in this bill, because if you cooperate, then you are not
committing a sanctionable act and you will not be sanctioned.
It is really pretty straightforward. If you do not do it, then
you are cooperating, and you are not going to be sanctionable.
So the notion that you have to provide a blanket exemption
to countries that in the judgment of somebody--I think we still
cannot figure out who--is a really big mistake, and I think
that this really goes to the bona fides of the Administration
in negotiating on this bill and their intention to enforce
whatever ends up coming out of conference.
Senator Ensign. What if, say, the Russians decide to give
certain missiles, the SA-20 or SA-21, would that be considered
cooperating?
Ms. Pletka. I think the Administration has suggested that
they are getting good cooperation from the Russians and that
they are getting good cooperation from the Chinese. And what
they characterize as good cooperation is a willingness to sit
down in New York at the United Nations and discuss the
imposition of sanctions. And our standard apparently is that
they are willing to come and discuss them, not that they are
willing to agree to a stringent set of sanctions but that they
are merely willing to sit down with us, because apparently good
behavior is constituted by just sitting down. And, yes, the
Russians have reiterated as recently as last month that they
were going to be transferring a S-300 air defense system to the
Iranians that would enable them to withstand a serious attack
from outside.
Senator Ensign. Thank you.
Mr. Chairman, I think that some of the answers to the
questions illustrate the problems that everybody has been
asking here, and why I think there is so much frustration in
the Congress with what is going on with diplomacy when it comes
to Iran, because it is making our country look weak, it is
making these sanctions completely ineffective. And if we really
want to stop some of the proliferation issues and have some
teeth behind it, we actually have to enforce the current laws.
As Senator McCaskill said, what is the use of having new laws
if our current laws are not even being enforced?
So we need to get much tougher, and I am glad to hear in a
bipartisan way that people are talking about getting tougher.
Chairman Lieberman. Thanks, Senator Ensign. Thanks for that
statement. Thanks for your excellent questions.
Senator Gillibrand has a real interest in this subject and
this legislation. She asked if she could come by and ask some
questions, and we are happy to give you that opportunity now.
Senator Gillibrand, it is a pleasure to have you here.
OPENING STATEMENT OF HON. KIRSTEN E. GILLIBRAND, A U.S. SENATOR
FROM THE STATE OF NEW YORK
Senator Gillibrand. Well, thank you, Mr. Chairman. I am
extremely grateful for your leadership on this issue and
holding this hearing. Thank you, Madam Ranking Member, as well
for your leadership.
I was most alarmed when I read a New York Times article in
March that said the Federal Government has awarded more than
$107 billion in contract payments, grants, and other benefits
over the past decade to foreign and international American
companies while they were doing business with Iran, and did an
internal analysis and found that $15 billion was paid to
companies that defied our sanctions law. So, obviously, this is
something that we have all been discussing about how so much of
American contracts could be going to companies doing business
with Iran.
I do not know if you would know this question, but if we
are doing business with them and Iran is doing business with
them, relatively who is doing more business? Is it worth more
to them to maintain our business or do they do more with Iran?
Mr. Christoff. Well, those are some good questions that we
might be able to research for you and submit for the record.
Senator Gillibrand. That would be helpful because,
obviously, as legislators we want to solve this problem and we
want to know how we can influence behavior, and not only
enforce the sanctions laws but figure out how we could perhaps
work behind the scenes.
And to that point, the Treasury Department has been very
effective in getting 80 banks to pull out of Iran when
sanctions on the strategy sector have not been implemented. And
so we have worked well through the Treasury Department to
influence behavior. Are there any ways that we should be doing
that in the energy sector, working behind the scenes perhaps
more effectively than we have done overtly?
Ms. Pletka. There is no question that there are a lot of
opportunities in the energy sector, and those can also be
undertaken by the Treasury if other branches of the government
are unwilling. I think the problem for the Treasury Department
and for this new office under Stuart Levey that was created in
2004 is a limitation on resources. There are additional
resources in this bill for Under Secretary Levey's office to do
more designations, to do more investigations, but information
is key and they need more of it. They need to move forward more
quickly. The problem is that, we are now looking at 14 years
since the Iran Libya Sanctions Act was passed, and if we are
going to take another 14 years to get to this point, we are
going to be beyond Iran having a nuclear weapon.
So the Congress needs to encourage them not just to move
into different areas, but to move a little bit more quickly.
Senator Gillibrand. Right. Now, you mentioned the Treasury
Department doing other responsibilities. The Treasury
Department is responsible for Iran export sanctions, but the
Commerce Department oversees Syrian sanctions and other export
licenses. But one of the fundamental challenges for the
Treasury Department is they do not have an electronic tracking
system and they have an inability to inspect shipments or hold
exporters accountable. So how could you address that
shortcoming in the Treasury Department's ability? And is it
justifiable that they still then maintain the responsibility of
Iran sanctions if they do not have those capabilities?
Ms. Pletka. I think it is a little bit of a question of
apples and oranges. You are talking about export controls in
this case, and I do not think that the challenge that we are
facing is one in which we are worried about things getting
through the cracks and being exported from the United States to
Iran. Rather, we are worried that we are, because money is
fungible, enriching companies that are doing business in Iran
with taxpayer dollars at the same time.
Defense Secretary Robert Gates has talked about revisions
to our export control laws and rationalization of the export
administration of this country so that we do a better job and,
the right arm knows what the left arm is doing. But the
licensing process is not one that has directly affected the
ability of the Treasury Department to enforce.
I think that the ability of the Treasury Department to
enforce is most severely impacted by a limitation on resources,
and if I may put it in the vernacular, a really bad attitude on
the part of some parts of the government in moving forward.
Senator Gillibrand. Right. But I am worried with exports
because of dual-use issues. There is obviously a concern that
if we are exporting airplane parts that are then being used for
military use and similar types of transferable technology, that
we have some measure to investigate whether what we are sending
over there is being appropriately used and not going to
strengthen Iran's military intentions.
Ms. Pletka. End-use requirements are very important, and
certainly it is a very important area for oversight. At this
point, however, we are looking at Iran moving to a third-
generation centrifuge. We are looking to them working very
closely with China, possibly with North Korea and with other
countries, trying through illegal front companies mostly,
Iranian Revolutionary Guard Corps (IRGC) front companies, to
get stuff from Europe. They are not looking to us as much. So
that last step I would say is not going to be in getting dual-
use equipment from the United States. It is highly sensitive--
--
Senator Gillibrand. They will get it from somewhere else.
Ms. Pletka [continuing]. Equipment from other countries.
Senator Gillibrand. Can I just shift gears to a separate
issue that I want to address? One of the concerns is that our
sanctions do not touch upon natural gas. Why do you think our
current sanctions or the bills in conference address the goods,
services, and technologies that aid in production and export of
liquified natural gas?
Ms. Pletka. The truth is that you should be asking the
author of the legislation before me. I think it is important--
--
Senator Gillibrand. Do you think it should, though? Or do
you think it----
Ms. Pletka. I think it is very important to be consistent.
I think it is very important to be specified. I also think that
it is very important not to afford the Administration, the
Executive Branch, the opportunity to say that Congress has
written such overbroad legislation that it is impossible to
enforce. So if we are going to move forward with not just oil
but gas, liquified natural gas, etc., and we are going to go to
all parts of a supply chain and the technology, then the key is
for the legislation to be extraordinarily targeted and
extraordinarily specific. After all, we are really not
interested in expending our taxpayer dollars and resources
going after folks who are shipping pencils to the National
Iranian Oil Company. We are interested in things that are
actually key to their advancement and the production of refined
products, gas, etc.
So it is necessary to be specific, not just in legislation
but in report language, and I agree with you it is important
not to create new loopholes, because goodness knows they will
be found and they will be driven through.
Senator Gillibrand. The last issue in my few seconds
remaining, I have read a lot of reports that the Revolutionary
Guard has begun to take up the slack in areas where sanctions
have actually worked. Do you have any thoughts or comments on
that to inform our panel?
Ms. Pletka. That is absolutely true. Over the last few
years, beginning for the most part in the Ahmadinejad
presidency, the Iranian Revolutionary Guard has begun to play a
dominant role in the Iranian economic sector. And while I think
that the Administration is doing exactly the right thing--as
Secretary of State Hillary Clinton said, that Iran is really
becoming a military dictatorship. In targeting the IRGC,
unfortunately, I do not think that we have caught up in terms
of identifying the companies that are now owned by the IRGC or
the role that they play in the government.
If you look at--and we are about to produce a long list of
the companies that have been taken over. Iran has been engaged
in a 2-year-long process of privatization, which has, in fact,
not involved the devolution from government ownership to
private ownership, but government ownership to IRGC ownership.
Senator Gillibrand. Right.
Ms. Pletka. And so the IRGC is absolutely involved in every
part of the Iranian economy, including, by the way, in the
financial sector, yet we have yet to sanction IRGC-owned
banks--something that should be fairly easy under our own laws,
certainly, but even under relevant U.N. Security Council
resolutions that have already been passed. So it is a great
opportunity.
Senator Gillibrand. Thank you.
Thank you, Mr. Chairman. Thank you, Madam Ranking Member.
Chairman Lieberman. Thanks very much, Senator Gillibrand.
That last matter of sanctioning the IRGC, which really is now
dominating increasingly large sections of the Iranian economy--
and, of course, also funding terrorism and directing their most
critical parts of the Iranian military--is a focus now of the
conferees on the current bill.
So really on Senator Collins' behalf and mine, I thank the
three of you for the time you gave. This has been a very
informative, important, and I would say energizing hearing, no
pun intended. But the facts here are very compelling, and it is
why in addition to our concern that Iran has continued to go
forward headlong toward a nuclear capability without any regard
to what we have done, the facts cry out for us to adopt new
legislation, but also to begin to put pressure--and we will try
to start to do this with the letter we are talking about--on
the State Department to enforce the existing legislation.
You joked a bit about making the world safe for cocktail
parties, but there is a way in which--it is easy for us to say,
but I believe it so I will say it--that diplomacy occurs within
the confines of the relationships. Sometimes negotiators to a
private disagreement will in the end try to satisfy each other
in the conference room negotiating, sometimes forgetting what
is happening outside. Sometimes members of conference
committees do that as well. And so there is an actual human
tendency to do that, but it forgets what is at work here.
As you all know--and I will not hold you to a political
opinion, Mr. Christoff, but the other two, I will--the experts
on Iran all say that the only prayer of a chance we have to
stop their nuclear program is if they have no doubts about our
will, our strength, and our steadfastness. And right now we are
sending a very uncertain signal to them.
Senator Collins, do you want to add anything?
Senator Collins. Thank you, Mr. Chairman. I just want to
thank you for holding this hearing. All of us are aware of the
problem. It has been going on for a long time, and I think all
of us are determined to bring about enforcement of current laws
as well as to strengthen those laws. But as we have all said,
sanctions have no impact if they are not enforced.
Chairman Lieberman. Hear, hear. Thank you all. We are going
to keep the record of the hearing open for 15 days for any
additional statements or questions from the Members or the
witnesses.
With that, the hearing is adjourned.
[Whereupon, at 12:25 p.m., the Committee was adjourned.]
A P P E N D I X
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