[Senate Hearing 111-780]
[From the U.S. Government Printing Office]
S. Hrg. 111-780
IRAN POLICY IN THE AFTERMATH OF U.N. SANCTIONS
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HEARING
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
JUNE 22, 2010
__________
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COMMITTEE ON FOREIGN RELATIONS
JOHN F. KERRY, Massachusetts, Chairman
CHRISTOPHER J. DODD, Connecticut RICHARD G. LUGAR, Indiana
RUSSELL D. FEINGOLD, Wisconsin BOB CORKER, Tennessee
BARBARA BOXER, California JOHNNY ISAKSON, Georgia
ROBERT MENENDEZ, New Jersey JAMES E. RISCH, Idaho
BENJAMIN L. CARDIN, Maryland JIM DeMINT, South Carolina
ROBERT P. CASEY, Jr., Pennsylvania JOHN BARRASSO, Wyoming
JIM WEBB, Virginia ROGER F. WICKER, Mississippi
JEANNE SHAHEEN, New Hampshire JAMES M. INHOFE, Oklahoma
EDWARD E. KAUFMAN, Delaware
KIRSTEN E. GILLIBRAND, New York
David McKean, Staff Director
Kenneth A. Myers, Jr., Republican Staff Director
(ii)
C O N T E N T S
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Page
Burns, Hon. William J., Under Secretary for Political Affairs,
Department of State, Washington, DC............................ 6
Prepared statement........................................... 9
Responses to questions submitted for the record by Senator
John F. Kerry.............................................. 48
Responses to questions submitted for the record by Senator
Richard G. Lugar........................................... 50
Kerry, Hon. John F., U.S. Senator from Massachusetts, opening
statement...................................................... 1
Levey, Hon. Stuart, Under Secretary for Terrorism and Financial
Intelligence, Department of State, Washington, DC.............. 12
Prepared statement........................................... 14
Responses to questions submitted for the record by Senator
John F. Kerry.............................................. 53
Responses to questions submitted for the record by Senator
Richard G. Lugar........................................... 54
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening
statement...................................................... 4
(iii)
IRAN POLICY IN THE AFTERMATH OF U.N. SANCTIONS
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TUESDAY, JUNE 22, 2010
U.S. Senate,
Committee on Foreign Relations,
Washington, DC.
The committee met, pursuant to notice, at 9:33 a.m., in
room SD-419, Dirksen Senate Office Building, Hon. John F. Kerry
(chairman of the committee) presiding.
Present: Senators Kerry, Feingold, Boxer, Menendez, Cardin,
Casey, Webb, Shaheen, Kaufman, Gillibrand, Lugar, Risch,
Barrasso, and Wicker.
OPENING STATEMENT OF HON. JOHN KERRY,
U.S. SENATOR FROM MASSACHUSETTS
The Chairman. The hearing will come to order.
I just wanted to take a minute as we start to respond to
remarks made by General McChrystal and his staff in a magazine
article. I had a conversation with General McChrystal about a
half hour ago and emphasized to him that I think obviously,
those are comments that he's going to have to deal with with
respect to the Commander in Chief, his Vice President, and his
National Security staff.
I have enormous respect for General McChrystal, I think
he's a terrific soldier, and this is a critical moment in
Afghanistan. And as far as I am concerned, personally, the top
priority is our mission in Afghanistan and our ability to
proceed forward, competently.
It will be up to the President of the United States, as
Commander in Chief to make the decision as to whether or not he
and his national security staff feel that they can do that. But
my impression is that all of us would be best served by just
backing off and staying cool and calm and, you know, not
succumbing to the normal Washington twitter about this for the
next 24 hours. We have troops on the front lines, we have a
major mission that we're in the middle of and I think the
priorities of that mission are best served by letting the
President and his top general have their conversation and make
a determination as to how we proceed forward.
I want to thank you for coming this morning to discuss the
next steps in America's policy toward Iran. This is as critical
an issue as we could face. The potential of a nation securing a
nuclear weapon when it behaves as outside of the norm of
international behavior as Iran has chosen to behave, raises
serious national security concerns, not just for the United
States, but for many other countries.
And I know that regionally, from my meetings with leaders
throughout the region, they are deeply concerned about it.
There is not a leader in the Gulf States or the Arab world who
hasn't expressed concern about the potential of a nuclear Iran.
Today, we are privileged to welcome two of the principal
architects of our policy toward Iran: Ambassador William Burns,
Under Secretary of State for Political Affairs; and Mr. Stuart
Levey, Under Secretary of the Treasury for Terrorism and
Financial Intelligence.
This hearing comes at a crucial moment in our efforts to
curtail Iran's nuclear ambitions. All of us understand the
stakes: A nuclear-armed Iran would pose an intolerable threat
to our ally, Israel, risk igniting an arms race in what is
already the world's most dangerous region, and undermine our
global effort, which we have just taken significant steps to
underscore with the New START Treaty, to halt the spread of
nuclear weapons.
That's why, 2 weeks ago, the U.N. Security Council passed
Resolution 1929, widening the scope and scale of international
sanctions against Iran. It expands sanctions against the
Revolutionary Guard Corps, subjects Iranian vessels to
inspection on the high seas, bans most categories of arms sales
to Iran, and restricts the kind of investments that are allowed
in Iran.
Resolution 1929 also contains a number of nonmandatory
measures which give the Treasury and State Departments
important new leverage to persuade financial institutions, oil
companies, and other countries to divest from Iran. I want to
congratulate all of those who have been involved in this
impressive diplomatic effort. I know it took a lot of personal
work, a lot of sitting down and working through the
possibilities with many countries, and particularly, obviously,
with the Perm-5, and among those, China and Russia.
As we gather this morning, Congress is also finalizing
legislation that contains a number of tough new economic
penalties aimed at persuading Iran to change its behavior.
Among other measures, it targets firms that sell refined
petroleum to Iran or that deal with the Revolutionary Guard.
These steps to increase pressure are necessary, not because
we want to target Iran, but because Iran itself has decided to
continue to defy the international community, the International
Atomic Energy Agency, and the U.N. Security Council. Iran's
publicly disclosed stocks at its Natanz enrichment facility now
include more than 2,400 kilograms of reactor-grade low enriched
uranium. I think I am correct in saying that, at the time that
the original deal was offered for taking the enrichment out of
Iran, there were somewhere around 1,600 or 1,700 kilograms. So,
there's been a growth in the amount of available nuclear fuel
that they have, and that growth narrows the window with respect
to their ability to break out in terms of nuclearization.
That is enough feedstock, the 2,400 kilograms, is enough
feedstock for two nuclear weapons, though it's important to
note that Iran, in order to achieve that, would have to first
expel inspectors, and then enrich that materiel to the much
higher level required for weapons purposes, and cross separate
weaponization hurdles after they've done that. So, it is
especially troubling that Iran has recently begun enriching
small quantities of uranium to a concentration of around 20
percent, crossing yet another nuclear threshold.
If Iran continues much further down this path--and there is
reason through its prior actions to believe that it intends
to--then a later move to produce bomb-grade uranium would be
significantly easier and faster.
Given Iran's dangerous progress, some will argue that
engagement has been wasted. Well, we all wish Tehran's response
had been different. But, frankly, our ability to secure a new
resolution at the United Nations, and our ability to persuade
allies to go still further in pressuring Iran came about
because we were prepared to engage and show our willingness to
have engagement over some period of time. And it is the
exhaustion of patience with that effort to engage, that has, in
fact, helped to bring a reluctant China and Russia to the
table.
In the end, though, the true test of our policy will not be
pressure applied, but behavior changed. Recent experience
suggests that neither sanctions nor engagement alone will
convince Iran to abandon its nuclear program. Only by combining
both pressure and diplomacy into a comprehensive and
coordinated strategy will we have a chance at altering Iran's
behavior.
Now, there's no guarantee that Iran will not continue to
reject our diplomatic overtures. And that will present an
opportunity to turn the pressure even higher. But given the
stakes involved, if there is an opening, we must be willing to
explore it. When I was recently in Syria, President Assad
talked to me about the possibilities for that kind of an
opening, and for the possibilities of even building on Iran's
initial offer. I know the administration will look at any
opportunity to legitimately try to do so.
But the current situation brings us to the heart of the
questions at today's hearing. Given the failure of the previous
three U.N. Security Council resolutions to deter Iran, the
pregnant question is, How will this one be different? How much
time do we have and how long will it take for these sanctions
to have an impact? What are the real redlines for the Iranian
nuclear program and what consequences are we willing to impose
if Iran crosses those redlines?
We need to articulate an end state that is rigorous enough
from a nonproliferation standpoint, but also has some prospect
of being acceptable to both parties. America and our allies
have put proposals on the table. The June 2008 proposal by the
P5+1 to Iran, endorsed by both the Bush and Obama
administrations, was reiterated this month as an annex to
Resolution 1929. Last October's proposal to take 1,200
kilograms out of Iran for further enrichment for the Tehran
Research Reactor held a lot of promise. But Iran failed to
provide a concrete response until the eleventh hour, on the eve
of new U.N. sanctions, even while continuing to enrich uranium
to 20 percent, and having already grown the amount that it had
to that 2,400 kilograms. So, we look forward to hearing from
our witnesses today on the status of each of these initiatives.
We also need to understand how our efforts play into Iran's
volatile domestic politics. We need to take care that efforts
to deter Iran's nuclear program don't come at the expense of
the Iranian people, who may yet emerge as a force for
moderation within Iran. We recently passed the 1-year
anniversary of Iran's flawed Presidential elections. In the
unrest that followed, Iranian security forces were responsible
for widespread violence and for abuse against their own people.
Dozens of democracy activists were killed and thousands more
thrown in jail without due process.
Three American citizens, Josh Fattal, Sarah Shourd, and
Shane Bauer, remain in prison 11 months after being jailed for
straying onto Iranian soil and the whereabouts of Robert
Levinson remains unknown more than 3 years after he went
missing in Iran. So, we will continue to speak up for the
rights and well-being of the Iranian people, but also, of those
Americans being held in Iranian custody.
In the interest of time, I'm not going to recite the long
and impressive resumes of our witnesses, other than to note
that they are two of the best public servants that we have in
government today.
And before I introduce them, I want to say one other word
about Iran. Any history, any reading of the history of Iran has
to elicit from the United States some statement of
responsibility for the events that took place in the early
1950s with the CIA's involvement in a change of government
effort there. And that is a longlasting and deep memory in the
Iranian people, it's something we don't always think about.
In addition to that, the Iranian people have an
extraordinarily accomplished, long, long, history in terms of
civilization, a lot longer than the United States of America.
And their contributions to civilization in so many things, in
science and art, in discoveries, are quite extraordinary. It
would be wonderful if we could move beyond the repression of
this current administration to embrace that history and to see
Iran take a more legitimate and rightful place in the context
of that global history.
I think Ambassador Burns and Mr. Levey both understand
that, but their task is to hold the process accountable in
these days. And Ambassador Burns' sustained diplomacy over the
course of many months, working closely with Ambassador Susan
Rice in New York, was absolutely instrumental in securing the
passage of the U.N. Security Council Resolution 1929.
And Mr. Levey's efforts have been very significant. The
Treasury Department is not as well known in its engagement,
here, but it's a very, very significant one. And their ability
to be able to dissuade international banks and businesses from
doing business with Iran has had a significant impact, and
shown some significant results already.
So, gentlemen, we welcome the both of you, we thank you for
your work and your appearance here today and look forward to
your testimony.
Senator Lugar.
OPENING STATEMENT OF HON. RICHARD G. LUGAR,
U.S. SENATOR FROM INDIANA
Senator Lugar. I thank you, Mr. Chairman, for holding this
important hearing on United States policy toward Iran. Today,
our examination occurs against the backdrop of several
significant developments.
First, the U.N. Security Council adoption of Resolution
1929 on June 9 added incrementally to three previous rounds of
U.N. sanctions against Iran. This was followed on July 17 by
the European Union's announcement of new sanctions, most
notably a ban on investment by companies in Iran's oil and gas
industry.
In addition, June 12 marked the 1-year anniversary of
Iran's disputed Presidential elections and the brutal
repression of the protests that ensued. I would just say the
anniversary serves as a reminder of the values we Americans
hold dear and to which Iranian citizens aspire: freedom of
expression, freedom of assembly, and the freedom to choose our
government through transparent, fair elections.
As we debate as to how most effectively to constrain Iran's
nuclear ambitions, it is important to keep in mind those who
continue to pay a personal cost for expressing their opposition
to the Iranian regime.
Iran represents a direct threat to United States national
security, as well as to the security of Israel and that of our
other friends in the region. It has long provided materiel and
financial support to terrorist organizations, such as Hezbollah
in Lebanon and Hamas in the Gaza Strip. Concerns about this
activity were augmented earlier this year by reports of Iran's
transfer of long-range rockets to Hezbollah via Syria.
The exact status of Iran's nuclear program and the degree
of progress it has made toward a potential nuclear weapon
continue to be debated. But Tehran clearly is not complying
with international nonproliferation regime. The latest report
of the Director General of the International Atomic Energy
Agency pointed to ``Iran's continued failure to comply with its
international obligations,'' and noted its ``sustained lack of
cooperation with the IAEA.'' The revelation last year of Iran's
clandestine enrichment facility was but one case in point.
Restraining Iran's nuclear program requires significant
cooperation with allies and partners, most of whom have
commercial interests with Iran and independent views about the
Tehran regime. The progress this month toward broader
international sanctions was welcome, but a sanctions strategy
is likely to require much more work. For example, as additional
countries in Europe, Asia, and elsewhere expand sanctions, what
efforts are being made to persuade other nations--particularly
China--to forgo the opportunity to substitute their own
investment and trade for that which is being withdrawn? Greater
international unity is vital, not only to materially inhibit
Iran's nuclear program ambitions and raise the costs of Iran's
noncompliance, but also to demonstrate international resolve
that can help deter other states from violating NPT commitments
and pursuing nuclear weapons.
While the administration was engaged in negotiations over
international sanctions, Congress has deliberated on
legislation that would expand unilateral U.S. sanctions toward
Iran. Although we are grateful for the briefings on this matter
by administration officials, including Under Secretary Bill
Burns, one of our witnesses today, it is past time for the
administration to weigh in with a concrete response to this
legislation. What provisions are supported or opposed by the
administration, and what changes does it recommend? How would
additional U.S. unilateral sanctions affect the ongoing
campaign to construct a more comprehensive system of
international sanctions?
The administration is conducting a review of existing
United States sanctions on Iran. What lessons from this review
can be applied to the new measures? I have my own reservations
about certain provisions of this legislation, but I look
forward to hearing from our witnesses today on the
administration views.
Beyond sanctions, I am hopeful that the witnesses will shed
light on the administration's broader strategy. At what point
will President Obama's offer of engagement reach the end of its
shelf-life? What will become of the P5+1 track? Is the
administration considering steps to further isolate the regime
in Tehran? To what extent has the need to isolate Iran been
elevated on the bilateral agenda with countries that remain
friendly with Tehran?
I look forward to hearing our witnesses' views. To the
extent that some of these discussions would be more
appropriately held in a classified setting, I would also
welcome that opportunity at a future date.
We thank you for coming, and I thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator Lugar. I think
that, together hopefully we have framed the questions and the
backdrop for the hearing today if, indeed, as it could easily
be that some of questions wind up taking us to a place that is
classified. We'll just sort of set those aside, mark them, but
we would like to go into a classified session, then, because I
would like to make sure we make that part of the record.
So, we welcome your testimony, again. Your full testimonies
will be placed in the record as if read in full.
We look forward to any summary you would like to make.
Secretary Burns, why don't you lead off?
STATEMENT OF HON. WILLIAM J. BURNS, UNDER SECRETARY FOR
POLITICAL AFFAIRS, DEPARTMENT OF STATE, WASHINGTON, DC
Ambassador Burns. Thank you very much. Chairman Kerry,
Senator Lugar, and members of the committee, good morning and
thank you very much for the opportunity to appear before you
today.
The passage of United Nations Security Council Resolution
1929, 2 weeks ago established the most comprehensive
international sanctions that the Government of the Islamic
Republic of Iran has ever faced. It reinforces the
determination, not only of the United States, but of the rest
of the international community to hold Iran to its
international obligations and to prevent it from developing
nuclear weapons.
At this critical moment as we vigorously implement
Resolution 1929 and use it as a platform upon which to build
further measures by the European Union and other partners, it
is important to take stock of what's at stake and where we go
from here. Let me start with the obvious. A nuclear-armed Iran
would severely threaten the security and stability of a part of
the world crucial to our interests, and to the health of the
global economy. It would seriously undermine the credibility of
the United Nations and other international institutions, and
seriously undercut the nuclear nonproliferation regime at
precisely the moment we are seeking to strengthen it. These
risks are only reinforced by the wider actions of the Iranian
leadership, particularly its longstanding support for terrorist
groups, its opposition to Middle East peace, its repugnant
rhetoric about Israel, the Holocaust, and so much else, and its
brutal repression of its own citizens.
In the face of those challenges, American policy is
straightforward: we must prevent Iran from developing nuclear
weapons; we must counter its other destabilizing actions in the
region and beyond; and we must continue to do all we can to
advance our broader interests in democracy, human rights, and
development across the Middle East.
President Obama has made clear repeatedly--including in his
statement on the adoption of Resolution 1929--that we will
stand up for those rights that should be universal to all human
beings, and stand with those brave Iranians who seek only to
express themselves freely and peacefully. We'll also continue
to call on Iran to release immediately Shane Bauer, Sarah
Shourd, and Josh Fattal, and all other unjustly detained
American citizens, and we continue to call upon Iran to
determine the whereabouts and ensure the safe return of Robert
Levinson.
We've pursued out broad policy goals over the past 18
months through a combination of tough-minded diplomacy,
including both engagement and pressure, and active security
cooperation with our partners in the gulf and elsewhere. We've
sought to sharpen the choices before the Iranian leadership.
We've sought to demonstrate what's possible if Iran meets its
international obligations and adheres to the same
responsibilities that apply to other nations and we've sought
to intensify the cost of continued defiance and to show Iran
that pursuit of a nuclear weapons program will make it less
secure, not more secure.
Last year, we embarked on an unprecedented effort at
engagement with Iran. We did so without illusions about whom we
were dealing with or the scope of our differences over the past
30 years. Engagement has been both a test of Iranian
intentions, and an investment in partnership with a growing
coalition of countries deeply concerned about Iran's nuclear
ambitions. We sought to create early opportunities for Iran to
build confidence in its intentions. In Geneva, last October, we
supported--along with Russia and France--a creative proposal by
the International Atomic Energy Agency to provide fuel for the
production of medical isotopes at the Tehran research reactor.
Unfortunately, what appeared to be a constructive beginning in
Geneva was later spurned by the Iranian leadership. Instead,
Iran pursued a clandestine enrichment facility near Qom,
announced plans for 10 new enrichment facilities, flatly
refused to continue discussions with the P5+1 about
international concerns about its nuclear program, provocatively
expanded enrichment to near 20 percent, in further violation of
U.N. Security Council resolutions, and drew new rebukes for the
IAEA in the Director General's most recent report a few weeks
ago.
Iran's intransigence left us no choice but to employ a
second tool of diplomacy--economic and political pressure.
Passage of Resolution 1929 is the essential first step in that
effort. The provisions of 1929 go well beyond previous
sanctions resolutions. For the first time, it bans significant
transfers of conventional weapons to Iran. For the first time,
1929 bans all Iranian activities related to ballistic missiles
that could deliver a nuclear weapon. For the first time, it
imposes a tough framework of cargo inspections, to detect and
stop Iran's smuggling and acquisition of nuclear materiels and
other elicit items. It prohibits Iran from investing abroad in
sensitive nuclear activities such as uranium mining. It creates
important new tools to help block Iran's use of the
international financial system to fund and facilitate nuclear
proliferation. For the first time, it highlights, formally,
potential links between Iran's energy sector and its nuclear
ambitions, and it targets, directly, the role of the Islamic
Revolutionary Guard Corps in Iran's proliferation efforts,
adding 15 specific IRGC entities to the list of designations
for asset freezes.
Resolution 1929 provides a valuable new platform, and
valuable new tools. Now, we need to make maximum use of them.
My colleague, Bob Einhorn, will lead this effort for the State
Department. He'll work closely with Under Secretary Levey,
whose own leadership on these issues for a number of years has
been extraordinarily effective. Already, the European Union has
acted strongly to follow up 1929. Its leaders decided last
Thursday to take a series of significant steps, including a
prohibition of new investment in the energy sector, and bans on
the transfer of key technology, as well as tough measures
against Iranian banks and correspondent banking relationships.
Australia has indicated similar resolve, and other partners
will follow suit, shortly. Meanwhile, as Stuart will discuss in
more detail, we continue to have success in persuading a whole
variety of foreign companies that the risks of further
involvement in Iran far outweigh the benefits.
As all of you know very well, the administration has been
working closely with the Congress to help shape pending
legislation so that it maximizes the impact of the wider
international sanctions that we are putting in place.
The net result of this combination of economic pressures is
hard to predict. It will certainly not change the calculations
of the Iranian leadership overnight, nor is it a panacea. But
it is a mark of their potential effect that Iran has worked so
hard in recent months to avert action in the Security Council,
and tried so hard to deflect or divert the steps that are now
underway.
Iran is not 10 feet tall, and its economy is badly
mismanaged. Beneath all of their bluster and defiant rhetoric,
its leaders understand that both the practical impact of
Resolution 1929 and its broader message of isolation create
real problems for them. That is particularly true at a moment
when the Iranian leadership has ruthlessly suppressed--but not
eliminated--the simmering discontent bubbled over so
dramatically last summer. Millions of Iranians went to the
streets last June, and in smaller numbers over the course of
the ensuing months, with a simple but powerful demand of their
leaders: That their government respect the rights enshrined
within its own constitution, rights that are the entitlement of
all people; to voice their opinions, to select their leaders,
to assemble without fear, to live in security and peace. A
government that does not respect the rights of its own people
will find it increasingly difficult to win the respect that it
professes to seek in the international community.
Sanctions and pressure are not an end in themselves. They
are a complement, not a substitute, for the diplomatic solution
to which we and our partners are still firmly committed. We
continue to acknowledge Iran's right to pursue civilian nuclear
power, but with that right comes a profound responsibility to
reassure the rest of the international community about the
exclusively peaceful nature of its intentions.
Facts are stubborn things, and it is a striking fact that
Iran is the only NPT signatory in the world today that cannot
convince the IAEA that its nuclear program is intended for
purely peaceful purposes. The Foreign Ministers of the P5+1
countries made clear in the statement they issued on passage of
Resolution 1929 that we remain ready to engage with Iran to
address these concerns. E.U. High Representative Ashton has
written directly to an Iranian counterpart to convey this
readiness. We've joined Russia and France in expressing to IAEA
Director General Amano a number of concerns about Iran's latest
proposal on the Tehran research reactor, and the TRR remains a
potential opportunity in the context of the broader P5+1
efforts to address Iran's nuclear program. The door is open to
serious negotiation, if Iran is prepared to walk through it.
The road ahead will not be easy, and the problems before us
posed by Iran's behavior are urgent. But there is growing
international pressure on Iran to live up to its obligations
and growing international isolation for Iran if it does not.
Resolution 1929 helps significantly to sharpen that choice. We
will work very hard to implement and build upon it. We are
absolutely determined to ensure that Iran adheres to the same
responsibilities that apply to other nations. Too much is at
stake to accept anything less.
Thank you.
[The prepared statement of Ambassador Burns follows:]
Prepared Statement of Ambassador William J. Burns, Under Secretary of
State for Political Affairs, U.S. Department of State, Washington, DC
Chairman Kerry, Ranking Member Lugar, distinguished members of the
committee, thank you very much for inviting me to be here before you
today.
This hearing comes at a pivotal moment for U.S. policy toward Iran.
Only 2 weeks ago, we adopted United Nations Security Council Resolution
1929, the sixth such resolution on Iran, and the fourth which commits
the international community to implementing the most comprehensive
sanctions that the Iranian Government has ever faced. This resolution
represents the culmination of months of concerted effort and the
realization of a truly multilateral partnership focused on pursuing a
diplomatic resolution to the threat posed by Iran's nuclear ambitions.
The measures contained in this resolution underscore the determination
of President Obama to prevent Iran from developing nuclear weapons and
to reinforce global norms and institutions of nonproliferation--a
resolve that today is shared by the international community.
Resolution 1929 sends a clear, global message of what is expected
from Iran, and the consequences for Iran's decision to shirk its
responsibilities to the global nonproliferation regime. It strengthens
existing U.N. sanctions by expanding the breadth and reach of those
measures and breaks new ground with additional categories of sanctions.
It provides a platform upon which states can build to advance the
objectives of the resolution, as our EU and Australian partners did
last week. Adoption of this resolution is only one milestone in
international actions on this front. Secretary Clinton announced that
senior State Department official Bob Einhorn will coordinate our
vigorous efforts to work closely with our partners and allies to ensure
these sanctions are fully enforced and built upon. And all our
agencies--State, Treasury, and others--will continue to take action
under our existing domestic authorities to sharpen Iran's choices, as
Secretary Geithner did last week in imposing sanctions on 12 entities
and four individuals under proliferation-related sanctions authorities.
This is also an important time for those decisionmakers in Tehran
who are in a position to shape the future of the Islamic Republic and
its relationship with the rest of the world. Only a year ago, Iran was
convulsed by massive public outrage and activism protesting election
results. Millions of Iranians came to the streets last June and in
smaller numbers over the course of the ensuing months with a simple but
powerful demand of their leaders--that their government respect the
rights enshrined within its own constitution, rights that are the
entitlement of all people--to voice their opinions, to select their
leaders, to assemble without fear, to live in security and peace. The
government has been able to contain the public opposition, but only
through the use of intense intimidation wielded against individuals and
the burgeoning civil society that has struggled to survive under a
repressive leadership. As a result, Iran's Government today is facing
profound pressure on multiple fronts. Navigating these realities will
require Iranian leaders to decide what kind of future they want for
their country.
A nuclear-armed Iran would have grave implications for vital
American interests in the stability of the gulf region and broader
Middle East. The concerns evoked by Iran's determined expansion of its
nuclear capabilities are only underscored by the destabilizing
character of its regional foreign policy--its longstanding financial
and operational support to terrorist organizations such as Hezbollah,
Hamas, and Palestine Islamic Jihad; its cultivation of militancy,
instability, and violence in Iraq and Afghanistan; and its hate-
mongering rhetoric on Israel and the Holocaust. As President Obama said
on June 9, ``actions do have consequences. And whether it is
threatening the nuclear nonproliferation regime, the human rights of
its own citizens, or the stability of its neighbors by supporting
terrorism, the Iranian Government continues to demonstrate that its own
unjust actions are a threat to justice everywhere.'' And therefore we
will remain active in responding to these Iranian policies across the
region, and through innovative programs, on advancing human rights and
democracy and seeking to expand access to information within Iran. We
will continue our efforts to coordinate with our allies on their own
security, to promote more effective regional cooperation, and to
buttress those states and political forces who are seeking to build a
better more peaceful future for the region.
Our policy seeks to prevent Iran from developing nuclear weapons,
counter its other destabilizing actions, and advance our broader
interests in democracy, human rights, and development across the Middle
East. Over the course of the past 18 months, we took unprecedented
steps to demonstrate to Tehran the possibilities available through
cooperation and engagement. Iran failed to take advantage of any of
these historic opportunities--Iran has left unanswered President
Obama's outreach efforts, rejected a balanced and generous IAEA offer
to refuel its Tehran Research Reactor (TRR), and has flatly and
repeatedly refused to engage in negotiations to address international
concerns regarding its nuclear program. Instead, Iran continues and
expands its enrichment activities to include enriching uranium to
nearly 20 percent, announces plans for the construction of new
enrichment facilities, and continues to deny the IAEA full access and
information regarding--among other places--the previously secret
facility at Qom. Iran remains in noncompliance with its IAEA Safeguards
Agreement; refuses to suspend all its uranium enrichment-related,
reprocessing, and heavy water-related activities as required by the
U.N. Security Council; and has yet to cooperate fully with the IAEA's
ongoing investigation, including by answering questions regarding the
possible military dimensions of its nuclear program. For these repeated
acts of noncompliance with Iran's obligations, and as we had always
foreshadowed, we demonstrated our seriousness about the second track of
our two-track strategy.
The sanctions imposed under UNSCR 1929 achieve two important
priorities--they minimize the impact on average Iranians, while
imposing real penalties on Iran's nuclear and destabilizing military
programs and those who support them. At the same time, they also make
it harder for Iran to continue its destabilizing activities and seek to
inhibit its development of nuclear weapons capability and the means to
deliver them. The scope and strength of 1929 speaks to the depth of
international concern about Iran's path and is a testament to the
genuinely constructive partnership we have developed with our P5+1
partners. We believe that the resolution, and the close coordination
among the international community to implement it, will send two vital
messages to Tehran: that Iran's nuclear program does not enhance its
security and comes at an ever greater cost, and the world is united
around an effort to change Iran's calculus.
Resolution 1929 enhances existing U.N. sanctions by expanding the
breadth and reach of those measures and at the same time breaks new
ground with additional categories of sanctions to further pressure Iran
to comply with its international nuclear obligations. 1929 reinforces
the Security Council's longstanding demand that Iran suspend its
enrichment program and other proscribed nuclear activities, and it
imposes measures in several broad categories:
It reaffirms the necessity of Iranian compliance with its
IAEA obligations and its full cooperation with IAEA
investigations;
It bans Iran's investment in sensitive, including uranium
mining, nuclear and ballistic missile-related activities
abroad;
It imposes new binding restrictions on Iran's import of
eight broad categories of heavy weapons, and requires vigilance
and restraint in the transfer of all arms and related materiel
to Iran;
It bans all activities related to Iran's ballistic missiles
capable of delivering nuclear weapons;
In order to deter, detect, and stop Iran's smuggling and
acquisition of sensitive nuclear items and prohibited arms and
related materiel, the resolution calls upon all states to
inspect Iranian cargo, and notes that states may request
inspections on the high seas consistent with international law
and the consent of the flag state;
It includes provisions to help block Iran's use of the
international financial system--particularly its banks--to fund
proliferation;
It alerts states to the potential link between Iran's energy
sector revenues and energy-related technologies and its nuclear
and proliferation activities;
It addresses the activities of the Islamic Revolutionary
Guard Corps, whose elements have been involved in proliferation
by sanctioning the largest and most significant enterprise
owned by the IRGC, the Khatam al-Anbiya Construction
Headquarters, and 14 other IRGC-related companies;
It establishes a U.N. Panel of Experts to help monitor and
enforce sanctions implementation;
The resolution also includes three annexes of specific
entities and individuals subject to targeted sanctions (asset
freeze/travel ban). The resolution more than doubles the number
of designated entities subject to an asset freeze and imposes
an asset freeze and travel ban on one individual. Thirty-five
additional individuals previously subject to ``travel
vigilance'' will now be subject to a travel ban. With the
adoption of this resolution, there are now 75 entities subject
to an asset freeze and 41 individuals subject to an asset
freeze and travel ban.
Let me emphasize that sanctions are not an end in themselves. Our
foremost objective--one that is shared by our international partners
and our allies in the region--is a durable diplomatic solution to the
world's concerns about the Iranian nuclear program and the broader
issues at stake with Iran. U.N. Security Council Resolution 1929 offers
Iran a clear path toward the suspension of existing sanctions. It is an
unambiguous one: Iran must fulfill its international obligations,
suspend its enrichment-related, reprocessing, and heavy water-related
activities, and cooperate fully with the IAEA. The choice to reconsider
its options and adopt a more constructive course is one that Tehran
alone can make. As the P5+1 stated upon the adoption of resolution
1929, we remain ready to meet immediately with Iran on its nuclear
program, and on other issues of mutual concern. EU High Representative
Cathy Ashton already has reiterated the offer to Iran to meet with the
P5+1 for that purpose. We hope Iran will take advantage of this
standing opportunity. Two weeks ago the United States, France, and
Russia responded jointly to IAEA Director General Amano regarding
Iran's proposal on the TRR, including our concerns with that proposal.
The TRR proposal remains a potential opportunity in the context of the
broader P5+1 efforts to address Iran's nuclear program.
As we bear witness to the 1-year anniversary of Iran's disputed
Presidential elections, we reaffirm our commitment to stand up for
those who seek to exercise their universal rights. One year later, as
the detentions and prosecutions proceed unabated, we will continue to
call on the leaders of the Islamic Republic of Iran to meet their
responsibilities to their people by respecting the fundamental rights
afforded them. In fact, just this week, we joined 55 other nations in
rebuking Iran for its atrocious human rights record at the Human Rights
Council.
In the wake of the Iranian Government's violent suppression of
dissent, closure of opposition newspapers, and overwhelming use of
intimidation and force to prevent free assembly, the United States has
taken steps to facilitate the free expression of Iranian citizens. As
part of that effort, the U.S. Government is pursuing ways to promote
freedom of expression on the Internet and through other connection
technologies. We are working around the world with over 40 companies to
help individuals silenced by oppressive governments, and have made
Internet freedom a priority at the United Nations as well. State and
Treasury have worked to issue a general license that allows free market
downloadable communications software--e-mail, chat, blogging--available
inside Iran. Our programming is also focusing on allowing innovative
projects that support free expression and access to information via the
Internet.
Let me note here our deep and continuing concern for the safety and
well being of all American citizens currently detained or missing in
Iran. We urge the Iranian Government to promptly release Shane Bauer,
Sarah Shourd, and Josh Fattal, and all other unjustly detained American
citizens so that they may return to their families. We also call upon
Iran to use all of its facilities to determine the whereabouts and
ensure the safe return of Robert Levinson.
The Iranian Government will not change its course overnight. We
have no illusions about the obstacles before us. But we and the best of
the international community have renewed our determination to sharpen
the choice before Iran's leadership. Addressing international concerns
about its nuclear program and meeting its international obligations can
open up important opportunities for Iran and its remarkable people.
Continued failure to do so only makes Iran less secure, less
prosperous, and more isolated.
The Chairman. Thank you, Secretary Burns.
Secretary Levey.
STATEMENT OF HON. STUART LEVEY, UNDER SECRETARY FOR TERRORISM
AND FINANCIAL INTELLIGENCE, DEPARTMENT OF THE TREASURY,
WASHINGTON, DC
Mr. Levey. Chairman Kerry, Ranking Member Lugar, members of
the committee, thank you for inviting me to be here today. It
is an honor for me to be here with Under Secretary Burns, with
whom I've worked closely on these issues and many others for
the last few years, and for whom I have tremendous admiration.
While he has described the overall strategy to address the
threat posed by Iran, I will focus on the so-called ``pressure
track'' that he mentioned of the administration's strategy.
The adoption 2 weeks ago of UNSCR 1929 creates an
opportunity for us to further sharpen Iran's choices. Our
effort to hold Iran accountable for its failure to meet its
international obligations has two major fronts. The first is
governmental action, encompassing actions both by the United
Nations, by other concerned governments around the world and
our efforts to build upon the four Security Council resolutions
that have sanctioned Iran.
We have already begun discussions with other countries
about the types of measures that should be taken to robustly
implement U.N. Security Council 1929, and some governments have
already acted.
At the same time, we are working with countries to ensure
that they take actions to fulfill, for example, the Financial
Action Task Force's call for countermeasures against Iran. Iran
remains the only country in the world subject for such a call
for countermeasures.
But perhaps as important as all of the governmental action
is the second front of our strategy: the role of the private
sector. As we have targeted Iran's illicit conduct, we have
also taken public action and made an unprecedented effort to
share the information that forms the basis of our actions with
firms all over the world. We have made that evidence public, to
the extent possible. That information demonstrates that Iran
engages in illicit nuclear and ballistic missile transactions,
supports terrorist groups, and that in order to conduct those
activities, it engages in financial deception designed to evade
the controls of responsible businesses that have no desire to
participate in illicit activity.
In response to this information, and to protect their own
reputations, virtually all major financial institutions have
either completely cut off or dramatically reduced their ties
with Iran. We are now starting to see other companies, across a
range of sectors including insurance, consulting, energy, and
manufacturing, making similar decisions. The end result is that
the voluntary actions of the private sector amplify the
effectiveness of government-imposed measures.
U.N. Security Council Resolution 1929 represents a new and
key catalyst in this strategy. The resolution contains a number
of significant provisions summarized in our written testimony,
and which Under Secretary Burns also summarized. There are a
few key financial provision which I would like to highlight, as
well.
In particular, under paragraphs 21 and 23 of the new
resolution, states should prevent any financial services,
including insurance and even including the maintenance of bank
accounts for Iranian banks, if they have information that these
services could--and I underscore could--contribute to Iran's
nuclear missile industries. And, of course, as this committee
knows, there is ample information in the public domain to
establish that Iran uses its banks and abuses the financial
services of other banks for precisely those illicit purposes.
We have also repeatedly revealed the mechanisms by which
Iranian banks seek to mask their misconduct. This includes
stripping their names from transactions, disguising the
ownership of assets on their books, and using nonsanctioned
banks to stand in the shoes of sanctioned ones. Given this
record, it would be nearly impossible for financial
institutions and governments to assure themselves that
transactions with Iran are not being used to contribute to
nuclear missile industries.
A perfect example of the types of thing I'm talking about
is contained in the actions we took last week to begin to
implement and build upon U.N. Security Council Resolution 1929.
Among other things, we designated an Iranian bank, Post Bank,
for facilitating Iran's proliferation activities. At one time,
Post Bank did business almost entirely within Iran. But when
some of Iran's largest state-owned banks were sanctioned for
financing proliferation, Iran began to use Post Bank to
facilitate international trade. Indeed, Post Bank stepped into
the shoes of Bank Sepah, which is under U.N. sanctions, to
carry out Bank Sepah's transactions and hide its identity.
Banks that would have never agreed to deal with Bank Sepah have
handled these transactions that they believe are really for
Post Bank.
In addition, last week we listed five front companies and
more than 90 ships that Iran's national maritime carrier, IRISL
has used to evade international sanctions. We designated, in
addition, two individuals and four entities that are part of
the IRGC, including two that are subsidiaries of Khatam al-
Anbiya, a major IRGC company. This action complements the
designation of the 15 IRGC companies, as you've mentioned, Mr.
Chairman, that are designated in the U.N. Security Council
Resolution 1929. We have now designated 26 IRGC-related
entities, including the IRGC's Kuds force for providing
materiel support to the Taliban, Hezbollah, Hamas, the
Palestinian Islamic Jihad, and others.
We also identified last week 22 petroleum, energy, and
insurance companies that are owned and controlled by the
Government of Iran under our Iranian transaction regulations.
Seventeen of those companies are located outside of Iran, and
many are not easily identifiable as being Iranian. These
identifications enable United States persons--and, importantly,
others around the world who are choosing not to deal with
Iran--to be able to recognize Iranian Government entities and
protect themselves against the risk of doing business with
them.
As Under Secretary Burns pointed out, we know that
officials in Iran have been anxious about this new round of
sanctions. If the Iranian Government holds true to form, it
will scramble to identify ``work-arounds''--hiding behind front
companies, doctoring wire transfers, falsifying shipping
documents and the like.
We will continue to expose this deception, and thereby
reinforce the very reasons why the private sector is
increasingly shunning Iran. The overall result of these efforts
is that Iran's choice will become increasingly clear: to choose
the path offered by President Obama and the international
community, or to remain on a course that leads to further
isolation.
Thank you very much. I look forward to your questions.
[The prepared statement of Mr. Levey follows:]
Prepared Statement of Stuart Levey, Under Secretary for Terrorism and
Financial Intelligence, U.S. Department of the Treasury, Washington, DC
Chairman Kerry, Ranking Member Lugar and distinguished members of
the committee. With the adoption of United Nations Security Council
Resolution (UNSCR) 1929 two weeks ago, the international community made
clear that Iran's continued failure to meet its international
obligations will have increasingly serious consequences. As President
Obama said, the resolution demonstrates the growing costs of Iranian
intransigence. My colleague, Under Secretary Burns, will describe the
wide range of challenges posed by Iran, and will provide an overview of
the administration's dual-track approach to addressing the Iranian
threat. I will focus my testimony today on the so-called ``pressure
track'' of that strategy. This track is intended to hold Iran
accountable for its continued refusal to address the international
community's concerns regarding its nuclear program, as well as its
support for terrorism, suppression of domestic dissent, and abuse of
the financial system.
The adoption of Resolution 1929 marks an inflection point in this
strategy, as it broadens and deepens existing sanctions programs on
Iran and creates an opportunity for us to further sharpen Iran's
choices. We also intend to not only fulfill the letter of the
resolution's mandates, but also to live up to its spirit, by working
together with our allies to impose measures that will affect Iranian
decisionmaking.
As you know, we have been working to address Iran's illicit conduct
and to protect the international financial system from Iranian abuse
for the past several years. Last week, the Treasury Department
initiated a series of new actions to both implement and build upon
UNSCR 1929 and its predecessor resolutions. In addition to last week's
actions, we published today a financial advisory providing public
guidance on steps that can be taken to protect against the risks of
transactions with Iran. Before I review the details of UNSCR 1929 and
the new obligations it creates, I would like to provide an overview of
our strategy to hold Iran accountable to its obligations and, in
particular, the role that the private sector is playing in that
strategy.
strategy to hold iran accountable
Our strategy to hold Iran accountable for its failure to meet its
international obligations has two major fronts.
The first front is governmental action, encompassing actions by the
United Nations and concerned governments around the world. While we are
working to encourage full implementation of the four U.N. Security
Council sanctions resolutions containing binding legal measures,
governments around the world are also considering what additional
measures might be necessary to address the grave threat posed by Iran.
We are also looking to international partners to implement the
Financial Action Task Force's (FATF) call for countermeasures to
address the risks that Iran poses to the international financial
system. In February, the FATF issued its most recent of several
statements regarding the risks posed by Iran's lack of an adequate
antimoney laundering and counterterrorist financing (AML/CFT) regime.
The FATF called once again for jurisdictions to impose countermeasures
on Iran, and urged them to protect against correspondent relationships
being used to bypass or evade countermeasures and risk mitigation
practices. Iran is currently the only country in the world subject to a
call for such countermeasures.
Perhaps as important as government action is the second front:
private sector action. The steps private sector firms around the world
have taken in recent years to protect themselves from Iran's illicit
and deceptive activity are extremely important. We have found that when
we use reliable financial intelligence to build cases against Iranian
actors engaged in illicit conduct, many members of the private sector
go beyond their legal requirements regarding their interactions with
these and other Iranian actors because they do not want to risk
handling illicit business. This behavior is a product of good corporate
citizenship and a desire to protect their institutions' reputations.
The end result is that the voluntary actions of the private sector
amplify the effectiveness of government-imposed measures. Thus, as we
have taken action to target illicit Iranian conduct, we have shared
some of the information that forms the basis for our actions with our
partners in the private sector and, in response, virtually all major
financial institutions have either completely cut off or dramatically
reduced their ties with Iran. We are now starting to see companies
across a range of sectors, including insurance, consulting, energy, and
manufacturing, make similar decisions. Once some in the private sector
decide to cut off ties to Iran, it becomes an even greater reputational
risk for others not to follow, and so they often do. Such voluntary
reductions in ties to Iran, beyond the requirements of U.N. and U.S.
sanctions programs, in turn makes it even more palatable for foreign
governments to impose restrictive measures because their countries'
commercial interests are reduced. In the end, this dynamic can create a
mutually reinforcing cycle of public and private action.
The impact of these actions on Iran has been significant, and is
deepening as a result of Iran's own conduct. As international sanctions
on Iran have increased, Iran's response has been to attempt to evade
those sanctions. For example, sanctioned Iranian banks have, as a
standard practice, concealed their identity by stripping their names
from transactions so their involvement cannot be detected. In addition,
when Iranian assets have been targeted in Europe by international
sanctions programs, branches of Iranian state-owned banks there have
taken steps to disguise the ownership of assets on their books to
protect those assets from future actions. Nonsanctioned banks also have
stepped into the shoes of sanctioned banks in order to evade
international sanctions. We have used this conduct to our advantage by
exposing it and making it public, reinforcing the private sector's
preexisting fears about doing business with Iran. In this way, Iran's
own evasion and deceptive conduct is increasing its isolation.
united nations security council resolution 1929
Another key catalyst in this process is the adoption of Resolution
1929, which is the fourth resolution in as many years imposing legally
binding sanctions on Iran. UNSCR 1929 broadens the existing U.N.
sanctions framework, and it is important to remember that each
resolution builds upon earlier resolutions. Resolution 1929 enhances
the international community's obligation to impose measures on Iran's
financial sector, businesses owned or controlled by the Islamic
Revolutionary Guard Corps (IRGC), and on elements of Iran's
transportation sector that have been used to evade sanctions. It also
prohibits Iran from acquiring an interest in any commercial activity in
another state involving uranium mining, the production or use of
nuclear materiels and technology, and ballistic missile technology. It
also bans states from directly or indirectly supplying Iran with a
range of heavy weapons, prohibits Iran from undertaking any activity
related to ballistic missiles capable of delivering nuclear weapons,
and prohibits states from providing bunkering services to vessels if
they reasonably think these vessels are carrying nuclear or other
materiel prohibited by Security Council resolutions. The resolution
additionally imposes an obligation on states to take the necessary
measures to prohibit the travel through their territories of
individuals designated in this and previous Iran-related sanctions
resolutions. The resolution also highlights the potential connection
between Iran's revenues from energy production and funding for the
development of its nuclear program. And the resolution designates key
entities associated with Iran's proliferation sensitive nuclear
activities and ballistic missile programs.
As I mentioned, the Treasury Department today published a public
advisory that explains the financial provisions of UNSCR 1929 and
provides guidance on steps that can be taken to mitigate the tremendous
risks underscored by the Security Council. Implementation of the
financial provisions of the resolution and its predecessors will be
consequential, provided that countries implement them robustly and
faithfully. The implementation of these provisions will also assist
financial institutions around the world to avoid the risks associated
with business that supports the Iranian Government's proliferation
activity and support for terrorism. In the coming weeks, the Treasury
Department will continue to engage with finance ministries around the
world and with financial institutions--not only to assure full
implementation of the resolution, but also to assist the private sector
in avoiding these serious risks. As described above, Resolution 1929
contains a number of important provisions; there are a few that we
think are important to discuss in greater detail:
First, paragraph 21 of the resolution calls upon all Member
States to ``prevent the provision of financial services,
including insurance or reinsurance, or the transfer to,
through, or from their territory . . . of any financial or
other assets . . . if they have information that provides
reasonable grounds to believe that such services, assets, or
resources could contribute to Iran's proliferation-sensitive
nuclear activities, or the development of nuclear weapon
delivery systems.'' This provision is similar to one in UNSCR
1874 on North Korea, and it provides countries with the
broadest possible mandate to restrict financial ties with Iran.
As described above, there is a vast body of public information
demonstrating that many of Iran's banks are deeply involved in
facilitating its proliferation-sensitive activities and other
forms of illicit conduct. Over the last several years, we have
designated 15 Iranian banks under Executive Order (E.O.) 13382
for facilitating Iran's nuclear proliferation activities, and 1
bank under E.O. 13224 for providing support to international
terrorism. As we have done so, we have publicized the types of
illicit activities in which these banks engage in order to make
international financial institutions aware of Iran's illicit
conduct, and permit them to take appropriate countermeasures
against Iranian banks. Specifically, the designated banks have
provided a broad range of financial services to Iran's nuclear
and missile industries. Banks like Bank Melli have also
provided financial services to the IRGC, and Bank Saderat has
facilitated the transfer of millions of dollars to terrorist
groups. In the course of undertaking these transactions, Bank
Melli employed deceptive banking practices, like requesting
that its name be removed from financial transactions to obscure
its involvement from the international banking system. We
revealed similar information when we revoked Iran's ``U-turn''
license in 2008. As a further example, Resolution 1929
highlights that Bank Mellat has facilitated hundreds of
millions of dollars in transactions for Iranian nuclear,
missile, and defense entities, and that Mellat owns First East
Export Bank. This information, highlighting the risks
associated with providing financial services to Iran, makes it
nearly impossible for financial institutions and governments to
assure themselves that transactions with Iran could not
contribute to proliferation-sensitive activities.
Second, paragraph 23 of the resolution calls upon states to
prohibit ``in their territories the opening of new branches,
subsidiaries, or representative offices of Iranian banks, and
also [to] prohibit Iranian banks from establishing new joint
ventures, taking an ownership interest in or establishing or
maintaining correspondent relationships with banks in their
jurisdiction [and] to prevent the provision of financial
services if they have information that provides reasonable
grounds to believe that these activities could contribute to
Iran's proliferation-sensitive nuclear activities.'' Consistent
with this, governments are to take steps to be certain that
correspondent relationships with Iran cannot be used for
illicit conduct. Given the information described above
regarding Iranian banks' involvement in Iran's proliferation-
sensitive activities, coupled with well-known information about
Iranian banks' use of a range of deceptive conduct--such as
concealing their identity by stripping their names from
transactions--it is nearly impossible for governments to ensure
that correspondent relationships with Iran are not abused for
illicit purposes. As I just noted, we have revealed this
deceptive conduct at numerous junctures in the past, and will
continue to do so as appropriate in the future. We expect the
private sector will respond to this new provision, and the
information we have revealed, by further reducing its exposure
to Iranian banks worldwide.
Third, paragraph 22 of the resolution obliges ``all states
[to] require their nationals, persons subject to their
jurisdiction and firms incorporated in their territory . . . to
exercise vigilance when doing business with entities
incorporated in Iran or subject to Iran's jurisdiction,
including those of the IRGC and [Iran's national maritime
carrier, the Islamic Republic of Iran Shipping Lines] IRISL,
and any individuals or entities acting on their behalf or at
their direction, and entities owned or controlled by them,
including through illicit means, if they have information that
provides reasonable grounds to believe that such business could
contribute to Iran's proliferation-sensitive nuclear
activities'' or to violations of other Security Council
resolutions. To aid countries in this endeavor, the resolution
identifies three companies owned or controlled, or acting on
behalf of IRISL-Irano Hind Shipping Company, IRISL Benelux NV,
and South Shipping Line Iran. Significantly, the resolution
also identifies for sanctions Khatam al-Anbiya, an IRGC-owned
company involved in major construction and engineering
projects, as well as several of its subsidiaries. Khatam al-
Anbiya subsidiaries were involved in the construction of Iran's
uranium enrichment site at Qom.
UNSCR 1929 also seeks to avoid the violation or evasion of
sanctions by IRISL, as well as Iran Air's cargo division.
Paragraph 14 of the new resolution therefore expands the call
on countries to ``inspect all cargo to and from Iran, in their
territory, including seaports and airports, if the [s]tate . .
. has information that provides reasonable grounds to believe
the cargo contains items the supply, sale, transfer, or export
of which is prohibited'' by U.N. resolutions. Since January
2009, IRISL has been publicly implicated in multiple shipments
of arms-related materiel from Iran to Syria in violation of
U.N. Security Council Resolution 1747.
implementing and building upon the resolution
All elements of the administration have been working with our
partners around the world and will intensify those efforts to ensure
not only that the resolution will be implemented robustly, but also
that it serves as a foundation on which to build further measures that
will increase the pressure on Iran to comply with its international
obligations.
As part of this undertaking, we announced steps last week intended
to reveal more of Iran's deceptive conduct, and to sanction actors
engaged in the full spectrum of activity supporting Iran's nuclear and
missile programs. The actions that the Treasury Department announced
are also intended to reinforce the public sector-private sector
mutually reinforcing dynamic that I described earlier. We designated
more than a dozen entities and individuals under Executive Order 13382,
the authority that targets those involved in WMD proliferation and
their support networks. These include:
Post Bank. Treasury designated Post Bank of Iran for
providing financial services to, and acting on behalf of, Bank
Sepah. Bank Sepah was designated in January 2007 pursuant to
E.O. 13382 for providing financial services to Iran's missile
industry, including two entities linked to Iran's ballistic
missile program. At one time, Post Bank's business was
conducted almost entirely within Iran. But when some of Iran's
largest banks were exposed for financing proliferation, Iran
began to use Post Bank to facilitate international trade. In
fact, Post Bank stepped into the shoes of Bank Sepah, which is
under United Nations sanctions, to carry out Bank Sepah's
transactions and hide its identity. International banks that
would never deal with Bank Sepah have been handling these
transactions that they think are really for Post Bank.
IRGC. The IRGC was first designated by the Treasury
Department in 2007 for its efforts to procure sophisticated and
costly equipment that could be used to support Iran's ballistic
missile and nuclear programs. We also designated the IRGC's
Quds Force, the branch of the Revolutionary Guards that has
provided materiel support to the Taliban, Lebanese Hezbollah,
Hamas, Palestinian Islamic Jihad, and others. Last week we
supplemented these actions by designating additional branches
of the IRGC. We sanctioned its Air Force and Missile Command,
both of which have ties to Iran's ballistic missile program, as
well as Rah Sahel and Sepanir Oil and Gas Engineering Co, which
are owned by the IRGC's Khatam al-Anbiya construction company.
In addition, we designated Mohammad Ali Jafari, the Commander
in Chief of the IRGC, and Mohammad Reza Naqdi, who has served
as head of the IRGC's Basij Resistance Force since October
2009. With these actions, we have now designated 26 entities
and individuals connected to the IRGC for sanctions.
We intend to continue to focus on the IRGC as an important part
of our strategy to hold Iran accountable for its actions
because of the central role that the organization plays in
Iran's most reprehensible and illicit conduct. In addition to
playing a key part in Iran's missile and nuclear programs and
providing support for terrorism, the IRGC has been involved in
the repression of internal dissent in Iran. It has also assumed
control over broad areas of the Iranian economy, including
through the use of no-bid contracts. The IRGC has gradually
increased its influence over the energy, defense, and
construction industries, and IRGC seeks to monopolize black-
market trade of popular items. In so doing, it has deprived the
Iranian people of valuable economic opportunities. The IRGC and
its network of companies have no place in the world's
legitimate financial system, and we will continue to work to
prevent the IRGC and its companies from gaining access to it.
IRISL. We also took action under 13382 to prevent IRISL from
carrying out activities to evade sanctions. We publicly
identified several IRISL front companies, including Hafiz Darya
Shipping Company, Soroush Sarzamin Asatir Ship Management
Company, Safiran Payam Darya Shipping Company and others, as
well as more than 90 names of ships in its fleet. Since we
designated IRISL for sanctions in 2008, it has desperately
attempted to evade those sanctions, setting up new front
companies and renaming and even repainting ships to hide their
true ownership. Despite its deceptive maneuvers, IRISL has had
to struggle to obtain insurance and other services. Our actions
last week further expose IRISL's deception and make it more
difficult for IRISL to carry out its illegal activities. One
way to determine if a ship is an IRISL ship is the
International Maritime Organization (``IMO'') registration
number, which, like the VIN number on a car, is a unique
identifier that cannot be reassigned to another ship, and
remains with the ship through the life of the vessel. The
Treasury Department published these numbers at the time of its
original designation of IRISL in 2008.
Petroleum, Energy and Insurance Firms. We also identified 22
petroleum, energy, and insurance companies that are owned and
controlled by the Government of Iran under the Iranian
Transactions Regulations (ITR). Seventeen of these companies
are outside of Iran, and many are not easily identifiable as
belonging to the government. Americans have long been forbidden
from doing business with Iranian entities, but increasingly
companies around the world are deciding not to do business with
the Government of Iran because of its wide range of illicit
conduct, and because, as President Obama said recently, it is a
government that has brutally suppressed dissent and murdered
the innocent. These identifications enable U.S. persons and
others to recognize Iranian Government entities and protect
themselves against the risks posed by doing business with them.
We will continue to take action to address the full range of Iran's
illicit conduct, and to target the support networks that facilitate
Iran's WMD proliferation activities and to expose Iran's deceptive
conduct and abuse of the international financial system.
As we have taken steps to implement and go beyond the resolution,
so too have our allies. Last week, Australia announced its designation
of Bank Mellat, IRISL, and IRGC General Rostam Qasemi. The European
Union also announced its intention to impose further restrictions on
Iran's financial sector and insurance industry, freeze additional
Iranian banks, and impose restrictions on the Iranian transport sector,
in particular IRISL. Additionally, the EU announced its intention to
prohibit new investment, technical assistance and transfers of
technology, equipment and services to key sectors of the gas and oil
industry. The EU also announced its intention to impose new visa bans
and asset freezes on the IRGC.
conclusion
The adoption of UNSCR 1929 has enhanced a global effort to hold
Iran accountable for its actions. The resolution adds important tools--
but it is up to the U.S. and its partners around the world to ensure
that we use the tools available to us comprehensively, effectively, and
collectively. We know that officials in Iran have been anxious about
this new round of sanctions. If the Iranian Government holds true to
form, it will scramble to identify ``work-arounds''--hiding behind
front companies, doctoring wire transfers, falsifying shipping
documents. We will continue to expose this deception, thereby
reinforcing the very reasons why the private sector is increasingly
shunning Iran. The overall result of these efforts is that Iran's
choice will become increasingly clear--to choose the path offered by
President Obama and the international community or to remain on a
course that leads to further isolation.
The Chairman. Thank you, Secretary Levey.
Let me just follow up quickly with you on that. Are you
satisfied, I mean, do you have the tools that you need, No. 1,
and No. 2, do you feel you have confidence that our partners in
this effort are going to help bring the hammer down
sufficiently that all of these different cutout cardboards,
phony shipping documents, et cetera, that will be able to
really have an impact?
Mr. Levey. Well, Mr. Chairman, I do think that we have a
robust set of tools already that we have used aggressively, and
we've also used just the power of persuasion. That said, as you
saw the statement from the White House yesterday, we welcome
the new bill that is making its way through Congress, as well.
I think all signs are positive, at the moment, that our
partners will take strong action to implement 1929 and
counteract against evasion. The statement from the European
Union was quite strong, of course we now hope to see that
turned into action in the coming weeks. And the dynamic that I
referred to in my statement about how the private sector is
viewing this sort of evasion--what we've seen in the public
domain in the last couple of years, especially, is such an
overwhelming body of evidence of Iranian evasion and deceptive
practices that the private sector really is getting the point
that if they do business with Iran that they put themselves at
enormous risk of being drawn into either illicit transactions
or dealing with the IRGC. And they realize that that's both a
reputational risk to them, but also may draw them into
transactions that are actually illicit and that they really
don't want to get involved in.
The Chairman. Well, probably--I want to come back to some
of that, but first I want to pursue sort of a larger couple of
policy issues with you, Secretary Burns.
First of all, as a threshold predicate to this entire
discussion, to what degree is the administration convinced, and
what is the evidence of it, that if Iran continues, other
states in the region are going to go down the nuclear road? And
is that the conviction of the administration?
Ambassador Burns. Yes, sir, it is the concern of the
administration and the conviction. I think the dangers of
stimulating a regional nuclear arms race are quite serious, and
it's one of the concerns that animates all of the efforts that
we're making now to prevent Iran from developing nuclear
weapons.
The Chairman. So, what is the redline, here? What is the
administration's--give us a sense of both timeline and redline,
if you will, with respect to whatever the timeline is--what
action would precipitate, conceivably, what by the allies? I
mean, we've made these very public protestations--no nuclear
weapons program. We've laid out, in some detail, the various
threats that it presents to Israel, to us, to the region, and
so forth, so where's--is there a clarity to that? Because I
haven't sensed it, to date, through the last administration and
up until now.
Ambassador Burns. Well, Senator, that's probably the
subject of a longer, closed conversation. But what I would say
is that first, you know, this administration is deeply
committed to preventing Iran from developing nuclear weapons.
We want to work very closely through a combination of both
diplomatic engagement, but also pressure, to sharpen the
choices for the Iranian leadership.
Iran claims that it doesn't seek nuclear weapons. The
United States and the rest of the international community
acknowledge the right of Iran and other states to pursue
peaceful nuclear programs. It shouldn't be hard for Iran to
demonstrate the exclusively peaceful nature of its intentions,
but the track record over the last couple of decades is a very
depressing one in this regard--a failure to address the very
specific questions that the IEA has raised about past
weaponization activities. The failure to meet not only the
requirements of successive Security Council resolutions with
regard to suspension of enrichment, but even to address,
seriously, the creative ideas, the IEA and others have put
forward to try to create some confidence, as we tried to do
last October.
So, we're going to keep at it because too much is at stake,
otherwise. But, I think our concern is growing, and the concern
of the rest of the international community is growing, too.
The Chairman. Well, I do think that we need to--at the
appropriate time, it may not be today--but we need to go into a
classified briefing to go through some of the parameters of
this.
Can you share with us a sense of sort of what steps that
Iran might take that might trigger a next adverse reaction from
ourselves and our allies?
Ambassador Burns. Well, Senator, I'll give one example. I
mean, we've already seen a reckless step by Iran in increasing
enrichment from 3.5-percent levels, to 19.75-percent, near 20-
percent levels. The pretext for that was that Iran claimed it
needed to do that because it wasn't getting outside help for
the Tehran research reactor, which requires fuel enriched to
that level. I say pretext, because the Iranians don't have the
capability to produce the finished fuel assemblies that you
need to work that research reactor.
But more to the point, we and our partners have made clear
our willingness to contribute to the provision of that kind of
fuel in a way that would build confidence for Iran. So, the
fact that Iran has nevertheless chosen to take enrichment to
near 20-percent levels, I think, is a reckless sign. And
certainly, any effort not only to continue that, but to go
beyond 20 percent would be an even more dangerous sign.
The Chairman. I mentioned in my opening comments the need
to expel the inspectors and go through a series of steps in
terms of enrichment, et cetera. Is it possible that they could
get so close to actual weaponization and/or the adequate level
of development that there's a breakout capacity--could they do
that without expelling the inspectors, in some clandestine way?
Ambassador Burns. Mr. Chairman, at Natanz, which is the
central nuclear facility where the IAEA conducts its
inspections, you're absolutely right--the facility there would
have to be reconfigured, as I understand it, to enrich to
higher levels and move toward a breakout capacity, and that's
something that the IEA could see and determine unless they were
expelled from that site.
Of course, the bigger concern--which is reinforced by the
revelation of the clandestine facility near Qom in September,
is that there are other facilities under construction. And
that's why we support the IEA so strongly in trying to ensure
greater transparency in what's going on inside Iran.
The Chairman. Senator Lugar.
Senator Lugar. Thank you, Mr. Chairman.
Secretary Burns, I would like your comment on a front-page
story that appeared yesterday in the Washington Times entitled,
``Military in Iran Seen As Taking Control.'' The story begins,
``Defense Secretary Robert N. Gates said Sunday that Iran's
Government is becoming a military dictatorship, with religious
leaders being sidelined and, as a result, new sanctions could
pressure Tehran into curbing its illegal nuclear program. `What
we've seen is a change in the nature of the regime in Tehran
over the past 18 months or so,' Mr. Gates said on FOX News
Sunday. `You have a much narrower based government in Tehran
now,' he said. `Many of the religious figures are being set
aside.' ''
Furthermore, the article later points out that Mr. Gates
said, ``added economic pressures on top of the militarization,
`has real potential' of pressuring Iran into complying with
international controls on its nuclear program.'' I had not seen
that sort of analysis before concerning the evolution of Iran's
Government, and furthermore the implication Secretary Gates
thought with regard to the efficacy of sanctions. Do you have
thoughts about that this morning?
Ambassador Burns. Yes, Senator Lugar. I think it is a
fact--as Secretary Gates and Secretary Clinton have also
pointed out--that over recent years, I think, the Iranian
leadership has become more closed, more dependent on the IRGC,
whose role, not only in military affairs, but also in politics
and in the economic sphere, has expanded over that time.
What we've also seen, as that circle has become more
closed, is greater fissures within the Iranian political elite,
and within the clerical establishment, as well, and certainly a
large fissure between the elite and much of the rest of the
population, as we saw so dramatically last summer during and
after the election.
That's led us to try, in Resolution 1929, to very carefully
target--and there's no perfect answer to this--but we've tried
to target many of the measures that Under Secretary Levey and I
have described, to focus on the IRGC, to focus on the
leadership to try to reshape their calculus. And we will
continue, as we implement 1929, as we work with the European
Union and others, to focus those efforts as sharply as we can.
Senator Lugar. These developments would mark quite a
change, though, as most of us have not been thinking about Iran
in terms of a military dictatorship in the country. We've had
conflict between various religious leaders, with the military
perceived to be more in the background. But it seems to me
Secretary Gates was suggesting that the military is coming much
more into the foreground. Furthermore, I think he suggested the
possibility that as religious leaders are pushed aside,
empowered military personnel could take a more pragmatic stance
and realize that their security is more, rather than less,
endangered by going forward with their nuclear program.
Ambassador Burns. Senator Lugar, one thing I've learned is
a certain amount of humility in making predictions about
Iranian decisionmaking. But, I think it is a fact that--
particularly the role of the Islamic Revolutionary Guard Corps
in the Iranian leadership has increased. It is a fact, in my
view, that the circle has narrowed around the leadership, and
that has led us to target our efforts as precisely as we can.
As Secretary Gates said, I think there is a reasonable
chance that those efforts--combined with the continuing
possibility of diplomatic engagement--will have an impact on
the Iranian calculus.
Senator Lugar. Secretary Burns, as you are likely aware,
the Conference Committee cochairs taked with resolving House
and Senate differences in Iran sanctions legislation came to an
agreement yesterday on draft joint text. The administration has
diplomatically asserted that it wishes to work with the
Congress on this issue. Now, as I understand it, at least
according to analysis in the press, an ongoing point of
contention between the Congress and the administration is that
the legislation, as it is currently crafted, targets foreign
companies and even foreign governments that do not comply with
its provisions. Now, the legislation offers exemptions from
sanctions on a case-by-case basis if certain criteria are met
by the foreign party in question, but the administration would
rather it provide blanket waivers for certain countries. In the
administration's view, this would prevent a potential set of
diplomatic problems with others who believe they have been
working even harder at this business of sanctions that we have.
Nevertheless, this is an extraterritorial feature of the
legislation as some have suggested.
What is your analysis, either one of you, as to the
substance of this legislation as it currently stands?
Ambassador Burns. Maybe I'll start, and then Under
Secretary Levey can join me.
Senator Lugar, first, as the White House made clear
yesterday, the administration does support the broad aims of
the legislation that the conference has reported on. We want to
work with you to help shape that legislation so that it
amplifies the impact of the international coalition that we
built.
It is no secret that our international partners contain
their enthusiasm for extraterritorial applications of U.S.
legislation, and that's why we continue to work closely with
you and your colleagues to try to ensure that the measures are
going to be targeted in a way that are going to maximize the
impact on the goal, here, which is to constrain Iran's nuclear
program, and change its calculus and give the President the
flexibility that I think is useful to all of us in applying
those measures, as well. And those are the areas that we're
focused on. And we look forward to continuing to work with----
Senator Lugar. Well, how is that advice going to be given?
We're coming down to the final stages. Is the President, the
Secretary, or someone else going to talk to Senator Dodd,
Congressman Berman, or others who are guiding this along? It's
one thing to talk in an advisory capacity, but what are the
action steps that need to be taken at this point?
Ambassador Burns. We certainly will be working very closely
with the members of the conference as the conference members
consider their report, to make clear the concerns we have and
to make clear our interest in producing an outcome that serves
the broad goals I just mentioned. So, we'll be working--and we
have been working--intensively, we'll continue to do that over
the coming days.
Senator Lugar. Thank you very much.
The Chairman. Thank you, Senator Lugar.
Senator Feingold.
Senator Feingold. Thank you, Chairman, for calling this
hearing, and I thank our witnesses for joining us today. We
face, obviously, significant challenges from Iran which has
repeatedly shown its unwillingness to play a responsible,
constructive role in the international community. By working
with the U.N. Security Council, with the broader international
community, the administration has sent a strong message to
Iran--that it needs to address the very serious and urgent
concerns about the nature and extent of its nuclear program.
These sanctions, of course, must now be enforced and
strengthened. At the same time, it's important to remember that
sanctions are meant to be a tool toward the resolution of the
Iranian nuclear problem, not an end in themselves. And I hope
that this hearing will provide a, you know, a better picture of
our broader strategy and the plans going forth.
Under Secretaries Levey and Burns, I know you've touched on
this, but how effective should we expect international and U.S.
sanctions to be at limiting Iran's ability to further advance
its nuclear program? First, in terms of the ability to enforce
existing and previous sanctions--do the various sanctions
regimes have strong enough enforcement tools in this regard and
if not, what more should we do about those? And additionally,
in terms of the ability of sanctions to slow down or curb
Iran's ability to continue on with enrichment or to pursue
weaponize efforts?
Ambassador Burns. I'll start, just very briefly.
Senator Feingold, U.N. Security Council Resolution 1929
contains, for the first time, an extensive, comprehensive
inspection regime modeled, in some ways, on Resolution 1874 as
it applied to North Korea. I think with vigorous implementation
of those measures, I think we're in a far stronger position as
an international community to cut down and stop Iranian
smuggling and efforts to acquire illicit items.
I think what we've already seen, also, Senator, is a very
firm commitment on the part of our partners to implement some
of the other notable provisions of 1929, for example, the
provision banning significant transfers of conventional weapons
to Iran. Russia, for example, has confirmed to us that it will
not deliver the S-300 missile system in accordance with the new
Security Council resolution. So, I think that's one concrete
example of a firm commitment on the part of our partners.
Senator Feingold. Mr. Levey.
Mr. Levey. The only thing I'd add to what Under Secretary
Burns said is that the resolution also establishes a panel of
experts to help with the enforcement. And while that sounds,
maybe, like just a bureaucratic function, what we did see in
the North Korea context was a very powerful report from a panel
of experts about sanctions evasion. And those sorts of reports,
then, enable us to do what I was referring to earlier, which is
to use their evasion against them. Which is, to try to get at
least the private sector around the world to recognize the
Iranian evasive conduct and protect themselves against it by,
frankly, not--choosing not to do business with Iran at all, so
that we can try to use Iran's inevitable evasion--they will try
to evade, if history is any guide--but try to use that to our
advantage.
Senator Feingold. Thank you.
Under Secretary Burns, I want to get a little deeper into
something that was already touched on--that our two-track
effort appears to be focusing mostly on the sanctions track at
the moment. But, given the need to prepare for various
outcomes, does the administration have a plan for what we want
to get out of negotiations, including our bottom-line demands,
if Iran did come to the table?
Ambassador Burns. Yes, sir, we do. And at the same time as
Resolution 1929 was passed, the Foreign Ministers of the P5+1
countries issued a statement that made clear that the door is
still open to negotiations. Kathy Ashton, the E.U. High
Representative, then wrote to her Iranian counterpart to repeat
that offer directly.
And we've also made clear that we have a number of concerns
about the most recent Iranian proposals on the Tehran research
reactor confidence-building proposal. But in the context of our
wider P5+1 efforts, we're certainly prepared to pursue those,
as well.
So, we believe that it's only through a combination of
pressure and engagement that we're likely to affect the
calculus of the Tehran leadership.
Senator Feingold. And, again Under Secretary Burns, can you
comment on the relationship between Iran and our friends and
our allies in the developing world? Particularly, to what
extent does it have openings for influence in Latin America
with its Venezuelan connection, and Africa, for example, Iran's
been reaching out diplomatically to a number of countries in
Africa, including Jabudi, Kenya, the Camorros, Senegal, Uganda,
the Gambia, and according to press reports, stated that
Tehran's growing relations with African countries were, ``A
priority for Iran's foreign policy.'' What are we doing to
reach out to our friends and allies in these regions to express
our concerns about Iran's nuclear program, and are they being
receptive to that?
Ambassador Burns. Well, certainly in Africa, Senator, I
think there is an understanding of the reality that Iran's not
living up to its international obligations on the nuclear
issue. It's striking that all three African members of the
Security Council voted in favor of Resolution 1929
notwithstanding a very intensive Iranian diplomatic effort to
produce a different outcome.
So, we take very seriously the concern you raised and we
are staying in very close touch with our partners in Africa.
The same is true in this hemisphere. We've designated one
Venezuelan bank because of its connection to Iranian banks, and
we watch very carefully Iran's relationship with Venezuela and
its activities elsewhere in the hemisphere.
Senator Feingold. Under Secretary Burns, the U.S.-Jordan
Nuclear Cooperation Agreement that's currently being negotiated
has brought up the problematic issue that other Middle Eastern
countries are interested in developing their own enrichment and
reprocessing capability, or E&R. How can we minimize the danger
that Iran will perceive the development of any such
capabilities as threatening, and insist on maintaining its own
E&R as a result, given that Jordan does not seem to be
interested in our offer providing it with nuclear energy
assistance in exchange for any agreement to forgo E&R
capabilities, and the nuclear supplier's group is not
interested on a meaningful ban on E&R transfers, what is plan B
for this situation?
Ambassador Burns. Well, Senator, as you know, one of the
broad initiatives we've strongly supported--and hopefully once
we finalize the new 123 Cooperation Agreement with Russia we'll
be in a better position to encourage this--is the idea of
international assured fuel supply, international fuel banks,
that would provide nuclear materiel to countries who forgo the
pursuit, on their own, of enrichment and reprocessing
activities. I think that's one promising initiative that we can
do more to support.
Senator Feingold. And finally, Under Secretary Burns, the
GAO recently released a report indicating that Iran continues
to successfully divert United States-made military and other
controlled equipment and transfer--transship this equipment
through such countries as the U.A.E. What has the United States
done to identify and plug the loopholes in the export control
regime that allow this to happen, and has the United Arab
Emirates implemented the export control laws it's committed to
implement?
Ambassador Burns. I think, Senator, the record of the
United Arab Emirates has improved considerably in recent years.
We've worked very closely with them in the application of their
own export controls and the sharing of information and law
enforcement cooperation. So, I think their record is an
impressive one, now, we want to work very closely with them to
cut down and eliminate those loopholes.
Senator Feingold. Thanks to both of you.
Thanks, Mr. Chairman.
The Chairman. Thank you, Senator Feingold.
Senator Boxer.
Senator Boxer. Mr. Chairman, thank you so very much for
holding this hearing, very important, timely hearing and
welcome to both Under Secretaries today.
It is so important that we focus like a laser beam on
Iran's reckless and dangerous refusal to cease Iranian
enrichment in defiance of its own treaty obligations. I am so
pleased that Congress is moving toward a final vote on the
comprehensive Iran Sanctions Accountability and Divestment Act.
I read that there's been agreement reached between the House
and Senate--Senators Dodd and Berman--Congressman Berman--and
so we may be voting on that this week.
Countless experts agree that the way to really pressure
Iran is to target its oil and gas sectors, and that's exactly
what this sanctions bill will do.
I was pleased that the U.N. Security Council approved a
resolution imposing new sanctions on Iran, despite Iran's
frantic attempt to derail the effort. And up until the last
minute, they were trying to derail the effort. And I
congratulate the administration for hanging in there and
pushing back. I certainly would have liked to see a much
tougher Security Council resolution. I'm hopeful that more
countries are finally realizing what many of us have known for
far too long--that Iran not only poses a grave threat to the
security of the Middle East, but to the security of the entire
globe. Not only could Iran use any weapon that it acquires, but
it could proliferate nuclear materiel and technologies to
terror groups and rogue regimes around the world. So, every
effort must be made to stop this from happening. I know our
President feels very strongly about this.
Not only must we pass tough sanctions measures, but we must
be sure that they're carried out and they're enforced to the
fullest. And I'm going to ask you both about that in a minute.
But, it means going after American firms who value a quick
profit over the national security of the United States of
America. This means closing loopholes, so that U.S. firms can't
simply acquire foreign subsidiaries that set up shop and do
business in Iran. And I can tell you that I know this has been
done.
The GAO conducted a narrow study and found that the U.S.
Government awarded $880 million to seven companies between
fiscal years 2005 and 2009 that were also doing business in
Iran's energy sector, and some of them are working in Iran
today. I understand that the comprehensive Iran Sanctions
Accountability and Divestment Act that we will hopefully pass
this week and send to the President for signature, includes a
provision that requires companies bidding on a U.S. Government
procurement contract to certify that they are not engaged in
sanctionable conduct, and that means either directly or through
a shell company.
Can you assure us today, I would ask both Under
Secretaries, that this provision--this provision which means
that we're going to really look at these companies and their
shell companies, that it will be enforced to the fullest extent
possible? So that U.S. taxpayer dollars are not awarded to
companies that are skirting United States sanctions laws and
doing business with Iran?
Ambassador Burns. Yes.
Senator Boxer. Under Secretary Levey.
Mr. Levey. Absolutely.
Senator Boxer. OK, because we're going to have to hold you
to it.
By almost every account, the June 9 U.N. Security Council
resolution is imposing another round of sanctions on Iran. It
was not as comprehensive as we all had hoped for, the
administration, those of us in Congress--in the end,
concessions had to be made to obtain support from China and
Russia when the resolution came to a vote. It was still--I
don't want to, in any way, take away from the achievement, it
was a great achievement, not tough enough, but we moved in the
right direction with these other countries. I know that the
administration did everything in its power to secure a very
tough resolution, but I also know that China, in particular,
didn't make it easy.
So, my question is, why does China not see Iran as a grave
threat to both regional and international security in light of
the facts--and I'll just go through a couple of the facts--Iran
continues to enrich uranium to higher and higher levels, it is
continually throwing up roadblocks to prevent the IAEA
inspectors from gaining access to both known and suspected
nuclear facilities; just yesterday Iran banned two nuclear
inspectors from working in Iran for filing what it has deemed
false reports on its nuclear program, and earlier this year,
the IAEA released a report stating that it had found extensive
evidence of activities by Iran's military, ``Related to the
development of a nuclear payload for a missile.''
So, in your opinion, what additional evidence does China
need, or is something else going on there?
Ambassador Burns. Senator, I think China is increasingly
aware of its own stake in effective international action
against Iran and its nuclear ambitions.
China obviously has a huge economic stake in the gulf and
access to its energy resources, and I think is increasingly
concerned about the dangers that Iran's nuclear ambitions poses
to security and stability in the gulf.
It had voted for the three previous sanctions resolutions;
you're absolutely right--this was a very tough negotiation, but
in the end it voted for a resolution which contains some
important measures.
The issue of China's continuing or potential investment in
Iran's energy sector is going to remain a very important
concern for us, an important priority in our bilateral dialogue
with the Chinese, and we're going to continue to press that
hard.
Senator Boxer. So, let me just cut through what you said.
So, you think that China does understand the threat, but still,
in all, they push for weaker sanctions, so why is that?
Ambassador Burns. Well, I think they increasingly
understand the threat, I'm not sure they share the same sense
of urgency that we and others do, and we're just going to have
to keep pressing hard. And I think in many ways, Iran's failure
to live up to its obligations makes the case for us.
Senator Boxer. So, China's--I'm just pressing you on this,
I don't want to make you feel uncomfortable, I know you can't
speak for another nation's policies, but I'm just--it's so
clear, the threat that Iran poses. And you're basically saying
you're not sure they share the view that we do that it's that
much of a threat at this time, and that we have to continue to
make the case to them?
Ambassador Burns. Well, I think, Senator, they increasingly
share the concern that we, and many others, have, and that was
reflected in their vote, after a tough negotiation.
I don't want to pretend that they have exactly the same
view of tactics, or the same sense of urgency, but I think
that's why we need to continue to press this issue, we made
progress.
Senator Boxer. So, my last point, therefore, is that the
administration is pressing China, continuing to tell them the
truth about this threat and you're stating that unequivocally?
That will not be abated?
Ambassador Burns. Yes, absolutely.
Senator Boxer. Thank you.
The Chairman. Thank you, Senator Boxer.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
And thank you both for your testimony.
As a member of the conference committee, I'm looking
forward to voting for the strongest set of sanctions. I see
Ahmadinejad, who's largely dismissive of Resolution 1929, and
in part I think it's because we roar like a lion and bite like
a puppy. We need to change that dynamic, in my mind.
No matter what sanctions regime we have, there's really a
real question of enforcement. A law is only good if it is
enforced. I look at the U.N. resolution, and the financial
sections in the resolution appear to be weak. For example, only
one new bank was added to the list of sanction entities. Even
here, in the United States, the sanctions announced last week
added only one bank to the list of those sanctioned.
Nineteen twenty-nine specifically notes the need to
exercise vigilance over transactions involving the Central Bank
of Iran. So, I'd like to ask you, was this based on evidence
that the Central Bank has been involved in facilitating Iran's
illicit nuclear program and its support for terrorism? And does
the Treasury Department intend to designate the Central Bank of
Iran as a supporter of Iran's proliferation activities?
Mr. Levey. Senator Menendez, the current situation with
respect to the Central Bank of Iran and the United States, as I
think you know, is that already it is forbidden to do any
business if you're a United States person with the Central Bank
of Iran. Every financial institution in the United States would
be violating our law--it would be a crime to do business with
the Central Bank of Iran.
With respect to the banking sanctions--and frankly with
respect to all sanctions--we have, by far, the toughest
sanctions regime of any country in the world.
You're right, we did designate another bank last week, but
that brings our list to 16 Iranian banks that we have
designated--either for facilitating Iran's proliferation
activities, in the case of 15 of them--or, terrorism in the
case of one of them. So, we think that, you know, we will
continue to enforce our sanctions regime very, very vigorously.
Those financial institutions who have violated our
sanctions laws have found themselves on the other end of very,
very tough enforcement actions. But Lloyd's and Credit Suisse
found themselves on the other side of fines of over $300
million, in the case of Lloyd's and over $500 million in the
case of Credit Suisse, for facilitating Iranian transactions
among other sanctions----
Senator Menendez. I understand about the interaction with
the Central Bank. The question is, Does the Treasury Department
intend to designate the Central Bank of Iran as a supporter of
Iran's proliferation activities?
Mr. Levey. I can't say right now whether we will do that.
Senator Menendez. All right.
Now, let me ask Mr. Burns--enforcement. On July the 9th of
2008, you testified before the House Foreign Affairs Committee
that the State Department was investigating Norway's Statoil
for a possible violation of Iran's sanctions act. For the
record, that company was fined $10 million by the Securities
and Exchange Commission and the Justice Department for
violating the Foreign Corrupt Practices Act by bribing Iranian
Government officials in order to receive a contract. What was
the result of that investigation from the State Department?
Ambassador Burns. I'd just make two comments, Senator.
First, it's important to note that Statoil announced
shortly after that testimony that they were not going to engage
in new investment in Iran and they began to wind down their
operations there. So, I think that's an example of where, you
know, the use--aggressive diplomatic use of the Iran Sanctions
Act--has actually helped produce a result.
On the broader issue of that kind of problematic cases that
we talked about--we've talked about through the course of this
administration, the State Department has completed its internal
review of those cases. Secretary Clinton promised she would do
this expeditiously at the start of the administration.
There are probably--they are a number of cases, less than
10, in which it appears that there may have been violations of
the ISA. Most of those appear to involve activities that have
stopped, in other words, involving companies that have pulled
out of business in Iran, but there are a couple that appear to
be ongoing.
The next stage, after the State Department has completed
its internal review, is, you know, in accordance with the
delegation of authority to Secretary Clinton, is to consult
with other agencies, which we will do expeditiously, about what
actions are appropriate, here, and then the Secretary will make
her determinations.
So, just as Secretary Clinton promised, we're moving ahead
vigorously in this administration----
Senator Menendez. I respect that, except that we haven't
sanctioned anybody.
You know, we can't keep doing the review and the review and
the review. We come to the problematic cases, and then we go
through the problematic cases, and now you're telling me that
there's a group of problematic cases that are still problematic
because they seem to be still engaged in Iran. DOE has
information about companies doing business in violation of the
Iran sanctions. I don't understand how it is that the SEC can
make these determinations, that the DOE has these
determinations, but we don't seem to come to a conclusion at
State Department for sanctions. Which makes me wonder whether
we really have the desire to implement the law and enforce it.
No wonder Ahmadinejad goes, ``Ho hum,'' to the resolutions;
they mean nothing.
Ambassador Burns. Well, Senator, it's a fair question. The
proof will be in our actions. As I said, we've completed the
internal State Department review, which is a significant step,
and as the Secretary committed, we'll move forward quickly on
those cases that appear to involve ongoing activity.
Senator Menendez. Well, does the failure of the State
Department result from a lack of manpower? Or, simply that
you're not choosing to make a final determination for some
political or diplomatic reason?
Ambassador Burns. No, Senator, we're going to enforce the
law. As I said, we have moved through and completed the
internal review, it's not an issue of manpower. It is true,
these are complicated issues because you've got to sift through
a lot of information--some of it inaccurate because the
Iranians have their own interest, sometimes, in exaggerating
and broadcasting in the press stories about contracts that turn
out, you know, not to be accurate in the end.
So, as I said, the proof will be in our actions, and we're
moving ahead expeditiously on this.
Senator Menendez. Well, I hope we have a cop on the beat,
not asleep at the switch.
The Chairman. Thank you, Senator Menendez.
Senator Isakson.
Senator Isakson. Thank you, Mr. Chairman.
And I deeply apologize for missing your testimony and
arriving late. And if what I ask is redundant, you can just
correctly correct me or sanction me, and we'll move forward.
[Laughter.]
Senator Isakson. I think all of us really recognize that
the $64,000 question is the weaponization of nuclear materiel
in Iran, and that's what has the clock running. Is there any
timetable we're using as a date that we think they will
actually have it weaponized? The Iranians? Other than just
guesswork?
Ambassador Burns. Well, Senator, I mean, I'd be glad to
participate in a closed session to talk about this in more
detail. I guess what I would do is stand by the testimony that
the Vice Chairman of the Joint Chiefs offered a couple of
months ago before a different committee, in which case he was
asked a similar question. And what he said is, it would
probably take a year from today, judging from the experience of
other countries of low enriched uranium stockpiles, to
produce--for the Iranians--to produce the amount of weapons
grade materiel, highly enriched uranium that they'd need for
one nuclear weapon. That's only the materiel, that's not the
weapon. And he estimated, in public testimony, that it would
take 3 to 5 years to produce an actual nuclear weapon. In other
words, take that enriched materiel over the course of the next
3 to 5 years and turn it into a weapon. That was his public
estimate, and I'll stand by that.
Senator Isakson. Well, taking that general information, the
fuse is getting a lot shorter, which is why the sanctions issue
is important, to try and get the Iranians to come to the table.
Do you, in terms of the U.N. sanctions that recently passed
the Security Council, what is the resolve of the Europeans in
terms of being an enforcement mechanism, in terms of those
sanctions? In your opinion--I know that's all that would be,
would be your opinion.
Ambassador Burns. Yes, sir. I think the best illustration
of the strength of European resolve is what the European
leaders decided last Thursday, which was to take Resolution
1929 and not only implement it, vigorously, to the maximum
extent possible, but also to accompany it with a number of
important new measures, for example, a ban on new European
investment in the oil and gas sector, a ban on the transfer of
important technologies to that sector, including those related
to LNG where European companies, Western companies play an
exceptionally important role in terms of provision of that
technology to any countries in the world. So, those are quite
significant steps, and I think it's a mark of deepened European
resolve now.
Senator Isakson. Mr. Levey.
Mr. Levey. I don't have anything to add to that, it sums it
up very nicely.
Senator Isakson. There is some movement in Congress on the
sanctions bill, and one of the sanctions that I--it has always
seemed to me--would be the one that might hit it the hardest--
would be the one over the importation of refined petroleum. Is
that correct, or incorrect? In terms of the gravity of that
sanction on the Iranians?
Ambassador Burns. It is true that Iran is dependent, to a
significant degree, on the import of refined petroleum products
of gasoline for consumption, although over the last few years,
as I understand the statistics, they managed to reduced their
exposure. A few years ago, they depended for about 40 percent
of their consumption of gasoline, refined petroleum products on
imports. Now, I think the figures I've seen are closer to 25
percent. So, they've anticipated, you know, their
vulnerabilities, the kind of pressures that could be exercised
against them, and tried to act accordingly. But, you know,
there's still a significant exposure, there.
Senator Isakson. Do we have any knowledge that they're--in
addition to increasing their capacity--that they're actually
storing it so they could ride out a ban?
Mr. Levey. I think that's one of the measures that they are
taking, Senator.
But, if I might just add on this point that, while this is
a vulnerability and that we think it's one that could be
exploited, on the other hand, it's not really--we, it's our
believe that it's not a silver bullet in and of itself, that we
need to do all of the other things that we've talked about in
this hearing, in addition to focusing on this. But that, one of
the things--two of the things that they may do in order to
anticipate this attempt to constrain their ability to import
refined petroleum is either to cut rations, or to reduce the
subsidies on petroleum. And both of those things are,
politically, very, very difficult for them to implement within
Iran at the same time as we've been discussing that they're
losing the support of their people, and for many other reasons.
And so, they're very resistant to taking those sorts of steps.
So, it's for that reason why we think it's quite useful to
target this, but not necessarily sufficient in and of itself.
Senator Isakson. Well, we obviously have learned there's
not really a silver bullet in this issue, but there may be a
critical mass of weight that, when it finally all comes to
bear, both U.N. sanctions as well as things that Congress does,
we get to that critical point that they have to react, and
that's where I think we need to be--if the window is 3 to 5
years that you were referring to in the previous statement, if
it is there, we need to be working now to get that critical
weight sooner rather than later, to get them to the table, I
think. Do you agree with that?
Ambassador Burns. Yes, sir. Absolutely.
Senator Isakson. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Isakson.
Senator Webb.
Senator Webb. Thank you, Mr. Chairman.
Secretary Burns, I apologize for coming in late. I have
followed a good bit of this hearing while we were going through
meetings in my office, so I've been very interested to see some
of the lines of questioning here.
Let me start by asking if the administration has any
position or further thoughts of pursuing possible alternative
approaches, such as the one that was offered by Brazil and
Turkey, toward resolving this crisis?
Ambassador Burns. Senator, I mean, this goes back to the
original proposal that the IEA put forth last October, and that
we, Russia and France strongly supported and would have
participated in.
When the Iranians announced--just before the Security
Council resolution was passed, along with the Brazilians and
the Turks--their version of this proposal, we consulted with
Russia and France and subsequently provided Mr. Amano, the
Director General of the IEA a series of concerns about that,
reflecting the fact that, you know, first the situation has
changed, as Senator Kerry mentioned, before on the ground, in
the sense that, you know, this is meant to be an important
confidence-building measure, 1,200 kilograms of low enriched
uranium last October would have been more than three-quarters
of the then-stockpile that the Iranians had; now it would be
less than half. The Iranians have since begun to enrich to 20
percent. It's not logical for them to continue to do that if
they're getting help from the outside on the TRR.
It's a long way of saying that we put our concerns on the
table. We're certainly prepared to engage with the IEA and
others on that issue.
Senator Webb. So, procedurally, it's not off the table--
those sorts of approaches.
Ambassador Burns. It's not all off the table, no sir.
Senator Webb. I was very interested to hear Senator Lugar's
question about an article that appeared discussing the
possibility of the emergence inside of the Iranian Government,
more toward I think Senator Lugar said, a military
dictatorship, but a larger direct role, as opposed to the more
theocratic approach, as existed in the past. Do you have a
comment on that?
Ambassador Burns. Senator, just to say that I do believe
that it's a fact that the role of the Islamic Revolutionary
Guard Corps in the leadership calculation and its influence as
expanded in recent years, I think the circle of leadership has
gotten smaller in Tehran, and I think that has revealed
fissures within the political elite, as well as between the
elite and much of the rest of the population.
Senator Webb. Would you say that has accelerated over the
last 8 or 9 months? That evolution?
Ambassador Burns. Yes, sir, I think it has since the
elections last June.
Senator Webb. I have a question about the use of sanctions.
We spent a lot of time talking about sanctions and existing
laws, but there have consistently been waiver provisions that
seem to have overridden sanctions provisions in the past. Would
you have a comment on the use of waivers up to now? How broadly
they've been used?
Ambassador Burns. Well, Senator, I guess what I'd say is
that, you know, we share the objective of constraining Iran's
nuclear program; it's one of the highest national security
priorities of the United States. What we want to try to do is
work with the Congress so that whatever new legislation gets
passed in terms of implementing existing legislation, we're
doing that in a way which carries out the law, but also
amplifies the effect of the international coalition we put
together. And in that sense, the kind of waiver authority that
I know the conference is discussing now with regard to
companies from countries that are closely cooperating would be
a very valuable tool, I think, in all of our interests in terms
of maximizing the pressure on the Iranian leadership.
Senator Webb. And wouldn't it be fair to say that at least
from the reading that I've been exposed to--the waiver
provisions have been sort of the rule, rather than the
exception, in terms of sanctions that now are in place?
Ambassador Burns. Well, Senator, in response to an earlier
question on the Iran Sanctions Act, I did state that the State
Department has completed its internal review of a series of
problematic cases--that's a significant step. And now we're
going to be working with other agencies to consider appropriate
actions, and that will lead Secretary Clinton to make
determinations. And so, we're going to apply existing law
vigorously, and we want to look carefully at the kind of
flexibility that we think would help the President in future
legislation to apply maximum pressure on the Iranian
leadership.
Senator Webb. Would you describe the main concern of the
administration, with respect to the legislation that's now in
conference, with the waiver provisions, or what other major
concerns are there?
Ambassador Burns. I think that's as significant a concern
as I can think of. But we've been working very closely with the
members of the conference, and we look forward to continuing
that over these next few days.
Senator Webb. OK. Thank you very much. Thank you, Mr.
Chairman.
The Chairman. Thank you very much, Senator Webb.
Senator Risch.
Senator Risch. Thank you, Mr. Chairman.
The reservations that were expressed by Senator Menendez
here are bipartisan. I thought he was kind and gentle. You
know, we've been at this a year, and nothing's happened.
Ahmadinejad mocks the attempts by us, he demeans them, and if
the objective--which I guess it is--is to stop them from
enriching, it has had, seemingly, the exact opposite effect
because of the ineffective way that we've gone about this.
So, I understand, and I've heard the arguments, up until
recently, about how it was so delicate, what was going on in
the U.N., and we can't act too aggressively, et cetera, but
that's behind us now. And I've said this before, and I've said
it again--the Israelis are not going to allow Iran to continue
down this road. And they're going to get to a point where
they're going to do something about it, and then everyone's
going to wring their hands and say, ``Well, why didn't America
do something?'' So, we're at that point where we really need to
do something.
This is a serious situation, I appreciate hearing you say
that it is one of the highest priorities for the American
Government, but I'll tell you, we've got to get better at this
because we're going to have a real wreck on our hands and
everybody's going to point back to us.
Your comments, Mr. Burns.
Ambassador Burns. Well, Senator, we--as you know, the
President, Secretary, other members of the administration share
absolutely that sense of urgency. We understand what's at
stake, just as you do. I think there's an increasing number of
countries in the international community who share that sense
of concern. That's reflected, not just in the passage of a new
Security Council resolution, but in the steps that the European
Union has announced that it's going to take, the steps we
expect other governments are going to take. We're going to work
at this issue as vigorously as we can because, like you, we
understand what's at stake, here.
Senator Risch. The only problem with that, Mr. Burns, and I
agree with you 100 percent, the only problem with that is,
we're in the same position we were a year ago. What you just
said was the position of the administration and the world
community and everyone else a year ago, but nothing's happened
except Iran has continued down the road, in fact, more robust
than it ever has before, for the last year.
Ambassador Burns. Well, the only thing I'd say, Senator--
and Stuart may want to add to this--is I think some things have
changed. You're right, in terms of our collective frustration
with Iran's intransigence. But I think what we tried to do was
use an intensive period of engagement as an investment in
partnership with other countries, and it has produced some new
tools of pressure that I think--if we implement them
effectively and systematically--do have a reasonable chance, as
Secretary Gates said on Sunday, of having an impact on the
Iranian calculus. And that's not just the Security Council
resolution, it's what the European Union can do, it's what
other governments can do, it's what we can do, as well. And,
you know, to just add to my response to Senator Webb's question
earlier about, you know, the implementation of the tools that
we have, the Treasury Department, State Department and others--
as Treasury announced last Wednesday--have continued to
implement U.S. authorities vigorously. And we'll continue to do
that, and take advantage of new legislation, as well.
Mr. Levey. Senator, could I just add one other comment,
which is, I wouldn't be too overfocused on the bluster from
President Ahmadinejad. We do know that the Iranian leadership
is quite concerned about these new sanctions, not just from the
fact that they tried so hard to keep them from being enacted,
but from other indications, as well, and that we've already
seen indications from within Iran from economists and so forth
that are quite concerned about the effect of these new
sanctions.
And I share your sense of urgency and in some sense,
concern, about this issue. But now I would say we're at the
beginning of pursuing this path of accountability. And we do
have new tools.
So, on the one hand, you say that the one--the only thing
that's changed is they've increased their stockpile of low
enriched uranium. But, we now have new tools, and that's
something that has changed, also. This Security Council
resolution does give us a good platform to build on.
It targets exactly the right target. We were talking
earlier about refined petroleum, I'd say that the focus in the
Security Council resolution and around the world on the IRGC is
an excellent target for sanctions, for all of the reasons that
I think have been discussed. This is a part of the Iranian
leadership that's taking opportunities away from the Iranian
people, it's participating in the repression of Iranians, and
it's the perfect target for sanctions, if I might. Because it's
hard to imagine the Iranian leadership rallying the people
around the IRGC as we target them for sanctions. That's one of
the most significant provisions of the new resolution, that
it's targeted not only 15 companies--the number's not what's
important, quite frankly--but the largest of these companies is
significant.
I'm not saying it's going to be easy, but I think that
we're at the beginning of this process, and we intend to pursue
it intensively.
Senator Risch. Well, Mr. Levey, I hope you're right. My
problem is that when people express this great concern and
hand-wringing that Iran seems to have, they don't do anything
about it. They keep enriching uranium that they don't need, and
all they've got to do is stop and all of this stuff goes away.
So, they can't be too concerned.
Anyway, thank you very much.
Thank you, Mr. Chair.
The Chairman. Thank you very much.
Senator Kaufman.
Senator Kaufman. Mr. Chairman, I want to thank you for
holding these hearings. I think that anyone who is interested
in Iran can look at the series of hearings that you've been
holding and gain a great deal of information about what's going
on and what's happening over there. It's been comprehensive,
it's covered all of the different areas, and I think it's a
kind of a tour-de-force in how the Senate Foreign Relations
Committee can do its job.
And I want to thank the two of you who are, I think,
exemplary Federal employees. And I think you exemplify all
that's good about what's going on, I think the American people
are lucky to have you here.
I also think that, you know, we tried 8 years of yelling at
the Iranians. And that, I mean, this is not something that
happened in the last year. We've known about what's been going
on in Iran for a long time. And I don't think yelling at them
did a whole lot of good. I think that this is very, very
frustrating to all of us. It's obviously frustrating to Senator
Risch, it's frustrating to me, it's frustrating to everybody.
But it's a frustrating world out there. I mean, it isn't
just Iran--what about North Korea? I'm frustrated about them,
I'm frustrated about lots of different things that are going
on, and these are just very difficult problems.
And I believe--I'm not going to apologize for the
administration, but I think we have made progress in terms of
the fact that we have got Russian more involved. And what we're
doing, we've got China on these resolutions, I think the stuff
that Under Secretary Levey's doing with regard to the financial
pressure being brought to bear on the Iranians, which he talked
about in his opening testimony is really quite impressive in
gathering all of the world and going after them financially.
This is a tough, tough fight.
But I do share Senator Risch's frustration, and I do think
that we are on a short fuse, but I couldn't think of two better
people to have working on this.
Now, that out of the way, Secretary Levey, could you talk a
little bit about cooperation you're getting from the Gulf
States in terms of what we're trying to do?
Mr. Levey. Well, thank you, Senator, and thank you for the
kind words.
I'd say that, as others have commented here and as the
chairman commented in his opening statement, the concern about
a potentially nuclear-capable Iran--nuclear weapons-capable
Iran--is felt just as deeply in the gulf as it is anywhere.
I do think that we certainly have the indications that
we'll get strong cooperation. We're in much, much better shape
now that we have a U.N. Security Council resolution. To be
candid about it, I think that was something which our gulf
allies wanted very much to see. They feel much more comfortable
cooperating under the umbrella of a U.N. Security Council
resolution. And so, we're going to pursue that right now. I
think there are indications that we'll get good cooperation.
Senator Kaufman. Secretary Burns, you mentioned in your
testimony about the U.N., the Russian decision not to transfer
S-300 surface-to-air missiles to Iran. How significant is that?
Ambassador Burns. I think it's a significant illustration
of Russia's commitment to the full implementation of the new
resolution. I think it's significant that Russia had shown
restraint in the period of years before the new resolution. And
I think it's a good example for other countries as they look at
implementing all of the provisions of 1929.
Senator Kaufman. Secretary Levey, Senator Boxer went
through a good series of questions about China, and China's
involvement. Clearly, China signing on the sanctions is
significant for us, but what are the chances that China is
going to use this as an opportunity to do business in Iran, now
that other Europeans are starting to cooperating with us, and
other nations are cooperating with us, that China can move into
this vacuum and pick up some of this business?
Mr. Levey. I'd also invite Secretary Burns on this, but I'd
say that this is a significant challenge that we face and that
we intend to make this a very, very high priority to use the
U.N. Security Council resolution in the first instance to--
which we have every reason to expect that China will faithfully
execute, and they have historically executed U.N. Security
Council resolutions that they--that have been passed. But, the
key point is to try to make sure that they don't backfill from
business opportunities that others are forgoing, and that's
going to be a very high priority that we really push and urge
them on.
Senator Kaufman. Under Secretary Burns.
Ambassador Burns. No, I'd just echo the same thought.
It's going to remain a high priority for us in our dialogue
with China.
Senator Kaufman. Secretary Burns, I noticed in your
statement you talked about the Justice Week, 55 other nations
joined and rebuked Iran for its atrocious human rights record
in the Human Rights Council. Can you talk a little bit about
how this and the 1929 Resolution indicates some change in the
U.N.'s approach to Iran?
Ambassador Burns. Well, I think since last June you have
seen, as you know very well, Senator, a rising concern of the
international community about the repression of Iranian
citizens about the denial of rights that really ought to be
universal for Iranians. And I think the administration,
President Obama, has spoken out clearly about that, will
continue to do it. And I think it is notable that 55 other
countries joined us in this joint statement at the Human Rights
Council. They came from a variety of regions of the world, and
I think they do reflect growing concern. And that's something
we're--I think the United States is certainly not alone in
highlighting, and we will continue to work with others to
amplify that.
Senator Kaufman. Under Secretary Levey, can you just kind
of go through--kind of from Iran's view--what's happening to
them financially around the world?
Mr. Levey. I'd be happy to, Senator.
If you were to rewind the clock to 2005, say, Iran was
doing business openly like a quote-unquote ``normal'' country
all over the world, and had access to the financial system,
including all of the leading financial institutions in the
world, and they were doing an enormous amount of business
everywhere except in the United States, where we already had
sanctions on Iran.
But, when we started to expose the way Iran was using the
financial system for its proliferation activities and for
terrorism, the financial institutions around the world looked
at the information that we were providing and the actions that
we were taking, and the deceptive conduct that Iran was
engaging in, and they decided almost unanimously to
dramatically cut off their business with Iran, or dramatically
cut it back. That has left Iran isolated financially, and that
has had real impact; it makes it harder for them to do trade,
they have a very difficult time obtaining letters of credit
from financial institutions around the world. They find it very
difficult to obtain financing for the major infrastructure
projects. One of the things that you asked earlier was about
the risk of backfill as others pull out of projects in Iran.
The truth is that already the major European companies are
avoiding that business, in part because they don't want to do
the business with Iran, partly because of urging from the
United States, but in part because there's no financing
available, because big financial institutions just will not
finance deals in Iran.
This has real impact. It's also part of the reason why, I
think, they are concerned about this new set of sanctions, and
the potential implementation by governments around the world.
Senator Kaufman. Thank you. Thank you, both, for your
service.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Shaheen. Senator Wicker, excuse me.
Senator Wicker. Thank you very much, I appreciate your
testimony, gentlemen.
What do you say to the charge that the U.N. sanctions have
been so watered down and so weakened that they're relatively
meaningless? What do we have to give up in order to get Russia
and China on board with this U.N. resolution?
Ambassador Burns. Well, Senator Wicker, I think first, two
points. Security Council Resolution 1929 does go well beyond
previous sanctions resolutions, and I think the provisions in
it are significant. I'd just cite a couple of examples: the ban
on significant transfers of conventional arms; Russia's
subsequent decision that it will not deliver S-300 missiles to
Iran in accordance with that resolution; the ban in the new
resolution on all ballistic missile activity connected with
missiles that could carry nuclear weapons; the range of
provisions in the financial sector that Under Secretary Levey
has already talked about. I think all of those provisions
provide a stronger platform than we've ever had before
internationally.
And that's my second point. I think we can build on that
platform, as the European Union announced it was going to do
last Thursday, in ways which further strengthen the impact on
Iran of those kind of measures. And I think that's a
significant advance on where we've been before.
Senator Wicker. Then the second part of my question--what
do we have to give up, as compared to what we wanted--in order
to get the Russians and the Chinese on board at the Security
Council?
Ambassador Burns. Well, it's like, Senator, any negotiation
anyplace. I mean, we didn't get everything that we wanted in
that resolution, but nor did the other parties get everything
that they wanted. And I think what we produced in the end,
collectively, especially amongst the permanent members of the
Council, was a significant step forward----
Senator Wicker. Was there a draft proposal that we
submitted that specifically listed some proposals that were
taken out in the final version? I guess that's my question.
Ambassador Burns. Well, sure. As I said, Senator, we didn't
get everything that we, the United States, would have liked, if
we were just writing the resolution ourselves, but----
Senator Wicker. And, what might those have been?
Ambassador Burns. Sir, I don't want to go into all of the
backing and forthing of a negotiation, but, you know, there
were certainly provisions that if we were just doing this
ourselves, you know, we would have preferred. But, I think at
the end of the day, we were able to produce, collectively, a
very significant set of sanctions. Which puts us on a very good
position to build on them, with the E.U., with steps the United
States can take, steps Australia and other countries can take.
Senator Wicker. Does it surprise you, Secretary Burns, that
Russia has criticized the announced United States sanctions and
the E.U. sanctions?
Ambassador Burns. No, Senator, it didn't surprise me.
Russia has been quite consistent and quite clear in its concern
about measures that go beyond those in the U.N. Security
Council resolution.
Senator Wicker. And so, would you say it's fair to
characterize their opposition as being more to the forum of the
sanctions, rather than to the specifics--the specific effects
of those sanctions?
Ambassador Burns. Well, you know, the Russians can speak
for themselves on this--I think there is concern about measures
that go beyond the forum of the U.N. Security Council. I think
there's also concern that's shared--it's not only a Russian
concern, it's shared by our European partners, too, about
extraterritorial application of other countries' national
measures. So, it's a variety of concerns that produced that.
Senator Wicker. OK. With regard to Turkey and Brazil voting
no. Again, I'm asking you to characterize someone else's point
of view. But, is it their contention that--that we sort of
pulled the rug out from under them, that we had asked them to
go forward with these negotiations with President Lula and
President Ertigan, and--and they felt that they didn't get
enough communication from the State Department. Is that a fair
characterization of their viewpoint?
Ambassador Burns. I don't think, Senator, there was any
lack of communication on this issue. I think the Turks and
Brazilians, while they share the same goals strategically,
they're firmly opposed, both of them, to a nuclear armed Iran.
We had differences over timing and tactics, and, you know, we
expressed our disappointment in the votes that they chose to
take, but we've also taken note of the fact that both Turkey
and Brazil have made clear that they intend, as members of the
United Nations, to implement fully the Security Council
resolution that was passed.
Senator Wicker. Do you think this is a flap between the
United States and Turkey and the United States and Brazil, that
we're going to get past fairly quickly? Are there going to be
any long-term ramifications of this decision on their part?
Ambassador Burns. Well, as I said, Senator, you know, we've
made clear our disappointment over those votes. We also
recognize the number of areas, for example, with Turkey, where
we have common concerns. One recent example has to do with the
PKK, a terrorist group, where the United States has cooperated
closely with Turkey in support of its efforts to protect its
own security. And that's an area in which we're going to
continue to work together.
So, you know, these are complicated relationships with
countries that matter in lots of important ways, and we'll have
to try to work through our differences. But they were real
enough over the Security Council resolution.
Senator Wicker. Thank you very much.
The Chairman. Thank you, Senator Wicker.
Senator Cardin.
Senator Cardin. Thank you, Mr. Chairman.
Let me thank both of our witnesses for the work their
doing. Clearly getting the next U.N. sanction resolution passed
was a major step forward, and we really do applaud your efforts
in that regard.
But I must tell you, I think that the United States
sanction legislation is critically important. Just by way of
analogy, historically what happened with South Africa--there
was a lot of angst about the United States moving forward with
sanctions against the apartheid Government of South Africa.
They said we can depend upon the international community, and
quite frankly, it was United States leadership that provided
the impetus for the economic pressure on South Africa to
changes its apartheid government.
And I do remember the arguments at the time, people saying,
gee, it's going to hurt the people of South Africa and result-
wise, it was part of the strategy that brought about the
transition of that country in a less bloody way that otherwise
it would have happened. And, you look at economic sanctions
working, of the Jackson-Vanik law, which was instrumental in
freeing a lot of immigrants from the Soviet Union. And Iran may
give its own assessments of this, but clearly the economic
sanctions need to be strengthened. And the work that you did
within the United Nations is a very positive step.
The legislation, which I hope we will approve this week, is
strong, putting the United States in the forefront dealing with
refined oil products. And, I understand the historic
relationship between the executive and legislative branch. On
foreign policy, we're usually together. But I think it's
important that we speak with a very strong voice, and you can
always point to the independence of Congress as you try to
negotiate with our friends around the globe.
I want to get to the enforcement issues of the U.N.
resolutions. I know you've talked about that, but, you know, I
am concerned as to how we will be monitoring the work within
the United Nations on enforcement of its own resolution, and
how the United States will provide the international support
that's going to be needed to provide the intelligence
information as to whether the sanctions, in fact, are being
complied with.
Can you just go into a little bit more detail as to how
this will be handled as a priority within our government to
make sure these sanctions are enforced at the highest levels?
Ambassador Burns. Yes, Senator, I'd be glad to start. I
mean, first, Secretary Clinton has appointed Bob Einhorn, one
of her senior advisors, to be the full time coordinator in the
State Department of implementation, exactly the kind of
challenges that you talked about, working with Under Secretary
Levey, our colleagues throughout the administration, and the
intelligence community, and importantly, working with foreign
governments to make sure that there's vigorous implementation
of these measures. Because as significant as the new measures
are, they're only as good as the implementation.
Second, as Stuart mentioned before, we do have in
Resolution 1929, the creation of a so-called panel of experts.
The Iran sanctions regime has, up until this point, been the
only U.N. sanctions regime without such a panel, which is aimed
at enforcing accountability. It will consist of eight members,
including one from the United States, and that gives us another
tool in the U.N. system to try to hold people accountable for
implementing the new resolution.
Senator Cardin. But as I understand it, a lot depends upon
having reliable information as to whether there's reasonable
cause to believe that a vessel contains elicit products. That
information most likely will be coming from sources that the
United States has interest in. How is that coordinated with the
United Nations effort?
Ambassador Burns. Well, sir, the comprehensive inspection
regime set up in Resolution 1874 in North Korea, is in some
ways a good model from this, and we've learned a lot from that
experience and had some successes. And, we will work, you know,
very closely with our friends and allies with this new panel of
experts at the U.N. to ensure that information is passed
quickly, and that we can use it to identify suspect cargos and
then take advantage of the new provisions of the resolution.
Senator Cardin. Are there any additional resources that the
United Nations needs in order to carry this out, or do you
think they have adequate resources devoted to this?
Ambassador Burns. Well, it's certainly something, Senator,
we'll keep a careful eye on and stay in close consultation with
the U.N. Secretariat on, but I think this new panel of experts
is an important new tool.
And then--what Bob Einhorn's efforts and his coordination
of, you know, the efforts of not only the State Department but
others in the administration, I think is also an important new
tool. We just need to plug the two together and I think that
can produce real results.
Senator Cardin. Once the United States has completed its
bilateral sanction improvement, the one we sign when the
conference board is completed--which we hope will be this
week--can you just tell whether other countries are looking at
the United States to perhaps follow our lead and enhance the
sanctions in addition to the United Nations?
Ambassador Burns. Yes, sir, the European Union, last
Thursday when its leaders met, took a very significant step in
announcing a series of measures that not only implement to its
fullest, Resolution 1929, but accompany it with steps such a
flat ban on new investment in the oil and gas sector, a flat
ban on the transfer of certain important technology to the
energy sector in Iran, a range of other measures which build on
the new Security Council resolution. Australia has announced
similar kinds measures. We know Canada is considering a similar
set of provisions, and we're in touch with a range of other
governments about steps that they could take as well.
Senator Cardin. Well, I think that's important. I think
it's important to show that this, again, beyond just the United
Nations. That sets the framework, but it really does depend
upon those who are concerned what Iran is doing, coming
together with creative ways to make these economic sanctions
really work. And then we can learn from each other, get the
best practices, which will strengthen the U.N. effectiveness of
its resolutions, but also help us figure out ways that we can
close any gaps in the intended economic pressure.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Casey. Thank you, Mr. Chairman.
I want to thank both of you for being here and for your
testimony and for your service at a tough time in our Nation's
history. I do want to thank Ambassador Burns for mentioning,
and Chairman Kerry for mentioning, the three hikers, one of
whom, Josh, is a Pennsylvanian, and Sarah and Shane. And I know
that our government has taken a lot steps to try to secure the
release that has not happened yet. We're coming up on a year,
but we're grateful for the work and we look forward to
continuing to work with you on that.
And in that vein, with regard to freedom and human rights
and Internet freedom and freedom of expression, I want to--I
was noting from Under Secretary Burns, the reference on page
eight, page seven onto page eight, where you state, ``State and
Treasury have worked to issue a general license that allows
free market, downloadable communication software available
inside Iran.'' And I know you may have already addressed this,
but two things. One is, what you can you tell us, in terms of
an update--and again, this may be redundant from what you've
testified to earlier--an update on how that effort is
proceeding. And second, what if anything the Congress can do to
help the administration in this area. I know we've passed the
Voice Act, we've done a number of things, but is there a gap or
a hole or a strategy that we haven't acted that we can be
helpful to the administration with?
Ambassador Burns. Thanks, Senator Casey. No, we admire very
much the efforts that you and your colleagues in Congress have
made to highlight the importance of free access to information
on the part of Iranians, which is a universal right. You
highlighted, sir, one of the specific steps we've taken, along
with Treasury, in issuing a general license to make more
accessible kinds of software, whether it's for e-mail or blogs
that we think are very useful. The truth is that there are at
least 25 percent of the Iranian population that is online
regularly, and it's an extremely important way of people
communicating with one another.
We've taken another step, which is to issue a specific
waiver for a kind of technology that helps avoid jamming, which
is a--certainly a tool that the Iranian Government has used to
cut down on the free flow of information. We applauded the
Voice Act, we'll try to take full advantage of the kind of
provisions that are in that act, and look for other creative
ways in which we can help Iranians have access to information,
just like any other society ought to have.
Senator Casey. When you say the waiver, explain how that
works. When you said the providing waiver, tell me how that
works.
Ambassador Burns. Well, it's just under the--I'll probably
get some of the details wrong, but under the current
strictures, you know, that the U.S. Government applies to any
kind of commercial interchange with Iran, there were
proscriptions on, you know, certain kinds of equipment, and
this would actually make an exception in that case.
Senator Casey. Thank you. I know that Under Secretary Levey
has been part of the effort to keep the heat on the regime as
it relates to sanctions. I know we're--we meet here principally
to focus on what the United Nations has done. And in that vein,
I want to ask as well about some of the congressional action on
this, but I was looking at your testimony as well. On page six
where you talked about the--the Islamic Revolutionary Guard
Corps being designated by Treasury in 2007, and you want to--
you go on from there, and I guess it's second or--I think it's
the third sentence, about what happened last week, the actions
taken to supplement those actions. And in the end of the
paragraph, you talk about the 26 entities now that have been so
designated.
What if--let me ask you first, what if anything is left
there, in terms of work to be done on putting pressure,
particularly on the Revolutionary Guard Corps, is there
anything more that you would hope the Congress would do or do
you think the sanctions that are being worked on now, by way of
a conference committee, whether or not that's going to be
sufficient to provide the kind of pressure, in particular, on
the Guard Corps.
Ambassador Burns. I'd make two points, Senator. One is
that, as I understand the bill that is being considered, it
does have IRGC provisions that would expand our authorities in
this respect and that would provide the authority to restrict
U.S. business with entities that are doing business with IRGC.
But, perhaps most important, is the implementation--I mean, it
comes back to the implementation of the U.N. Security Council
resolution, because the designation in the Security Council
resolution of Khatam al-Anbiya, which is the umbrella company
that does all the--that does a lot of this business, and then a
lot of it's subsidiaries and affiliate companies, that it's--
it's frankly hidden behind, since we designated it ourselves in
2007. To have that be a global implementation of those
restrictions will be very powerful, even in their most
important industry, which is of course their energy industry.
Because they can't attract investment, they are turning
over projects to IRGC affiliated companies. One knows that if
those companies were capable of doing those--handling those
projects, that's how they would have handled it in the first
place. They need to contract out, outside of Iran, and those
companies have a history of contracting out with companies
around the world, including in Europe, to do the projects that
they're given as sole-source contracts from the government.
So, we think that implementing that provision of the
resolution, the designation of the IRGC companies, is a very,
very powerful--a very, very powerful step.
Senator Casey. And I know we don't have--we have not
completed the conference work that will lead to final passage
of the legislation. But, let me conclude with this. There are a
lot of people who will say to me, ``Well, it's great you guys
are going to pass something in Congress to provide more
authority for the President for administration.'' Some
authority, of course, will relate, as Senator Brownback and I
worked on the divestment, so we have other levels of
government, pension funds, and local government and State
governments helping us, but in terms of the new authority for
this President, this administration and succeeding
administrations, I would urge both of you to be a very strong
voice, to use the power that's granted. I know it's I know it's
unilateral, I know it's--there's discretion involved to a
substantial extent, but we need to keep the heat on this regime
and we don't want to pass legislation where it just sits on the
shelf. So, I know you have strong feelings as well about this,
but I urge you to be a strong voice for the use of those
enhanced authorities.
Thanks very much.
The Chairman. Thank you very much, Senator Casey.
Senator Shaheen.
Senator Shaheen. Thank you, Mr. Chairman.
And thank you both for being here. I had a meeting recently
with a representative from a large corporation who was
expressing some concern about how they might be affected by the
further Iran sanctions resolution at the U.N. and the action
that we're taking here in Congress. And, they were expressing
concern in a way that indicated some question about whether
they thought this was really necessary.
And, I wonder if you can tell me how we're dealing with
American corporations who we hope and expect to comply with the
sanctions resolution and the action that we're taking, and are
we educating them, are we--I mean, what surprised me, frankly,
was that he didn't view this as his patriotic duty and that he
didn't seem to recognize the very real threat that Iran poses.
Mr. Levey. obviously I don't know which company you're
referring to, but, Senator, I, and I know Secretary Burns and
others at the State Department do a lot of the sorts of
discussions like this, to the extent that I'm talking to a
company that's not American company, I make the point that our
companies have been voting with their, you know, putting their
money where their mouth is for a generation.
We have largely forsworn the economic opportunities of
doing business with Iran through our unilateral sanctions for a
long time, and so when I get push back from other governments
I'm quick to point that out.
When it comes to U.S. companies, this is a very, very small
and frankly, you know, it gets a lot of attention, but it's a
very small amount of business in absolute terms, but we are
very--very vigilant with respect to making sure that we enforce
our law as it stands, which is that if you're a U.S. company
and you have a subsidiary abroad, you can not use that
subsidiary to evade the sanctions, and if you do, we'll take
enforcement action against you. What frankly happens a lot of
times is when we start to investigate the business of the
foreign subsidiary, we get a public announcement that they're
going to stop doing the business, and then we say that's great.
And that's maybe a good outcome.
But we take this very seriously, and as I indicated to
other Senators, when people violate our sanctions, we're very
tough, as we were with the two major financial institutions
that violated our sanctions in the last couple of years, and
imposed multiple hundred million dollar fines on both of them.
Senator Shaheen. Thank you. Can you also talk about the
reaction to the Financial Actions Task Force's recommendations
and--I guess they're more than recommendations, they're
countermeasures--and how responsive the international community
has been to that.
Mr. Levey. Well, thank you for asking that, because this is
something which--which the Financial Action Task Force, which
is the standard setting body on money laundering and terrorist
financing issues, and it has the buy-in of almost every
country, major country in the world has--only one country that
they have called out for countermeasures, and this is not done
for political reasons, this is a technical assessment of the
risks posed by elicit finance within each country. And Iran is
the only one that opposes such a risk, that they've asked
countries to impose countermeasures.
We frankly intend to use that call for countermeasures and
the combination of the financial provisions of the U.N.
Security Council resolution to seek very robust countermeasures
on Iran, and the indications, at least initially from the
Europeans, as Under Secretary Burns said, their statement is at
least a political statement in the right direction, we've now
got to turn it into action.
Senator Shaheen. And you mentioned the Europeans, the
Australians, is there anybody that we've been talking to who we
are concerned will not go along with those countermeasures?
Either one of you.
Mr. Levey. The issue about the countermeasures is that's
there no prescribed--there's no prescription about exactly what
countries have to do, and so we have to work with them to make
sure that the countermeasures that are imposed are robust
enough. And so, the direct answer to your question, is no one
will say, no, we're not taking it seriously. My concern and
what I intend to work on very hard to make sure that what they
do impose is strong enough and isn't just a statement of
concern, but rather some real teeth in these countermeasures.
Senator Shaheen. Under Secretary Burns, you talked about
Turkey and--Turkey and Brazil having--supporting the underlying
goals of the resolution, but thinking there were other ways to
get there is that were more effective. Should I assume from
that that they share our very real concern about the threat
that Iran poses?
Ambassador Burns. I think they do, Senator. I certainly--I
think they share the strategic goal here, which is to ensure
that Iran doesn't develop nuclear weapons, Turkey in
particular, is a close neighbor and has as big a stake as
anyone in the security and stability of that part of the world.
Senator Shaheen. And, can you also elaborate a little bit
on how that action at the U.N. has affected Turkey's
relationship with Israel?
Ambassador Burns. Well, the relationship between Turkey and
Israel, as you know, has been a complicated one for, you know,
for reasons that go beyond simply the issue of the resolution
in New York, and certainly the incident effecting the recent
Gaza flotilla was a source of real friction between them.
In the past, Turkish-Israeli relationship I think had been
one of the, you know, more encouraging developments in the
region. Turkey played a very significant role, as Senator Kerry
knows, in 2008 in facilitating an indirect exchange between
Syria and Israel, and I think that was reflection of the kind
of role that Turkey can play on a range of important Middle
East issues.
Senator Shaheen. And finally, what impact on Iran's
position within the Middle East have these sanctions had, or is
it too soon to tell? So, have they increased some of the other
countries within the Middle East who might--like Syria--who
might have been more supportive of Iran, or have they decreased
their commitment to Iran?
Ambassador Burns. Well, I think the passage of the
resolution--it's, you know, it's not a magic cure, but it does
reinforce the isolation of Iran in the international community.
I think it reinforces in the region, I think, the concerns of,
you know, our partners not only in gulf but elsewhere. There
are concerns about Iran's nuclear ambitions and about its
behavior in lots of other areas, its support for terrorist
groups, its efforts to undermine efforts of Middle East peace.
So, I think in that sense the Security Council resolution
has a constructive impact in highlighting what the real problem
is here today, and the real problem is Iran's unwillingness to
live up to its international obligations.
Senator Shaheen. Thank you.
The Chairman. Thank you, Senator Shaheen.
Mr. Secretary, I know you want to try to get out of here
around 11:30, we'll try to get you right out of here
momentarily, just a couple of quick questions, if I may.
How much international cooperation, Secretary Levy, do you
anticipate for the nonbinding measures?
Mr. Levey. I have very high hopes and I think that our
indications so far are quite positive. And these nonbinding
measures, I think, I have two reasons for optimism. One is that
we have had prior consultation with a lot of our allies about
exactly what they needed to do the things that we want them to
do. And my second reason for optimism is that the overwhelming
information that is already in the public domain about--that
the resolution calls for countries to meet before they can take
action.
So, as I mentioned earlier, governments are asked to cut
off all financial services and corresponding banking if they
have reason--if they have enough information to believe that
this could be used for Iran's nuclear missile enterprises.
Well, the information that is in the public domain already is
overwhelming, and in fact, even in the resolution itself, one
of the criticisms of the resolution that I heard was that
there's only one bank listed. And it is a bank that's a small
bank that is owned by Bank Mellat, which is a large Iranian
bank.
But the description in the resolution of what bank--of Bank
Mellat, is that it moves hundreds of millions of dollars for
Iran's nuclear and missile and other military enterprises. So
there you have, even in the resolution itself, already the
information that is necessary for governments to take strong
action against Bank Mellat. And so, we can use that, I think,
to get some strong response.
The Chairman. And what are the most significant provisions
in 1929 that you think are going to bring real economic and
financial pressure on Iran?
Mr. Levey. Perhaps the most important one is the simplest
one, it's the IRGC designations, because that is a very
significant and it's a larger part of the economy, as we've
discussed. But I would again point to the restrictions--in
terms of economic issues, I would point to the restrictions on
any kinds of financial services, including banking, insurance,
et cetera, that governments are called upon to cut off if
there's any basis for believing that it could help Iran's
nuclear missile enterprises.
The combination of all that, plus just the vigilance and
the encouragement to stop doing business with IRISL, their
shipping line, and the IRGC. I think you put all of that
together, it can have a strong impact, but the three provisions
that are most important, I think, would be the IRGC provision,
as well as its paragraphs 21 and 23 about financial services.
The Chairman. And once we've got the rules in place et
cetera, what do you--what is the key to ensuring that these new
sanctions are going to be as effective as possible? What do
you, both of you, most----
Mr. Levey. You know, I think that there's----
The Chairman [continuing]. Just track and push.
Mr. Levey. There--well, what we've learned over time, I
think, is that you've--this is in some ways a labor intensive
process. You know, there is no, in my view, there is no
substitute from, you know, showing up over and over again to
talk about these issues. We have made a lot of progress by
doing that, discussing, you know, sharing this information,
showing up with the information, discussing it again. We have
made that our priority to do over the last few years. Now with
the appointment of Bob Einhorn to coordinate these efforts of
the State Department, we'll be able to follow through and do
that in a very concerted way. I think the more people
understand that this is a high priority for the United States,
the more likely they are to cooperate and----
The Chairman. You talked earlier about one bank shifting
off to another bank once that bank gets, sort of, the hammer
come down on it. Can they simply do that again, just shift off
to yet another bank or create a bank to shift off to? Don't
they have significant amount of flexibility in that?
Mr. Levey. Well, we've now designated 16 of their banks.
The Chairman. How many do they have?
Mr. Levey. They've got more, but the point is that--we're
trying to use this evasion--you know, you could go the other
way, but our view is that you use the evasion by pointing it
out and getting people to see exactly how they're behaving so
that they can take action themselves to not do business with
Iran's banks. If we just issued an edict that said, you know,
all of Iran's banks, you know, are in this category, it
wouldn't have the effect because we wouldn't have the publicly
available information to substantiate our concerns.
So, it's our view that the most effective way to do this is
the way we have been doing it, to sort of--you point out
exactly the elicit conduct, make it public, confront people
with it so that they can take steps on their own.
The Chairman. Now I understand we pay Iran $100 million a
day for oil. Is that accurate?
Mr. Levey. I'm not sure what you're referring to, Mr.
Chairman.
The Chairman. I'm trying to figure it out. I have seen the
ads on television and recent reports in news media referring to
$100 million that goes to Iran, in terms of America's
dependence on foreign oil. Can you speak to that?
Mr. Levey. I think I'd have to sit down with whoever is
making those calculations and see what they're referring to.
There's no--it's impermissible to directly purchase from Iran
by any United States person, but----
The Chairman. Do you have any sense of how indirectly that
money is getting to Iran? Obviously it's indirect, I understand
that.
Mr. Levey. I don't want to speculate. I mean, it's possible
that people are saying this is fungible product, and so the
amount that we buy raises the prices to a certain extent, but
I--that's a pure speculation. I don't know.
The Chairman. Have you not looked at that tracking, I mean,
aren't there some joint oils fields shared? Don't the Qataris
have a joint oil field in the gulf?
Mr. Levey. I believe that's a gas field, but you're
correct.
The Chairman. And do we buy from them? Does some of that
proceed go to Iran?
Mr. Levey. I don't know, but I do know that it's
impermissible to buy directly from Iran by any United States
person.
The Chairman. To what degree will our sanctions have the
ability to deal with the indirect support structure, which if
it is true, results in $100 million a day, is kind of
counterproductive?
Mr. Levey. You know, I don't want to say--I feel like we
have a premise that we haven't really----
The Chairman. All right.
Mr. Levey [continuing]. Established yet.
The Chairman. We'll get the premise to you more directly. I
was wondering whether you had any--if you could shed any light
on that, because I've just seen that in these last days, and I
wanted to try to----
Mr. Levey. Let me look into further and see if can get back
to you.
The Chairman [continuing]. Focus in on it. Fair enough.
Let me thank both of you very much.
Senator Lugar, do you have any additional questions?
Senator Lugar. Well, thank you, Mr. Chairman, I do, but I
will submit them to the witnesses for the record, and if you
would respond swiftly, we'd appreciate it.
The Chairman. Senator Lugar, we'll leave the record open
until the end of the week, for colleagues, and in addition,
there are questions we do need to ask in classified session.
And if we could get you back, I could--I think you could sense
from the participation of the committee here, the level of
interest that obviously exists. We could try to do that, I hope
in the near-term, we'll try to work that out with your staffs.
Thank you very much for being here today, very interesting
and very helpful. We appreciate it.
We stand adjourned.
[Whereupon, at 11:48 a.m. the hearing was adjourned.]
----------
Additional Material Submitted for the Record
Responses of Under Secretary William Burns to Questions Submitted for
the Record by Senator John F. Kerry
Question. In your testimony you mentioned the three American hikers
detained by Iran, Shane Bauer, Josh Fattal, and Sarah Shourd.
a. What steps are being taken to help bring about their release?
b. Do we have knowledge of their well-being?
c. Recent reports suggested they may have been arrested by Iranian
border guards on Iraqi soil. Is that your assessment as well?
d. Another American who went missing in Iran is Robert Levinson.
What do we know about his whereabouts?
e. What steps are being taken to find him and bring him home?
Answer. (A) The three hikers have been detained for nearly a year
without official charges or access to their attorney. The Department is
committed to ensuring fair and humane treatment for all U.S. citizens
detained overseas, and we stand ready to assist detained citizens and
their families within the limits of our authority in accordance with
international law. In the case of the hikers, we are using a variety of
diplomatic tools to ensure that Iran understands the U.S. Government's
concern for the welfare of these three Americans. We are raising our
concerns bilaterally, through the Swiss protecting power, and through
third parties.
(B) We understand the three have not been physically harmed,
although their psychological well-being is a major concern. The Swiss
have been granted consular access on three occasions: September 29,
2009; October 29, 2009; and April 22, 2010. The hikers' mothers were
able to visit them on May 20 and May 21, 2010. Although the Iranian
Government has not permitted Sarah, Shane, and Josh to sign a Privacy
Act Waiver, the families have released information on their welfare and
well-being to the press. Through these reports we understand that Sarah
Shourd has been in a cell by herself since her detention on July 31,
2009, and has serious preexisting medical conditions. We have asked the
Iranian Government to share her medical records with us. The Iranian
Government has yet to provide the results of medical tests she has
undergone while in detention.
(C) The Department is unable to corroborate reports that the hikers
were arrested by Iranian border guards on Iraqi soil.
(D) We continue to seek information regarding Mr. Robert Levinson,
who disappeared on March 9, 2007, while on a business trip to Kish
Island, Iran. In December 2007, Mr. Levinson's family traveled to Iran
and met with Iranian officials. The officials expressed a willingness
to share information about their investigation into Mr. Levinson's
disappearance; however, the Iranians have yet to provide this
information.
(E) The Department uses every opportunity to raise its concerns
over Mr. Levinson's disappearance--both bilaterally, through the Swiss
protecting power, and through third parties. The United States
continues to call on the Government of the Islamic Republic of Iran to
assist in providing any information on Mr. Levinson's whereabouts and
following through on its promise to share the results of its
investigation with the Levinson family or the Swiss Embassy in Tehran.
Question. In the wake of U.N. Resolution 1929, countries are taking
``national measures'' to increase the pressure on Iran. What do you
expect will be the impact of the ``national measures'' taken by U.S.
allies in the wake of U.N. Resolution 1929--both on Iran's economy and
on its decisionmaking?
Answer. Already, the European Union has acted strongly to follow up
UNSCR 1929, announcing in its June 17 European Union Council
Declaration the plan to adopt EU-wide regulations, which we expect to
occur at the July 26 Foreign Affairs Council meeting. Its leaders have
decided to take a series of significant steps, including bans on the
transfer of key technology, and tough measures against Iranian banks
and correspondent banking relationships, and additional designations to
include banks. Canada and Australia have indicated similar resolve, and
other partners will follow suit shortly. Meanwhile, we continue to have
success in persuading a variety of foreign companies that the risks of
further involvement in Iran far outweigh the benefits.
The net result of this combination of economic pressures is hard to
predict. It will certainly not change the calculations of the Iranian
leadership overnight, nor is it a panacea. But it is a mark of their
potential effect that Iran has worked so hard in recent months to avert
action in the Security Council, and tried so hard to deflect or divert
the steps that are now underway. Iran's leaders understand that both
the practical impact of Resolution 1929 and its broader message of
isolation create real problems for them and their pursuit of nuclear
weapons.
Question. Europe's supply of refined petroleum to Iran is
declining. Where is Iran getting its refined petroleum?
Answer. Major gasoline suppliers to Iran have included companies
from India, China, Turkmenistan, the Netherlands, France, Singapore,
Kuwait, Russia, and the United Arab Emirates. Exports from European
companies have been in decline, due in large part to U.S. pressure;
however, exports from Asian companies and wholesalers have increased to
meet Iranian gasoline demand.
______
Responses of Under Secretary William Burns to Questions Submitted for
the Record by Senator Richard G. Lugar
Question. Please describe, in a classified format if necessary, the
administration's diplomatic efforts with gulf allies to counter the
threat of a nuclear Iran.
Answer. As allies in the region potentially affected greatly by
Iran's nuclear program, the United States works closely with members of
the Gulf Coordination Council (GCC) both bilaterally and in the context
of the GCC, to counter this threat to regional stability. Most
recently, we have been working with the gulf states on the
implementation of United Nations Security Council Resolution 1929. We
continue to work with our GCC partners to enhance counterproliferation
authorities and interdiction capabilities through activities such as
the Proliferation Security Initiative (PSI). All GCC members have
endorsed the PSI, and the United States engages our gulf allies with an
active PSI program that includes the biannual PSI Exercise LEADING
EDGE, issue-specific workshops, and bilateral training opportunities.
Furthermore, the United States works closely with the United Arab
Emirates--the largest transshipment hub in the region--through a
bilateral Counterproliferation Task Force. Through this dialogue, we
work together on a full range of counterproliferation issues including
export controls.
We have worked closely in bilateral discussions with GCC countries
on the need to fully and robustly implement obligations under existing
UNSCRs and to consider imposing supplemental measures, in particular
targeting Iran's ability to finance procurement of prohibited equipment
through entities in gulf states.
Question. Please lay out, in a classified format if necessary,
administration concerns about the potential for a nuclear arms race in
the region, were Iran to obtain nuclear weapons. Likewise, how does the
administration view the status of conventional arms races since the
Gulf Security Dialogue began?
Answer. Our security strategy toward the Persian Gulf vis-a-vis
Iran is to enhance bilateral and multilateral security relationships
while deterring a conventional arms race. We believe our strategy has
been successful. The Gulf Security Dialogue (GSD) is the State
Department's primary security coordination mechanism with the Gulf
Cooperation Council (GCC) countries. The GSD includes regular
bilateral, interagency (State, NSC, OSD, JS, CENTCOM) consultations
with the GCC states on the breadth of security issues affecting the
gulf. For a number of years, through the construct of the GSD, we have
worked with the countries of the Arabian Peninsula as well as other
partners in the region to develop a common architecture that includes
bilateral and multilateral security defenses, shared early warning
systems, counterterrorism and counterpiracy programs, programs to build
partner capacity and efforts to harden and protect our partners'
critical infrastructure. In fact, we currently have missile defense
assets in a number of gulf partner nations. CENTCOM maintains a robust
exercise schedule in the region and a sizeable force presence which
reaffirms our commitment to our partners.
We also maintain a full schedule of bilateral and multilateral
engagement going up to the highest levels. In the last 2 months alone,
Secretary of Defense Gates and Chairman of the Joint Chiefs Admiral
Mullen have both traveled to the region. Strengthening the capacities
of vulnerable states in the region is a vital avenue for countering
destabilizing Iranian activities, and we believe we are seeing some
results.
Question. The Conference Report on H.R. 2194 contains language
authorizing appropriations necessary to implement provisions of the
act. What additional resources will the State Department require?
Answer. Implementation of the act will require additional personnel
having a variety of specializations in several State Department
bureaus. Requirements for open source and classified data collection,
technical and legal analyses and reporting will be considerably in
excess of needs under the 1996 act. We expect that a portion of our
personnel needs will be met, in the short term, through the hiring of
contractors with specific skill sets not previously required. U.S.
Embassies will be tasked with the responsibility to engage local
governments and businesses on issues raised by the 2010 act and to
investigate potentially sanctionable activities. Nevertheless, travel
by U.S.-based personnel also will be substantially expanded. We are
currently working up approximate cost figures for the expanded effort
needed to implement the 2010 act. We will provide those to you as soon
as possible.
Question. Please explain in greater detail the responsibilities
that Ambassador Einhorn will have with respect to Iran sanctions.
Answer. Secretary of State Clinton has asked Bob Einhorn, Special
Advisor for Nonproliferation and Arms Control, to take on the added
role of our government's coordinator for the implementation of
sanctions related to Iran and North Korea.
He will lead U.S. efforts with partners and allies around the
world--including foreign governments, private industry and the United
Nations--to strengthen multilateral and national measures to address
Iranian proliferation activities. He will direct U.S. efforts to ensure
full and effective implementation of all U.N. Security Council
resolutions related to Iran, including most recently UNSCR 1929.
As part of these efforts, Bob Einhorn will work closely with the
National Security Council, Treasury Department, Department of Defense,
intelligence community and other agencies to ensure full and effective
coordination of U.S. efforts for implementation of sanctions related to
Iran and North Korea. Bob Einhorn's new responsibilities will further
strengthen State Department's already close cooperation with other
agencies on addressing Iran's compliance with its international
obligations.
Question. How does the Department plan to implement the provisions
relating to sanctions to be imposed on certain persons who are
responsible for or complicit in human rights abuses committed against
citizens of Iran or their family members after the June 12, 2009,
elections in Iran?
Answer. The State Department's Bureau of Human Rights, Democracy,
and Labor closely monitors human rights violations in Iran as reported
and documented by human rights defenders and watch groups. As we do
with our annual Country Report on Human Rights Practices in Iran, we
will engage in consultations with and seek input from a range of
sources that document human rights abuses in Iran in order to identify
the appropriate persons to place on this list. Upon identifying these
individuals, the Department will promptly notify Congress and, in
accordance with the legislation, will publish the list of designees on
the State Department Web site. We will then work with our colleagues in
the Treasury Department to implement applicable sanctions under the
International Emergency Powers Act, while our Consular Affairs Bureau
implements visa restrictions on the designated human rights violators.
Question. Please share the results of the internal review of
existing sanctions you mentioned during the hearing. What lessons has
the administration learned from this process that can be applied going
forward?
Answer. As I mentioned in my testimony, we have identified a few
firms, less than 10, which may have violated the 1996 act. We have been
in contact with these firms and relevant governments, often repeatedly,
in order to establish the precise nature of their economic activity in
Iran--both past and present. In most cases, we have good reason to
believe that the firms of concern have wound down their activities in
Iran. However, a few appear to be continuing their work there.
According to the President's delegation of the 1996 act, the State
Department is now required to consult with other agencies about
appropriate next actions. Upon the completion of that set of
consultations, the Secretary will make a determination about possible
sanctions and/or waivers of the subject firms.
Looking forward, we are satisfied that we have put in place a
robust system to review instances of possible violation of the 1996
act. An important part of our effort has been to make use of our
embassies in the field, as well as our intelligence resources, to
differentiate between actual activity in violation of the act and
claims of activity made by the Iranian Government or its proxies. Those
analyses are sometimes complicated by the reluctance of firms to
publicly contradict statements by the Iranian Government, particularly
if a company has a financial exposure in Iran. However, we have gone to
pains to build credibility among energy firms, and many have shown
sufficient confidence in our discretion so as to share commercial
information with us. Finally, our work with many governments over
recent months has permitted us to develop our understanding about which
local institutions and individuals are helpful for the implementation
of the act.
Question. How does/will the administration measure the success of
its Iran policy, not only with respect to sanctions, but also to other
aspects of its broader policy?
Answer. U.S. policy toward Iran is straightforward. We have sought
to engage the Islamic Republic in dialogue in order to: (1) Prevent
Iran from developing nuclear weapons; (2) counter its other
destabilizing actions in the region and beyond; and (3) advance our
broader interests in democracy, human rights, and development across
the Middle East.
President Obama has made clear repeatedly, including in his
statement on the adoption of Resolution 1929, that we will stand up for
those rights that should be universal to all human beings, and stand
with those brave Iranians who seek only to express themselves freely
and peacefully.
We have pursued our broad policy goals over the past 18 months
through a combination of tough-minded diplomacy--including both
engagement and pressure--and active security cooperation with our
partners in the Persian Gulf and elsewhere. We have sought to clarify
the choices before the Iranian leadership, which has so far been unable
to respond to President Obama's offers of outreach. Those offers have
unsettled the leaders of the Islamic Republic, who now find their empty
anti-American slogans completely discredited.
We have sought to demonstrate what's possible if Iran meets its
international obligations and adheres to the same responsibilities that
apply to other nations. And we have sought to intensify the costs of
continued defiance, and to show Iran that pursuit of a nuclear weapons
program will make it less secure, not more secure. The choice is
Iran's: whether it will choose to comply with its obligations, or be
further isolated from the international community.
Question. The House version of the Iran sanctions legislation
contained language regarding Agreements on Civil Nuclear Cooperation
(or ``123 Agreements'') which has since been dropped. Let me pose
several questions regarding the 123 Agreement with Moscow, which
Senator Kerry and I introduced legislation approving on June 21:
a. How will the administration use entry into force of an agreement
for civilian nuclear cooperation with Russia to influence Russian
behavior on Iran?
b. Has the Russian Federation executed a facility-specific
safeguards agreement with the IAEA for the Bushehr nuclear power
reactor?
c. Last week, Secretary Gates stated in testimony before the Armed
Services Committee that Russia has a schizophrenic pattern of behavior
on Iran. Do you share this assessment, and what is the status of the
joint Iranian missile threat assessment the United States proposed to
conduct with Russia last year?
d. This year the intelligence community concluded in an open
assessment that ``at least in the past'' Russian entities had assisted
Iran's ballistic missile program. If this is the case, then why did the
assessment change from that given in previous years, which was that
such assistance has continued?
Answer. (A) Russia has been a strong partner within the P5+1 and in
international efforts to prevent Iran from acquiring a nuclear weapons
capability. The administration has determined that the level and scope
of Russia's cooperation with us were sufficient to justify resubmitting
the 123 Agreement to Congress for review. We continue to work closely
with the Russian Government to further our shared nonproliferation
goals and to prevent Iran and other countries of concern from
developing WMD and their means of delivery. The decision to move
forward with the Agreement--a legal framework for enabling bilateral
civil nuclear commerce--was made on its own merits: There are clear
benefits with entry into force of the Agreement to promote our broader
nonproliferation goals, such as joint research and development of
international nuclear fuel cycle services as well as civil nuclear
energy technologies that would limit proliferation and security risks.
(B) It is incumbent on the country where a safeguardable facility
is located, not the country providing assistance to that facility, to
have a safeguards agreement with the IAEA, and Iran has such an
agreement with the IAEA that covers Bushehr. Russia has, in addition,
engaged in a lengthy negotiation with Iran to secure very important
nonproliferation measures in the Russia-Iran agreement, namely ``just
in time'' fuel delivery and spent fuel take-back. These measures have
gone a long way toward satisfying the immediate nonproliferation
concerns we had with the Bushehr project. Russia has made clear to Iran
that IAEA safeguards are a requisite part of reactor operation.
(C) Russia shares the United States concerns regarding Iran's
nuclear and missile programs. To that end, it has supported all four
United Nations Security Council resolutions imposing sanctions on Iran.
With respect to the Joint Threat Assessment (JTA), we have met with
Russia three times to exchange our views on the Iranian and North
Korean missile programs. We have proposed another meeting in the near
term to continue our discussions and hope to complete a written report
to our respective leaderships by the end of this year that will
describe the results of our discussions.
(D) We defer to the intelligence community, as it is better suited
to substantively respond to this assessment.
______
Responses of Under Secretary Stuart Levey to Questions Submitted by
Senator John F. Kerry
Question. During the hearing, I raised the question of the
strategic impact of America's dependence on foreign oil on Iran and its
behavior. The Center for American Progress Action Fund and the
Massachusetts Institute of Technology, have found that capping carbon
emissions would cost Iran up to $100 million a day in oil profits.
a. Is there a connection between America's dependence on
imported oil and Iran's ability to pursue its nuclear program
despite international pressure?
Answer. There is a limited potential connection between U.S. demand
for imported oil and Iran's ability to pursue its nuclear program. The
United States does not import Iranian oil, but U.S. demand has a large
impact on international oil prices. Up to two-thirds of Iranian
Government revenue comes from oil exports, according to data from the
International Monetary Fund. Iran views its nuclear program as a
strategic priority, and while a decline in revenue from lower oil
prices would hurt the Iranian Government's fiscal position, it is
unclear whether that effect would cause a cut in spending on its
nuclear program.
b. Is there a connection between America's dependence on
imported oil and Iran's ability to sponsor terrorist groups
abroad?
Answer. See response to (c) below.
c. Can you comment on the nature of these linkages?
Answer. This is a complicated issue, but what is clear is that
American demand for imported oil has an impact on its overall market
price, and thus an indirect impact on Iran's oil revenues.
Question. In the wake of U.N. Resolution 1929, countries are taking
national measures to increase the pressure on Iran.
What do you expect will be the impact of the national
measures taken by U.S. allies in the wake of U.N. Resolution
1929--both on Iran's economy and on its decisionmaking?
Answer. Following the adoption of Resolution 1929, the United
States, the European Union, Norway, Canada, Australia, Japan, and South
Korea, among others, have implemented national sanctions programs to
implement the requirements of the resolution. These measures impose,
inter alia, sanctions on Iranian financial institutions, other
entities, and individuals that facilitate Iran's proliferation program,
and impose broad systemic sanctions, such as prohibitions on the
provision of insurance or export credits for business with Iran and
prohibitions on certain activities in the energy sector. We expect that
the growing coalition of countries that are imposing national sanctions
as a means of implementing UNSCR 1929 will continue to put pressure on
Iran, sharpening its choice between the path of engagement and the path
of further isolation.
Question. Europe's supply of refined petroleum to Iran is
declining.
Where is Iran getting its refined petroleum?
Answer. In the past, major refined petroleum suppliers to Iran have
included companies from India, China, Turkmenistan, the Netherlands,
France, Singapore, Kuwait, Russia, and the United Arab Emirates.
Passage of CISADA and the State Department's efforts to engage with
these companies has had a strong effect on refined petroleum sales to
Iran, as many of Iran's prior suppliers have decided not to sell
refined petroleum products to Iran. As Under Secretary William Burns
recently testified, open sources indicate that prior to last July, Iran
imported roughly 130,000 barrels per day of refined petroleum products,
and that in October, that figure had dropped by approximately 85
percent to 19,000 barrels per day. Although Iran continues to import
some refined petroleum products from countries in Asia and the Middle
East, diminished imports have forced Iran to increase its domestic
production of refined petroleum. The rapid conversion of petrochemical
facilities to petroleum refining is not without costs, as it decreases
petrochemical output.
Question. Thanks in part to your work Iran is having an
increasingly difficult time gaining access to international capital
markets.
a. Can you tell us more about where these efforts stand?
Answer. U.S. sanctions with respect to Iran generally prohibit U.S.
financial institutions and their foreign branches from engaging in
transactions with Iran and with Iranian Government entities. In
addition, U.S. sanctions generally prohibit U.S. financial institutions
and their foreign branches from dealing with numerous Iranian entities,
Iran-linked banks, and individuals that have been designated for their
involvement in terrorism or WMD proliferation. Treasury regulations
that implement section 104(d) of CISADA further prohibit the owned or
controlled subsidiaries of U.S. financial institutions from knowingly
engaging in transactions with or benefiting Iran's Islamic
Revolutionary Guard Corps or its designated agents or affiliates. Iran
and its designated persons are therefore unable to access U.S. and
international financial markets and find it difficult to engage in
transactions involving U.S. dollars and euros. Last, section 104(c) of
CISADA gives Treasury authority to prohibit or severely restrict the
U.S. correspondent accounts of foreign financial institutions that
knowingly engage in certain transactions related to Iran. We have
undertaken considerable outreach to financial market participants, both
here and abroad, to educate them about Iranian sanctions and to inform
foreign financial institutions about the risk that if they engage in
sanctionable transactions, their own access to U.S. financial markets
could be closed off.
b. Can you provide details about Iran's ability to access
international markets?
Answer. As a result of recent sanctions, the majority of Iran's
state-owned banks are no longer able to conduct transactions with banks
in most of the major financial centers in Europe, Asia, and the Western
Hemisphere. Most of the world's most significant financial institutions
refuse to do business with Iran because of ever-increasing reputational
risk, international pressure, and concern that they themselves could
lose access to U.S. financial markets. As a result, Iran is facing
great difficulty gaining access to financial services, finding partners
with which to engage in projects, and conducting financial
transactions. Insurance companies are increasingly unwilling to insure
Iranian cargo and shipping companies do not want to risk traveling to
or from Iranian ports. This is especially manifesting itself in Iran's
energy sector. Almost daily we receive reports of the world's major oil
companies cancelling projects and drawing down their business with
Iran. We also have seen governments around the world impose severe
restrictions on government-backed export credits for projects in Iran,
further reducing the incentive for the private sector to proceed with
projects.
______
Responses of Under Secretary Stuart Levey to Questions Submitted by
Senator Richard G. Lugar
Question. The Conference Report on H.R. 2194 contains language
authorizing appropriations necessary to implement the provisions of the
act. What resources will the Treasury Department require?
Answer. At this time, we are not certain what resources will be
required to carry out the provisions of the Comprehensive Iran
Sanctions, Accountability, and Divestment Act of 2010. On August 16, we
issued regulations implementing subsections 104(c) and 104(d) of CISADA
and will work with the Office of Management and Budget to ensure that
Treasury receives sufficient resources.
Question. You referred in your testimony to voluntary actions by
private sector companies to curtail their activities in Iran.
a. Is the administration satisfied with the extent of such
voluntary curtailments?
Answer. As I described in my testimony, the reaction of the private
sector to Iran's illicit conduct and deceptive financial practices has
played an important role in increasing the pressure on Iran to comply
with its international obligations. To date, the private sector has
responded to the inherent reputational risk of doing business with Iran
by withdrawing from projects, financial relationships, and investments.
However, as would be expected in the global market economy, there are
always some actors that are willing to accept higher risk in exchange
for profit. We will continue to engage the private sector around the
world to underscore the obligations inherent in the existing sanctions
framework, explain the potential consequences of CISADA, and encourage
responsible corporate behavior from all those who might be otherwise
inclined to continue doing business with Iran.
b. What efforts are being made to persuade other countries,
particularly China, to forgo the opportunity to substitute
their own investment and trade for that which is being
withdrawn, and with what level of success?
Answer. Treasury and State Department officials are engaged in an
ongoing effort to persuade our counterparts around the world to
robustly implement the requirements of UNSCR 1929.
Since the adoption of UNSCR 1929, Treasury and State officials have
traveled to Europe, the Middle East, Asia, and Latin America to discuss
Iran sanctions implementation. We believe these engagement
opportunities have been and will continue to be useful in underscoring
the importance that the United States places on robust enforcement of
the existing international sanctions framework and encouraging our
partners all over the world to view the actions taken by the United
States, the EU, Norway, Australia, Canada, Japan, and South Korea,
among others, as examples of responsible implementation of this
framework.
Question. How does the Treasury Department measure the success of
its efforts with respect to Iran sanctions enforcement?
Answer. Some indicators are classified, but even public information
shows that international sanctions programs have been having a
pronounced impact on Iran in a number of different areas. First, many
of the world's largest and most prestigious financial institutions are
eliminating or dramatically reducing the business they do with Iran.
This trend is in response to Iran's established history of using
deceptive financial practices to mask the real nature of, or the true
parties involved in, their transactions. The result is that Iran has
been relegated to the margins of the international financial system,
and is finding it increasingly difficult to access the large-scale,
sophisticated financial services necessary to run a modern economy
efficiently. Second, beyond the financial services sector, companies
from many industries, including manufacturing, automotive, insurance,
engineering, and accounting, have similarly announced the withdrawal of
business from Iran. Many foreign energy companies have also withdrawn
their investments in Iranian petroleum projects, and have pulled out of
joint ventures with Iranian energy companies. Some European and Middle
Eastern companies have even stopped providing jet fuel to Iran's
national air carrier in Europe. Iran also is increasingly unable to
secure the foreign investment, financing, and technology it needs to
modernize its aging energy infrastructure, threatening its oil and gas
production and export capacity over the long term. The Iranian economy
depends on energy revenues, and the continued stagnation or decline of
energy outputs could adversely affect Iran's economic stability.
We believe that the speed, scope, and impact of sanctions have
caught the regime by surprise. There are clear signs that the Iranian
leadership is worried about the impact of these measures and is taking
sanctions seriously. By sharpening the choice for Iran's leaders
between integration with the international community and,
alternatively, increasing isolation, sanctions are creating the
leverage needed for effective diplomacy.
Question. What are the annual quantifiable costs for U.S. business
interests of existing Iranian sanctions? Please list the top five
industry sectors that are affected.
Answer. The Treasury Department has not undertaken such an
analysis, which would require additional data and expertise from other
U.S. Government agencies. Treasury and other appropriate agencies could
potentially work with congressional staff to evaluate whether this
would be feasible to undertake.
Question. What is the estimated effect that current and proposed
sanctions have on Iranian GDP?
Answer. Because of many years of the Iranian Government's
mismanagement of the economy, it is difficult to discern the causal
relationships that exist between the state of Iran's economy and
specific actions taken by the international community. We do know,
however, that Iran is struggling to obtain investment in its oil and
gas industry, which could ultimately affect Iranian oil production and
therefore government revenues. Indeed, the head of Iran's oil ministry,
Masoud Mir-Kazemi, has said that Iran aimed to attract at least $25
billion per year in local and foreign investment in its oil/gas sectors
over the next 5 years (2010-15). However, Iran had attracted only a few
billion dollars in foreign investment each year in the previous 4
years.
Iran is poorly positioned to respond to the impact of sanctions
and, as the leadership tries to formulate a response, it is faced with
unappealing choices. As an example, in part because it is encountering
difficulties in acquiring refined petroleum because of sanctions, the
government is seeking ways to reduce domestic demand for gasoline. One
obvious step would be to reduce the heavy subsidies on gasoline that
now make the price at the pump about 37 cents per gallon. Iran recently
announced that it would reduce subsidies on gasoline and other
household and energy products by $20 billion. The government, however,
appears to have hesitated in going forward with these subsidy cuts,
potentially because of concern about popular backlash. They have even
deployed security forces to try to enforce order, and President
Ahmadinejad has threatened to severely punish businesses that raise
prices of consumer goods in reaction to subsidy cuts. Additionally,
fears that inflation could accelerate surrounding government
implementation of subsidy reform, combined with increased barriers to
Iranian banks and currency exchanges accessing dollars as a result of
the implementation of recent sanctions, were likely the cause of the
sudden near 20 percent depreciation of the Iranian rial on market
exchanges in late September. The Central Bank of Iran was slow to
respond to these pressures, and it took weeks of intervention to
stabilize volatility in the rial market exchange rate.
Question. My office has interacted with branch campuses of some
U.S. universities located in the Middle East who would like to recruit
Iranian faculty and students to their campuses. As you interpret
existing law, are they restricted from such activity? Could they offer
a recruiting trip to visit their campuses, for example? Could they
offer financial assistance? How could such educational opportunities be
encouraged without involving the U.S. Government in each step of such a
process? What recommendations should I give these institutions?
The application of Treasury's regulations to these activities is
highly fact dependent, but it appears that certain activities
identified in the question--e.g., recruitment of Iranian faculty and
students to campuses of U.S. universities located in the Middle East
and the provision of financial assistance, presumably to Iranian
students--may be prohibited by USG sanctions on Iran unless authorized
by OFAC. As a general matter, Treasury does not seek to discourage
educational or cultural exchange programs designed to directly benefit
the Iranian people and, in 2006, Treasury's OFAC issued a statement of
favorable licensing policy to encourage applicants to seek
authorization in the form of specific licenses for these types of
programs, which are akin to academic exchange programs.
If institutions seek your recommendations on these matters, please
encourage them to approach OFAC for guidance on the applicability of
OFAC's regulations
to the activities and, if necessary, seek formal authorization to
engage in these activities.
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