[Senate Hearing 112-366]
[From the U.S. Government Printing Office]
S. Hrg. 112-366
U.S. STRATEGIC OBJECTIVES TOWARDS IRAN
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HEARING
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
DECEMBER 1, 2011
__________
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COMMITTEE ON FOREIGN RELATIONS
JOHN F. KERRY, Massachusetts, Chairman
BARBARA BOXER, California RICHARD G. LUGAR, Indiana
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania MARCO RUBIO, Florida
JIM WEBB, Virginia JAMES M. INHOFE, Oklahoma
JEANNE SHAHEEN, New Hampshire JIM DeMINT, South Carolina
CHRISTOPHER A. COONS, Delaware JOHNNY ISAKSON, Georgia
RICHARD J. DURBIN, Illinois JOHN BARRASSO, Wyoming
TOM UDALL, New Mexico MIKE LEE, Utah
William C. Danvers, Staff Director
Kenneth A. Myers, Jr., Republican Staff Director
(ii)
C O N T E N T S
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Page
Cohen, Hon. David S., Under Secretary for Terrorism and Financial
Intelligence, U.S. Department of the Treasury, Washington, DC.. 8
Prepared statement........................................... 10
Kerry, Hon. John F., U.S. Senator from Massachusetts, opening
statement...................................................... 1
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening
statement...................................................... 2
Sherman, Hon. Wendy R., Under Secretary of State for Political
Affairs, U.S. Department of State, Washington, DC.............. 4
Prepared statement........................................... 6
Responses to questions submitted for the record by Senator
John F. Kerry.............................................. 44
Additional Material Submitted for the Record
Letter from Timothy F. Geithner, Secretary of the Treasury, to
Senator Carl Levin, chairman of the Senate Committee on Armed
Services....................................................... 18
(iii)
U.S. STRATEGIC OBJECTIVES TOWARDS IRAN
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THURSDAY, DECEMBER 1, 2011
U.S. Senate,
Committee on Foreign Relations,
Washington, DC.
The committee met, pursuant to notice, at 10 a.m., in room
SD-419, Dirksen Senate Office Building, Hon. John F. Kerry
(chairman of the committee) presiding.
Present: Senators Kerry, Menendez, Cardin, Casey, Webb,
Shaheen, Coons, Udall, Lugar, Corker, Risch, Isakson, Barrasso,
and Lee.
OPENING STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
The Chairman. The hearing will come to order.
Thank you all for being with us this morning.
I am going to just have very, very brief remarks because we
want to hear from the witnesses.
Obviously, I think everybody understands that the question
of Iran's relationship with its neighbors and with the world is
much on everybody's mind. There could not be a more critical
challenge in terms of proliferation and questions of terrorism
in the region, and I think every one of us are deeply, deeply
concerned about how we might be able to change this current
equation in a way that is rational and beneficial to all
parties.
We have two very highly capable witnesses here this morning
to help us examine this complicated situation, and, I hope,
help us shed light on how we can positively influence Tehran's
behavior and confront this question of nuclear weaponization.
Wendy Sherman has appeared many times before the committee and
today marks her first appearance as the Under Secretary of
State for Political Affairs, and I am delighted to welcome her
here in that capacity. And appearing with her is David Cohen,
the Under Secretary for Terrorism and Financial Intelligence at
the Treasury Department. They are both very competent,
dedicated, and experienced public servants, and we are happy to
have them here to answer our questions today.
Obviously, with the Quds Force allegedly plotting to kill
the Saudi Ambassador to the United States right here in
Washington, DC, and now with the world's nuclear watch dog
agency, the IAEA, issuing a very detailed and careful report
about Iran's activities relative to nuclear processing, these
two developments highlight the breadth of the strategic
challenge that we face.
So I am not going to say more. I want to learn here today
and listen carefully and I look forward to the testimony of
both of our witnesses.
Senator Lugar.
OPENING STATEMENT OF HON. RICHARD G. LUGAR,
U.S. SENATOR FROM INDIANA
Senator Lugar. Mr. Chairman, I join you in welcoming our
distinguished witnesses. I am hopeful they will illuminate
administration strategy toward Iran's nuclear program and other
issues raised by Iranian activities in the Middle East.
Iran continues to be a direct threat to United States
national security, the security of our close ally Israel, and
other United States interests in the region. The October
disruption of an alleged plot to assassinate the Saudi
Ambassador to the United States implicated the Iranian
Government. Just days ago, the regime appeared to be complicit
in the attack on the British diplomatic mission in Tehran.
Iran's material and financial support of Hezbollah and Hamas
continues to undermine international efforts to promote peace
and economic prosperity in the Middle East. And its lethal
support and training for militants in Iraq and Afghanistan have
threatened United States and coalition forces.
Iran's leaders have issued cynical statements of support
for this year's democratic movements across the Middle East and
North Africa, even as they suppress dissent at home. In 2\1/2\
years since the Iranian Government's deadly repression of
protests after the disputed 2009 Presidential election, the
human rights situation in Iran has not improved. The regime
persists in its persecution of many political activists,
lawyers, students, journalists, trade unionists, and
filmmakers. Iranian citizens lack basic freedoms that we
Americans hold dear, including freedom of expression, freedom
of assembly, and the freedom to choose their government through
transparent, fair elections. As we debate 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.
Against this backdrop, Iran continues advancing toward a
nuclear weapons capability. The IAEA Board of Governors passed
a near-unanimous resolution on November 18 calling on Iran to
comply fully with its obligations under Security Council
resolutions and IAEA requirements and urging Iran to intensify
its dialogue with the agency to resolve outstanding questions.
The move comes after the agency reported on November 8 that
Iran continues to violate its obligations to suspend all
enrichment-related and heavy water-related projects and
expressed serious concern about the possible military
dimensions of Iran's nuclear program.
On November 21, the United States strengthened bilateral
sanctions against Iran--targeting entities that contribute to
Iran's ability to develop its petroleum and petrochemical
resources through the provision of goods and services;
designating entities and individuals involved with Iran's
proscribed nuclear procurement activities; and labeling Iranian
financial institutions as primary money laundering concerns.
These new sanctions build on a bilateral framework of existing
measures in the Comprehensive Iran Sanctions and Accountability
and Divestment Act of 2010 and the Iran Sanctions Act.
Additionally, the United Kingdom announced new restrictions
that cut off all financial ties between British financial
institutions and Iranian banks. Canada also imposed further
sanctions, prohibiting financial transactions with Iran and
expanding the list of prohibited goods for export. The European
Union announced new measures that will ban European companies
from doing business with an expanded list of firms and
organizations and will subject an expanded list of individuals
to asset freezes and visa bans.
Although these steps are significant, by themselves they
are unlikely to be decisive in moving Iran toward accepting a
verifiable end to its nuclear weapons program. Our task
continues to be the achievement of an international consensus
in favor of sanctions that would present the Iranian regime
with the stark choice between continuing their nuclear weapons
program and preserving the economic viability of their country.
From decades of experience with sanctions policy, we know how
difficult this might be to achieve. Sanctions are prone to
circumvention and can create unintended consequences. We also
know that some nations will not be full participants in a
robust sanctions regime against Iran, and others may be
obstacles.
But international will for a decisive sanctions strategy
has strengthened as Iran's intransigence has continued. We also
have seen indications of fissures within Iran's Government as
it contends with high unemployment, inflation, and dismal
prospects for economic growth. Popular upheaval against the
repressive Syrian Government not only weakens Iranian influence
in the region, it underscores for the Tehran regime the
domestic risks it assumes by incurring the economic
consequences that come with nuclear noncompliance.
The United States should be exploring every option to
accelerate and intensify the economic pressure on the Iranian
Government while working with allies to construct a more
comprehensive approach to sanctions than has been achieved thus
far. This should be a top priority of the administration and
Congress.
As I have frequently advocated, we also should be devoting
substantial assets to communicating directly with the Iranian
people and supporting their unfettered access to the Internet
and social media outlets. The Iranian regime blocks satellite
broadcasts and Internet access in order to control and
manipulate information coming into and out of Iran. U.S.
satellite TV, radio, and Internet operations all offer
important lifelines to beleaguered human rights activists and
supporters of democratic reforms. Access to communications
technology can be a powerful stimulus for change, as we have
seen during the Arab Spring.
I look forward to hearing from our witnesses regarding the
administration's plans for further isolating the regime in
Tehran. What is being done to enhance international economic
sanctions and does the administration have a strategy for
overcoming obstacles posed by China, Russia, and other nations?
I thank the chairman.
The Chairman. I thank you, Senator Lugar, very much.
Secretary Sherman, if you would lead off, and then
obviously Secretary Cohen. And we look forward to having a good
dialogue with you. Thank you.
STATEMENT OF HON. WENDY R. SHERMAN, UNDER SECRETARY OF STATE
FOR POLITICAL AFFAIRS, U.S.
DEPARTMENT OF STATE, WASHINGTON, DC
Ms. Sherman. Thank you very much, Chairman Kerry, Ranking
Member Lugar, distinguished members of the committee. Thank you
very much for inviting me and my colleague, U.S. Treasury Under
Secretary David Cohen, to discuss the administration's whole-
of-government approach to the multiple threats posed by Iran,
its nuclear ambitions, its support for international terrorism,
its destabilizing activities in the region, and its human
rights abuses at home.
Before we start, I must note that we have yet had another
example this week of Iran's reckless, destabilizing disregard
for international norms. The storming of the British Embassy
was a dangerous affront to the international community, and the
Government of Iran's continued disregard for its obligations to
protect diplomats deepens its isolation from the international
community. In this crisis, we stand with our close colleagues
from the United Kingdom and are encouraged by so many others
who are showing their support in so many ways.
Our overall policy regarding Iran is clear. First and
foremost, we are determined to prevent Iran from acquiring
nuclear weapons. Iran's illicit nuclear activity is one of the
greatest global concerns we face, as both the chairman and the
ranking member have said. Since this administration took
office, we have built and led a global coalition to create the
toughest, most comprehensive set of sanctions to date on the
Iranian regime. President Ahmadinejad, himself, recently
characterized our sanctions as ``the heaviest economic
onslaught on a nation in history.''
Our multilateral phased policy of increasing pressure on
Iran has been effective. In January 2009, Iran appeared
internally united and regionally influential, while the
international community was divided on how to address Iran's
nuclear activities. Today, after 3 years of increasing
international pressure by the Obama administration, the regime
is regionally isolated and the international community is
united in its determination to prevent a nuclear-armed Iran.
Just 10 days ago, this administration intensified that
pressure on Iran in three ways: targeting the petrochemical
industry, designating 11 more individuals and entities for
facilitating Iran's proliferation activities, bringing the
total to over 280 designations under Executive Order 13382, and
identifying Iran as a jurisdiction of primary money laundering
concern under section 311 of the U.S. PATRIOT Act.
These new actions augment the broad portfolio of tools
already provided by the Congress. The list is long. We imposed
the first sanctions ever under the Iran Sanctions Act, as
amended by CISADA. Earlier this year, using INKSNA, the State
Department sanctioned 16 foreign companies in May, including
entities in China, Venezuela, and Belarus. We are vigilant with
our human rights Executive order and have already sanctioned 11
senior Iranian officials and three entities, including the
Islamic Revolutionary Guard Corps, and Quds Forces.
All of these sanctions demand a whole-of-government
approach, and the State Department works very closely with the
Department of Treasury. We will elaborate certainly after our
opening comments on our work together.
The key to this and all we have done over the last 3 years
is that we are not alone in our policy responses and sanctions
on Iran. Today, the European Union has met to formalize
additional sanctions on roughly 180 individuals and entities
linked to Iran's proliferation activities, and as you know, the
U.K. closed its Embassy in Iran and kicked Iranian diplomats
out of the U.K.
On November 21, when we announced our latest round of
measures, the U.K. and Canada concurrently adopted similar
sanctions to isolate Iran's financial sector. Three days
earlier, on November 18, the IAEA Board of Governors passed a
resolution cosponsored by all P5+1 countries, including Russia
and China, urging Iran to come clean about the possible
military dimensions of its nuclear program. The final vote was
32 to 2, overwhelming by any standard. On that same day, the
United Nations General Assembly sent its own message by
adopting Saudi Arabia's resolution condemning the assassination
plot against its Ambassador to the United States. A clear
majority supported that resolution, and more than one-fourth of
all U.N. member states cosponsored it. Sanctions are always
more effective when they are multilateral, and sanctions on
Iran are no exception.
We are already looking forward to what comes next. Iran's
greatest economic resource is clearly its oil exports. Sales of
crude oil line the regime's pockets, sustain its human rights
abuses, and feed its nuclear ambitions like no other sector of
the Iranian economy. The Obama administration strongly supports
increasing the pressure on Iran, and that includes properly
designed and well-targeted sanctions against the Central Bank
of Iran, appropriately timed as part of a carefully phased and
sustainable policy toward bringing about Iranian compliance
with its obligations.
Beyond the international community's concerns with Iran's
nuclear program, we continue to expose Iran's egregious human
rights situation which serves to deepen Iran's isolation from
the world community. On November 21, for the 9th year in a row,
the U.N. General Assembly's Human Rights Committee rebuked Iran
for its serious human rights abuses by the largest margin ever.
We welcome the U.N. Special Rapporteur for Human Rights for
Iran highlighting the regime's systematic repression of its
citizens' freedoms. We continue to collaborate with world
leaders, religious leaders, and NGOs to address violations of
religious freedom.
Though the door to engagement with the regime remains open,
if they decide to engage seriously with us to resolve the
serious concerns we have with its nuclear program, we are clear
that we distinguish between how we deal with the inexcusable
behavior of the Iranian regime and our broader interactions
with the Iranian people. That is why we will be very soon
launching Virtual Embassy Tehran. This Web site will provide
Iranians with accurate information about our policy, visa, and
U.S. educational opportunities. We also engage Iranians through
social media, including a Farsi Facebook page and a Twitter
account, and through our broadcasting tools, Voice of America
Persian and Radio Farda. We are taking measures to prevent Iran
from jamming satellite signals and to approve software licenses
that facilitate the free flow of information. These actions
make clear our sincere desire to engage the Iranian people and
further expand the internal debates among the Iranian
leadership.
This engagement I described with the Iranian people,
alongside unbending pressure of the Iranian leadership to
comply with its obligations, forms the core of U.S. policy
toward Iran, and I look forward to discussing this in greater
detail through your questions. Thank you.
[The prepared statement of Ms. Sherman follows:]
Prepared Statement of Hon. Wendy R. Sherman
Chairman Kerry, Ranking Member Lugar, distinguished members of the
committee, thank you for inviting me here today to discuss the
administration's approach to the multiple threats posed by Iran--by its
nuclear ambitions, its support for international terrorism, its
destabilizing activities in the region, and its human rights abuses at
home. I am delighted to be joined by Under Secretary David Cohen.
American policy regarding Iran is clear: First and foremost, we are
determined to prevent Iran from acquiring nuclear weapons. Iran's
illicit nuclear activity is one of the greatest global concerns we
face. Since this administration took office, we have built and led a
global coalition to create the toughest, most comprehensive set of
sanctions to date on the Iranian regime. President Ahmadinejad himself
recently characterized our sanctions as ``the heaviest economic
onslaught on a nation in history.''
Our policy leverages the power of multilateral action and of
likeminded countries to pressure Iran to comply with its international
obligations, coupled with an offer to engage diplomatically in the P5+1
context if Iran is serious about negotiating and addressing our and the
world's concerns about its nuclear program.
Our policy has been effective: in January 2009, Iran appeared
internally united and regionally influential, while the international
community was divided on how to address Iran's nuclear activities.
Today, after 3 years of increasing international pressure, the regime
is regionally isolated, and the international community is united in
its determination to prevent a nuclear-armed Iran. This reversal is due
in part to the measures taken by the United States and our allies to
exact steep costs on Iran and its efforts to acquire nuclear weapons.
By refusing our offer
to engage, Iran has demonstrated that it is responsible for our current
impasse,
and we have mobilized broad support to hold Tehran accountable for its
deceptive behavior.
Just 10 days ago, we intensified the pressure on Iran in three
ways: The President signed an Executive order targeting the development
of Iran's petroleum resources and maintenance or expansion of its
petrochemical industry. Second, State and Treasury designated 11
individuals and entities for facilitating Iran's proliferation
activities, including four entities identified by State as key nodes in
Iranian missile and nuclear procurement networks. This action brings
the total to over 280 designations under Executive Order 13382.
Finally, the administration identified Iran as a jurisdiction of
primary money laundering concern under section 311 of the USA PATRIOT
Act. This finding makes clear that doing business with any part of the
Iranian financial sector, including Iran's Central Bank, private
Iranian banks, and subsidiaries operating outside Iran, risks doing
business with a financial system that shelters money launderers and
terrorists.
These new actions augment the broad portfolio of tools already
provided by the Congress. Using the new authority provided by the
Comprehensive Iran Sanctions, Accountability, and Divestment Act of
2010, the Department of State imposed the first sanctions ever under
the Iran Sanctions Act, as amended, and has designated 10 firms for
investing in Iran's energy sector or providing refined petroleum to
Iran since 2010. Under the Iran, North Korea, and Syria
Nonproliferation Act (INKSNA), the State Department sanctioned 16
foreign companies in May, including entities in China, Venezuela, and
Belarus. We will continue our vigilance on the regime's serious human
rights abuses, and have already sanctioned 11 senior Iranian officials
and three entities, including the Islamic Revolutionary Guard Corps,
under Executive Order 13553, which was issued in 2010. All of these
sanctions demand a whole-of-government approach and the Department of
State works closely with the Department of the Treasury. My colleague,
Under Secretary Cohen, and I can elaborate further on our work
together.
The key to this and all we have done over the last 2\1/2\ years is
that we are
not alone. The same day that we announced our measures, the U.K. and
Canada adopted similar sanctions to isolate Iran's financial sector.
Today, the European Union will meet to formalize additional sanctions
on roughly 200 individuals linked to Iran's proliferation activities.
On November 18, the International Atomic Energy Agency Board of
Governors responded to the latest Director General's report by passing
a resolution urging Iran to come clean about the possible military
dimensions of its nuclear program. The United States rallied the P5+1
members to cosponsor the resolution, which was adopted overwhelmingly
and sent the message that Tehran's pursuit of nuclear weapons is
unacceptable. On that same day, the U.N. General Assembly sent its own
message by adopting Saudi Arabia's resolution condemning the
assassination plot against its Ambassador to the United States.
Cosponsored by more than a fourth of all U.N. Member States, the
resolution condemned attacks against diplomats and called on Iran to
comply with its international obligations. As we learned from cases
around the world, sanctions are most effective when they are
multilateral, and that is what we have seen with Iran as well.
All of this is taking place in the context of global transition.
Europe is concerned about its economic situation and the vision of a
united continent. Among the P5+1, Russia has parliamentary elections in
December and Presidential elections in March, with Prime Minister Putin
expected to return to the Presidential office. France has Presidential
elections later in the spring. China is looking inward as it manages
its own succession politics. Meanwhile, governments in the region
continue to have grave concerns about Iran's nuclear intentions: not
only Israel, but also Saudi Arabia and other Gulf States watch with
intensity what Iran does and what we do in response. These factors pull
in often divergent directions regarding our approach to Iran, but we
continue to coordinate robust actions with our partners to prevent Iran
from acquiring nuclear weapons.
It is clear that, as a result of the measures we have already taken
in lock step with the international community, the Iranian regime feels
isolated and vulnerable, not emboldened. This is true, not just in the
case of our European allies but in Iran's own backyard. Iran has failed
to co-opt the Arab uprisings, despite its efforts to take advantage of
them, and alienated itself by supporting Bashar al-Assad's brutal
repression of Syrian citizens. While we, the Arab League, Turkey, the
EU, and others support the legitimate demands of the Syrian people,
Iran occupies a lonely and indefensible position as Assad's ally. The
burning of Iranian flags in the streets confirms that Syrians know Iran
is not on their side. We will continue to support Syrians' desire for a
government that reflects their aspirations, not Iran's. Once Assad
finally does go, Iran will be alone in the region, more isolated than
ever--a fact that cannot have escaped either regime's leadership. Iran
also hopes to project its negative influence into Iraq after our
withdrawal. However, Prime Minister Maliki said he will not tolerate
violence by militant groups, including those backed by Iran, and we
will continue to work to strengthen Iraqi security forces'
capabilities.
Beyond the international community's concerns with Iran's nuclear
program, we continue to expose Iran's egregious human rights situation,
which serves to deepen Iran's isolation from the world community. On
November 21, for the ninth year in a row, the U.N. General Assembly's
human rights committee rebuked Iran for its serious human rights
abuses, by the largest margin ever. We welcome the U.N. Special
Rapporteur for Human Rights for Iran highlighting the regime's
systematic repression of its citizens' freedoms. We continue to
collaborate with world leaders, religious groups, and NGOs to address
violations of religious freedom.
We assist those Iranians who want to hold their government
accountable by offering training, media access, and exchange programs.
We will be opening Virtual Embassy Tehran to provide Iranians with
accurate information about our policy, visas, and U.S. educational
opportunities.We also engage Iranians through social media, including a
Farsi Facebook page and a Twitter account, and through our broadcasting
tools, Voice of America Persian and Radio Farda. We are taking measures
to prevent Iran from jamming satellite signals, and to approve software
licenses that facilitate the free flow of information. These actions
make clear our sincere desire to engage the Iranian people and further
expand the internal debates among the Iranian leadership.
We share the Congress' concern about Iranian behavior and we will
work with you. Working with allies to strengthen implementation of
existing sanctions and to expand sanctions to exploit new regime
vulnerabilities, and maintaining P5+1 consensus offers our best way
forward to pressure Iran. We want to work with you to ensure we have
the means and the flexibility to accomplish this while avoiding
unforeseen consequences and sustaining the unprecedented multilateral
coalition we have assembled in opposition to Iran's nuclear ambitions.
Within that framework, we welcome your ideas to help us continue to
increase the pressure for a change in Iranian behavior.
Thank you, and I look forward to your questions.
The Chairman. Thank you, Madam Secretary.
Secretary Cohen.
STATEMENT OF HON. DAVID S. COHEN, UNDER SECRETARY FOR TERRORISM
AND FINANCIAL INTELLIGENCE, U.S. DEPARTMENT OF THE TREASURY,
WASHINGTON, DC
Mr. Cohen. Chairman Kerry, Ranking Member Lugar, and
distinguished members of the committee, thank you for the
opportunity to appear before you today, along with my friend
and colleague, Under Secretary Sherman, to discuss the Treasury
Department's contribution to the Obama administration's
integrated strategy to address the threat posed by Iran's
nuclear activity and its extensive support for terrorism.
As recent events have made clear, we are at a critical
crossroad in our effort to bring consequential pressure to bear
on Iran. The IAEA's recent stark report about Iran's nuclear
weapons-related activities, the foiled plot by the IRGC Quds
Force to assassinate the Saudi Arabian Ambassador to the United
States, and the attack on the British Embassy in Tehran are
only the most recent reminders of the grave and multifaceted
threat we face from Iran.
It is more important than ever that we work together with
the international community to increase the financial pressure
on Iran, including through an effective, well-designed, and
well-targeted strategy to further isolate the CBI, the Central
Bank of Iran, an institution that has long been cut off from
the United States.
Before turning specifically to potential action against the
CBI, I want to take a moment to explain our recent action
identifying Iran as a primary money laundering concern under
section 311 of the USA PATRIOT Act. This action builds on the
work we have been doing for several years to address the full
spectrum of Iranian illicit conduct, including nuclear and
missile proliferation, human rights abuses, misuse of the
international financial system, and support for terrorist
groups worldwide. A critical element in these efforts has been
the imposition of sanctions on approximately two dozen Iranian
Government-owned banks for facilitating Iranian illicit
conduct. But the depth and breadth of Iranian financial
institutions' involvement in illicit activities extends beyond
this group of designated banks.
And so on November 21, we took the virtually unprecedented
step of identifying the entire Iranian financial sector,
including the Iranian Central Bank, as posing a risk to the
global financial system. This action under section 311 also
provides new information about the role of Iran's Central Bank
in facilitating illicit conduct and sanctions evasion by
supporting Iran's designated banks. By presenting an
unambiguous public record of the broad scope
of Iran's illicit conduct across all of Iran's financial
system, we
are sending a clear message to the world's banks: any financial
institution that transacts with any Iranian bank, including the
Central Bank of Iran, runs a grave risk of facilitating Iran's
illicit activities.
The United States is not acting alone. The U.K. and Canada
took similarly strong actions on November 21 to protect their
respective financial sectors from the Iranian threat. The
result is that Iran is now cut off entirely from three of the
world's largest financial sectors. And our efforts are paying
off. Iran is now facing unprecedented levels of financial and
commercial isolation. The number and quality of foreign banks
willing to transact with designated Iranian financial
institutions has dropped precipitously over the last year. Iran
has been increasingly unable to attract foreign investment,
especially in its oil fields, leading to a projected loss of
$14 billion a year in oil revenues through 2016.
Iran's economy today is struggling more than at any time
since the 1979 revolution. One powerful illustration of this is
found in the chart appended to my written testimony which shows
the steady erosion in the market value of the rial, an erosion
that Iran's Central Bank has been unable to halt. Recently
President Ahmadinejad was forced to admit the impact of
sanctions. Observing that the West imposed the most extensive
sanctions ever, he lamented that, ``every day our banking and
trade activities and our agreements are being monitored and
blocked.''
While the impact of our efforts has never been clearer, we
are resolved to build and sustain as much pressure as necessary
to bring Iran to meet its international obligations. To that
end, we are keenly focused on applying additional pressure on
the Central Bank of Iran. We welcomed French President
Sarkozy's call last week for a multilateral asset freeze on the
CBI, as we recognize that coordinated and focused action
against the CBI could have a particularly powerful impact on
Iran's access to the international financial system and its
ability to access the hard currency it earns from oil sales.
And we welcome the opportunity to continue to work with
Congress on a workable and effective approach to targeting the
CBI.
We share the same goal. We must act in a way that has the
greatest impact on Iran's bottom line. As we have learned from
our sanctions efforts to date, the key to achieving this goal
is to bring together an international coalition to work in
concert to reduce exposure to the CBI and to Iranian oil
exports. Now more than ever, it is imperative that we act in a
way that does not threaten to fracture the international
coalition of nations committed to the dual track approach, does
not inadvertently redound to Iran's economic benefit, and
brings serious and lasting pressure to bear on Iran, including
through coordinated action on the CBI.
Finally, it is important to remember that acting against
the CBI is not the only avenue available to us to bring
pressure to bear on Iran. We have at our disposal a number of
tools, including CISADA, to enhance the financial and economic
pressure on Iran, and we are eager to work with Congress to
develop new tools to apply additional pressure. Put simply, if
Iran continues to choose its path of defiance, we will continue
to develop new and innovative ways to impose new and ever-more
costly sanctions on Iran.
I look forward to continuing to work with the Congress on
this vitally important national security issue. Thank you.
[The prepared statement of Mr. Cohen follows:]
Prepared Statement of Hon. David S. Cohen
introduction
Chairman Kerry, Ranking Member Lugar, and distinguished members of
the committee, thank you for the opportunity to appear before you
today, along with my friend and colleague Under Secretary Sherman, to
discuss the Department of the Treasury's contribution to the Obama
administration's integrated strategy to address the threat posed by
Iran's nuclear activities and its extensive support for terrorism.
I will focus my remarks today on our Iran sanctions strategy, with
particular emphasis on the Treasury Department's most recent action to
expose the extensive illicit finance threat that the entire Iranian
financial sector--including Iran's Central Bank--poses to the
international financial system. I will also discuss the impact that our
implementation of the Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2010 (CISADA) and other financial sanctions are
having on Iran, as well as our plans to increase the cost of Iran's
intransigence until Iran agrees to curtail its pursuit of nuclear
weapons. As I will explain, we are at a critical crossroad today in our
effort to bring consequential pressure to bear on Iran. The options
that we are now considering, including additional sanctions against the
CBI, require that we work together to ensure that we deliver strong and
well-targeted pressure on Iran.
iran sanctions strategy
The Treasury Department's increasingly powerful and disruptive
sanctions are embedded in the dual-track strategy that the United
States and our allies are pursuing to address Iran's continued failure
to meet its international obligations regarding its nuclear program. As
Under Secretary Sherman describes in her testimony, the Obama
administration has presented Iran with a genuine opportunity for
dialogue, creating a clear choice for Tehran. Iran's leadership can
choose to meet Iran's international obligations, allowing Iran to
deepen its economic and political integration with the world and
achieve greater security and prosperity for the Iranian people. Or,
Tehran can continue to flout its responsibilities and face even greater
pressure and isolation. Unfortunately, Iran has steadfastly refused to
respond meaningfully to the administration's offer of engagement and
has continued to pursue technologies and equipment that could only be
applied to a nuclear weapons program. Just last month, the
International Atomic Energy Agency (IAEA) issued a stark report laying
out in detail Iran's past and present nuclear weapons-related
activities. Shortly thereafter, the IAEA's Board of Governors adopted a
resolution expressing its ``deep and increasing concern'' about
unresolved questions regarding Iran's nuclear program, including its
possible military dimensions.
Our broad-based pressure strategy is aimed at persuading Iran to
change its course and to make clear to Iran the consequences of its
continued intransigent behavior. Among the most important elements of
this strategy are targeted financial measures designed to disrupt
Iran's illicit activity and to protect the international financial
system from Iran's abuse. We have focused our efforts on exposing
Iranian entities' illicit and deceptive activities, an approach that
has garnered support among foreign governments and led them to take
similar actions, enhancing substantially the impact of our actions.
Because these actions have highlighted the pervasive nature of Iran's
illicit and deceptive conduct and the reputational risks associated
with Iran-related business, the private sector around the world has
taken notice and has often taken voluntary steps beyond their strict
legal obligations, further amplifying government actions.
Our ability to implement this pressure strategy was strengthened
considerably last year when President Obama signed CISADA into law.
CISADA has helped us make the case to foreign governments and foreign
financial institutions that neither the Islamic Revolutionary Guard
Corps (IRGC) nor Iranian banks designated for their involvement in
support for proliferation and terrorism should be allowed to have
access to the international financial system. The results have been
dramatic: our implementation of CISADA has resulted in a massive
disruption of designated Iranian banks' access to the international
financial system, impeding their ability to facilitate Iran's illicit
activities and creating unprecedented financial and commercial
isolation for Iran.
implementing the pressure strategy
In implementing the pressure strategy, Treasury has focused on
developing sanctions actions that expose the Iranian Government's
involvement in a broad range of illicit conduct, including nuclear and
missile proliferation, support for terrorism, human rights abuses, and
deceptive financial conduct and evasion of international sanctions. Our
actions in recent months illustrate that such illicit conduct is indeed
pervasive in multiple Iranian Government sectors--including Iran's
Government-owned banks, its government-operated transportation
infrastructure, and the IRGC, a branch of Iran's military. Examples of
recent actions targeting Iranian illicit conduct include:
Abuse of the Global Financial System. Treasury actions
targeting Iranian banks are intended to prevent those banks
from using the international financial system to facilitate
Iran's proliferation activity or terrorism support, or from
assisting other banks or entities in evading U.S. or
international sanctions. We continued these efforts in May by
designating Iran's Bank of Industry and Mine (BIM) under E.O.
13382 for providing financial services for other designated
Iranian banks. BIM is the 22nd Iranian-state owned financial
institution to be designated by Treasury in the last 5 years.
Use of Transportation Infrastructure to Facilitate Illicit
Conduct. Our actions against key elements of Iran's
transportation infrastructure are aimed at impeding Iran's use
of ships, airlines, and ports for its proliferation-related or
terrorism support activities. This year, we designated
Tidewater Middle East Co. (Tidewater), an IRGC-owned port
operating company that manages the main container terminal at
Bandar Abbas and has operations at six other Iranian ports. We
imposed sanctions against Iran Air, the Iranian national
airline carrier and its largest airline, because it has been
used by the IRGC and Iran's Ministry of Defense for Armed
Forces Logistics (MODAFL) to transport military-related
equipment. We also designated the second-largest airline in
Iran, Iranian commercial airline Mahan Air, for providing
financial, material, and technological support to the IRGC-Qods
Force. We sanctioned 46 companies and individuals affiliated
with Iran's national maritime carrier, the Islamic Republic of
Iran Shipping Lines, which is subject to U.S. and international
sanctions, and three individuals who each play a key role in
aiding IRISL's sanctions evasion activities worldwide.
Human Rights Abuses. As the Iranian regime's abuse of its
citizens' human rights has continued, Treasury, working with
State, has imposed sanctions against 11 senior Iranian
officials and three Iranian entities--the IRGC, the Basij
Resistance Force, and Iran's Law Enforcement Forces (LEF)--
including the IRGC's commander, the LEF chief, and Iran's
Intelligence Minister. Under an authority that targets those
responsible for or complicit in human rights abuses in Syria,
Treasury designated the LEF for supporting the Syrian General
Intelligence Directorate in its brutal suppression of the
Syrian people. Treasury also designated LEF's Chief and Deputy
Chief, and two senior IRGC-Qods Force officers, including IRGC-
QF Commander Qasem Soleimani for supporting the brutal
suppression of the Syrian people orchestrated by the Syrian
General Intelligence Directorate.
Support for Terrorism. We designated six members of an al-
Qaeda facilitation network operating in Iran under an agreement
with the Iranian Government, thereby degrading this network's
ability to function while exposing Iran's continued support for
terrorism worldwide. Treasury also sanctioned five individuals,
including four senior IRGC-QF officers--among them the
previously designated IRGC-QF Commander Soleimani--connected to
a plot to assassinate the Saudi Arabian Ambassador to the
United States, Adel al-Jubeir and carry out follow-on attacks
against other countries' interests inside the United States and
in another country.
Proliferation-related Activities: On November 21, the State
Department and Treasury designated 10 entities and one
individual for their links to the Atomic Energy Organization of
Iran (AEOI), the main Iranian organization responsible for
research and development activities in the field of nuclear
technology, including Iran's centrifuge enrichment program and
experimental laser enrichment of uranium program.
exposing the iranian financial sector as an illicit finance risk
The depth and breadth of Iranian financial institutions' illicit
activities--from direct support for proliferation transactions, to
assisting known proliferators' sanctions evasion efforts, to operating
without appropriate regulatory controls--means that any financial
institution that transacts with any Iranian bank runs a grave risk of
facilitating Iran's illicit activities. Recognizing this pervasive risk
to the U.S. and international financial systems, Treasury took
regulatory action on November 21 to identify the entire Iranian
financial sector--including not only already designated banks and their
branches operating outside of Iran, but also nondesignated banks, their
foreign affiliates, and the Central Bank of Iran (CBI)--for posing an
illicit finance risk to the global financial system. We did so by
identifying Iran as a jurisdiction of ``primary money laundering
concern'' pursuant to section 311 of the USA PATRIOT Act.
The term ``primary money laundering concern'' covers multiple forms
of illicit finance of greatest concern, such as terrorist financing and
WMD proliferation financing. Indeed, the section 311 finding against
Iran sets out an unambiguous public record of the broad scope of Iran's
illicit conduct. In particular, the finding describes Iran's activities
as a state sponsor of terrorism, its longstanding provision of
financing and support to Hezbollah, Hamas, and other terrorist
organizations, and more recent Iranian cooperation with al-Qaeda. The
finding explains the role that the IRGC and the IRGC-Qods Force, in
particular, play in facilitating Iran's support for terrorism. The Qods
Force involvement in terrorism support has been highlighted most
recently in the public allegations that the Qods Force was involved in
an Iranian plot to assassinate the Saudi Ambassador to the United
States. The finding also explains Iran's use of its banks, such as Bank
Saderat, to provide terrorist financing, and describes its lack of
sufficient laws to combat terrorist financing.
In addition, the finding makes a full case with respect to Iranian
financial sector involvement in the financing of WMD proliferation,
providing a detailed accounting of the many banks in Iran that engage
in such activity. The finding explains the deceptive financial
practices that Iranian banks use to disguise illicit conduct, and
explains the role that exchange houses and front companies play in this
deception, and Iran's involvement in the stripping of identifying
information off of international wire transfers, putting the foreign
banks that handle such transfers at risk for involvement in illicit
conduct.
The section 311 finding also provides new information about the
role of Iran's Central Bank in facilitating illicit conduct and
sanctions evasion. Since section 311 was enacted in 2001, Treasury has
applied it on a few occasions to other jurisdictions that pose
substantial money laundering threats. But in each prior instance where
special measures were proposed, Treasury explicitly exempted central
banks from the reach of the so-called ``jurisdiction 311'' in order to
allow the central bank to perform those duties that central banks
customarily execute.
Not so this time, and for good reason. Iran presents a unique case.
As the November 21 finding explains, the Central Bank of Iran is
actively facilitating the evasion of international sanctions by
supporting Iran's designated banks. For example, the CBI assisted
designated Iranian banks, including Bank Saderat, Bank Mellat, the
Export Development Bank of Iran, and Bank Melli, by transferring
billions of dollars to them through a variety of payment schemes
designed to deceive large international banks and take advantage of
smaller, perhaps less sophisticated intermediaries. Similarly, the CBI
also provided financial support directly to the U.S.-, EU-, and UNSC-
designated engineering arm of the IRGC, Khatam al-Anbiya, which has
been involved in Iran's proliferation activities and has been recruited
to develop Iran's key energy resources.
This regulatory action reinforces U.S. and international sanctions
already in place against Iran and provides greater certainty that the
U.S. financial system is protected from Iranian illicit activity. While
U.S. financial institutions already are generally prohibited from
engaging in both direct and indirect transfers with Iranian financial
institutions, Treasury's Financial Crimes Enforcement Network (FinCEN)
issued a proposed rule alongside the 311 finding that would require
U.S. financial institutions to implement additional due diligence
measures in order to prevent any improper indirect access by Iranian
banking institutions to U.S. correspondent accounts. Although the
section 311 action will have a regulatory impact for U.S. banks, we
also expect that it will have a broader chilling effect on foreign
banks' willingness to do business with Iran, given the risks that are
detailed in the finding.
The U.S. is by no means alone in its assessment of the risks posed
by the Iranian financial system. The U.K. and Canada also took similar
strong actions on November 21 to protect their respective financial
sectors from the Iranian threat. Highlighting that ``the Iranian
regime's actions pose a significant threat to the U.K.'s national
security and the international community,'' the U.K. announced that it
had imposed new financial restrictions against Iran by cutting off
Iran's banking sector from access to the U.K. All U.K. credit and
financial institutions are now generally required to cease business
relationships and transactions with all Iranian banks, including the
Central Bank of Iran, and their branches and subsidiaries. For its
part, Canada imposed new restrictions under its Special Economic
Measures Act in response to the IAEA's report, prohibiting financial
transactions with Iran, sanctioning additional individuals and
entities, and expanding the list of prohibited goods.
U.S., U.K. and Canadian concerns about the risks posed by the
Iranian financial system are only further reinforced by recent reports
of a massive embezzlement scandal in Iran. The Government of Iran has
accused a network of Iranian state-owned and private banks of forging
documents and issuing fictitious and fraudulent loans with an estimated
value of approximately $2.6 billion to politically connected
individuals for the purchase of stakes in state-owned companies. The
scandal has thrown into sharp relief the Iranian Government's abiding
weakness in the supervision of its financial sector and echoes the
extensive fraud and corruption that exists in many sectors of the
Iranian economy. While the regime has tried to distance itself from the
scandal as much as possible, the Minister of Economy and Finance,
Shamseddin Hosseini, who narrowly survived an impeachment vote by the
Iranian Parliament, has publicly conceded that ``we need to have a
multilevel oversight system so institutions can control the loans they
disburse,'' acknowledging that had such safeguards been in place,
``such a huge fraud could not have happened in the banking system.''
\1\ The scandal, implicating the highest levels of the Iranian
Government, including the Deputy Governor of the CBI, reinforces
persistent doubts about the integrity of Iran's financial sector.
---------------------------------------------------------------------------
\1\ ``Heads of Three Government Branches Recount Positions on Bank
Corruption Case,'' Tehran Donya-ye Eqtesad Online, November 9, 2011.
---------------------------------------------------------------------------
the impact of sanctions on iran's financial sector
During testimony before the Senate Banking Committee in October, I
reported that Iran's financial isolation, and the economic impact of
that isolation, have continued to grow. Today, I can report that the
trend continues to accelerate.
Due to a combination of factors--including UNSCR 1929, financial
sanctions imposed by the U.S., EU, and other like-minded countries, and
foreign banks' interest in avoiding CISADA actions or the reputational
risk of doing business with Iran--the number and quality of foreign
banks willing to transact with designated Iranian financial
institutions has dropped precipitously over the last year. Today,
Iran's largest state-owned banks--each of which has been sanctioned by
the U.S., the EU, and several of our allies--are largely unable to
access the international financial system. Iran's shrinking access to
financial services and trade finance has made it more difficult for
Iran to attract foreign investment, pay for imports, and receive
payment for exports. This has exacerbated persistent macroeconomic
weakness due to the Iranian Government's mismanagement of its economy.
One good illustration of the economic pressure resulting from this
financial squeeze is Iran's recent difficulty in defending the value of
its currency, the rial. For nearly a decade, the CBI has supported a
single, official exchange rate for the rial, using hard currency earned
through oil sales to stabilize it. Since the adoption of UNSCR 1929 and
various U.N. member states' actions to implement the resolution,
however, the CBI has struggled to maintain stability in Iran's currency
markets. Sanctions have increased the cost and difficulty of accessing
adequate foreign exchange, weakening the CBI's ability to respond
adequately to pressures in currency markets, particularly as
accelerating inflation has exerted unusual pressure on the rial
exchange rate. This has produced a multiple-tier currency market in
Iran--including an official exchange rate and an even more expensive
market rate.
In September 2010, the spread between the official and the market
exchange rate widened dramatically. While the rial made a moderate
recovery during the fall of 2010, it rapidly began to lose value again
in January 2011. To close this gap, the CBI devaluated the rial by 11
percent in June 2011. The CBI's policy response, however, failed to
stabilize the market, and the rial plunged in value against the dollar
and the euro over the past several weeks.
Today, the spread between the official and open market rates hovers
above 20 percent, one of the highest levels in recent history, fueling
serious inflation, high unemployment, and domestic discontent. (A chart
depicting the increasing spread between the official and market rate is
appended to my testimony.) Because of the rial's decline in value,
ordinary Iranians are urgently seeking out foreign currency, such as
dollars or Euros, for safety, yet they are having trouble accessing
hard currency, and when they can, they have to pay the unofficial
market rate. At the same time, senior government officials and
preferred businesses, including IRGC-owned and controlled operations,
are able to access foreign exchange at the official rate, essentially
engaging in profitable arbitrage on the back of the average Iranian.
Central Bank Governor Bahmani has conceded that the CBI has limited
ability to respond to volatility in currency markets and blamed U.S.
and international sanctions, noting that ``Iran is now facing
international restrictions and this has to be taken into
consideration.'' \2\ Iran's ability to respond to macroeconomic
challenges will continue to be hampered by sanctions, at great cost to
Iran's long-term economic growth.
---------------------------------------------------------------------------
\2\ ``Heads of Three Government Branches Recount Positions on Bank
Corruption Case,'' Tehran Donya-ye Eqtesad Online, November 9, 2011.
---------------------------------------------------------------------------
There is little doubt that our sanctions strategy has markedly
reduced Iran's access to the international financial system and,
consequently, has contributed to a noticeable weakening of the Iranian
economy. In a recent speech to the Iranian Parliament, President
Ahmadinejad finally admitted the strong impact that sanctions are
having on Iran's economy. He noted that ``the West imposed the most
extensive . . . sanctions ever'' and that ``this is the heaviest
economic onslaught on a nation in history.'' He went on to acknowledge
that ``every day, all our banking and trade activities and our
agreements are being monitored and blocked.'' \3\ This significant
admission is a clear sign that U.S. and international sanctions are
having a strong impact on the Iranian economy and the Iranian regime.
---------------------------------------------------------------------------
\3\ ``Ahmadinejad Stresses System Unity at Minister's Impeachment
Hearing,'' Tehran Voice of the Islamic Republic of Iran, November 1,
2011.
---------------------------------------------------------------------------
the continuing threat and the way forward
In light of the mounting evidence of the impact of sanctions, and
in light of Iran's continued refusal to engage meaningfully and
substantively with the international community, we are committed to
applying greater financial and economic pressure on Iran. Let me be
clear: We are firmly devoted to significantly intensifying the pressure
on Iran, and doing so in a way that delivers swift, focused and
powerful pressure on the Iranian leadership to further sharpen their
choice between isolation and engagement.
As we explore opportunities to increase pressure on Iran, we are
keenly focused--as is the Congress--on applying additional sanctions on
the Central Bank of Iran. So we welcome French President Sarkozy's
suggestion last week for a multilateral asset freeze on the CBI, as we
recognize that coordinated and focused action against the CBI could
have a particularly powerful impact on Iran's access to the
international financial system and its ability to access the hard
currency it earns from oil sales. And we welcome the opportunity to
continue to work with Congress on an effective, well-designed and well-
targeted sanction against the CBI. As we prepare these steps, it is
imperative that we act in a way that does not threaten to fracture the
international coalition of nations committed to the dual-track
approach, does not inadvertently redound to Iran's economic benefit,
and brings real and meaningful pressure to bear on Iran.
It is also important to remember that delivering potent pressure on
Iran is not wholly dependent on how we address the Central Bank. Put
simply, a designation of the CBI is not the only step, nor would it be
the last step, available to bring consequential pressure to bear on
Iran. For example, as more and more countries and foreign banks refuse
to deal with designated Iranian banks, we remain keenly focused on the
possibility that nondesignated Iranian financial institutions may
become involved in proliferation activity or terrorist financing. When
we see Iranian banks stepping in to pick up business for designated
banks, or beginning to process proliferation transactions, we will
swiftly impose new sanctions, as was the case recently with Bank of
Industry and Mine.
We will continue our intensive efforts to implement CISADA, which,
as I noted, have been enormously successful in driving down to almost
nil the international activity of designated Iranian banks. As we learn
of activities that may trigger CISADA sanctions, we will continue to
either obtain immediate resolution or impose CISADA sanctions.
We will stay ahead of efforts by Iran to develop workarounds to its
financial isolation. This means working with our partners around the
world to identify the ways--both overt and deceptive--in which Iran
seeks to establish new financial footholds, and take action to stop
them.
We will relentlessly pursue IRISL ships, front companies, agents
and managers, exposing and sanctioning them, and driving IRISL out of
operation. And, as evidenced by the Tidewater designation in June, we
will aggressively expose the IRGC's expanding role in the Iranian
economy and work with our partners in Europe and elsewhere to apply
sanctions on IRGCcontrolled companies.
conclusion
Although we are making progress to identify Iran's illicit behavior
and pressure Iran to comply with its international obligations, there
is, of course, significant work still before us. The recent IAEA
report, which exposes Iran's activities relevant to the development of
a nuclear explosive device, coupled with the recently exposed plot by
which Iran's IRGC-QF planned to assassinate the Saudi Ambassador to the
United States, only underscores the importance of not only maintaining,
but qualitatively enhancing, the pressure on Iran.
As Secretary Geithner has said, ``the policies that Iran is
pursuing are unacceptable--and until Iran's leadership agrees to
abandon this dangerous course, we will continue to use tough and
innovative means to impose severe economic and financial consequences
on Iran's leadership.'' We want to work with Congress to broaden and
strengthen CISADA and other Treasury authorities and to take careful,
focused steps to address the illicit conduct of the CBI.
I look forward to continuing our work with this committee as
Treasury continues to pursue this enormously important strategic
objective.
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you very much, Mr. Secretary.
Let me begin by asking you, if I may. I know you are both
aware, obviously, of the Menendez-Kirk amendment to the defense
authorization bill on the floor now. And this would seek to
impose sanctions against entities, including other central
banks, that trade with the Central Bank of Iran. I know what
your position is, and I have a letter here from Secretary
Geithner to Chairman Levin expressing the opposition of the
administration, but I think it would be helpful to the members
of the committee if you could discuss in some detail what the
problems are with that amendment and how it does or does not
supplement what you are trying to do and why you think there is
a better approach, if you do.
Mr. Cohen. Yes, Mr. Chairman. Why do I not begin addressing
that question?
I think at the outset it is important to emphasize that we
completely share the goal that animates the Kirk-Menendez
amendment and are completely committed to delivering real and
sustained pressure on Iran to bring them to understand the
choice that is before them.
The concern that we have with this amendment is that we
think it risks two things that we want to avoid. One is it
risks fracturing the international coalition that has been
built up over the last several years to bring pressure to bear
on Iran. Especially today in the aftermath of what has occurred
in Tehran over the last several days, in the aftermath of the
IAEA report, and in the growing sense of urgency
internationally with respect to Iran's nuclear program, I think
we have an opportunity work cooperatively and collaboratively
with our international partners to bring additional pressure to
bear on Iran.
The amendment, however, would focus the most powerful
sanction that we have: the termination of access to the United
States on the largest financial institutions and the central
banks in some of our closest partners. And I think it is our
sense that we are more likely to achieve the cooperation and
the coordinated action to bring pressure to bear on the CBI and
on Iran more broadly if we approach this issue through an
effort to coordinate action voluntarily against the CBI and
against Iran rather than through the threat of coercion that is
contained in the amendment.
The Chairman. Can you just flesh out a little bit sort of
why that is so threatening perhaps to some of our friends? What
does it wind up doing to them?
Mr. Cohen. Yes. The way this amendment would operate, Mr.
Chairman, is that it would say to foreign financial
institutions--and in this instance we are talking about the
largest financial institutions in our closest partners, as well
as central banks in our closest partners. It would say to them
that if they continue to process oil transactions with the
Central Bank of Iran, their access to the United States can be
terminated. It is a very, very powerful threat. It is a threat
to the commercial banks to essentially end their ability to
transact in the dollar and their ability really to function as
major international financial institutions. That threat being
focused on our closest allies, as I said, risks a dynamic with
those governments and with these banks that I think is as
likely to push them away and to impede the ability to bring
together a coordinated effort against Iran as to generate that.
The Chairman. Well, I suppose a proponent of it might say,
well, that is because they are not serious about putting
pressure on Iran.
Mr. Cohen. Mr. Chairman, I think what we have seen is just
the opposite. I mean, we are talking about countries like
Japan, countries like South Korea, many of our partners in
Europe. These countries, over the last several years, have
demonstrated a willingness to work us, to work with us very
closely to bring real and sustained pressure on Iran. And I
think we are seeing in the EU just today, as Under Secretary
Sherman noted, additional steps being taken to bring pressure
to bear on Iran. And it is our judgment that the best way to
proceed is to continue to work with our partners to develop the
means and the mechanisms to bring that pressure to bear,
including pressure directly on the Central Bank of Iran and on
Iran's ability to sell its oil and to earn revenue from its oil
sales.
I think the way to accomplish that is, in part, to pursue
the suggestion of President Sarkozy to bring multilateral
freeze on the CBI's assets and as well to work with our
partners who have already shown a willingness to consider
reducing their imports of Iranian oil and to do that in an
orderly and coordinated fashion. That, we think, is better
calculated to achieve the ultimate objective here which is to
reduce Iran's access to the very important source of revenue
for its economy, its oil revenue.
The Chairman. So what you are really saying is this is a
very blunt instrument which risks adverse reaction as opposed
to a calculated, carefully orchestrated effort that is
currently underway to actually accomplish the very same end. Is
that correct?
Mr. Cohen. I think that is exactly right.
The Chairman. Secretary Sherman, I think you wanted to add
to that. You might add also how perhaps even this amendment,
which we all understand its motivation is legitimate and we all
agree with, may have the unintended consequence, I believe, of
even enriching Iran and providing money for the very program
that we want to stop. Is that not accurate?
Ms. Sherman. Right, absolutely. In fact, that is where I
was going to start, Mr. Chairman, which is the irony of this
amendment--and as you say, we all agree with the impulse, the
sentient, the objective, which is to really go at the jugular
of Iran's economy. Indeed, analysis that we have done--although
there are many analytics to this and no one knows for sure, but
there is absolutely a risk that, in fact, the price of oil
would go up, which would mean that Iran would, in fact, have
more money to fuel its nuclear ambitions, not less.
And our real objective here is to cut off the economic
means that Iran has for its nuclear program, and in fact, the
sanctions that have been imposed, the toughest regime ever in
the history of our country and in the world, quite frankly, has
meant that it is not only--those sanctions not only act as a
deterrence, but probably more importantly in the short run,
they act as a way to slow Iran's progress so that it is harder
for Iran to finance its program. It is harder for Iran to get
the technology it needs, and indeed, in a speech that National
Security Advisor Tom Donilon just gave a few days ago, he noted
in 2007 the head of Iran's atomic energy organization boasted
that Iran would have 50,000 centrifuges installed within 4
years. We are now nearing the end of 2011, and the IAEA reports
that Iran has installed 8,000 centrifuges with perhaps 6,000
operating. So Iran's ambition to really be much further in its
nuclear program has been undermined by the sanctions that have
been imposed in a multilateral fashion in a targeted and
careful way.
As you mentioned, Mr. Chairman, I have had the honor of
being in this position now for 2 months. In those 2 months, I
have met with every political director of the P5+1. I have been
to Russia, China, Tokyo, Seoul, Brussels, and a variety of
other places. In every one of those meetings, the first
priority is Iran, and the response has been amazing. Every day
people are willing to take another action, and the multilateral
phased approach that the Under Secretary so well articulated,
is crucial to maintaining that multilateral framework. And we
know that sanctions are the most powerful when they are
multilateralized.
The Chairman. Well, thank you, Madam Secretary.
I am going to place this letter from Secretary Geithner to
Chairman Levin written today or dated today into the record.
[The letter referred to follows:]
Secretary of the Treasury,
Department of the Treasury,
Washington, DC, December 1, 2011.
Hon. Carl Levin,
Chairman, Committee on Armed Services,
U.S. Senate, Washington, DC.
Dear Chairman Levin: I am writing to address amendment 1414 to S.
1867, the National Defense Authorization Act for Fiscal Year 2012,
regarding the imposition of sanctions on foreign financial institutions
that conduct business with the Central Bank of Iran (CBI).
The Obama Administration's determination to prevent Iran from
acquiring nuclear weapons is unwavering. We are resolved to build and
sustain as much pressure as necessary to bring Iran to meet its
international obligations and address the international community's
grave concerns with its nuclear program. I know that you and your
colleagues in the Senate share this commitment.
We understand that this amendment was offered in this spirit.
However, I am writing to express the Administration's strong opposition
to this amendment because, in its current form, it threatens to
undermine the effective, carefully phased, and sustainable approach we
have undertaken to build strong international pressure against Iran. In
addition, the amendment would potentially yield a net economic benefit
to the Iranian regime.
We have steadily increased the pressure on Iran by tightening
sanctions, closing loopholes, and encouraging other countries to do the
same. Congress has been absolutely critical in providing some of the
tools that we have used to accomplish that goal, and we are seeing
genuine results. The collaborative approach the U.S. has taken with our
international partners has led many to impose sanctions on Iran that
were not even contemplated three years ago, including on Iran's energy
sector.
Iran's greatest economic resource is its oil exports. Sales of
crude oil line the regime's pockets, sustain its human rights abuses,
and feed its nuclear ambitions like no other sector of the Iranian
economy. We are committed to doing as much as possible to reduce Iran's
oil revenue while concurrently working to stabilize global oil markets.
Today, the United States does not permit the import of Iranian crude.
Other countries have already begun to reduce their consumption of
Iranian crude and the Administration is working hard to discourage
anyone from taking advantage of the responsible policies of these
countries. Our closest allies are seriously considering curtailing
their own crude purchases altogether in the near future and we are
doing everything possible to encourage them to make the right decision.
However, as currently conceived, this amendment threatens severe
sanctions against any commercial bank or central bank if they engage in
certain transactions with the CBI. This could negatively affect many of
our closest allies and largest trading partners. Rather than motivating
these countries to join us in increasing pressure on Iran, they are
more likely to resent our actions and resist following our lead--a
consequence that would serve the Iranians more than it harms them.
Further, there is a substantial likelihood that this amendment,
particularly if passed into law at this time and in its current form,
could have the opposite effect from what is intended and increase the
Iranian regime's revenue, literally fueling their suspect nuclear
ambitions. The Administration is prepared at your convenience to share
the details of our analysis on this point, in a classified briefing.
The Obama Administration strongly supports increasing the pressure
on Iran significantly, including through properly designed and well-
targeted sanctions against the CBI. The Administration has several
legislative proposals to both enhance and expand the Comprehensive Iran
Sanctions, Accountability, and Divestment Act (CISADA) and to strike at
the CBI that we would like to discuss with you and your colleagues. We
intend to work with our partners to achieve the objectives of this
amendment, but in a fashion that we believe will have a greater and
more sustainable impact on Iran. We ask that you continue to work with
us on ways to improve this amendment and to consider other, more
immediate and more effective steps that we can take to accomplish our
shared goals while we work with our partners to bring about the effects
this amendment is intended to achieve.
Sincerely,
Timothy F. Geithner.
The Chairman. And I would just call the attention of our
colleagues to the most relevant paragraphs in which the
Secretary says, ``as currently conceived, this amendment
threatens severe sanctions against any commercial bank or
central entity if they engage in certain transactions. Rather
than motivating these countries to join us in increasing
pressure on Iran, they are more likely to resent our actions
and resist following our lead, a consequence that would serve
the Iranians more than it harms them. Further, there is a
substantial likelihood that this amendment, particularly if
passed into law at this time and in its current form, could
have the opposite effect from what is intended and increase the
Iranian regime's revenue, literally fueling their suspect
nuclear ambitions.''
And then it goes on to describe that it does have an
approach expanding Iran's actions and actually focusing on the
CBI working with our partners to achieve the objectives of the
amendment, but in a fashion that, to quote the Secretary, ``we
believe will have a greater and more sustainable impact on
Iran.''
So I think it is important for members to take note of this
as we think about what will occur potentially on the floor.
Senator Lugar.
Senator Lugar. Thank you very much, Mr. Chairman.
It seems to me that in thinking through the action with
regard to Iran, we have not mentioned what frequently is in the
press. That is the thought that Israel might, in fact, decide
to attack Iran and simply attempt to take out elements of the
regime's nuclear program. On several occasions, the United
States has given the advice that this would be particularly
difficult to do in light of reports that most of Iran's nuclear
infrastructure is underground or otherwise difficult to reach.
Nevertheless, this matter continues to be argued in Israeli
politics and cannot be ignored.
Some would say that if the infrastructure is indeed
difficult to destroy, it would be preferable for the United
States to prosecute the attack because we are likely to be more
efficient and more effective.
What we are really talking about here is that because of
the nuclear threat and this particular kind of regime, the
potential for war, the potential for actual physical attack and
retaliation by the Iranians is very sizable. As you have made
clear, this is not merely an academic exercise.
Let me be very serious about this. We had a very good
lecture this morning by Karim Sadjapour from the Carnegie
Endowment for International Peace. You are no doubt familiar
with him as he is a regular lecturer on these affairs. His
focus, first of all, was on the Voice of America and its
activities in Iran. Now, I would say Karim was critical of the
Voice of America's activities, not in the sense that we are not
spending money, but rather that the effectiveness of our
programming is being hampered by a bureaucracy that he believes
is rendering VOA less effective than it should be.
I am not a critic of the program. I would just say we
believe that it should operate as effectively as possible. This
imperative is made clear when one considers that at least two-
thirds of the Iranian population is below 30 years of age. The
potential for improvement of our programs is there as,
according to some analysts, the British programs are drawing a
better audience than ours. Thus, I would just ask you to take a
strong look at these programs because they are still an avenue
to at least two-thirds of the population.
On the sanctions business, it would appear to me that
although there are risks in alienating our allies and others,
the Central Bank focus really is a deadly problem for Iran if
executed completely.
In addition, we ought to thoroughly think through the
possibility of decreasing Iran's oil exports. Now, at this
point, the Chinese, who were thoroughly uncooperative with
regard to the banking sanctions and would be outraged if their
oil imports from Iran were disrupted, are a real factor. But
they are not taking this very seriously now anyway. Given that
we are going to have to either contend with diplomacy with the
Chinese or potential warfare with the Iranians, I would prefer
that we visit with the Saudis and give them the opportunity to
export to the Chinese in greater measure. This could eliminate
a great source of funds for the regime, as over 50 percent of
its income is coming right now from oil exports. To the extent
that you really hit the Central Bank and stop the exports, you
really do make a very big difference in terms of the ability of
that government to function, quite apart from the ability of
the people to tolerate it.
Again and again, people are saying that the Arab Spring
came to Egypt largely because of elderly people out in the
hustings, not in Tahrir Square, but the people out in the
hustings who were starving and were not getting the subsidies
from the government because the price of food was going up.
That is occurring in Iran too and can be accelerated very
substantially.
So I just ask you for your comments on these editorial
opinions because I think we all feel very strongly about this
and are all attempting to act as wisely as possible.
Ms. Sherman. Thank you very much, Senator Lugar. Let me
make a few comments on the military option you mentioned,
communications capabilities, ways to reach the Iranian people,
and a comment again on CBI, and then turn it to Under Secretary
Cohen.
We agree with you. We think that the broadcasting
possibilities, the Twitter possibilities, the social media is
quite crucial to reaching the Iranian people. And, in fact, our
Voice of America Persian and Radio Farda reaches as many as 20
million Iranians per week, and Web sites receive an estimated
60,000 visits per day. I take your point that we should do
everything we can to increase our capabilities and we are
working very hard to do that.
On Facebook, we have 37,000 fans. We obviously want to
increase that decidedly. Twitter, 8,000 fans. YouTube, 270,000
views. In May, the Secretary announced the extension of visa
validity for Iranian students in humanities-related fields, and
I think if I remember correctly, the percentage of Iranian
students has increased 20 percent in the last year. In October,
the Secretary gave interviews on BBC's Persian service and on
VOA's Persian satirical news show, which is wildly popular. You
are quite right. The BBC's Persian is incredibly well
penetrating. We work very closely with the BBC. This is, again,
part of our multilateral effort to work with others. They have
some capabilities in part because they have been present, at
least until now, in Tehran which gives them capabilities that
we do not.
I do have those numbers. According to the International
Institute of International Education, 5,626 Iranians studied at
U.S. universities in 2010, an increase of 895 students since
2009, and we want to increase that for all the reasons you well
understand.
So I take your point, and we think this is important. It is
why we are starting Virtual Embassy Iran, and we will be
launching that shortly. And we also, as I think you know, use
technologies worldwide to help people ensure that they have
access to the Internet and can get past satellite jamming. Some
of that I would be glad to have someone brief you about further
in a classified setting, but it is quite crucial.
Second, on your concern raised about military action,
clearly that is nobody's preferred course of action, but the
President has said and has repeatedly said that all options
remain on the table in the situation that we are facing because
we do not want to be in a situation--anyone in the world--and
there is very strong international coalition on this to be in a
position where Iran acquires nuclear weapons.
At the same time, we think the dual-track approach that we
are taking, which is pressure and engagement, though Iran has
yet to take that hand toward engagement because we expect there
to be serious conversation about their weapons program without
preconditions and they are not quite ready to do that--so we
will intensify and increase the pressure decidedly on a regular
basis.
On CBI, I take your point that if one has to make a choice
between war and the risks with CBI, that is a very tough and
compelling calculation. We do not think we have to go there
today. What we think we need to do is have targeted efforts
regarding CBI that can be multilateralized. As Under Secretary
Cohen mentioned, French President Sarkozy's suggestion of asset
freezes on CBI is one thing that we are all looking at and
talking with our colleagues about around the world. You are
quite right that we need to be pushing parties around the world
tough, harder to take action.
That was really much of what I was doing in China, and
China has agreed and publicly so today to finally accept
Special Envoy Bob Einhorn to come to China and to assist them
in better applying the sanctions regime to what they are doing.
They have slowed down their actions. They have not backfilled,
but indeed, they need to take further action and we would agree
with you absolutely in that regard.
Let me turn, if I may, to Under Secretary Cohen----
The Chairman. I think we are going to have to take that
answer and thank you.
Ms. Sherman. We will come back, I am sure.
The Chairman. I am sure we will.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
You know, Mr. Secretary, I have to be honest with you. I am
extremely disappointed. You all did not like the original
amendment offered, and at the request of the administration, we
engaged in a good faith effort to try to create an amendment
that would have the maximum effect on Iran's economy with
minimum disruption to the oil market of the United States. That
original amendment had no waivers whatsoever. Maybe we should
have allowed that to stand. That is the vote we would be
having.
At your request, we engaged in an effort to come to a
bipartisan agreement that I think is fair and balanced. And now
you come here and vitiate that very agreement. So that says to
me in the future that when you come to me and ask me to engage
in a good faith effort--you should have said we want no
amendment, not that you did not care for that amendment.
Now, having said that, let me just say everything that you
say in your testimony undermines the credibility of your
opposition to this amendment. The clock is ticking. The
published reports say we have about a year. Now, when are we
going to start our sanctions regime robustly? Six months before
the clock has been achieved before they get a nuclear weapon?
Now, this amendment was crafted in such a way that it gives
the President two significant pieces of discretion, No. 1, to
determine that there is sufficient supply in the oil market
that it would not create a disruption. And if he finds that is
not the case, then the actions would not go into effect. And
second, notwithstanding that he might find that, yes, there is
enough oil in the market that would not create a disruption,
that in fact he has a second opportunity in a national security
waiver.
So I find it pretty amazing that you all come here and say
what you have said in response to the chairman. And let me just
say I looked at the Treasury Secretary's letter. Nowhere does
he talk about economic disruption to us, very interestingly. I
think he would have made that case if in fact there was any
such disruption. He actually makes two statements here that I
think are pretty redeeming of our amendment. He says, No. 1,
Congress has been absolutely critical in providing some of the
tools that we have used to accomplish the goal of tightening
sanctions.
But for Congress, you would not have had the sanctions, and
I have never seen this or any other administration come before
the Congress and say, please, give me a sanctions regime. You
have rebuffed it every step of the way even though it is the
sanctions law that we have given you that has allowed you to
achieve some limited progress.
Second, he says the sales--referring to Iran--the sales of
crude oil line the regime's pockets, sustain its human rights
abuses, and feeds its nuclear ambitions like no other sector of
the Iranian economy. Well, then, if that is the fuel that
allows Iran to march to nuclear weapons, then you need to cut
off the fuel. And that is exactly what we are focused on doing.
I find it amazing that the Europeans are considering doing
some of this. France, in particular, has been advocating such a
measure in international reports earlier this month after it
was revealed that Iran is moving closer to building its own
nuclear weapon. The European nations are discussing imposing
their own embargo. So we basically say to financial
institutions, do you want to deal with a $300 billion economy
or do you want to deal with a $14 trillion economy? I think
that choice is pretty easy for them.
So I find it pretty outrageous that while the clock is
ticking and you ask us to engage in a more reasoned effort,
then we produce such an effort in a bipartisan basis, you come
here and say what you say, which really undermines your
relationship with me for the future because you are not going
to tell me that, please engage with us in an effort to find a
more refined solution, and then when we do that, say you do not
care for it. It would have been more honest to say we do not
want any amendment whatsoever.
Now, the fact is that several major energy traders continue
to make prohibited sales of refined petroleum to Iran, and yet
our response has been to sanction the front companies like the
Royal Ouster Group rather than the major figures behind the
sales. You have been reluctant to sanction Chinese companies
for energy sanctions when there is ample evidence that they are
violating our laws and there is precedent for us sanctioning
Chinese companies for nuclear and weapons proliferation
concerns. So even though we have given you the tools, you have
not shown us the robust effort when the clock is ticking to use
that which we have given you.
So that is why 80 Members of the Senate--at a time in which
it is very difficult to find bipartisan agreement--have joined
in our Iran, North Korea, Syria Sanctions Act, because they
understand that just as the Iranians move to circumvent the
sanctions regime that we have already imposed and to find ways
to achieve loopholes, we must remain one step ahead of them and
close those loopholes and, at the end of the day, be able to
ensure that our sanctions regime is effective.
Now, had you all embraced that effort, maybe we would not
be where we are today. If you had used the sanctions regime you
already have and been more robust instead of taking the shell
groups, gotten to the heart of it, we would not be where we are
today. And if the Europeans are considering an embargo, we
should not be leading from behind. We should be leading
forward.
I think the amendment that we will hopefully vote upon
today is reasoned. It is balanced. It gives the President
discretion to determine both the oil markets and whether there
are sufficient supplies. And look, Libya is coming back on
track. We certainly see Iraq producing more. The Saudis have a
great ability to produce more. So I find it disconcerting, to
say the least.
And I do not really have any questions for you. I just
wanted to set the record straight here after you vitiated my
amendment.
Thank you, Mr. Chairman.
The Chairman. I do not think they vitiated it. I think they
vilified it.
Let me just ask you this question. Is there a way, Madam
Secretary, to address--in the letter, I noticed that it said in
``its current form.'' And you have a number of times said ``in
its current form.'' Therefore, both to afford you an
opportunity to respond but also just to try to deal with what
is on the table here, is there in fact a way? Is it a no
amendment situation, or is it this amendment in its current
form and there is some way, in fact, to address what your
concern is?
Ms. Sherman. Let me, if I may, defer to Under Secretary
Cohen in a second.
I think there is a way to target CBI, and David will talk
about some of those in a moment. What I think is crucial is
that we do it in a way that is multilateralized. And the one
point I would say, Senator Menendez, from our perspective at
the State Department is that it is true that the Europeans are
talking about this. And we are working diplomatically around
the world both David and myself to encourage everyone to make
the right decision to do what the United States has already
done. Today we have no interactions with CBI. And we would hope
others would do that as well and make the right decision in a
way that works economically for them and ensures that Iran does
not get more revenue because the price of oil spikes.
And I appreciate that you have tried to address those
issues in the amendment, but if I may, let me defer to my
colleague at Treasury.
Mr. Cohen. Thank you.
Let me first address the concern about how we have been
working with you and your staff with respect to the amendments.
I think we very much appreciate the opportunity to work with
you on this issue. We wholeheartedly share the objective of
bringing real pressure to bear on the CBI. What we were doing
working with you and with your staff was trying to devise an
approach that is best calculated to bring that pressure to bear
directly on the CBI while avoiding potential adverse
consequences to our international diplomatic efforts, as well
as to the economic situation in Iran in particular.
If there was a misunderstanding with respect to whether we
were supportive of the amendment as it was modified, I
apologize for that. We had tried to be clear that we wanted to
work with you, work with your staff to modify the amendment in
a way to improve it, but I think we tried to be clear
throughout that our judgment is that the best course to pursue
at this time is not to apply a mechanism that puts at risk the
largest financial institutions, the central banks of our
closest allies, that the course that we should be pursuing to
bring real and significant pressure on the CBI and to do
exactly what you, Senator Menendez, highlighted, which is to
attack Iran's ability to get access to the revenue from its oil
sales, is to work collaboratively and cooperatively with our
partners on an approach to reduce their importation of Iranian
oil, a step that the United States has already taken.
We now import no oil from Iran. We now have no relationship
with the Central Bank of Iran. What we want to do is to work
with our international partners in an effort to have them get
to that same point but in an orderly, cooperative,
collaborative fashion. That is our sense of the best way to
proceed here.
Just to reiterate, we completely share the objective here
of addressing the CBI and the CBI's ability to operate in the
international financial system. The issue is how do we go about
this in a way that is best calculated to achieve the objective
that we are looking to achieve while minimizing the potential
for adverse collateral consequences.
The Chairman. So, bottom line, you are really saying that
it is not curable. You just oppose the amendment.
Mr. Cohen. Mr. Chairman, our position is that the right
course is to not adopt this amendment. We recognize----
The Chairman. But then it is disingenuous to say ``in its
current form'' with all due respect.
Mr. Cohen. If I could continue. We also recognize that
there is substantial support for this amendment in the Senate,
and if it is to be adopted, we do think that there are some
important changes that should be incorporated to ensure that it
achieves the objective that we are all looking to achieve. So
our preferred course is for this amendment to not be included
in the Defense Authorization Act. If it is included, we do want
to continue to work with Senator Menendez and the Senate as a
whole to bring in a few additional changes that we think are
critically important to ensure that it operates in a way that
is as designed.
The Chairman. Senator Corker, thanks for your indulgence.
Senator Corker. No problem. I understand that we have the
amendment on the floor and I understand additional time is
worthy to talk about that.
Senator Menendez referred to published reports of Iran
having the ability to have a weapon in a year. Is that a
timeline that you all believe is worth at least internalizing?
Ms. Sherman. Senator, there is great debate.
Senator Corker. And I do not want a long answer.
Ms. Sherman. Yes. No, I will not give you one.
There is great debate about the timeframe, and the
timeframes are at what point they have a breakout capability,
at what point they will have a weapon. And all of those
timeframes are seen differently analytically.
Senator Corker. Is it worth thinking about the published
reports as being generally where things are?
Ms. Sherman. Published reports are one data point. There
are others who would disagree. I think what our objective is is
to--every country in the world ostensibly has breakout
capability and the capability of getting a nuclear weapon. Our
objective with Iran is for them not to have them and to
lengthen the period of time for as long as possible that it
will take them to get there.
Senator Corker. We understand that.
Ms. Sherman. Everything we do every day takes any timeframe
you have seen in a published report and makes it longer.
Anything we can do to degrade their program will make that
timeline longer, and that is crucial.
Senator Corker. So for what it is worth, I respect the work
that you all have been doing. I have been to several hearings
where you all presented both publicly and privately what you
are doing, and I understand how you do not want Congress to end
up with a blunt object that does not work for you. At the same
time--and I think it has been pretty fascinating actually to
see the effects that you have had in some areas of their
economy.
But it does not look like to me the lines are going to
cross,
or at least at the right point. It does not look to me like the
sanctions, even though there has been some successes, are going
to achieve their end prior to the time that Iran actually has a
nuclear weapon. And I think that is what has gotten much of
Congress concerned. And so I think you generally are thinking
the published reports are not way off. I do not think you are
going to get there personally. I do not think you are going to
get there. And so I share Senator Menendez's concerns.
You know, we have worked with you also on other proposals.
I have to say that Treasury, generally speaking, has stiff-
armed on numbers of fronts, and it seems to me that a
responsible approach to today's amendment would have been to
have laid out what it was you wanted to pass. And I am not a
cosponsor yet, but I am pretty irate that Senator Menendez has
worked with you all this time. I know they have made changes.
We have been meeting with his staff, with Kirk's staff, with
others. Why have you not offered what ought to be put in place
before today's vote? That seems highly irresponsible on your
part.
Mr. Cohen. Senator Corker, we have continued to engage with
Senator Menendez.
Senator Corker. I do not want engagement. Why have you not
laid out--why does Secretary Geithner not lay out what it is he
would like to see happen?
Mr. Cohen. I think Secretary Geithner's letter, with all
respect, does lay out what we think should happen with this
amendment, which is that----
Senator Corker. That it be defeated.
Mr. Cohen. Yes, that it not be adopted.
That being said, there are additional amendments to the
amendment that we have provided to Senator Menendez and his
staff, and so we are eager to continue to work with Senator
Menendez and the Senate as a whole, if this is going to
proceed, to have it proceed in a fashion that is more workable.
If I could just comment on one other of your remarks on the
timelines. I think both Under Secretary Sherman and I are
trying to convey that we recognize both the urgency, whether it
is a
1-year timeline or whatever it is, that there is a significant
urgency on the pressure track and if you are thinking about the
lines crossing, we agree--the administration agrees--that our
line needs to accelerate, and we are intent on doing is
bringing additional pressure to bear, consequential pressure to
bear on Iran in very short order.
The question that I think we are addressing is how best to
achieve that, and our concern with the amendment is that we
think that may not be the best way to proceed. It is not that
we are coming before the committee and saying everything is
fine, leave us alone, let us continue on. What we are saying is
we recognize that we are at a point in time where the right
course is to intensify the sanctions, and we want to do that
and we want to do that in a way that is best calculated to
work. And we just think that the way to do that is to work
cooperatively with our international partners in a fashion that
has, I think, borne substantial fruit over the last several
years and we think can work going forward.
Senator Corker. Let me ask you this. Would it make sense
for Menendez and Kirk to give you 60 days to make that happen?
If it does not, this goes into effect.
Mr. Cohen. I think we are interested in continuing to
figure out how to give us the space to work and we can continue
to work----
Senator Corker. And I appreciate the fact that you are
working with allies and friends. It does send a signal that we
really are willing to work on sanctions on everything but that
that matters, and that is petroleum exports. But I understand
that you want to work with them, with our friends, in a way
that makes most sense. And I appreciate the executive branch
wanting some flexibility. I do think there have been ways
probably to make this amendment work.
But, Ms. Sherman, you made a comment that every political
candidate has made probably for 8 years, and that is all
options ought to be on the table. And it is what every
candidate on both sides of the aisle running for any office
other than city council has said for years. And yet, I guess I
would ask the question, are we making plans with our friends
toward military action, not doing it, but are we making those
kinds of plans that are known and send signals to Iran that if
these sanctions do not work, we really are prepared to use that
option? Is that taking place at present?
Ms. Sherman. I would say briefly two things, Senator.
One, the President of the United States has said publicly
on several occasions that all options are on the table, and I--
--
Senator Corker. Like I said, every candidate has said that.
Ms. Sherman. But from Iran's point of view, when the
President of the United States says that, whoever the President
of the United States is, whatever party, it is a serious and
fundamental statement.
Senator Corker. George Bush said that. George Bush probably
before him said that.
Ms. Sherman. But Iran understands and they read the
newspapers and see what is happening. They understand it is a
serious possibility, and we have reason to understand that they
believe that.
And second, in terms of plans and planning, my experience--
I am sure yours as well--is that the Department of Defense
plans for virtually every hypothetical situation there is in
the world.
Senator Corker. Thank you, Mr. Chairman. Thank you all for
your work, and thank you, Senator Menendez, for focusing on
this issue.
The Chairman. Thanks, Senator Corker.
Senator Cardin.
Senator Cardin. Thank you, Mr. Chairman.
Let me thank both of our witnesses.
There may be some disagreement on the timeline as to when
Iran will have a nuclear capacity for a weapon, but there is no
disagreement on the timeline on the vote on the Menendez-Kirk
amendment. That is going to take place momentarily, certainly
within the next 24 hours. So I would just urge you with the
sense of urgency as it relates not just to this amendment but
to this issue.
Now, we have all talked about Iran, and let me put it in
context. Iran is an extremely dangerous country. They are
supporting terrorism, and we have known what cost that has been
to the American people. They are abusing their own people. They
are supporting Syria's efforts on the abuse of the people of
Syria. And the list goes on and on.
As you pointed out, Secretary Cohen, the international
referee on nuclear nonproliferation has judged that Iran is
proceeding with a nuclear weapon. They point out that what they
are doing would be inconsistent with anything other than a
nuclear weapon. So we know that we are on a glide path of an
extremely dangerous situation, which brings us to timing
issues.
I want to just underscore what Senator Corker said. I think
on both sides of the aisle we appreciate the leadership of the
Obama administration in reaching out to the international
community and getting more international support for sanctions
than we have had in the past. That is extremely important. But
it starts with U.S. leadership. We have seen over and over
again that without the United States stepping forward, the
international community is slow, in many cases will not act at
all.
So dealing with the Central Bank of Iran, your own reports
show that they are money laundering. They are assisting the
proliferation of nuclear weapons, and they are assisting
terrorism. We have cut off relations with the Central Bank of
Iran. It is a clear signal to the international community that
we are very serious about drying up the financial capacity of
Iran. That is the only way we believe that sanctions will
effectively change course of Iran on its nuclear ambitions for
a nuclear weapon.
That brings me again to the timing issue. If we do not move
forward rapidly, then I am not sure it can be effective. And
what I do not understand, and maybe you can help clarify for
me, the Menendez amendment gives you 2 months before any action
takes place. You have another 3 months after that to cool off
issues, and then after the 5 months, you have the waiver
authority. So it seems to me it speaks volumes as to ratifying
the policy that you have already stated. The Central Bank of
Iran is money laundering, it is proliferating, and it is
supporting terrorism. We had nothing to do with it and we want
the international community to work with us to cut off the
Central Bank of Iran. This amendment gives you the tools to
work with the international community to be selective as to
what national banks should be sanctioned. You could be
selective.
So I am not exactly sure the resistance to the passage of
the amendment, and maybe you can help clarify this for me
because all the horrible things you have said I have heard
before. Oil supply. We know about that issue. We have heard
that before. But it seems to me this gives us the power to work
with the international community to provide the type of unity
necessary showing that America is very serious about cutting
off the financial capacity of the Government of Iran.
Where am I wrong on the 5 months you have? That gives you a
lot of time for your diplomacy. I know diplomacy can take time.
Five months is a long time, particularly when we are looking at
a glide path for Iran that if action does not take place within
the next several months on changing their course of action, it
may be too late.
Mr. Cohen. Senator Cardin, I think the concern is that in
the course of that effort, whether it is the 60 days or the 5
months, before there are aspects of the provision that would
kick in, we are operating in an environment where we are going
to our closest allies with a stick rather than with an effort
to----
Senator Cardin. The stick requires the President to make
certain findings before it can be used.
Mr. Cohen. It does. But I think the concern is that from
the perspective of the financial institutions involved, the
perspective of the governments involved, there cannot be any
confidence from their standpoint that a waiver will be invoked
or that a determination will be made to obviate the----
Senator Cardin. But is our objective not to get them not to
deal with the Central Bank of Iran?
Mr. Cohen. It absolutely is. And we just have a
disagreement in the tactics to achieve that.
Senator Cardin. But if country A, our close ally, wants to
work with us and block the Central Bank of Iran but country B,
our ally, does not, is it not helpful for country A to know
that there is a reward and punishment issue involved to
adhering to the sanctions? Does it not help our allies to know
that we want all of our allies to cut off the financing of Iran
through its Central Bank in order to be able to avoid a nuclear
Iran?
Mr. Cohen. It will be helpful. At the risk of repeating
myself, the judgments of the administration--and not just
Secretary Geithner, but the administration broadly--is that the
best way to work with our four allies on this is not by
threatening our most severe sanction against their largest
financial institutions, but to work with them and to build on
the international consensus that already exists and to take
these steps.
Senator Cardin. I understand your point, and I think it
represents a traditional difference of view between the
executive and legislative branches, and I think the legislative
branch will speak today.
The Chairman. Thank you very much.
Senator Risch.
Senator Risch. Thank you, Mr. Chairman.
First of all, let me say that the views expressed here by
Senator Menendez, Senator Cardin, Senator Corker are all views
that are very representative of the consensus of the
legislative branch of Government right now. I have no doubt and
I do not think any Member of this Congress has any doubt that
the goals and objectives of the executive branch are exactly
the same as the goals and objectives of the legislative branch.
However, we got a real problem in what I would call an
enthusiasm gap or an urgency gap--sense of urgency gap between
how the legislative branch views this and how the executive
branch views this. And this frustration that you are seeing
here today I think is the result of that gap that exists
between us, and that needs to be resolved and we believe it
needs to be resolved urgently.
I would think--and I think many of my fellow Senators
believe--that after the IAEA report, your sense of urgency
should have risen to our sense of urgency. And we are not
seeing that. We hear the words. We hear the talk, but we have
wanted action for some time and it just has not happened. And
so the result of that is what you see in front of you.
So I would strongly suggest that rather than coming up here
with a strategy on how you are going to try to torpedo this
amendment, you figure out how you are going to make this
amendment work because this amendment is going to pass. And it
is not going to pass by a close vote; it is going to pass by a
very large vote. I think those of us who serve here in the
Senate hope that it will send the signal that we want to see
sent.
Look, this issue is not a trade issue that we are arguing
over. It is not some dispute we have on borders or something.
When it comes to the issues in the world today, this issue
ranks right up at the top. The United States cannot be wrong on
this. The world cannot be wrong on this. We cannot make a
mistake on this.
Unfortunately, I think most of us agree with what Senator
Corker said when he said, well, you know, you are trying to do
this through sanctions, and to quote Senator Corker, I think he
said ``I do not think you are going to get there.'' And I have
to tell you that I believe that is the consensus view of the
Senate up here also. Again, that is why you are seeing what you
are seeing in the form of this amendment.
So I guess what I would tell you is you probably need to go
out of here and figure out how you are going to make this work
and how you are going to raise to the level of urgency that we
have and that you have seen here today.
Thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator Risch.
Senator Webb.
Senator Webb. Thank you, Mr. Chairman.
And Secretary Cohen and Secretary Sherman, I apologize for
arriving here late. I am on the Armed Services Committee and
we've got a markup on the floor. But, I was able to watch a
good portion of your testimony while we were considering
amendments in my office.
I want to ask you a couple questions. Again, I apologize if
I may have missed them already being discussed while I was
doing these other things and getting over here.
First of all, I am not a great fan of sanctions in general,
and I believe if the circumstances require that they take
place, that they should be clearly targeted. They should have
somewhat of--I cannot say a guarantee but somewhat of a
certainty that they would be effective and also that they would
be widely supported in the international community. Listening
to your testimony, I can hear--I think--a very sincere concern
about the possibility that you may end up doing more harm than
good if certain types of sanctions are put into place here.
I have not decided how I am going to vote on this
amendment. I am still thinking this through.
But, I would like to ask you three questions in the time
that I have here. The first is--and again, I apologize if you
have already stated this, but could you compare the sanctions
that would be put in place under this amendment with the
sanctions that the United Kingdom put in place earlier?
Mr. Cohen. The sanctions that the United Kingdom put in
place last week essentially brought the U.K. into line with
where the United States has been for many years. We, years ago,
cut off the Iranian financial sector from the United States.
The U.K., over the past several years, has taken actions
against particular institutions. What they did a week ago
Monday was to cut off the entire Iranian financial sector. So
they are now in line with where we are. The Canadians as well
are in line with where we are and where we have been for some
time.
Senator Webb. Thank you.
With respect to your concern--and this is a concern also
being expressed in a letter from the Secretary of the Treasury
that our closest allies would curtail purchases altogether in
the future or would cease to cooperate. Do you see a
predictable outcome among these countries that you are
discussing if this amendment were to pass?
Mr. Cohen. Well, Senator, I think what we and what
Secretary Geithner was driving at is that we see and we are
working with our partners to have them reduce their reliance on
imports from Iran, as the United States has done. We import no
oil from Iran. We are seeing that our partners recognize, in
part because of the actions that we have taken and the
information that we have put out into the public domain, the
danger involved in purchasing Iranian oil and having those
revenues flow to the CBI which uses those revenues to fuel
Iran's dangerous activities. And so what we are doing and have
been doing and want to continue to do is to work with our
partners to draw down, if possible, entirely cease importation
of Iranian oil.
Senator Webb. You are saying in your testimony that the
potential effect of the amendment is to reduce that level of
cooperation?
Mr. Cohen. I think there is a danger that it will result in
less cooperation because of the reaction to the threat that is
being visited on their financial institutions.
Ms. Sherman. If I might, Senator, add a couple of things to
that.
There are very close allies of ours who have very complex
commercial relationships with Iran, not in the arenas in which
we have already imposed sanctions, but in everyday things,
selling television sets or just household goods. And our
reading of the effort by Senator Menendez and Senator Kirk and
by so many Senators to achieve the same objective that we
achieve, which is to cut off the lifeblood of Iran's economy so
that they pull back from their nuclear weapons program, in fact
will see our taking such an action as a blunt instrument that
takes away their capabilities of dealing with their financial
life.
Senator Webb. And obviously at this point we would not
characterize China as one of our closest allies here or in
other places. As these other policies have been put into place,
China has very noticeably not cooperated. They are becoming
Iran's most active trading partner. They are still trading oil.
What is their reaction to this? What would you think would be
their reaction to this sort of a process like the new
legislation or even existing policy? What are they doing?
Ms. Sherman. Well, let me speak to the broad relationship
with China in regards to Iran and defer to Under Secretary
Cohen on the specific CBI reaction.
We take what China is doing quite seriously. I just
returned from Beijing and a great deal of the meetings that I
held were exactly on this point. As a result of that, they have
finally agreed that Special Envoy Bob Einhorn can go to China,
sit down, and help them to better enforce the sanctions regime
that is in place. They have, in fact, slowed down their
actions. They have not, to the best of our knowledge,
backfilled from others who have pulled out. We have, indeed, in
INKSNA sanctioned a Chinese individual and five Chinese firms
are under INKSNA sanctions. There are other Chinese companies
that are currently under investigation. And I was quite candid
with China about each of those cases and the action that we
would expect or otherwise----
Senator Webb. I apologize for interrupting you. I have got
about 7 seconds, and I do not want to take my colleague's time.
Secretary Cohen, do you see China's economic activity with
respect to Iran decreasing if this goes forward?
Mr. Cohen. Senator, I cannot pretend to predict how China
would react to this. I think it is quite possible that the
Chinese, if this amendment were adopted, would take the risk
essentially that we would cut off their financial institutions
from the United States. But I am just not in a position to
predict exactly how the Chinese will react for many reasons
that Under Secretary Sherman described. The relationship
between China and Iran is a very complicated one, one that we
have been working on----
Senator Webb. To this point--the bottom line--they have not
reduced their economic participation as we have put policies
into place? I am a minute over so a short answer is better.
Mr. Cohen. I will answer it very briefly. I think the
Chinese have essentially remained at the same level of economic
engagement with Iran, give or take, over the last several
years.
Senator Webb. Thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator Webb.
Senator Isakson.
Senator Isakson. Thank you, Mr. Chairman.
Under Secretary Sherman, there have been expressions by the
administration of concern about the consequences on oil prices
with the passage of this amendment. I have heard the testimony
today about concerns of what it might do to other countries
that have banking relationships with Iran that are friends of
ours. Are we also measuring what the consequences of an Iranian
nuclear test might do to world stability and to oil prices or
what a nuclear incident in the Strait of Hormuz might do? Are
we calculating that?
I know the concern I have, and I really only speak for
myself. But I think I am speaking for the people of Georgia. It
seems like the sand in the hourglass is running out. We do not
know exactly when but there is no question that Ahmadinejad and
the Iranians, if given the opportunity and with the material,
probably would use fissionable material in some nefarious way
against Israel or against somebody in the Middle East. That is
a calculation that must be in my mind paramount in terms of how
we deal with Iran, which is why I think it is so important that
we send the legislative message from the Congress of the United
States that time is running out on Iran as well. And I would
like for you to respond to that, if you would.
Ms. Sherman. Senator, as you have said, as others have said
this morning and as I want to reiterate, we absolutely share
the sense of urgency of the Congress. We were not surprised by
the Amano report which said that up until 2003, there was a
structured program in Iran to develop nuclear weapons and since
then, there clearly have been ongoing activities. And there are
possible military dimensions because there are activities, for
which there is no plausible explanation except military use,
and certainly Iran has not offered us a plausible explanation.
We were not surprised because we were one of the 10 countries
that supplied information to Director General Amano to produce
that report. So we quite understandably know what is happening
in Iran, where it is headed.
We have successfully, through this multilateral and phased
and cooperative sanctions approach that has been helped with
tools that Congress has given to us, as well as Executive
orders and our IEPA authority, have indeed slowed down Iran's
capability, have extended that timeline not only from
enrichment, from their hoping to have 50,000 centrifuges to
only having 6,000 or 7,000 centrifuges. We have slowed down
their program. We have degraded their program. We have not
ended it, and we have not ended our sense of urgency. So we
quite agree with you.
And I think that is why, when the Amano report came out--
and that was virtually a unanimous vote at the IAEA Board of
Governors, and that did not happen by accident. That happened
by a concerted diplomatic effort to make that occur. We took
action, along with the U.K. and Canada, to add additional
sectors, additional sanctions to our arsenal to try to deal
with Iran's nuclear program.
So we are completely where the Congress is in terms of the
sense of urgency. As Secretary Cohen said earlier, what we are
talking about today is tactics of getting there. In that, we
have some disagreements and we should continue this debate. And
as Secretary Cohen said, we are well aware of the strong
support for this amendment today, and we understand the impulse
for that amendment because we share the objective. We just
think there is a better way to go about it.
Senator Isakson. Thank you.
Under Secretary Cohen, as I understand it, Treasury in 311
findings had some pretty astounding revelations about the
Central Bank of Iran, A, in terms of them funding other banks
that are sanctioned by the United States, and B--what is their
name--the IRGC construction firm that is under sanction. What
do those findings alone tell us about why we have not
sanctioned the Central Bank yet? Because those are clear
findings of the Treasury of what I think are clear violations
of our sanctions already.
Mr. Cohen. Well, Senator, we in our 311 finding broadly
described the Iranian financial system's involvement in Iranian
illicit activity and specifically included information about
the Central Bank of Iran's deceptive practices that you
identified.
We are using the foundation of that finding with our
partners as a way to further highlight the risk of doing
business with Iran, any of the financial institutions in Iran
and with the Central Bank of Iran in particular. It has allowed
us to have in one place the comprehensive presentation of the
risks involved in doing business with Iran, including the
Central Bank.
The question of how we then take the next step is something
that is left for us to continue to work on and work on with the
Congress and work on within the administration. The findings in
the 311 do not predetermine any particular action, but we have
at our disposal a range of possible next steps with respect to
Iran. And I think this gets back to the comment that Under
Secretary Sherman said. What we are looking to do is to bring
to bear on Iran and on the Central Bank of Iran, but more
generally on Iran overall, substantial additional pressure. And
if the right step is to bring a sanction onto the Central Bank
of Iran, we are prepared to take that step.
We think that, as we sit here today, the right thing to do
is to proceed with a multilateral effort to isolate the Central
Bank of Iran, to work with our partners to reduce their import
of Iranian oil, and to take an action to freeze the assets of
the Central Bank of Iran. That would be, in essence, the steps
that we would want to pursue with respect to the CBI with a
real sense of urgency with a notion that the clock is ticking
and we have got to ramp up our efforts here. But that is where
we are looking to proceed.
Senator Isakson. I respect the fact that both of you have a
very difficult job and that diplomacy under any circumstances
is tough, particularly when you are dealing with a dishonest
broker like the Iranians have been. But I think Menendez-Kirk
does reflect the sentiment of the majority of the people of
Georgia and, I would suspect, the United States, and I think
urgency is something all of must consider in dealing with the
Central Bank and with the nation of Iran.
Thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator Isakson.
Senator Shaheen, I do not think it is an award, but I think
you get special recognition for greatest price paid trying to
get to a meeting of the Foreign Relations Committee.
Senator Shaheen. Thank you, Mr. Chairman. I hope you will
acknowledge that in the future when I have legislation pending
before this committee.
The Chairman. Absolutely. We owe you.
Senator Shaheen. You should have seen the other guy.
[Laughter.]
Let me begin first by thanking both of you for the efforts
that you all have been making to address Iran's move toward
achieving a nuclear weapon.
I do want to, though, share the sentiment that has already
been expressed by my colleagues on this committee, that I
believe Menendez-Kirk amendment is going to pass. And so I
would hope that if there are suggestions that the
administration has about things you would like to see different
in that amendment, that you would share those with us because I
do think, as you have heard, we are going to act on this within
the next 24 hours, and so it would be helpful to know what else
you might like to see happen.
Having said that, I wonder. Both Senator Menendez and
Senator Webb raised the criticism that the administration is
not doing enough with the sanctions that have already been
designated and particularly with respect to some of the Chinese
companies. You responded to that briefly, Under Secretary
Sherman, but is there more you can tell us about whether the
administration has in your opinion been doing enough with the
sanctions you already have or what else could be done?
Ms. Sherman. Thank you very much, Senator, and thank you
for the suggestion of bringing to Senator Kirk and Senator
Menendez any additional suggestions we might have in the short
period of time that is left, and we will certainly take that
back and consider that.
As I said, we understand the concern about China. It was
the focus of a trip that I made last week to impress upon China
the reality and the prompt action that was required on their
behalf regarding a number of situations, my request for Special
Envoy Bob Einhorn to finally be welcomed to China to help them,
in fact, follow through on the sanctions regime and the
obligations, which we have not talked enough about here, under
the U.N. Security Council resolutions. There are five
resolutions that have passed, four which have legally binding
requirements. And so this is not just a United States request.
This is a U.N. Security Council obligation of states around the
world.
We have sanctioned 280 individuals and entities over the
last few years. We, of course, think we should do more and
better. In fact, when the QDDR was written at Secretary
Clinton's request, one of the things that came out of that was
to, in fact, increase our enforcement capabilities, to increase
the number of FTE, to organize the State Department in a better
way to, in fact, enforce sanctions. That process is underway.
We are trying to not have it constrained by the budget,
constraints that we all now face.
But, yes, we think we should do more. We have accelerated
that progress, and we expect to be accelerating it even further
in response to everyone has said here, which is this is an
urgent problem.
Senator Shaheen. Thank you.
There is an interesting opinion piece in today's European
edition of the Wall Street Journal, which I assume both of you
might have seen, that highlights the involvement of the
Revolutionary Guard in not just the nuclear and missile
program, but in so many other economic areas in the country.
And the article quotes you, Mr. Cohen, from your October
testimony to Congress that the Revolutionary Guard has expanded
its reach into so many critical sectors of the economy. Can you
talk about how difficult it is to draw a line between the reach
of the Guard and how that affects our ability to address
through sanctions to bring pressure on Iran? And then also, if
you would, talk about how we are working with our European
allies to address the IRGC's move into legitimate businesses.
Mr. Cohen. I am happy to, Senator, because I think the IRGC
has been one of our key targets for sanctions over the last
several years. It is recognized in Security Council
resolutions. It is recognized by the EU and certainly
recognized in our sanctions as a target that is very deserving
of sanctions. The IRGC is involved in the most dangerous
activities in Iran, and as it continues to expand into the
Iranian economy to the detriment of the average Iranian
citizen, frankly it provides us with additional ways to apply
pressure on the Iranian regime.
So earlier this year, for instance, we applied sanctions on
an entity called Tidewater Middle East Company which is a port
operator at seven of the ports in Iran, including the largest
container terminal at the Bandar Abbas port. The IRGC had come
in and taken over ownership of that entity several years ago.
We have applied sanctions to Tidewater. It is now the law of
the United States that any foreign financial institution that
engages in a transaction with Tidewater risks having its access
to the United States terminated.
We are continuing to press our allies in Europe to add
Tidewater to the list of sanctioned entities in Europe as well
because Europe has taken a number of steps to sanction IRGC-
related entities including, I think most importantly, an entity
called Khatam
al-Anbiya, which is a major construction firm in Iran that has
been subject to sanctions.
Senator Shaheen. And have we been successful at persuading
them on Tidewater?
Mr. Cohen. To be candid, Senator, I am waiting to see if it
is included in the list of 180 new sanctioned entities that the
EU has announced today. But if we are not successful today, I
can assure you that we will continue to press the Europeans to
add Tidewater to the list of sanctioned entities on the EU
list.
But the IRGC--I see my time has expired. Just one final
comment. The IRGC, as it continues to expand into the Iranian
economy, as more and more average Iranian citizens are moved
out of the economy and the government and its most dangerous
entities expand their economic reach, we will continue to take
action and to designate those entities and work with our
partners to do the same.
Senator Shaheen. Thank you.
The Chairman. Senator Coons.
Senator Coons. Thank you, Chairman Kerry, and thank you for
holding this hearing.
I am simply going to renew comments I know you have heard
from literally every single member, I believe, of this panel so
far about how rapidly Iran is making progress toward the
acquisition of a nuclear weapon, about how gravely the people I
represent are concerned about this, and about a real lack of
clarity about the communication with Senator Menendez about an
amendment, of which I am a cosponsor and for which I intend to
vote today in the absence of some better clarification or
understanding of why the timing and the waiver provisions are
insufficient. It is rare that I do not--I take very seriously
the letter of the Secretary and your input and respect your
efforts.
But I think August 9 a letter went to the President from 92
Senators urging prompt engagement and action on sanctioning the
Central Bank of Iran, urging more progress toward exactly the
sort of multilateral effective sanctions regime that we have
been discussing at great length here. And I think what you are
hearing, just speaking for myself, is a steadily increasing
level of grave concern bordering on alarm.
Since August, the IAEA report has come out, allegations of
an assassination plot against a Saudi diplomat, the assault on
the British Embassy. There is no doubt in my mind that Iran is
the most dangerous nation in the world at this point and that
this situation, as it steadily moves in a bad direction, is
going to push us toward some tough decisions. The ranking
minority member started by asking you about planning for a
potential military action. I wonder what we are doing to
prepare the American people for the possibility of necessary
action by either our close ally Israel or the United States.
And I think the level of engagement you are hearing from
this panel simply reflects that, a concern that 6 months on--
that letter was in August. It is December--you are pushing back
very hard on an amendment by Senator Menendez that, by its
structure, gives months more for diplomacy. I think the
Iranians by their actions have finally made abundantly clear to
the international community what they are doing and their
intentions. And the statements certainly of Ahmadinejad are
appalling, gravely concerning, and a clear source of concern,
legitimate concern, by the people of Israel, the United States,
and all of our allies.
So I hope you take this very seriously, and in the absence
of any clear input from you on what is insufficient about the
Menendez amendment, I intend to vote for it today. So there is
not a lot of time for back-channel communication. This is an
active issue, and I mean that both between our branches and
between the United States and Iran.
I am eager to hear from you anything more that would give
me some confidence that the Chinese, who are still the worst
actors in this field, with whom we have so many other problems
in intellectual property, in currency manipulation, and
ongoing--we are in a full-on trade war in my view with the
Chinese. We just need to manage it as appropriately as we can
in the interest of the people of the United States.
One of the things I had hoped to hear today was that we are
making real progress with them in engaging them in an effective
multilateral sanctions regime that is bearing down on the
Iranians, and I was encouraged to hear that they are accepting
Special Envoy Einhorn. But under CISADA, I do not see that we
have aggressively and effectively sanctioned Chinese actors in
this area, and given the hourglass that has been referred to by
Senator Menendez and others, I am really concerned that we are
not being aggressive enough in this field.
Please, if you would, Under Secretary Sherman.
Senator Menendez. Would my colleagues, before the Secretary
answers, give me 30 seconds before I have to leave to respond
to something?
Senator Coons. Certainly.
Senator Menendez. Two things. No. 1 is the Secretary
mentioned that there are many nations that have complicated
relationships with Iran. But our section E specifically only
focuses on sale or purchase of petroleum and petroleum
products. So it is not going after all of those other
complicated relationships.
And No. 2 and pursuant to your question and your concern,
which I appreciate your support of the amendment, is that, you
know, the Chinese have already taken the risk. Under the
existing sanctions regime, the Chinese have not moved. So the
answer to that question is pretty clear.
And I thank the gentleman for giving me some time.
Senator Coons. Thank you, Senator.
Under Secretary.
Ms. Sherman. Thank you. I thank both of you, Senators.
On China, I would reiterate what I said earlier, which is I
agree. We want more action out of China. They have taken some
action to slow down their activity, not to backfill from others
who have pulled out of the Iranian oil sector in particular. We
have sanctioned one individual and five or six entities in
China. We have others that we are looking at that was the
subject of some of my discussion with them last week. So I
would agree with you. They should take more action.
I will say this, that they have stuck with the
international coalition. They did cosponsor the resolution at
the IAEA. They did vote in the U.N. General Assembly for the
resolution condemning the actions on the Saudi Ambassador. It
is important to have them inside the tent as opposed to outside
the tent, but there is no doubt in any of our minds that they
need to take far more action than they have. And we are quite
aggressively engaged with them. This was the subject of some of
the President's discussions in Honolulu, and in Bali just 2
weeks ago, Secretary Clinton's with Counselor Dai, so at every
level, with Vice President Biden's with Xi Jinping, who is set
to be the next leader of China. So we share the focus, the
urgency, the attention and the obligation that China has under
the U.N. Security Council resolutions to, in fact, follow
through. So we share that and I take your message that we need
to pursue it even more urgently than we already are.
Again, on the Kirk-Menendez, we appreciate, as Under
Secretary Cohen said initially, that this will pass. We
obviously would appreciate more discretion than even exists in
the current draft of the amendment. We think tactically that it
may both increase the price of oil, which will give Iran a
windfall. That is not the objective, I know, of the
legislation, but may in fact have that effect.
And second, we are concerned--and may even create that
windfall during this 5-month period of extensions that exist in
the legislation because of the anticipation of the markets.
So I think no one knows exactly what will happen, but there
is most definitely a risk that Iran could get a windfall from
this, let alone complicate our relations with very close
friends and allies.
Senator Coons. Thank you.
Seeing that I have run out of time, I will submit some
additional questions for the record. I just urge the Under
Secretary to use his great skills to convey effectively to the
markets things that might avoid that sudden spike. I think the
reality is that Members of the Senate are concerned that we
send a clear and strong message about our determination to
prevent Iran from making any further progress in acquiring
potential weapons.
Thank you.
The Chairman. Thank you, Senator Coons.
Senator Casey.
Senator Casey. Thank you, Mr. Chairman.
Under Secretary Sherman, Under Secretary Cohen, we are
grateful for your testimony and your public service.
I think what you are hearing in this discussion today is a
real concern about a sense of urgency or what some would
assert, a lack thereof. Like a lot of us, we get the chance to
travel in places like the Middle East. When I was there last in
the summer of 2010, Senator Shaheen was on the trip as well. We
had a visit to about seven countries in 9 days, if my math is
right. And at that time, months before the Arab Spring and at a
time when there was a real consensus about the threat posed by
Iranian regime, whether you were in Israel or Saudi Arabia,
whether you were in Egypt or some other place, a real sense of
not just consensus but real worry. That was the summer of 2010.
If anything, it has become not only more apparent but I
think more urgent. And I think it is finally more apparent to
people across our own country because of the assassination
plot, because of what the IAEA reported recently.
I do not want to walk through all of it, but I mean, the
language is pretty compelling when the IAEA says they have
credible information that Iran has carried out activities
``relevant to the development of a nuclear explosive device.''
And then, of course, they outline it further.
So there is a sense of urgency here or there is, I think, a
greater sense of urgency that a lot of people feel in our
country, and perception is very important in these situations,
as you know. But there does not seem to be an administration
policy or set of actions that is commensurate with that sense
of urgency.
Look, I am a cosponsor of what Senator Menendez and Senator
Kirk are trying to do, and I have long labored in this
vineyard. But when we read letters that talk--like the one from
Secretary Geithner--continue to work with, negatively affect
many of our closest allies, likely to have allies resent our
actions or resist following our lead--and we all want to have
collaboration. We all want to have a steady effort here. But
this is a move way beyond where we were in 2010.
Let us assume for a second that there was no nuclear
threat, if we could magically remove that threat. Just the
impact this Central Bank has on being the banker for a lot of
bad guys in that region, Hamas, Hezbollah, so many bad guys
that they provide resources for--that is another reason for the
sense of urgency. So I think that is what you are hearing here.
And I guess my question is very simple. If not this, what
should we do right now in the next month or 2, and if not this
now, how long will the strategy that you want to put in place
or continue--how long will that take?
Mr. Cohen. Senator, on the sense of urgency, I can assure
you that on my own behalf and on behalf of the entire
administration, there is not an issue that focuses the
attention of the administration more than the threat of Iran
and as it is laid out in the IAEA report. We feel that sense of
urgency every day.
I have just returned, just yesterday morning, from a short
trip to Israel and the UAE which is the most recent of my
journeys both to consult with our allies who are working on
this issue and to learn about their perspective on the threat
and to bring that back and to feed that into our process.
We are working on this issue every day and have taken steps
to bring to bear more financial, commercial, and diplomatic
isolation on Iran today than it has ever seen before. It is, I
think, fair to say that we have applied a substantial degree of
pressure on Iran, and at the same time, we recognize that there
is more to do. And so the steps that we are prepared to take in
the short term, assuming the Kirk-Menendez amendment is not
adopted, which I recognize may not be a valid assumption--we
are committed to taking action against the CBI to freeze its
assets, to work with our allies to have them take a similar
action and to work with our allies to encourage them to take
the steps that they have already indicated a willingness to
consider, which is to ramp down their involvement with the CBI
and their purchases of Iranian oil. That will constrict Iran's
access to the hard currency and to the revenue that it needs to
fuel the activities that you address, Senator. That is the
course that we want to proceed on while, at the same time,
continuing to apply the sanctions that we have across a range
of areas.
The new Executive order from just 10 days ago on the
petrochemical sector and on the production of oil in Iran is a
very significant new step that goes after anyone providing
goods or services to either of those industries. The
petrochemical industry is the second most important source of
export revenue to Iran. The petroleum industry is the first.
Those sanctions directly target Iran's ability to continue to
develop both of those sectors.
So we have been pursuing and are intent on continuing to
pursue a range of significant and powerful sanctions on Iran.
The issue--you know, I think we have been discussing it
this morning. The issue is how best to achieve that while
minimizing the potential of an adverse consequence of this
backfiring. And as Under Secretary Sherman alluded to and as
Secretary Geithner notes, we have real concern that the
amendment, as it is currently drafted, even with the phase-in
and even with the potential for waivers, has the potential to
actually increase revenues to Iran, and that is obviously
something that we all want assiduously to avoid.
Senator Casey. I know I am out of time. Under Secretary
Sherman, I do not know if you have anything you want to add.
Ms. Sherman. The only thing I would add that we have not
discussed here this morning is that the international
environment is changing on a daily basis and probably one of
the most significant things that will happen sometime in the
near future is a change in Syria. Iran has really only two
allies left: Syria and Hezbollah. And when, indeed, Bashir al-
Assad steps aside, which he most undoubtedly will do--it is
just a matter of when, not if--Iran will lose one of its last
proxies in the world. And it will further focus the attention
of the international community on what has to occur here and
create some different political circumstances that I think will
help us to further isolate Iran and to make it pay a price for
its illicit activities.
Senator Casey. Thank you.
The Chairman. Senator Casey, thank you.
Let me just say I think we in the Congress have a
difference of opinion about a particular step, but I want to
assure my friend and colleague that on the issue of urgency, I
can attest that I cannot think of any issue that is
concentrating the minds of the administration more than this
right now or at any other time. Yesterday I was at the White
House in a meeting about this particular topic. I know that the
Secretary of State and the State Department are as focused on
it as can be. I do not think anybody has any illusions about
the timeframe or the urgency. There may be some differences
about timing on a particular step or a particular methodology,
but I would not view this amendment or the discussion this
morning as somehow some great departure. And I think it is
important for everybody, particularly outside of here, to
understand that. There is a universal understanding amongst our
allies also. This is the topic of conversation right now, and I
think everybody needs to be aware of that.
Senator Udall.
Senator Udall. Thank you, Chairman Kerry, and thank you for
holding this hearing at this very appropriate time.
And I appreciate you all being here and your service to the
country.
Under Secretary Cohen, I do not know if you can answer
this, but I thought publicly I wanted to at least try to
explore it a little bit with you. It has been reported that
A.Q. Khan's designs and plans have been widely copied by the
Iranians. Do you know if Pakistan or elements of Khan's black
market network are currently supporting Iran's program? And
then what tools do we have to deal with black market nuclear
materials? The whole discussion here has been about our allies
and working with our allies, but we have some other very
dangerous situations to deal with here.
And Secretary Sherman, if you want to start, please go
ahead.
Mr. Cohen. So I do want to be mindful of the setting in how
I respond.
Senator Udall. Yes.
Mr. Cohen. So let me just say this. We are focused very
carefully on who is supplying material to Iran and in
particular to Iran's nuclear program. We have, obviously, a
range of sanctions already in place against entities in Iran,
as well as entities outside Iran that have been supportive of
their nuclear proliferation activities, and we continue to
track very closely the individuals and entities involved in
supplying Iran's nuclear program, the material for its program.
So I do not want to get into any greater specificity on
that in this setting. You know, we are happy to brief you in a
different setting with additional information. But we spend an
enormous amount of time trying to understand who it is that is
supplying Iran and then taking action to try and isolate them
from the international economic and the commercial and
financial systems so that they are not able to do so.
Ms. Sherman. I would only add, Senator--and would be glad
to go into further detail in a classified setting--that A.Q.
Khan's tentacles throughout the world have been much discussed,
much absorbed, and much tracked, and that the State Department
and the entire administration pays close attention to sort of
the trading routes of nuclear materials. One of the great
experts in this regard is the ranking member of this committee
who probably understands the trade of materials and technology
as well as any of us do.
I would note as well we do this not only for Iran, but
North Korea and other would-be nuclear powers, and Secretary
Clinton, in her meetings in Burma in efforts to not only
encourage the democratic trends that are taking place, but also
is being very quite clear with the leadership in Burma that
ties to North Korea and potential shipments need to stop. So
the tracking of these routes that might increase nuclear
proliferation are something that is quite well attended to.
Senator Udall. Thank you for that answer, and we may have
an opportunity to explore this in other settings.
But the amendment that has been discussed here today is
targeting the sale of Iranian oil. And I had a couple of
questions, and I am just going to throw them all out and have
you try to answer them.
In light of the widely reported pullout of major energy
firms from Iran's energy sector, what is your assessment of the
Iranian oil and gas industry at this point? If that sector is
declining, how will world energy prices be affected going
forward? Who is purchasing Iranian oil? Who are the big
purchasers? What are the percentages there? Are those numbers
going up or down. For example, with the Chinese, how major of a
purchaser are they, and from what you have described, Secretary
Sherman, is that going down? And then is there any indication
that Iran cannot sell any of its oil on the world oil market?
Ms. Sherman. Thank you. The data on all of this fluctuates,
and in this setting, I can discuss open-source reports.
Iran is still doing relatively well because the price of
oil is quite high, and that actually has been the nature of a
lot of our discussions and concerns about the Kirk-Menendez
amendment, which is that it may increase the price of oil which
would only accrue to the benefit of Iran.
In terms of monthly deliveries of refined petroleum to
Iran, which is quite crucial to their economy, whether they are
lower today than they have been in the past, although month-to-
month numbers fluctuate, it is our view that they are
significantly lower than before CISADA was passed and that in
fact CISADA has had an impact. And furthermore, the price for
these products is reportedly higher, that is, the refined
petroleum coming in. As most people know on this committee, but
the public may not know, although Iran has a lot of oil, it
does not have the capacity to refine that oil for its domestic
use. So it has to send out the oil, get it refined elsewhere,
and have it come back in. And the prices for that refined oil
has increased 10 to 25 percent since CISADA.
So again, the sanctions that we have are biting. Yes, Iran
is deploying some deceptive practices to circumvent these
sanctions, but we are, I think, working very hard to stay ahead
of those tactics.
Mr. Cohen. And Senator, just to respond to your question
about who is purchasing Iranian oil today, there are purchasers
in the EU, Greece, Italy, the Netherlands. Outside of the EU,
China is obviously a big purchaser, as is Japan, South Korea,
India, Turkey; Sri Lanka, I think, gets all of its oil from
Iran. But those are the major purchasers of Iranian oil today.
Senator Udall. Do you have any sense on percentages? I
mean, is China the biggest purchaser? Do they purchase 50
percent of----
Mr. Cohen. Excuse me. I am sorry.
Senator Udall. Yes. Go ahead.
Mr. Cohen. China purchases about 20 percent of Iranian
output. Why don't I give to you--these are unclassified
figures. I can give you a chart that sets out exactly how much
each of these countries imports from Iran and what percentage
it makes up of their imports.
Senator Udall. And is your sense because of our activities,
the things that you have been describing--are any of those
going down at this point? Or which countries would be impacted
or taking action or doing something that is putting a crunch on
the Iranian situation?
Mr. Cohen. Senator, I think what we are looking to do is to
work with our closest allies, particularly in the EU, in Asia,
in India potentially to try and have them reduce their
importation of Iranian oil. I think we have not seen to date
that occur, but I do think we see the potential for a
coordinated effort to bring that about.
Senator Udall. Thank you very much.
Sorry, Mr. Chairman, for going over a little bit.
The Chairman. No, no. Thanks a lot.
Senator Udall. I appreciate you doing this today.
The Chairman. Thanks, Senator Udall. I appreciate your
participation and everybody's.
I think, Under Secretaries, you can see from the broad
presence here today and the number of questions the intensity
of the concern and the focus here. And I know you knew that
before you came. We are very, very appreciative of your
presence here today. I think this hearing has helped to
underscore, for the public certainly and for all interested
parties, the deep concerns that exist right now, and hopefully
in the next weeks and early months here, everybody will be able
to come together in a sensible way to avoid the potential, very
dangerous alternatives and options that are facing everybody in
this.
Almost certainly we will have another hearing on broad
policy aspects regarding this, I would say in early February,
depending again on the return schedule and what happens in the
next few days here. And we will sort of start to lay the plans
for that.
We know you are focused on it, and as I said a moment ago,
I am confident about the intensity of the efforts and the
breadth of the options that are being considered here.
So thanks for contributing to this. We are very, very
appreciative of your presence today and we look forward to
continuing a good dialogue with you.
We stand adjourned. Thank you.
[Whereupon, at 12:10 p.m., the hearing was adjourned.]
----------
Additional Material Submitted for the Record
Responses of Under Secretary of State Wendy Sherman to Questions
Submitted by Senator John Kerry
Question. Some analyses indicate that not all of Iran's actions in
Afghanistan and Iraq are contrary to U.S. interests. For example, the
aid and reconstruction work Iran has done in both countries may
complement U.S. efforts, and Iran has supported President Karzai of
Afghanistan and Prime Minister Maliki in Iraq.
What are the risks as the U.S. withdraws its troops--first
from Iraq, later from Afghanistan--that Iran's presence in the
region will expand?
What areas of common interest do the United States and Iran
share on other issues or with respect to other countries in the
region?
Answer. Iraqis have repeatedly demonstrated their desire to develop
a strong, independent state and their resistance to Iran's meddling.
Prime Minister Maliki has said he will not tolerate violence by
militant groups, including those backed by Iran, and Iraqi leaders
confronted Iranian-backed militias operating in Iraq in 2008 and again
this year after violence against our troops spiked in January. All
significant Iraqi political groups, with the exception of the Sadrist
bloc, support a long-term partnership with the United States, and we
have made it clear to Iraq--and Iran--that we remain committed to being
a strong and enduring partner to the Iraqis.
The Government of Iraq's recent decision to purchase F-16s
demonstrates its commitment to build its external defense capabilities
and maintain a lasting strategic relationship with us, a commitment we
will reaffirm during Prime Minister Maliki's upcoming visit to the
United States.
We are working with Middle East allies to encourage Iraq's
reintegration into the region and bolster defenses against shared
regional threats, such as those coming from Iran. Last, we are
encouraged that Iraq is strengthening its relations with EU countries
and key regional players like Turkey to diversify its foreign
relations.
With regard to Afghanistan, we recognize the Afghan Government's
need to build productive relationships with all its neighbors,
including Iran, which hosts roughly 1 million registered Afghan
refugees and maintains significant economic ties in western
Afghanistan. Iran was a signatory to the Istanbul Declaration, which
calls for supporting ``stability and peace in Afghanistan, as well as
respect for Afghanistan's sovereignty, unity, and territorial
integrity'' and ``resolutely combating and eliminating terrorism in all
its forms.'' Iran should share some of our interests in the region,
such as reducing the production and trafficking of drugs from
Afghanistan and preventing the return of radical groups like al-Qaeda
and the Taliban. Unfortunately, most of its actions in the region have
contributed to greater instability. Iran has interfered in both
countries' internal politics, particularly in Iraq, and funneled lethal
aid to terrorist groups in both Iraq and Afghanistan, as well as to
Hezbollah and Hamas. It has provided material support to the Syrian
regime, not only in opposition to our interests, but those of regional
players like Turkey and Saudi Arabia.
We remain vigilant regarding Iran's motives and actions in the
region, and we are committed to maintaining strong relationships with
Iraq and Afghanistan.
Question. The State Department launched its virtual embassy in Iran
this week.
What does the United States Government hope to achieve
through the Virtual Embassy? How does this measure fit into
broader efforts to connect with the Iranian people?
What steps is the United States Government taking to protect
Iranians who access the Virtual Embassy Web site, given that
their activities may well be closely monitored by the
Government of Iran?
Answer. The Government of Iran is extremely adept at monitoring and
filtering information, and we are launching Virtual Embassy Tehran as a
cornerstone effort to bring down the government's ``electronic
curtain.'' The Web site's content is available in English and Persian
and operates like any other U.S. Embassy Web site, which will allow us
to engage directly with the people of Iran and provide accurate
information on visas, U.S. educational opportunities, American culture
and society, and U.S. policy on Iran and other issues.
Initiatives like Virtual Embassy Tehran are part of a broader
strategy to promote mutual understanding, respect, and dialogue between
the American and Iranian people. The Web site will complement our use
of social media and traditional broadcasting tools. For example, we
have a Farsi page on Facebook with over 45,000 fans and a Twitter
account with nearly 8,000 followers, as well as our more powerful
broadcasting tools, VOA Persian and Radio Farda.
We are also working to help those who wish to bring down Iran's
electronic curtain. While circumvention software is outlawed in Iran,
we know that it is widely used by the Iranian people. It is not risk
free, however, and we have urged all individuals operating in closed
societies like Iran to use caution when utilizing these tools. The
Department and USAID have also supported a range of digital safety
training and awareness-raising efforts to educate activists around the
world about the risks they face and how to protect themselves online.
Such programs involve ``train the trainers'' approaches; online
interactive trainings and outreach; and traditional, low-tech efforts
to distribute high-tech knowledge.
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