[Senate Hearing 109-1062]
[From the U.S. Government Publishing Office]
S. Hrg. 109-1062
REAUTHORIZATION OF THE IRAN-LIBYA SANCTIONS ACT
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
ON
REAUTHORIZATION OF THE IRAN-LIBYA SANCTIONS ACT IN RELATION TO THE
SECURITY OF THE MIDDLE EAST REGION
__________
JUNE 22, 2006
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
RICHARD C. SHELBY, Alabama, Chairman
ROBERT F. BENNETT, Utah PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky EVAN BAYH, Indiana
MIKE CRAPO, Idaho THOMAS R. CARPER, Delaware
JOHN E. SUNUNU, New Hampshire DEBBIE STABENOW, Michigan
ELIZABETH DOLE, North Carolina ROBERT MENENDEZ, New Jersey
MEL MARTINEZ, Florida
Kathleen L. Casey, Staff Director and Counsel
Steven B. Harris, Democratic Staff Director and Chief Counsel
Skip Fischer, Senior Professional Staff Member
Steve Kroll, Democratic Special Counsel
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
C O N T E N T S
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THURSDAY, JUNE 22, 2006
Page
Opening statement of Chairman Shelby............................. 1
Opening statements, comments, or prepared statements of:
Senator Sarbanes............................................. 2
Senator Allard............................................... 3
Senator Reed................................................. 4
Senator Hagel................................................ 4
Senator Menendez............................................. 4
Senator Schumer.............................................. 5
Prepared statement....................................... 20
Senator Carper............................................... 16
Senator Santorum
Prepared statement....................................... 21
WITNESSES
Nicholas Burns, Under Secretary for Political Affairs, Department
of State....................................................... 7
Prepared statement........................................... 22
Patrick O'Brien, Assistant Secretary for Terrorist Finance and
Financial Crimes, Department of the Treasury................... 9
Prepared statement........................................... 26
(iii)
REAUTHORIZATION OF THE IRAN-LIBYA SANCTIONS ACT
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THURSDAY, JUNE 22, 2006
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 3:41 p.m., in room SD-538, Dirksen
Senate Office Building, Senator Richard C. Shelby (Chairman of
the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. The Committee will come to order.
One of this country's most pressing and potentially
dangerous foreign policy challenges involves Iran's development
of nuclear weapons and their means of delivery. A nuclear-
capable Iran would fundamentally alter the situation in the
Middle East. Furthermore, Iran's support for some of the most
dangerous terrorist organizations in the world and its
exploitation of those organizations to undermine efforts at
peace and stability in the Middle East make it imperative that
we continue to examine the role of economic sanctions in
limiting the scope of its conduct.
Confronting the scourge of terrorism remains the central
tenet of U.S. national security policy. Terrorist organizations
from the Middle East to Southeast Asia, to say nothing of
terrorist tactics employed by insurgents in our own hemisphere,
continue to present serious challenges to us. It is in this
context that the Committee today will hear from the
administration on its views on reauthorization of the Iran-
Libya Sanctions Act, or ILSA. That statute, passed in 1996 and
renewed in 2001, targets foreign entities that seek to invest
in the development of Iran's oil and natural gas industries,
industries vital to Iran's well-being and by extension
presumably vital to its ability to develop a nuclear weapons
complex.
Since the Revolution of 1979, the Iranian regime has
remained an implacable foe of U.S. interests in the Middle
East. This blossoming of democracy we thought and hoped we saw
with the 1997 election proved short-lived, as the ruling
theocracy subverted genuine democratic reform at every turn. In
fact, those early gains now appear to have been lost following
last year's elections. There is open hostility toward the
United States and toward the existence of the State of Israel,
combined with their government's commitment to carrying out
activities consistent with the development of nuclear weapons.
That has placed a premium on the effectiveness of sanctions
programs targeting Iran, especially those sanctions intended to
minimize the financial assets available to develop weapons of
mass destruction and the ballistic missile technology to effect
their delivery.
There seems little question that ILSA has been effective in
impeding Iran's ability to modernize its energy sector. Even
though the test case for its application, the French company
Total S.A.'s $2 billion agreement with Iran for development of
the South Pars gas field resulted in a Presidential waiver
rather than imposition of sanctions. The $11 billion in new
contracts signed since then remain in limbo by virtue of
foreign concerns regarding ILSA's potential application,
concerns more recently supplemented by fear of additional
sanctions or military action.
That Iran has nonetheless moved forward with activities
consistent with the development of nuclear weapons is not a
testament to ILSA's lack of effectiveness but rather to the
vast increase in revenue resulting from the increase in oil
prices over the past 2 years. In addition to the questions of
whether and how to reauthorize the ILSA, the Committee is
interested in hearing from today's witnesses on the importance
of other economic sanctions regimes that target Iran.
In this regard, the Committee looks forward to hearing from
the Treasury Department on implementation of Executive Order
13382 and the President's WMD Proliferation Initiative that
imposes financial sanctions on foreign entities determined to
be assisting in the development of nuclear, chemical, or
biological arms and their means of delivery.
Development of an indigenous nuclear weapons capability is
beyond the means of all but a few countries. Iran has received
assistance in developing its nuclear complex. This raises the
question about how the issuance of Executive Order 13382
affected this situation. The Committee is pleased to have with
us today the Honorable Nicholas Burns, Under Secretary of State
for Political Affairs and the Honorable Patrick O'Brien,
Assistant Secretary of the Treasury for Terrorist Financing and
Financial Crimes. The Department of State is the lead agency
for implementation of ILSA; the Department of the Treasury,
particularly its Office of Foreign Assets Control, is vested
with the authority for administration and enforcement of U.S.
economic sanctions.
Their appearance here today will help the Committee to
better understand the role ILSA and other economic sanctions
regimes have and continue to play in containing or impeding
Iran's ability to conduct activities threatening to U.S.
interests.
Senator Sarbanes.
STATEMENT OF SENATOR PAUL SARBANES
Senator Sarbanes. Thank you very much, Mr. Chairman. I will
be brief, because I think there may be a vote coming.
Chairman Shelby. That is right.
Senator Sarbanes. And I know you are anxious to move the
hearing along.
I do want to join you in welcoming Under Secretary Burns
and Assistant Secretary O'Brien to the Committee to discuss the
reauthorization of the Iran-Libya Sanctions Act, known as ILSA.
We reported out a version of the original legislation in 1996
from this Committee and reauthorized the act in 2001, and now,
we deal with the question of a further reauthorization, since
that one expires later in the year. Of course, sanctions
against Libya have been lifted in the view of the dramatic
change in Libyan policy.
Trade with and investment in Iran have been banned by
Executive Order since 1995. Iran is one of the small group of
countries listed by the Department of State as state sponsors
of terrorism, and as such, it is also ineligible for trade
preferences, U.S. foreign assistance, and U.S. support through
the World Bank or the IMF or multilateral financial
institutions.
ILSA added to these measures. It required the President to
impose at least two out of a menu of six sanctions on foreign
companies that invest more than $20 million a year in Iran's
energy sector. I will not go through those sanctions. They are
known to all of us, and they are contained in the current
statute. The application of ILSA may be waived by the
President, and the statute would cease to apply if Iran ends
its efforts to acquire weapons of mass destruction and if it is
removed from the U.S. list of state sponsors of terrorism under
the legislation.
So there is a clear path for the nonapplication of this
legislation. It seems to me a clear, reasonable path for any
country wishing to play a responsible role in the international
scene to follow. Regrettably, Iran's pursuit of a nuclear
weapons program and its material support for terrorists present
very serious threats to an international, peaceful order. ILSA
is an important tool for bringing pressure to bear on the
Iranian regime, and it is my sense of it that there is broad
agreement in the Congress that the act should not be permitted
to expire, and we look forward to testimony this afternoon from
these witnesses, and Mr. Chairman, I have abbreviated the
statement for the sake of efficiency here, but I do want to
welcome the witnesses again.
Chairman Shelby. Thank you, Senator Sarbanes. We will make
your full statement part of the record.
Senator Allard.
STATEMENT OF SENATOR WAYNE ALLARD
Senator Allard. Thank you, Mr. Chairman, and thank you for
holding this hearing. I would like to associate my remarks with
both you, Mr. Chairman, and the Ranking Member, and, you know,
I supported the extension of the Iran-Libya Sanctions Act,
ILSA, and I am pleased to have this opportunity to get an
update on how the act is working. Iran's actions have a direct
effect on U.S. security, and the ILSA is one piece of our
policy on Iran.
Our national security vis-a-vis Iran is more important now
than ever. Congress enacted ILSA in response to their support
for terrorism and pursuit of weapons of mass destruction. Yet,
Iran's support for terror is still incredibly active. Likewise,
Iran continues to aggressively pursue weapons of mass
destruction, including nuclear weapons.
This hearing will be an important opportunity to examine
not only the act but also its implementation. Even strong,
potentially effective measures can be rendered ineffective if
they are weakly implemented and monitored or enforced. I would
like to hear about the effectiveness of ILSA as well as the
manner in which it is being carried out. I would like to thank
the witnesses for being here today, and I look forward to their
testimony.
Chairman Shelby. Thank you.
Senator Reed.
STATEMENT OF SENATOR JACK REED
Senator Reed. Well, thank you very much, Mr. Chairman. I
would request that my statement be part of the record.
Chairman Shelby. Without objection, it will be made part of
the record.
Senator Reed. And welcome both Secretary O'Brien, Secretary
Burns. Good to see you, Secretary Burns, again
STATEMENT OF SENATOR CHUCK HAGEL
Senator Hagel. No statement. I look forward to our
witnesses' testimony.
Thank you.
Chairman Shelby. Senator Menendez.
STATEMENT OF SENATOR ROBERT MENENDEZ
Senator Menendez. Thank you, Mr. Chairman, and I will take
a minute or two here. This is a very important issue, and I
appreciate the Chair's indulgence.
You know, before I address the issue of Iran, I want to
briefly discuss Libya. I know the application of the ILSA
against Libya was terminated in September 2004, when Libya
agreed or announced that it would dismantle its weapons
program, but this action in no way in my mind absolves Libya's
responsibility for the attack on Pan Am Flight 103, an attack
that shocked the world, claimed the lives of 189 Americans, 38
who were from my home State of New Jersey.
The Libyan Government still owes $2 million to these
families, which it promised to pay as soon as it was removed
from the state sponsor of terror list, an action the State
Department announced on May 15. And even though this money
can't start to replace the lives of those Americans who were
murdered, I firmly believe that a promise made must be a
promise kept, and we simply cannot let Libya off the hook until
it lives up to its promises, and I hope the administration will
understand that there are many of us on both the Senate and the
House who hold this firm belief and expect the administration
to act accordingly.
Let me briefly turn to Iran. We should be here to examine
the flaws in the current sanctions framework and to make sure
that as this Committee moves forward to craft new legislation
that we close the gaps and tighten the current sanctions. It is
not enough to simply renew our current sanctions against Iran
in my mind. In my mind, it is not enough to simply renew our
current sanctions, which let foreign subsidiaries of U.S.
companies violate the spirit of U.S. law by investing in Iran's
energy sector.
In my mind, it is not enough to simply renew our current
sanctions against Iran and continue to allow U.S. pension funds
to invest in foreign energy companies that invest in Iran
without informing their investors. It is not enough to simply
renew our current sanctions against Iran and continue to allow
a Presidential waiver that is so broad and does not include any
real Congressional oversight, and it is not enough to simply
renew our current sanctions that would allow the administration
to continue to ignore certain investments in the Iranian energy
industry so as to avoid either applying sanctions or waiving
them. And finally, it is not enough to let the sanctions status
quo continue at a time when Iran continues to taunt the
international community and flaunt international standards.
There are some who say that the U.S. Congress should not
act while we are in the midst of difficult negotiations with
Iran in an attempt to stop the development of their nuclear
weapons. I disagree. I say this is exactly the time for the
United States to act and particularly for the Senate to act.
With every day that passes, Iran continues its march toward
nuclear weapons.
So, Mr. Chairman, in the interests of time, I would ask
that the rest of my statement be entered into the record, but I
look forward----
Chairman Shelby. Without objection, so ordered.
Senator Menendez. ----to working with the Chair and the
Ranking Democrat to have a vigorous reauthorization.
STATEMENT OF SENATOR CHARLES E. SCHUMER
Senator Schumer. Thank you, Mr. Chairman. I would ask
unanimous consent my entire statement be put in the record.
Chairman Shelby. Without objection, so ordered.
Senator Schumer. I know there is a time problem, and I want
to thank you and Senator Sarbanes for holding this hearing on
ILSA. It is a law in which I believe very strongly. In the
107th Congress, I introduced the initial legislation to
reauthorize ILSA, because I believed it was an important tool
in keeping up the pressure on Iran and Libya, countries who
harbored and supported terrorists. It was an important law for
us to extend then; it is an important law now.
Now, I am going to just skip over my testimony on Libya.
They have improved their behavior, but I still have some
concerns about compensation for family members of Pan Am Flight
103, and those are in my statement. I am going to skip over
that. But let me put it like this: the Libyan Government has
not lived up to all its commitments, and we have to do some
things about that.
Now, as for Iran, I am very concerned about China's growing
involvement in Iran's energy sector. The administration accused
NORINCO of proliferating weapons technology and missile
technology to Tehran, and according to the CIA, the Chinese are
working on a zirconium production facility that will help Iran
produce cladding for reactor fuel.
This is an end run around what we intended to do when we
enacted ILSA. While we have targeted sanctions at NORINCO and
other Chinese companies, we have got to be clear with China
itself that we are not looking favorably upon its dealings with
Iran. We have much to gain from our relationship with China,
but as with their actions to manipulate the currency, we have
to be watchful and apply constant pressure.
Similarly, there are reports that Russia has been providing
Iran with nuclear and military assistance. The administration
is supposedly considering negotiating a nuclear cooperation
agreement with Russia, something we have steadfastly refused to
do unless Russia ends its nuclear cooperation with Iran. I hope
the administration continues to demand that Russia end its
cooperation with Iran before we enter such an agreement.
And as we reauthorize ILSA, we have to consider whether a
few additional measures are necessary, and I am glad that we
are having this hearing. Under current law, the administration
has the ability to sign national interest waivers whenever it
finds, quote, it is important to the national interest of the
United States. You could drive a Mack truck through that
loophole.
I believe that a stricter approach, examining whether a
country is preventing the acquisition and development of
weapons of mass destruction by Iran and other national security
issues should be part of the waiver process. We should no
longer limit our view to economic considerations in the post-9/
11 world. National security must be at the forefront of our
decisionmaking.
And finally, another issue we should consider is whether an
investment violates ILSA. I am concerned that for some
investments, no determination is ever made. The Department
simply avoids the issue altogether. The implications of these
investments are too important to let them quietly languish in
the review process.
And finally, Mr. Chairman, I would note that given Iran's
most recent behavior, we need a strong law that will clearly
establish our view that investment in Iran's energy sector
directly or indirectly aids Iran's larger objects and is
contrary to what our country is trying to achieve in the Middle
East: a peaceful region that no longer supports terrorism. ILSA
is an important tool in our fight against terrorism, and I look
forward to working with you, Mr. Chairman, and my colleagues on
the Committee on the appropriate way to extend this law.
Chairman Shelby. Thank you, Senator Schumer.
We have reached a point in the Senate when we have a few
votes. Secretary Burns, Secretary O'Brien, I believe that I
would like to hear your testimony. We have reviewed your
testimony, and others here in the room probably would, so we
will take about a 30-minute break--we hope we will be back in
30 minutes. We will recess the Committee until then.
Is that OK with you?
Mr. Burns. Fine.
Mr. O'Brien. Certainly.
Chairman Shelby. The Committee will be in recess until we
get back from three votes, approximately 30 minutes maybe.
Senator Sarbanes. Don't hold your breath.
[Recess.]
Chairman Shelby. The Committee will come back to order.
That was a typical 30-minute recess in the U.S. Senate. It runs
more than 30. That is the way we keep up with it: 30 minutes
equals an hour, maybe an hour and a half, maybe 2 hours; who
knows? We do apologize to both of you, but that is the order of
business.
Your written testimony will be made part of the record in
its entirety, and you can proceed. We will start with you,
Secretary Burns. Proceed as you wish. We think this is a very
important issue.
STATEMENT OF NICHOLAS BURNS,
UNDER SECRETARY FOR POLITICAL AFFAIRS,
DEPARTMENT OF STATE
Mr. Burns. Mr. Chairman, thank you. Mr. Chairman, I hope
you can hear me; you can? Thank you very, very much. Don't
worry about the delay. We understand the legislative process. I
am glad to be here with Assistant Secretary O'Brien, and we are
happy to answer your questions. My testimony is submitted for
the record. I will not read it to you, but let me just make a
few preliminary points, if I could, to establish the
administration position.
First of all, I would like to say in response to what you
said, Mr. Chairman, and some of the other Members, there is no
question that the challenge posed by Iran to American national
interests is profound. It is a very important one, and I can
tell you that both President Bush and Secretary of State Rice
treat it as one of our top national security concerns. Iran is
seeking a nuclear weapons capability, which is unacceptable to
the United States, and our policy, as Secretary Rice said on
May 31, is to deny them that ability to create a nuclear
weapons capability. Iran is the leading state sponsor of
terrorism in the Middle East and the central banker of
terrorism, and Iran is pursuing policies in its own country
that deny people basic rights.
Chairman Shelby. Plus, they have got more money now with
the price of oil.
Mr. Burns. And they have a little bit of money to pursue
these policies.
So Iran presents in three different areas direct challenges
to our most vital interests in the Middle East region, and
therefore, we are happy to be here to talk about this issue.
On the question of ILSA, the Iran-Libya Sanctions Act, we
think the Congress acted wisely in 1996 to write this law and
wisely in 2001 to reauthorize it for 5 years, and it is the
position of our administration, that we would very much support
the further reauthorization of ILSA now in 2006. Mr. Chairman,
you called it, ILSA, a useful tool. That is exactly what
Secretary Rice has said as well, because what it has done is it
has shown a very bright spotlight on Iran, and it has made Iran
the object of negative attention by the international
community, and that is positive in our efforts to deny them
what they want to have.
Chairman Shelby. It is showing the truth of what they have
been doing, isn't it?
Mr. Burns. It has done that as well. It has very much done
that as well.
I would just say this: in 1996, when Congress first
developed this law, I think Congress was concerned, and I think
the prior administration was concerned, about our allies'
commitment to put pressure on Iran through the implementation
of sanctions, bilateral sanctions and multilateral sanctions.
This year, in 2006, we are dealing with a very different
international environment, because those allies in Europe are
now our partners in this international negotiating effort,
which is designed to deny the Iranians what we had talked
about, deny them nuclear weapons.
And as you know, since February of 2005, the President had
determined that we should support those European negotiations.
Now, unfortunately, the Iranians walked out on the Europeans
last August and September, and since then, the President has
tried very hard to create a large international coalition of
countries, including Russia and China, India, Brazil, Egypt, to
rebuke Iran for what it is trying to do; to vote against them
in the IAEA; to take the issue to the U.N. Security Council,
and more recently, you saw Secretary Rice go to Vienna on June
1, and we established an agreement among the Permanent Five
countries of the Security Council that we are going to offer
Iran two paths. The first path is the prospect of negotiations,
and Secretary Rice said that the United States might even be at
the table at those negotiations for the first time in a quarter
century should Iran agree to suspend its enrichment activities
at its plant at Natanz.
The second path, if Iran refuses negotiations, would be a
path of sanctions through the U.N. Security Council. And I
think this is the most dramatic way that the international
landscape has changed since ILSA was created in 1996. We want
to keep the European allies with us in this effort to isolate
and pressure the Iranian Government, and so, while we very
strongly support the reauthorization of ILSA, and we certainly
see the value of ILSA, we have not chosen to support some of
the pieces of legislation in the House and in the Senate that
would so significantly change ILSA and change its requirements
together that it would, in the first place, limit the
President's ability to conduct foreign policy under our
Constitution, but I think more pertinently, it would focus the
attention, some of those bills, it would focus the legislation
on sanctions against our allies at a time when we are trying
very hard to focus the spotlight on the Iranians and when we
provided for a sanctions path through the U.N. Security Council
that I think will have great promise should Iran turn away from
negotiations.
So I wanted to make that point to you, because I think it
responds to some of the preliminary points that the Members
made. I also wanted to say, Mr. Chairman, that Libya, of
course, is a special concern of our Government, and back in
1996, Libya was pursuing unacceptable policies in the realm of
WMD proliferation but also in the realm of terrorism. And so,
it was quite appropriate for the Congress to include Libya in
that act. Libya, of course, has been implicated most
pertinently--I know that Senator Schumer and Senator Menendez
spoke to this--to the Lockerbie Pan Am 103 bombing in December
1988. Three State Department employees were among the 178
Americans killed in that, so we have enormous sympathy for the
families of the deceased, and we have tried to support them,
and in fact, I will be meeting with some of these families
tomorrow morning. I had a conversation with them this morning
to get a sense of some of their concerns.
As you know, we have come a long way with Libya, and on May
15, just last month, Secretary Rice announced our intention to
resume diplomatic relations and to remove Libya from the state
sponsors of terrorism list, and this is the latest decision in
a very careful process that I know you were very much a part of
that began in 1999 when Libya began to address our terrorism
concerns, and then, in 2003, when Libya confirmed its
renunciation of terrorism. And then, of course, in December
2003, Libya announced its decision to dismantle its WMD
program.
So given that, we think that ILSA served a constructive
purpose, but as the President had already determined in 2004
that Libya had met the requirements that we had laid down, we
would hope that the Congress would now remove Libya from the
ILSA legislation and just proceed with a reauthorization
focused on Iran, which, of course, is our major concern on WMD,
on nuclear weapons, and our major concern on terrorism.
So I do not want to read the rest of my testimony, but I
just wanted to get those points out to give you a sense of our
strong support for reauthorization, our concern about some of
the House and Senate bills that we think would restrict our
ability to be effective in limiting Iranian nuclear ambitions.
Chairman Shelby. We saw that on the floor last week.
Mr. Burns. Yes; and I think you know from our written
testimony, I will be very happy to go into any aspect of the
negotiations that are underway or the policies that we are
pursuing.
Chairman Shelby. You might remember Senator Sarbanes and I
a couple of months ago were in Libya, and we had good meetings
and worked with the State Department. We want to continue to
work with you.
Mr. Burns. We do as well, Mr. Chairman.
Chairman Shelby. Secretary O'Brien.
STATEMENT OF PATRICK O'BRIEN,
ASSISTANT SECRETARY FOR TERRORIST FINANCE AND FINANCIAL CRIMES,
DEPARTMENT OF THE TREASURY
Mr. O'Brien. Thank you, Mr. Chairman. Also in the interests
of time here, given the hour, I will also try to be brief.
As an opening remark, I would just say that the Treasury
Department is lending its full support to the diplomatic
efforts that are underway, and we are very committed to that
process and lending whatever support that we can. You mentioned
in your opening statements in particular the WMD authorities
that are relatively new to the Treasury Department, so I
thought maybe what I would focus my comments on would be on the
new WMD authority.
In June 2005, the President issued Executive Order 13382,
aimed at undercutting the firms involved in proliferation of
WMD and their financial and logistical support networks. Since
that time, six Iranian entities have been designated for their
support of the proliferation of WMD and their missile delivery
systems, including Iran's pursuit of nuclear weapons under the
guise of a peaceful nuclear energy program.
A couple of the key designations that I would note: the
Atomic Energy Organization of Iran, which reports directly to
the Iranian President and is the main Iranian institute for the
research and development activities in the field of nuclear
technology and the Aerospace Industries Organization, which is
a subsidiary of the Iranian Ministry of Defense, and Armed
Forces Logistics, which is the overall manager and coordinator
of Iran's missile program. AIO oversees all of Iran's missile
industries.
In addition, just last week, OFAC designated four Chinese
companies and one representative office in the United States
that supplied Iran's military and Iranian proliferators with
missile-related and dual-use components. No reputable company
or institution should be doing business with these entities.
I also wanted to mention the broad country sanctions that
are in place and that are administered by OFAC. They have been
enforcing this far-reaching set of sanctions against Iran since
1995. Pursuant to the Iranian Transactions Regulations, OFAC
administers commercial and financial sanctions against Iran
that prohibit U.S. persons from engaging in a wide variety of
trade and financial transactions with Iran or the Government of
Iran.
These regulations prohibit most trade in goods and
services, including financial services, between the U.S. and
Iran. The ITR even prohibit foreign persons in third persons
from reexporting high-tech, U.S.-origin goods to Iran. The
regulations prohibit any post-May 7, 1995, investments by U.S.
persons in Iran, and U.S. persons are prohibited from
facilitating transactions involving Iran by third-country
persons. The effect of these sanctions has been the severe
restriction on the ability of U.S. persons to engage in trade
or financial services with Iran.
Perhaps as important as this governmental action is, the
response that we are seeing from the international private
sector, which you also mentioned in your statement, has been
very important. As it witnesses first-hand the disturbing
direction in which the Iranian regime seems to be headed, the
financial sector has begun to reassess whether it is
appropriate or prudent to do business with Iran. The words and
signals coming out of Iran have led observers to worry about
Iran as an investment arena and have prompted reputable members
of the international financial community to curtail or cut ties
with Iran altogether. For example, in the international banking
community, UBS, Credit Suisse, and others, have announced that
they are ceasing or curtailing their business with Iran. Press
reports have indicated that in the energy sector, firms like
Baker Hughes and Conoco-Phillips and others have suspended
dealings with Iran.
In May, the Organization for Economic Cooperation and
Development, the OECD, downgraded Iran's credit rating. For
official credits, it now assesses Iran at the same level of
risk as countries with active insurgencies, such as Colombia
and Sri Lanka.
These are just the decisions that are being publicly
reported. Reputable institutions around the world are also
making quiet decisions to cut back or sever dealings with Iran,
having decided that they do not want to do business with a
state sponsor of terror and proliferator. We in the Government
can help inform this process by identifying specific threats
that private firms might otherwise be unable to detect and
protect against.
We are in a critical moment with Iran now. The Treasury
Department and all members of the U.S. Government are lending
its full support to the State Department's work to bring about
a successful outcome to the recent round of multilateral
efforts. In the meantime, in cooperation with our interagency
partners, we will continue to use our tools to dismantle
networks that support terrorism and weapons proliferation
wherever they may be. We will continue to do everything in our
power to deny these networks access to the financial system.
Thank you. I would be happy to answer any questions that
you may have.
Chairman Shelby. Thank you, Mr. Secretary.
I will start with you, Secretary Burns. The one instance in
which ILSA sanctions were to be imposed, as I understand it,
the case of the French energy company Total S.A.'s agreement to
develop a major Iranian gas field, the provisions were waived.
I understand that the waiver was issued by the previous
administration, but I would like to hear from you, if we could,
on the Bush administration's position on actually imposing
sanctions under ILSA.
Is ILSA, Mr. Secretary, a largely symbolic threat that will
not actually be used? It was not used then. And there are
reports out there that China and Iran are negotiating or were
negotiating a $100 billion deal that would involve Chinese
development of an Iranian oil field. And of course, that makes
this question, I think, very relevant.
Mr. Burns. Thank you, Mr. Chairman. We support the
reauthorization of ILSA, because we think it is an effective
part of the diplomatic arsenal.
Chairman Shelby. But it has got to have teeth, hasn't it?
Mr. Burns. What?
Chairman Shelby. It has got to have teeth, teeth.
Mr. Burns. Well, certainly, any legislation worth its salt
has to have teeth. I agree with you on that.
Chairman Shelby. Right.
Mr. Burns. And we support reauthorization, because ILSA has
been part of the diplomatic arsenal, economic arsenal, that we
have got to focus the attention of the world on Iran. I think
the primary benefit of ILSA over the past decade has been just
that. It has created an environment where Iran has been put
under a spotlight and made to answer questions, and it has had
a deterrent effect in some respects.
Let me give you one specific example: if you look at a map
of the Middle East, you see over the last decade this
extraordinary construction of gas and oil pipelines, from the
Caspian and Black Seas to the major markets in Western Europe,
and you will notice that the great majority of those pipelines
are not traveling through Iran. Baku-Ceyhan, which is the most
prominent, which received very strong support from President
Clinton and President Bush, does not travel through Iran, and
ILSA has played a part in creating that kind of climate where
countries and companies have to fear the potential consequences
should they get the attention of our Government.
Chairman Shelby. In preparing a conference on doing
business with Iran, the Law Society in London included in its
announcement the following: Do you have trade relations with
Iran? Have you maximized them to their potential?
The list of corporations attending the event included
dozens of prominent financial and energy companies that we are
familiar with, including HSBC Bank, BP Oil, Royal Bank of
Canada, Standard Bank PLC, the Deutsche Bank, and United
Insurance Brokers. Also listed among the attendees, the Embassy
of Iran. I do not think we should be under any illusion
regarding the respect for U.S. sanctions policy with regard to
Iran outside the immediate context of that country's nuclear
weapons program.
I am also aware of recent press reports indicating
increased reservations on the part of some banks and energy
companies that do business with Iran, which you alluded to. Mr.
Secretary, is there a point out there, though, where the old
adage that the business of business is business may take a back
seat to larger considerations involving a regime like Iran that
poses a clear danger to U.S. interests and allies in the Middle
East? Do you understand what I----
Mr. Burns. Yes, I do, Mr. Chairman.
I would just answer very briefly and say that our
administration believes that it continues to be in our
interests to maintain U.S. sanctions on Iran that have largely
been in place since the late 1970s. This is the right policy
for the United States. Now, the newest element of our policy is
to construct this choice that Iran now has to make. If they
want to have peaceful relations, a negotiated settlement, and
some day far into the future a normal economic relationship
with most of the rest of the world, they are going to have to
go down the path of negotiations.
Should they refuse that, then, we have agreed, and this is
with Secretary Rice's agreement with Russia, China, Germany,
France, and Britain, all those countries have agreed that if
Iran refuses to negotiate, we will go to New York, to the
Security Council, and we will entertain the possibility of
sanctions against Iran.
So we believe that sanctions can be an effective instrument
in international politics but most effective when you have a
wide variety of countries practicing them.
Chairman Shelby. Sure.
Mr. Burns. Not just the United States in isolation but the
great trading nations of the world.
Chairman Shelby. But the bottom line is, they have got to
mean something, haven't they?
Mr. Burns. They do. Well, they have to mean something, and
they have to be universally applied.
Chairman Shelby. First of all, in an abstract sense, they
have to mean something. Otherwise, it is mainly symbolic.
I am not saying this is. I am asking you the question: they
do have to mean something, sanctions do, as a rule, do they
not? Otherwise, they will be ignored.
Mr. Burns. Yes, I think that the credibility of the current
diplomatic effort that we have underway hinges on our ability
to go down that second path should we must. And we are ready to
do that if Iran rejects the negotiating path.
Chairman Shelby. Secretary Burns, the issue of pipeline
construction has been interpreted by some as a gray area when
considering whether ILSA provisions should be applied, whether
they should be applied. The Iran-Turkey natural gas pipeline
has already proven problematic, and India and Pakistan are both
involved in pipeline discussions with Iran. Could you describe
just for the Banking Committee here today the Department's
approach, the State Department's approach to pipeline
construction projects within the context of ILSA enforcement?
Mr. Burns. I would be happy to do that, Mr. Chairman.
We have had numerous conversations with the Governments of
India and Pakistan just in recent months, and our advice to
both governments has been you should resist and refuse to enter
into any such long-term agreement with the Government of Iran,
because we say Iran is not a reliable supplier of energy. Iran
could possibly fall under international sanctions in the very
near future if it refuses to stop its nuclear projects and
nuclear activities, and it is interesting that these well
advertised plans for a pipeline have not materialized.
And it is our impression that India and Pakistan are
hesitating on whether or not they should go forward. What we
have advised is that they look toward Kazakhstan and
Turkmenistan for long-term oil and gas contracts, not to Iran
itself. So it is an active part of our diplomacy to dissuade
these countries from doing this.
Chairman Shelby. Secretary O'Brien, I will direct this
first part of this question to you. The Department of the
Treasury sanctioned four Chinese companies for aiding Iran's
ballistic missile programs. One of the Chinese companies in
particular, China Great Wall Industry Corporation, has been a
repeat offender and, in fact, appears with disturbing
regularity when the issue of militarily sensitive technology
transfers are discussed.
Would you provide the Committee your view on whether U.S.
sanctions regimes need to be strengthened in order to provide a
better deterrent? Is the Chinese drive to secure energy
supplies too powerful to be stopped through sanctions that
already exist in the U.S. law, and is there a potential for
U.S. dual-use technology to be diverted to Iran, which we are
all concerned about, in violation of Iranian Transactions
Regulations in the course of Chinese transactions such as those
involving the recent sanctions announcement?
I recognize that Commerce has jurisdiction of dual-use
technologies, but does State have any insight here? Does the
Chinese export of fiber-optic technology to Iran involve any
U.S. technology? Secretary O'Brien, I will ask you first and
then call on Secretary Burns.
Mr. O'Brien. Thank you, and I will focus on the aspect of--
--
Chairman Shelby. Right.
Mr. O'Brien. ----the financial and logistical support
networks for this kind of proliferation.
And I think, actually, your exchange just previously about
the need for multilateral action is reinforced by your
question. Under the U.N. Security Council Resolution 1540, all
nations agreed that it is important to address the financial
aspects of proliferation. The G-8 has also discussed this and
committed to track, identify, and freeze the assets of weapons
proliferators.
The United States has played a leading role in actually
developing a tool to do that, and that is the E.O. that I
mentioned in my statement, E.O. 13382, which really applies the
same kind of financial sanctions to weapons proliferators as we
have in the terrorism context, which are internationally known.
So can the United States by itself end the activities of
proliferators that are determined, you know? No; we can do our
part. I think part of what we are doing in conjunction with the
State Department is encouraging other nations to look at the
commitments that they have made in various international arenas
on the proliferation front and begin to appreciate and address
the financial component of proliferation. So I think
multilateralizing this kind of tool will be a very important
step to increasing our effectiveness.
Chairman Shelby. Secretary Burns, do you agree with that?
Mr. Burns. I certainly do agree with what the Assistant
Secretary has said, Mr. Chairman. With respect to the last part
of your question, the United States conducts a very limited
amount of legitimate commerce--of various types--with Iran.
Since the beginning of 2004, 85 licenses have been approved for
U.S. trade with Iran, 2 rejected, and 50 returned without
action for various reasons. These figures do not include
agricultural and medical projects, which are handled under a
separate authority. Of those approvals, a small percentage
pertained to fiber-optic technology, so some legitimate
transfers are being done, although obviously those are
carefully reviewed. As to other sourcings of American fiber-
optic technology to Iran, some smuggling has happened in the
past and likely will be tried again, but we have no hard
numbers on the exact volume. Additionally, we have no record of
fiber-optic technology licensed to China being diverted from
China to Iran.
Optical fiber communication cables are normally controlled
for export to China under ECCN 5A001.c.1 and c.2 for national
security reasons. A license exception to civil end users (CIV)
under section 740.5 of the EAR is permitted for exports to
China. The technology to produce these cables, in turn, is also
controlled for national security reasons under ECCN 5E001, and
no license exceptions are applicable for its export. We would
have to refer you to the Department of Commerce, Bureau of
Industry and Security for the data on how many export licenses
were approved for these items as well as for its production
technology to China.
For sensitive missile-related exports, according to the
FY99 National Defense Authorization Act, prior to the transfer
to China of dual-use items that are controlled for missile
technology reasons, such as fiber-optic gyros, the President
must certify to Congress that the export will not be
detrimental to the U.S. space launch industry and will not
measurably improve China's missile or space launch
capabilities. Accordingly, requests to export dual-use missile
technology are subject to special scrutiny. These measures help
mitigate the risk that missile-related items licensed from the
United States will be diverted to programs of concern.
With respect to the earlier part of your question, I would
note that E.O. 13382 was signed in order to augment existing
nonproliferation sanctions by allowing the United States to
freeze the U.S. assets of designated proliferators and their
supporters, and to prohibit U.S. persons from engaging in
transactions with them. Treasury's June 13 action was the first
such designation of Chinese entities under E.O. 13382. This
designation effectively levies additional restrictions on China
Great Wall Industry Corporation that were not imposed under
previous sanctions.
Chairman Shelby. For the record; that will be good.
Mr. Burns. For the record.
Chairman Shelby. I think it is very important. Pipelines
are central to all of this energy.
Secretary Burns, the House bill's provisions on sanctions--
if I may, in your opening statement, Mr. Secretary, you
addressed problems the Department of State finds in the
legislation passed by the House. In addition to those issues
specified in your statement, were there other provisions to
which the Department objects? Does the provision targeting the
foreign subsidiaries of U.S. corporations present any problems?
Would such a provision continue to be problematic if
implemented prospectively and not retroactively? And do the
parameters for imposition of sanctions reflected in that
legislation fit within your comfort zone? Can you discuss that
openly here?
Mr. Burns. I would be happy to.
First of all, Mr. Chairman, I want to say we share with the
sponsors of the House and Senate bills, with which we disagree,
we share with them a concern strategically of what we ought to
do, which is isolate and pressure Iran and stop it from
developing nuclear weapons. So there is no argument there.
We have a tactical difference in two respects. In general,
we are at a point in our diplomacy now where we want to turn
the attention of the United States and the instruments at our
disposal toward the Iranians and not toward our allies, because
we do not want to weaken that international coalition that we
have created.
Chairman Shelby. How do you do that? That is kind of a
tightrope, is it not?
Mr. Burns. Well, it is difficult, and you certainly want
the Europeans to be focusing their attention on Iran, not their
attention on the United States and a piece of legislation here
in Congress. So in general, that is the major objection that
the administration has had for many months to the two bills
that are under question, H.R. 282 and S. 333. Specifically,
there are a couple of provisions that I put into my testimony
that we believe would restrict the President's ability to
pursue a policy that would be effective and that would give him
the flexibility that he might require in this very fluid
environment where we are on the verge possibly, possibly, of a
negotiation with Iran on the future of its nuclear weapons
program, and I think I have detailed those in my testimony.
Chairman Shelby. You have.
Secretary O'Brien, Iranian support for terrorism; you know
a lot about this. As you have said, and we know, Iran is the
world's leading state sponsor of terrorism. Secretary Burns
touched on this in his opening statement. But could you provide
the Committee, for the record here, the Department's current
assessment, the Treasury Department's current assessment of
Iranian financial support for terrorist organizations?
Recent press reports indicate, and your statement confirms,
that foreign banks, including some that were assessed large
fines for their failure to comply with U.S. anti-money
laundering laws, are lowering their profiles in Iran. Are
European countries whose banks do business, and a lot of them
do, with Iran reassessing those relationships beyond the crisis
atmosphere that surrounds the nuclear weapons issue?
In other words, is there any sense of reputational risk for
banks doing business with Iran that extends beyond the current
crisis? You know, we worked with you a lot on the financing of
terrorism on this Committee. Senator Sarbanes and I believe
that is one of the important ways to fight terrorism, and you
know that. Do you have some comments.
Mr. O'Brien. Absolutely, and we appreciate your support in
that regard very much.
As a general matter, and I touched on this in my written
statement as well, we do have grave concerns and would say that
Iran is a leading----
Chairman Shelby. They are the banker for a lot of the
terrorism in the world, are they not?
Mr. O'Brien. Yes, and I think they pose a particularly
difficult target to combat in that as a state sponsor, as a
sovereign, they have vehicles and apparatus available to them
that others do not. There are state-owned banks; there are
parastatal companies that can help mask their activities in the
financial sector in addition to the informal methods like
hawala or cash couriers to move money.
So they are a particularly difficult target. I think we
have focused very heavily on some of the organizations that
they support: Hezbollah and Hamas and the Palestinian Islamic
Jihad. We have taken substantial actions against the front
companies and organizations, charities, or individuals that are
working on behalf of those operational groups.
So I think they clearly are at the foremost of our mind and
our concern with respect to terrorist financing, and your
comment about European banks, as I touched on in my remarks, we
are seeing an increased sensitivity to reputational risk. And I
would not limit that only to the proliferation context. I think
it is broader than that, and in effect, you know, Iran is
isolating itself by its conduct, by its support for terror, by
its support for proliferation, by the statements that its
leadership is making.
So I think we do see an increased sensitivity to
reputational risk, and we think that is a very positive
development.
Chairman Shelby. Thank you.
Senator Carper.
STATEMENT OF SENATOR THOMAS CARPER
Senator Carper. Thanks, Mr. Chairman.
Chairman Shelby. Excuse me. Senator Menendez was here
first.
Senator Carper. Please go ahead; no, go ahead.
Chairman Shelby. No, he was here earlier, first.
Senator Menendez. I am happy to yield--well, thank you, Mr.
Chairman, very much. I appreciate in the beginning of your
testimony, I understand you made some reference to my concerns
about Libya, and I appreciate that.
We are going to be vigorously engaged in hoping to see that
a promise made is a promise kept and that our administration
and our Government helps these families achieve that, even
though it will never fill the void in their lives and in their
heart, but I believe it is critical. So we will be working with
others, hopefully collaboratively with you, to get the results
that we would like to see.
I do have a few questions about our reauthorization.
Secretary Burns, is it not true that under current U.S. law, if
a U.S. company invests, let us say, $20 million over the course
of 1 year in Iran's energy sector that the President must
impose sanctions?
Mr. Burns. Senator, thank you for the question. That is my
reading of the ILSA legislation that was reauthorized in 2001.
Now, the President retains the ability to ascertain whether or
not to impose the sanctions, and of course, the President has
waiver authority.
Senator Menendez. Right.
Mr. Burns. And one of the reasons that we support
reauthorization is we think--I will not give you my whole
testimony, but you were out of the room; we think this has been
a very useful tool in the ability of our administration to
focus a spotlight on the Iranians and to put some pressure on
them. But the President does, and President Clinton and
President Bush have had this authority.
Senator Menendez. Let me ask you this: is it not true that
under the current law, if a foreign subsidiary of that U.S.
company, that very same U.S. company, invests the same $20
million over the course of 1 year in Iran's energy sector that
there be no consequences for that company?
Mr. Burns. Senator, I am not a legal expert on the bill. I
do not want to pass myself off as one. So I would be happy to
take your question for the record and give you a written
response.
Senator Menendez. Well, we would love to get an answer, but
I think the answer----
Chairman Shelby. Would you do that for the complete record
for the Committee plus the Senator?
Mr. Burns. Yes, yes, sir. Nothing in the ILSA statute
exempts subsidiaries of U.S. firms from the reach of the Act.
ILSA applies to any person, including any subsidiary of a U.S.
firm, who engages in the activities covered by the statute. The
U.S. embargo on Iran prevents U.S. companies from making such
investments.
Senator Menendez. Thank you, Mr. Chairman. I would love to
get an answer through the Chair, and let me just offer that the
answer is yes, and that is the problem.
It seems to me that the very essence of our sanctions
regime in this regard does not have the teeth that it needs,
because it allows U.S. companies to do business in Iran through
their foreign subsidiaries. And particularly if one thinks
that--one's focus is that the essence of our sanctions program
is to make sure that we achieve a goal that Iran cannot use
money from its petroleum sector to fund its development of
nuclear weapons program, then, we are undermining it by having
this very large loophole available. And so, it seems to me that
we need to close that loophole in a reauthorization.
The other concern that I have is that under existing law,
American companies by and large are not allowed to do business
in Iran, and non-U.S. companies face possible sanctions if they
invest over $20 million in Iran's energy sector. And the
rationale is again rather simple: petroleum production gives
Iran the cash to pursue production of weapons of mass
destruction, and they need massive foreign investment to keep
oil producing.
Those non-U.S. companies that have invested in Iran's
energy sector are liable to American sanctions under ILSA. Yet
many American pension plans and mutual funds continue to invest
large amounts in these very same companies. Several State and
municipal pension plans have actually begun to take steps to
end their investments in such companies, so that in essence,
they are not fueling Iran's ability.
Do you believe that a cessation of this type of investment
would have a major impact on Iran's political leadership and in
doing so pursuit of nuclear weapons, given the fragility of
their economy?
Mr. Burns. Senator, we share with you a very deep desire to
stop Iran's nuclear weapons program. Now, we have to calculate
the best way to do that, and our sense is that you have on one
hand American sanctions in place for the last 26-and-a-half
years on the Iranian Government that have not had a decisive
impact on Iran's ability to proceed to develop its economy and
its nuclear industry.
We think it is far preferable to try to get a great number
of countries involved in sanctions. And so, we have offered the
Iranians a choice: negotiations to deconstruct their nuclear
program, and if they do not accept that, then, of course, an
alternative path that would lead to the U.N. Security Council
and what we hope would be a sanctions regime. We think that
would be far more effective.
And one of the reasons why we support the reauthorization
of ILSA is because we think ILSA is an instrument in that
policy. We do not support some of the other bills that have
been put forward in the House and Senate, because we think that
they would tie the President's hands so much that we could not
carry out this policy of trying to offer these two choices to
Iran and would perhaps make it even impossible for him to lead
a coalition down that second path, toward sanctions.
Senator Menendez. Well, Mr. Secretary, if I may, just as a
final comment, Mr. Chairman, you know, I do agree with you: the
problem is that in the beginning of your answer here, the
problem is that we have not used ILSA as forcefully. I have
seen the testimony of both Secretary Rice; I read yours, and
the reality is that we have not used ILSA under its existing
wherewithal, and as a matter of fact, in a way that I think has
been helpful. We have not had the will; that is why I think you
have an accurate statement, that it has not been as powerful as
it could be.
If you look at a CRS report, they say, and I quote, that
while some believe ILSA did slow Iran's energy development
initially, its deterrent effect weakened as foreign companies
began to perceive that ILSA sanctions would not likely be
imposed, and that same report includes a list of 11 foreign
companies which have apparently invested over $20 million in
Iran's energy sector.
So, yes, I mean, if you have a tool, and you leave it in
the shed, it is never going to produce any fruit. If you have
the wherewithal to use the law, and you do not enforce it, it
is never going to be of value, and that is the very essence of
what I think is happening here, and that is why I, for one,
believe that we need to make sure that there is a strengthened
ILSA renewal so that we can actually guarantee.
You know, we have not stopped Iran's march yet. I find it
interesting that we have a set of circumstances where what the
administration pursues today, the administration originally
criticized the 1994 framework agreement that the Clinton
administration conducted with North Korea; very critical of it,
but the very essence of that same framework is what they are
pursuing in Iran.
I have real concerns here. We still have a chance to make a
difference as it relates to Iran's achievement of any nuclear
weaponry. We are already past that with North Korea, but we do
have an opportunity here. And I believe that this is a tool,
Mr. Chairman, that can be vigorously used, and I appreciate the
Chair's beginning to hold hearings and hopefully a markup in
the not too distant future.
Chairman Shelby. Thank you, Senator Menendez.
Senator Carper had to go, but he asked that we keep the
record open. He has a number of questions to both Secretaries,
and we would get those to you.
We appreciate your patience today; appreciate your
contribution, and more than that, we appreciate your waiting on
us.
Mr. Burns. Mr. Chairman.
Chairman Shelby. Secretary Burns.
Mr. Burns. Would you indulge me just for a moment?
Chairman Shelby. Absolutely.
Mr. Burns. And very briefly.
I just wanted to respond to the Senator. I think he has
given us a very thoughtful presentation of his views, and I
just wanted to say I think we all agree on the strategy.
Everybody agrees we have got to stop the Iranians from
developing a nuclear weapons program. The major problem we have
with a so-called strengthening of ILSA as opposed to a straight
reauthorization of S. 333 or H.R. 282 is that it would allow
Iran to divide us from our European allies.
Right now, you have got a situation where Iran is trying to
escape the pressure of the Security Council. It fears the unity
of the Security Council. And what President Bush and Secretary
Rice have achieved is the unity of the Security Council. Some
of the provisions in both of those bills would actually point
ILSA directly at the allies. It would make them the issue
rather than Iran. I told the Chairman before that we feel that
one of the great benefits of ILSA over the last decade, it has
made Iran the issue.
But some of the provisions here to which we object--it is
in my testimony--would actually make France the issue or
Britain the issue or Germany the issue, and we think we will be
far more effective in stopping Iran if we maintain that unity
and if the President and future Presidents have the flexibility
that they ought to have to pursue a rational policy. So I just
want to give you the benefit of that thought. I think you gave
us a very thoughtful presentation.
Senator Menendez. Mr. Chairman, very briefly.
Chairman Shelby. Senator Menendez.
Senator Menendez. I appreciate the Chair's indulgence.
I appreciate what you have to say, Mr. Secretary, but even
when we focus on U.S. companies, on U.S. foreign subsidiaries
and on U.S. pension plans, it does not hurt any foreign
country.
Chairman Shelby. We appreciate your appearance here today.
The Committee is adjourned.
[Whereupon, at 5:55 p.m., the hearing adjourned.]
[Prepared statements for the record follow:]
PREPARED STATEMENT OF SENATOR CHARLES E. SCHUMER
Thank you Mr. Chairman, and Senator Sarbanes, for holding this
hearing on ILSA, a law in which I believe very strongly. In the 107th
Congress, I introduced the initial legislation to reauthorize ILSA
because I believed it was a very important tool in keeping up the
pressure on both Iran and Libya--countries who harbored and supported
terrorists. It was an important law for us to extend then and it is
now.
In the past 5 years, Libya has improved its behavior--although I
have some concerns about compensation for family members of Pan Am 103
which I will address in a moment. But as we consider reauthorizing
ILSA, I believe we must look at ways to strengthen it, possibly by
expanding it to other types of investment or trade activity, so
hopefully we can help bring about the same result in Iran.
Iran is a state sponsor of terrorism and President Ahmadinejad has
steered Iran further and further down an extremist path since assuming
office saying Israel should be ``wiped off the map . . . '' And they
have not yet shown that they're willing to deal with the international
community in good faith with respect to nuclear weapons.
Until we see dramatic change in Iran's behavior, we must keep up
the pressure through the threat of sanctions authorized by ILSA. It's
clear that Iran is not going to seriously heed the world's call to be
more responsible unless they are truly diplomatically and economically
isolated.
I'd like to address Libya for just a moment. As we know, Libya
agreed to pay compensation in the amount of $10 million to each family.
Libya admitted responsibility for this vicious attack which killed 189
Americans . . . some of whom were my constituents and neighbors.
Unfortunately, Libya has only fulfilled 80 percent of its obligation to
these American families. I don't believe 80 percent is good enough and
I know many of my colleagues agree.
I was disturbed to learn of reports that a State Department
spokesperson suggested that the Department is not a party to this
settlement and will not get involved in further compensation issues.
But clearly there are steps this Administration can take to pressure
Libya to do the right thing here. For example, the State Department and
this Administration can refuse to accept the credentials of Libyan
diplomats even before Libya has fully compensated the Pan Am 103
families. I have joined a resolution, led by Senator Lautenberg, urging
the Administration to do just that.
It's simply unacceptable that State Department is not supporting
these American victims of terrorism in their quest for justice and
instead siding with Libya. So although a reauthorization of ILSA would
not apply to Libya, we must be vigilant and do all we can to ensure the
families of Pan Am 103 are fully compensated.
Turning to ILSA--our original purpose was to curb growth and
modernization of Iran's energy sector and I note that it appears that
it has worked, at least to some extent. In the 1970s, Iran was pumping
an average of 6 million barrels a day; today it pumps approximately 4
million barrels a day. Measures like ILSA have clearly played a role in
deterring foreign investment in Iran's energy sector. We must keep ILSA
in place to further discourage any foreign investment in Iran's energy
industry.
I am concerned, however, about China's growing involvement in
Iran's energy sector. For example, the Administration has accused the
Chinese company Norinco of proliferating weapons technology and missile
components to Tehran. And according to the CIA, the Chinese are working
on a zirconium production facility that will help Iran produce cladding
for reactor fuel. This is a complete end-run around what we intended to
do with ILSA.
While we have targeted sanctions at Norinco and other Chinese
companies, we also must be clear with China itself that we will not
look favorably upon its dealings with Iran. We have much to gain from
our relationship with China, but as with their actions to manipulate
their currency, we must be watchful and apply constant pressure. And I
believe our discussions with China must specifically address their
involvement in Iran.
Similarly, there are reports that Russia has been providing Iran
with nuclear and military assistance. The Administration is supposedly
considering negotiating a nuclear cooperation agreement with Russia,
something we have steadfastly refused to do unless Russia ends its
nuclear cooperation with Iran. I hope the Administration is prepared to
demand that Russia end its nuclear cooperation with Iran before we
enter such an agreement.
As we reauthorize ILSA I believe we must consider whether a few
additional measures are necessary and that's why I'm glad we're having
this hearing. Under current law, the Administration has the ability to
sign national interest waivers whenever it finds it is ``important to
the national interest of the United States.''
I believe a stricter approach, examining whether a country is
preventing the acquisition and development of weapons of mass
destruction by Iran and perhaps other national security issues should
be part of the waiver process. We must no longer limit our view to
economic considerations in this post 9/11 world--national security must
always be at the forefront of our decisionmaking.
Another issue we should consider is whether we should set a
timeline for determining whether an investment violates ILSA. I am
concerned that, for some investments, no determination is ever made--
that the Department simply avoids the issue altogether. The
implications of these investments are far too important to let them
quietly languish in the review process.
Finally, I'd note that given Iran's most recent behavior, I believe
we need a strong law that will clearly establish our view that
investment in Iran's energy sector, either directly or indirectly, aids
Iran's larger objectives and is contrary to what our country is trying
to achieve in the Middle East--a peaceful region that no longer
supports terrorism.
ILSA is an important tool in our fight against terrorism and I look
forward to working with you Mr. Chairman and all of my colleagues on
the committee on the appropriate way to extend this law.
______
PREPARED STATEMENT OF SENATOR RICK SANTORUM
Mr. Chairman, thank you for scheduling this timely and important
hearing on the Iran and Libya Sanctions Act (ILSA). As you are aware,
this law will expire in early August 2006, so it is important for the
Committee on Banking to gather insight on enforcement of the current
law, find out how the law is meeting our foreign policy goals, and
determine if modifications to the law are necessary.
As you know, I have taken a keen interest in making sure that the
tools authorized by ILSA are effectively employed to deter investment
in Iran's energy sector. In addition, because of the nascent democratic
movement taking hold within Iran, I have sought to provide greater
financial and political assistance to the people of Iran to enable a
peaceful democratic government inside Iran. Both goals are reflected in
S. 333, the Iran Freedom and Support Act, a bill that has garnered 61
cosponsors.
In my opinion, the Senate missed a golden opportunity to not only
improve upon current law but also to support the pro-democracy movement
inside Iran when it failed to adopt Senate Amendment 4234 during
consideration of the Fiscal Year 2007 National Defense Authorization
Act last week. However, the issue of an atomic Iran is pressing enough
and important enough for this body to reconsider its vote last week. I
am confident that the Senate will realize that now is the time to
authorize not only improvements in ILSA, but also help shape a viable
U.S. foreign policy approach toward Iran.
Mr. Chairman, as you know, the Congress enacted ILSA because it
concluded an Iran that with fewer oil revenues would allocate its
limited resources toward intrinsic domestic needs rather than funding
terror groups. Not wanting to tie the President's hands, Congress
permitted the use of a waiver if use of the waiver is important to the
national interests of the United States. While most observers would
contend that the law has been helpful in dissuading large scale
investment in Iran, additional improvements are necessary so that the
law can be strengthened. Put bluntly, some would say that the law lacks
teeth. If that assessment is true, I believe that this committee can be
helpful in adding teeth to ILSA.
Let me remind this committee that in 2001, when the Iran and Libya
Sanctions Act of 1996 was nearing its expiration date, the Bush
Administration requested a 2-year reauthorization of the law. Congress
chose to disagree with the Administration and reauthorized the law for
another 5 years. I ask members of this committee to remember that
request for ``flexibility'' when recalling last week's objections
raised by the Department of State to my amendment.
I find it even more telling that foreign investments in Iran's
energy sector, investments made during the Clinton Administration, have
not yet been acted upon. That is, the current administration has not
made a determination on whether investments by foreign entities in Iran
have triggered sanctions defined by the law. To date, the only action
taken was the issuing of a waiver back in 1998 on the investment made
by a consortium lead by TotalFinaElf, Gazprom, and Petronas to develop
phases two and three of Iran's South Pars gas field.
Unfortunately, major investments in Iran's energy sector have
continued despite the enactment of the ILSA legislation. Recent
examples include GVA Consultants of Sweden's Caspian Sea transit
contract worth an estimated $225 million (March 2001); ENI of Italy's
Darkhovin field contract worth an estimated $1 billion (June 2001); LG
of South Korea's Phases 9 and 10 of the South Pars field worth an
estimated $1.6 billion (September 2002); and Inpex of Japan's Azadegan
field contract worth approximately $2 billion (February 2004). As best
I can tell, these deals are still under review by the Administration.
While ILSA has probably discouraged whole-scale investment in
Iran's energy sector, these recent investments are a result of
calculated assessments by foreign companies and entities that they will
not be sanctioned by the U.S. Government. One of the aspects of the
amendment I offered to the Fiscal Year 2007 National Defense
Authorization Act was a provision requiring the President to take
action on transactions that were under review. I believe that this
provision makes sense as the executive branch has been silent on ILSA
for far too long.
Another area that deserves attention is the role played by private
or government lenders, insurers, underwriters, and guarantors--entities
that can help facilitate investments in Iran's energy sector. Finally,
it is worth considering eliminating the sunset provision altogether
given the behavior of the leaders of Iran's government.
In closing Mr. Chairman, I want to reaffirm my commitment to
reauthorize ILSA and to provide adjustments and/or modifications that
will strengthen the law and, perhaps, provide the teeth necessary to
dissuade foreign investment in Iran's energy sector. I have said time
and again that Iran is the most dire threat facing America today. It is
high time that the Senate act on this threat.
I look forward to working with you on this matter in the near
future.
______
PREPARED STATEMENT OF NICHOLAS BURNS
Under Secretary for Political Affairs, Department of State
June 22, 2006
Thank you Chairman Shelby, Ranking Member Sarbanes, and
distinguished Members of the Committee for this opportunity to discuss
United States policy toward Iran, and in particular the reauthorization
of the Iran and Libya Sanctions Act.
Iran
Acknowledging the grave challenge Iran and Libya posed to American
interests, Congress enacted the Iran and Libya Sanctions Act (ILSA) in
1996. The effort was a good one and provided us, as Secretary Rice has
said, ``a useful tool'' to combat both countries' dangerous behavior.
In particular, the existence of this law has underlined the depth of
our global concerns about the spread of weapons of mass destruction and
support for terrorism, and has given the United States a platform to
raise those concerns with our allies.
Over the past decade since the creation of ILSA, there has been a
major shift in the international community's strategy for confronting
Iran and Libya. In 1996, we were concerned about our allies' commitment
to put pressure on Iran through the implementation of multilateral and
bilateral sanctions.
In 2006, we are operating in a vastly different international
environment. Our allies in Europe, the Middle East, and Asia are very
much with us in seeking to isolate and pressure Iran to give up its
nuclear weapons ambitions. Over the past 15 months, the U.S. has
assembled a broad international coalition to deny Iran a nuclear
weapons capability; to stop its sponsorship of terrorism in the region
and around the world; to blunt Tehran's aggressive regional ambitions;
and to extend support to the Iranian people who suffer under the
regime's repression and economic misrule. President Bush and Secretary
Rice have worked to create a united response of the world's major
powers to blunt Iran's designs. I have traveled to Europe over a dozen
times as the primary liaison with the EU-3 and Russia and China on this
issue.
As a result of our efforts, we have achieved an unprecedented unity
among the major powers of the world on how to address the Iranian
regime's nuclear ambitions. President Bush and leaders of the European
Union noted in a statement yesterday--after the U.S.-EU summit in
Vienna--that over the past year U.S.-EU cooperation on Iran has reached
a new and qualitatively positive level. We have worked closely with
European allies, Japan, Australia, India, Russia, China, and other
countries at every stage of the ongoing attempts to address the
question of Iran's nuclear program. We have agreed on a set of far-
reaching proposals as a basis to find a negotiating solution with Iran.
Back in 1996, Libya was pursuing policies that endangered the
national security and foreign policy interests of the United States. It
was sponsoring terrorism and pursuing weapons of mass destruction.
Libya was implicated in terrorist incidents, including the destruction
of the Pan Am Flight 103 over Lockerbie, Scotland, in December 1988 in
an incident in which 270 people, among them many Americans, perished.
As with Iran, ILSA helped galvanize international pressure against
Libya.
Ten years later, on May 15, Secretary Rice announced our intention
to restore full diplomatic relations with Tripoli and remove Libya from
the list of state sponsors of terrorism. This is the latest decision in
a careful, step-by-step process begun in 1999 when Libya began to
seriously address our terrorism concerns and surrendered the suspects
in the Pan Am 103 bombing for trial. The United States and United
Kingdom began direct talks with Libyan representatives in 2001 and in
August 2003 Libya confirmed its renunciation of terrorism in a formal
letter to the U.N. Security Council. Then, on December 19, 2003, Libya
announced its historic decision to dismantle WMD programs and long-
range ballistic missiles. Throughout this process, we have acknowledged
progress by Libya while continuing our review at every stage.
ILSA
From 1996 onwards, ILSA served its constructive purpose in our
policies toward Iran and Libya. In 2006, 10 years later, we must look
at the very different political context when assessing legislation and
policy. As we move forward in confronting the challenges of Iran and
Libya, the Administration supports legislation now before this
committee, S. 2657, that would reauthorize the current ILSA statute for
an additional 5 years.
At the same time, we support removing references to Libya from the
law. The President in 2004 took action, under the provisions of the
existing law, to terminate the application of ILSA to Libya, so the
significance of removing references would be symbolic, rather than
practical. For instance, it would demonstrate to Iran the potential
benefits that could accrue over time if it chooses the path of
cooperation and greater prosperity envisioned in the P-5+1 package
offered to Iran on June 1.
As far as the Iran provisions in the legislation, I want to
reemphasize our strong support for the bill now before the Committee.
However, there is other legislation pending in both houses of Congress
that directly affects ILSA. H.R. 282, which was recently passed by the
House of Representatives, and S. 333, pending before the Senate Foreign
Relations Committee, incorporate features that we regard as highly
problematic.
We believe that some elements of those bills--in particular the
provisions that freeze current restrictions, set specific deadlines for
decisionmaking, that restrict certain waiver authorities, and (in H.R.
282) that call for divestment of assets and prohibitions on
assistance--would narrow in many important ways the President's
flexibility in the implementation of Iran sanctions and strain
relations with close allies whose cooperation is crucial to our efforts
to change Iran's behavior.
Despite the international consensus to prevent Iran from acquiring
nuclear weapons, Iran is still working very hard to create divisions
among the international community--including the P-5+1. We are
concerned that the proposed amendments would take the focus of
international attention away from Iran's misdeeds, where it now
appropriately lies, and shift it to potential differences between the
U.S. and its allies over ILSA provisions. Such an eventuality would
play into Iran's hands and retard the progress that we hope to make
diplomatically in stopping Iran's nuclear weapons programs. We have to
consider how the ``message'' of the ILSA amendment proposals would be
received by the audiences it would reach. In key European and Asian
capitals, adoption of these proposals could lead to an extensive public
debate over the ``extraterritorial'' reach of U.S. sanctions. It would
be far better to keep the debate in those capitals centered firmly and
squarely on Iranian misbehavior and conduct.
We should be doing everything possible to strengthen the
unprecedented and expanding consensus we currently have in place. We
would be deeply concerned about any move, such as enacting the
problematic legislative provisions I have described, that would
undercut and complicate this diplomacy.
In a practical sense too, the situation that ILSA addresses has
changed markedly in recent years. Despite Iran's immense hydrocarbon
resources and the thirst for energy that today's high oil prices
reflect, foreign interest in investing in Iran's oil and gas sector
appears to be slowing, not accelerating. Major business and financial
publications have recently called attention to the perception of
heightened political risk that is now associated with doing business
with Iran. Some private banks have already decided to limit or cutoff
their dealings with Iran altogether, including UBS and Credit Suisse.
The OECD has recently downgraded Iran's credit rating for official
credits, raising the costs and risks for those considering investing in
Iran.
A number of factors have helped create this perception; but the
most important are perhaps Iran's being found in noncompliance with its
IAEA Safeguards Agreement, and the fact that an unprecedented
international effort is underway to deal with this threat, including
within the U.N. Security Council. There is also growing international
concern over the Iranian regime's support for terrorism, its brutal
repression of the rights of the Iranian people, and its aggressive
foreign policies and actions that threaten our allies and friends in
the region.
Iran's Pursuit of Nuclear Weapons
I would now like to outline in more detail steps the Administration
is taking to deny Iran a nuclear weapons capability; stop its
sponsorship of terrorism; blunt its aggressive regional ambitions; and
extend support to the Iranian people who suffer under the regime's
repression and economic misrule. Secretary Rice said on May 31 that the
vital interests of the United States and our friends and allies in the
region are at risk because of Iran's continued defiance of the
international community, and that the United States will act
accordingly to protect those common interests.
There is no doubt about Iran's determination to develop a nuclear
weapons capability. For 18 years, Iranian leaders pursued a clandestine
enrichment program and other undeclared nuclear activities that they
hid from the world, in violation of their international commitments and
obligations. The international community's serious concerns about
Iran's nuclear program led the IAEA Board of Governors to adopt a
resolution on February 4 that reported Iran to the U.N. Security
Council, a decision not only supported by the United States and Europe,
but also by Russia, China, Brazil, Egypt, India, and many others. In
response, the U.N. Security Council adopted unanimously on March 29 a
Presidential Statement calling on Iran to fully suspend all enrichment-
related and reprocessing activities and cooperate fully with the IAEA's
ongoing investigation. The world is still waiting for the Iranian
government to take those steps.
To underscore the U.S. commitment to a diplomatic solution, the
President authorized Secretary Rice on May 31 to announce that if Iran
fully and verifiably suspends all of its enrichment-related and
reprocessing activities, the United States will join the EU-3 (British,
French, and German) negotiations with Iran to give diplomacy the
greatest chance of success. This step would make possible the most
significant negotiations involving the United States and Iran in over a
quarter century.
On June 1, Secretary Rice agreed with our P-5+1 partners--France,
Germany, Russia, China, and the United Kingdom--on a reasonable offer
to the Iranian regime in the form of a package of positive and negative
incentives to end its pursuit of nuclear weapons. On June 6, EU foreign
policy chief Javier Solana conveyed to the Iranians the package on
behalf of the P-5+1 countries. The P-5+1 is presenting a clear choice
to the Iranian leadership--two paths that have vastly different
consequences for the Iranian people. On one path, the Iranian regime
would alter its present course by immediately resuming suspension of
all enrichment-related and reprocessing activities, as well as full
cooperation with the IAEA, and returning to implementation of the
Additional Protocol. This path would lead to real benefits and longer-
term security of the Iranian people, the region, and the world.
On the other path, the Iranian regime would maintain its pursuit of
nuclear weapons in defiance of the international community and its
international obligations. We and our international partners agree that
this path will lead to greater international isolation and
progressively stronger political and economic sanctions against Iran.
Sponsor of Terrorism and Regional Ambitions
A second critical U.S. and international concern is Iran's
continuing role as a leading state sponsor of terrorism in the world
and destabilizing role in Iraq, Afghanistan, Lebanon, and elsewhere.
Iran provides money, weapons, and training to Hamas, Lebanese
Hizballah, and Palestinian rejectionist groups--which undermines
prospects for Israeli-Palestinian peace.
The groups Iran supports are some of the world's most deadly
terrorist organizations, responsible for the killing of hundreds of
innocents, including Americans. Hizballah caused more American deaths
than any other terrorist organization until al-Qaida's attack on the
United States in 2001.
We see continuing--and deeply troubling--indications of Iranian
interference in Iraq, particularly its provision of weapons, training,
and explosives-related components to militants who target Iraqis and
Coalition forces in Iraq. We will continue to work closely with the new
Iraqi government to address these and all issues related to Iraq's
stability and security.
Iran also remains unwilling to render to countries of origin, bring
to justice, or provide information on, senior al-Qaida members it
detained in 2003. We call on the Iranian regime to immediately turn
over all al-Qaida related terrorists to appropriate jurisdictions, in
accordance with its international obligations under U.N. Security
Council Resolution 1267.
We have sanctioned Iran as a State Sponsor of Terrorism, and called
for the regime to abide by the requirements of U.N. Security Council
Resolution 1373 to deny safe haven to those who plan, support, or
commit terrorist acts, and to affirmatively take steps to prevent
terrorist acts by providing early warning to other states by exchange
of information.
We also continue to urge other governments--including the European
allies and Arab states of the Middle East--to press Iran on its support
for and sponsorship of terrorism, and on its generally threatening
behavior toward its neighbors. At the same time, we will continue to
work with our friends and allies in the region to strengthen their
defensive capacity, counterproliferation and counterterrorism efforts,
and energy security capabilities.
State of Iranian Democracy and Human Rights
As we work to end the threat posed by Iran's nuclear ambitions and
sponsorship of terror, we are standing with the Iranian people in their
aspirations for freedom. Iran is a vastly important nation and is home
to one of the greatest civilizations of the world. Iran has a rich
history, a vibrant culture, and has contributed much to civilization.
Through the centuries, Iranians have achieved distinction in medicine,
science, poetry, philosophy, and countless other fields.
Tragically, the hardliners in Iran have solidified their corrupt
hold on the regime and its people--culminating in last June's flawed
election of Mahmoud Ahmadinejad as its president. The regime's poor
human rights record worsened throughout 2005 and has continued to
deteriorate in the first half of 2006. Summary executions,
disappearances, use of torture, and other degrading treatment remained
a tragic reality. Juvenile offenders have been executed, and sentences
of stoning continue to be handed down.
The regime has arrested and tortured pro-democracy protesters.
Journalists and webloggers continue to be arrested and mistreated for
publishing their views. In February the Iranian regime answered the
pleas of Tehran bus drivers for better working conditions by sending
paid thugs to beat them. Journalist and political activist Akbar Ganji
spent nearly 6 years in prison for reporting on the murders of Iranian
dissidents and for his advocacy of a secular Iranian republic. The
Baha'i faith has been singled out for harsh treatment since before the
Iranian revolution and lately has become subject to a new round of
persecution, arrest, and harassment.
We oppose the regime's continued hostility toward its own people's
efforts to have their voices heard. It is important that the ability of
every person to criticize the government and contribute to the
country's debates about the future be respected--regardless of where he
or she lives. We are deeply saddened that this fundamental right is
denied to the people of Iran. This is why the United States--in
cooperation with the international community--is seeking to help
Iranians to bring about peaceful democratic change, so the Iranian
people can choose the government they want. They deserve no less.
We welcome Congress's partnership in this effort. For FY06--
including the supplemental budget--Congress authorized $76.1 million to
support the cause of freedom and human rights in Iran. This includes
$30 million for democracy and human rights promotion, $5 million for
educational and cultural exchanges, $5 million for public diplomacy
efforts, and $36.1 million for the Broadcasting Board of Governors'
Persian-language broadcasting. We greatly appreciate Congressional
support for this important priority.
Since FY04, with the support of Congress, we have awarded $4
million to programs that support civil society and nongovernmental
organizations. With the FY06 funding, we will expand outreach to
Iranians who have never experienced a democratic government that
respects the rule of law. We will foster development of respect for
human rights and religious freedom, promote greater understanding of,
and affinity for, Western culture and values, and provide the Iranian
people unbiased sources of information.
We also plan to augment professional, cultural, sports, and youth
exchanges to build bridges between our two nations. Our programs will
bring hundreds of new Iranian visitors--including teachers, religious
scholars, journalists, athletes, and musicians--to the United States.
We already reach out to Iranians through our Farsi language
website, which had over 100,000 visitors from Iran last month. In
addition, we plan to develop further cutting edge initiatives--what we
call e-Diplomacy--to promote active connections between Iranians and
Americans.
One such innovative outreach effort is our planned Virtual Gateway
program. Content on the Virtual Gateway sites will include scheduled
online chats with officials, academics, popular artists, actors and
musicians, information on educational opportunities, accurate
information about events inside Iran, and online consular services to
ease the process for Iranian visa applicants.
Additionally, we will work with the Broadcasting Board of Governors
to expand the quality and quantity of our Persian-language television
broadcasting into Iran to penetrate Iran's government-dominated media
in the short to medium term. While we look forward to the day when
Iran's behavior will permit us to have normal diplomatic relations, we
will not let this obstacle prevent us from reaching out to the Iranian
people in the meantime.
Conclusion
Let me conclude by thanking the Congress for the effort and
interest that you have devoted to Iran, and for your support. As we
move forward, we will need your help on a variety of fronts:
To continue to support the Administration as we seek to
stop Iran's pursuit of nuclear weapons, its support for
terrorism, its harmful meddling in the affairs of the region,
and end its repression of its own citizenry;
To help our friends and allies protect themselves from the
danger posed by Iran and the terrorists it sponsors and
harbors;
To reauthorize the Iran-related provisions in ILSA in their
current form. Doing so will facilitate the strengthening of the
broad global coalition that is already achieving real progress
in addressing Iran's nuclear ambitions; and
To remove references from the law to Libya--which is
meeting its international commitments.
We are under no illusions about the difficulties we face in
blocking Iranian ambitions in each of the areas I have outlined, and in
rolling back Tehran's dangerous policies. But we are resolute in our
determination to achieve a better, more democratic future for the
Middle East and greater security for U.S. interests across the world.
The challenge of dealing with an authoritarian Iranian regime has
become entrenched over the course of an entire generation, and it may
require a generational struggle to address it; but we have no choice
but to do so in a serious, committed, and effective way.
______
PREPARED STATEMENT OF PATRICK O'BRIEN
Assistant Secretary for Terrorist Finance and Financial Crimes,
Department of the Treasury
June 22, 2006
Chairman Shelby, Ranking Member Sarbanes, thank you for the
opportunity to address you today on a very important issue that
presents us with a tremendous challenge.
Iran is a state sponsor of terrorism that has demonstrated a
reckless intention to support, facilitate, and direct global terrorist
activity. In addition to its blatant sponsorship of global terror, Iran
intends to acquire weapons of mass destruction. Exacerbating an already
worrisome pattern of dangerous behavior was the election of hardline
Iranian President Ahmadinejad in June 2005. His provocative comments
about wiping Israel off of the map and Iran's continued activities to
destabilize the region and pursue a nuclear weapons capability have
heightened the world's concern.
We have been working very closely with our interagency counterparts
to consider these threats and develop an appropriate strategy to
confront them. Both terrorism and WMD proliferation require vast
support networks through which money and material flow. The Treasury
Department--working with its interagency partners--has unique tools to
address this potent mix of money, terror, and WMD, and has been
devoting considerable time and attention to addressing this Iranian
threat.
We are now in a particularly crucial moment. The United States, the
United Kingdom, France, Germany, Russia, and China have presented a
package of incentives and disincentives to Iran to resolve the problem
posed by the Iranian nuclear weapons program. As the President and
Secretary of State have said, we are dedicated to resolving this issue
diplomatically and will exhaust the diplomatic channel accordingly. But
if the diplomatic path is not successful, the international community
has a range of options to make clear that Iran's pursuit of nuclear
weapons will come at the cost of its own isolation.
I would like to provide an overview of the various threats posed by
Iran and the relevant authorities we have at Treasury, both with
respect to proliferation and terrorism, and with respect to Iran in
general.
The Threat Posed by the Iranian Regime
The scope of Iran's perilous activity is enough to warrant
significant concern. Iran's sponsorship of these activities is even
more troubling because of the vast resources it has to facilitate this
threatening conduct. Be it the spread of WMD, the funding of terrorist
and militant groups in Lebanon, the Palestinian territories, and Iraq,
Iran has the resources to invest substantially in violent projects. We
are working steadily with the interagency community, to target the
networks that move these funds and prevent them from abusing the
integrity of the world's financial system.
Nuclear Weapons Development and Missile Technology
There is now widespread understanding that the Iranian regime is
dedicated to acquiring a nuclear weapons capability, in addition to
other kinds of weapons of mass destruction capabilities and the means
to deliver them.
As a complimentary measure to the international diplomatic process
to press Iran to end its pursuit of nuclear weapons, the Administration
will continue to protect ourselves and our financial system against
companies engaged in WMD proliferation, including those facilitating
Iran's pursuit of WMD technologies. In June 2005, the President issued
Executive Order 13382, aimed at undercutting firms involved in
proliferation of WMD and their support networks. Proliferators traffic
in expensive and sophisticated technologies, and depend heavily on
international trade. The President's Executive Order authorizes us to
cutoff proliferators and their supporters from the U.S. financial
system and to encumber their international commerce.
E.O. 13382 authorizes the imposition of strong financial sanctions
against not only WMD proliferators, but also against entities and
individuals providing support or services to them. Designation under
this Order prohibits all transactions between the designated entities
and any U.S. person and freezes any assets the entities may have
located under U.S. jurisdiction.
Since June 2005, the U.S. Department of the Treasury has designated
six Iranian entities for their support of the proliferation of WMD and
their missile delivery systems, including Iran's pursuit of nuclear
weapons under the guise of a peaceful nuclear energy program:
The Atomic Energy Organization of Iran (AEOI), which
reports directly to the Iranian President, is the main Iranian
institute for research and development activities in the field
of nuclear technology, including Iran's centrifuge enrichment
program and experimental laser enrichment of uranium program,
and manages Iran's overall nuclear program.
The Aerospace Industries Organization (AIO), a subsidiary
of the Iranian Ministry of Defense and Armed Forces Logistics,
is the overall manager and coordinator of Iran's missile
program. AIO overseas all of Iran's missile industries.
The Shahid Hemmat Industrial Group (SHIG) is responsible
for Iran's ballistic missile programs, most notably the Shahab-
3 medium range ballistic missile which is based on the North
Korean No Dong missile. The Shahab-3 is capable of carrying
chemical, nuclear, and biological warheads and has a range of
at least 1500 kilometers. SHIG has received help from China and
North Korea in the development of this missile.
The Shahid Bakeri Industrial Group (SBIG) is an affiliate
of Iran's AIO. SBIG is also involved in Iran's missile
programs. Among the weapons SBIG produces are the Fateh-110
missile, with a range of 250 kilometers, and the Fajr rocket
systems, a series of North Korean-designed rockets produced
under license by SBIG with ranges of between 40 and 100
kilometers. Both systems are capable of being armed with
chemical and possibly other types of warheads.
The Novin Energy Company has transferred millions of
dollars on behalf of the AEOI to entities associated with
Iran's nuclear program. Novin operates within the AEOI, and
shares the same address as the AEOI; and
The Mesbah Energy Company is a state-owned company
subordinate to the AEOI. Through its role as a front for the
AEOI, Mesbah has been used to procure products for Iran's heavy
water project. Heavy water is essential for Iran's heavy-water-
moderated research reactor project, which when completed, could
provide Iran the capability to produce plutonium for nuclear
weapons.
Just this past week, we designated four Chinese companies and one
U.S. representative office, which supplied Iran's military and Iranian
proliferators with missile-related and dual-use components. No
reputable company or institution should be doing business with these
entities.
Support for Terrorism and Violence
Iran also actively sponsors terrorism and violence across the
Middle East. The Islamic Revolutionary Guard Corps (IRGC) and Ministry
of Intelligence and Security (MOIS)--both Iranian government bodies--
are directly involved in the planning and support of terrorist acts by
nonstate actors and continue to sponsor and train a variety of violent
groups that act as surrogates on Iran's behalf.\1\
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\1\ Country Reports on Terrorism.
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The Administration is or will, as appropriate, draw on all
instruments of national power to combat the very real threat posed by
Iran's sponsorship of terrorism. At Treasury, we are focused on the
support networks, trying to identify and sever the lines of support
that fuel terrorist activities. Stopping the money flows is
particularly challenging in this instance, as Iran draws upon a large
network of state-owned banks and parastatal companies, which is
difficult to penetrate and thwart. We are also hampered by the fact
that many of our key allies have yet to recognize Hizballah as a
terrorist organization. Nevertheless, there remain opportunities for
disruption, and we continue to pursue them vigorously.
Broad Sanctions Against Iran
At the Treasury Department, we have also been enforcing a set of
far-reaching sanctions against Iran that have been in place since 1995.
Pursuant to the Iranian Transactions Regulations, 31 C.F.R. Part 560
(the ``ITR''), Treasury's Office of Foreign Assets Control (OFAC)
administers commercial and financial sanctions against Iran that
prohibit U.S. persons from engaging in a wide variety of trade and
financial transactions with Iran or the Government of Iran. The term
U.S. person means any U.S. citizen, permanent resident alien, entity
organized under the laws of the United States (including foreign
branches), or any person in the United States.
The ITR prohibit most trade in goods and services between the
United States and Iran or the Government of Iran. U.S. persons are also
prohibited from dealing in Iranian-origin goods overseas or in goods
for export to Iran from third countries. Non-U.S. persons are
prohibited by the ITR from reexporting controlled U.S. origin goods to
Iran. However, the import and export of information and informational
materials to and from Iran is exempt by statute. In addition, the Trade
Sanctions Reform Act provides for specific licenses to be issued for
the export of certain agricultural products, medicine, and medical
devices to Iran.
Aside from the trade-related sanctions described above, the ITR
prohibit any post-May 7, 1995 investments by U.S. persons in Iran. U.S.
persons are also prohibited from facilitating transactions by third-
country persons that could not be engaged in by U.S. persons
themselves. Finally, the ITR prohibit U.S. persons from evading or
attempting to violate any of the prohibitions contained in the ITR.
OFAC also maintains in effect the Iranian Assets Control
Regulations, 31 C.F.R. Part 535 (the ``IACR''), which governed the
freezing of Iranian assets at the time of the hostage crisis. Pursuant
to the 1981 Algiers Accords, most Iranian assets in the United States
were unblocked and transferred to various escrow accounts. The IACR
remain in effect to facilitate the resolution of claims before the
Iran-U.S. Claims Tribunal in The Hague. Certain assets related to
claims before the Iran-U.S. Claims Tribunal remain blocked in the
United States and consist mainly of diplomatic and consular property.
Private Sector Reaction
Perhaps as important as governmental action is the response that we
are seeing from the international private sector to the Iranian
regime's destabilizing activities. As it witnesses firsthand the
disturbing direction in which the Iranian regime seems to be headed,
the financial sector has begun to reassess whether it is appropriate or
prudent to do business with Iran. The words and signals coming out of
Iran have led observers to worry about Iran as an investment arena and
have prompted reputable members of the international financial
community to curtail or cut ties with Iran altogether.
In the international banking community, UBS ceased its
activities with Iran. Credit Suisse announced that it would no
longer establish new business relations with Iran. ABN Amro and
HSBC have also curbed their dealings with Iran.
Energy firms Baker Hughes, ConocoPhillips, and BP PLC have
reportedly suspended dealings with Iran.
In May, the Organization for Economic Cooperation and
Development (OECD) downgraded Iran's credit rating for official
credits and now assesses Iran at the same level of risk as
countries with active insurgencies, such as Colombia and Sri
Lanka.
These are just the decisions that have been publicly reported.
Reputable institutions around the world are making quiet decisions to
cut back or sever their dealings with Iran, having decided that they do
not want to do business with this state sponsor of terror and
proliferator. We in the government can inform this process by
identifying specific threats that private firms might otherwise be
unable to detect and protect against.
Conclusion
We are in a critical moment with Iran now. The Treasury Department
along with all members of the U.S. Government, is lending its full
support to the State Department's work to bring about a successful
outcome to this recent round of multilateral efforts. In the meantime,
we will continue to use our tools and leverage to dismantle networks
that support terrorism and weapons proliferation, wherever they may be.
We can not afford to alleviate any pressure on sponsors of terrorism
and supporters of WMD proliferation, and we will continue to do
everything in our power to deny these networks access to the financial
system.