[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
TERRORISM, MISSILES AND CORRUPTION:
THE RISKS OF ECONOMIC ENGAGEMENT WITH IRAN
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
MAY 12, 2016
__________
Serial No. 114-180
__________
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER, California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE, Texas BRIAN HIGGINS, New York
MATT SALMON, Arizona KAREN BASS, California
DARRELL E. ISSA, California WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina ALAN GRAYSON, Florida
MO BROOKS, Alabama AMI BERA, California
PAUL COOK, California ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas GRACE MENG, New York
SCOTT PERRY, Pennsylvania LOIS FRANKEL, Florida
RON DeSANTIS, Florida TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina JOAQUIN CASTRO, Texas
TED S. YOHO, Florida ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida BRENDAN F. BOYLE, Pennsylvania
SCOTT DesJARLAIS, Tennessee
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan
LEE M. ZELDIN, New York
DANIEL DONOVAN, New York
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
C O N T E N T S
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Page
WITNESSES
The Honorable Juan C. Zarate, chairman, Financial Integrity
Network........................................................ 4
Mr. Mark Dubowitz, executive director, Foundation for the Defense
of Democracies................................................. 28
Ms. Elizabeth Rosenberg, senior fellow and director, Energy,
Economics and Security Program, Center for a New American
Security....................................................... 69
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Juan C. Zarate: Prepared statement................. 7
Mr. Mark Dubowitz: Prepared statement............................ 31
Ms. Elizabeth Rosenberg: Prepared statement...................... 71
APPENDIX
Hearing notice................................................... 106
Hearing minutes.................................................. 107
The Honorable Eliot L. Engel, a Representative in Congress from
the State of New York: Material submitted for the record....... 109
The Honorable Gerald E. Connolly, a Representative in Congress
from the Commonwealth of Virginia: Prepared statement.......... 111
The Honorable Michael T. McCaul, a Representative in Congress
from the State of Texas: Questions submitted for the record to
the panel...................................................... 113
TERRORISM, MISSILES AND CORRUPTION:
THE RISKS OF ECONOMIC ENGAGEMENT WITH IRAN
----------
THURSDAY, MAY 12, 2016
House of Representatives,
Committee on Foreign Affairs,
Washington, DC.
The committee met, pursuant to notice, at 10:07 a.m., in
room 2172 Rayburn House Office Building, Hon. Edward Royce
(chairman of the committee) presiding.
Chairman Royce. This hearing will come to order. When the
Obama administration was strong-arming Senate Democrats to save
its Iran deal, many promises were made. Central to the White
House storyline was the President's claim that sanctions on
Iran for terrorism, sanctions on Iran for human rights and
ballistic missiles ``will continue to be fully enforced.''
As many will recall, Treasury Secretary Lew said
unequivocally that ``Iranian banks will not be able to clear
U.S. dollars through New York, hold correspondent account
relationships with U.S. financial institutions, or enter into
financing agreements or arrangements with U.S. banks.'' He
testified, and I quote, ``Iran, in other words, will continue
to be denied access to the world's largest financial and
commercial market.''
But unfortunately, the administration's words have not
matched its actions. The administration has meekly responded to
Iran's provocative acts--thanks in part to the weak U.N.
Security Council language it agreed to on ballistic missiles.
And just one Iranian has been sanctioned for human rights
abuses since negotiations began. Just one.
Indeed, last month, a top Treasury official publically
proclaimed that non-nuclear sanctions would undermine the Iran
agreement. That is the opposite of what the committee was told.
If Iran objects, the administration bends over backwards to
accommodate. Effectively, the Supreme Leader now holds the veto
pen over future Congressional action.
Iran will keep pushing until the Obama administration stops
rolling over. Congressional pressure may have knocked the
administration off their plans--for now--to allow Iran access
to the U.S. dollar, which is the world's top currency, but the
administration refuses to rule out a future move. And in the
meantime, it is actively working other angles to push new
investment into the Iranian economy.
Secretary Kerry is in Europe this week taking the odd step
of reassuring foreign firms that Iran is, in his words, ``open
for business.'' Other administration officials go so far as to
say that Iranian economic growth is in our national security
interest. That is a tough case to make when you consider that
Iran's Islamic Revolutionary Guard Corps has been labeled
Iran's ``most powerful economic actor,'' and it was labeled so
by the U.S. Treasury Department. That is the terrorist IRGC
that they are talking about. The Iranian Revolutionary Guard
Corps is Iran's ``most powerful economic actor,'' according to
our Treasury Department.
The reality though is that the administration's pep talks
to international companies to spur investment in Tehran will be
viewed skeptically. For investment is like a rope. It can't be
pushed into a country that is corrupt, that holds international
businessmen hostage, that launches missiles marked ``Israel
must be wiped out.'' Rather it is pulled into countries that
are transparent, that respect contracts, and don't threaten
their neighbors. Banks want maximum certainty. And that just
won't be found in a country that ranks 130 of 168 on
Transparency International's corruption index.
And as we will hear today, a CEO's understanding of their
company's reputational risk is more powerful than any sanction
Congress could write. An international banker doesn't want to
end up on the wrong side of a transaction which unwittingly
funnels money to Iran's ballistic missile program. And the
designation of the entire territory of Iran as a ``primary
money laundering concern''--and that is the way we designate
it--means just that: Any financial transaction with Iran risks
supporting the regime's ongoing illicit activities.
Many of the restrictions left on Iran are intended to
protect our financial markets from such abuse. The
international organization charged with countering money
laundering worldwide declared this year that it is
``exceptionally concerned about Iran's failure to address the
risk of terrorist financing and the serious threat this poses
to the integrity of the international financial system.''
That is why my legislation to prohibit the administration
from allowing the U.S. dollar to be used to facilitate trade
transactions with Iran and which upholds Iran's designation as
a ``primary money laundering concern'' is so key.
Iran is still the world's leading state sponsor of
terrorism. Until it stops funding terror, until it stops the
illicit weapons program, it should be treated like the global
menace it is.
I now turn to the ranking member for any opening comments
he may have on our hearing today.
Mr. Engel. Well, thank you very much, Mr. Chairman. Thank
you for calling this hearing. And to our witnesses, welcome to
the Foreign Affairs Committee. We value your time and your
expertise, especially as the implications of the Iran deal
begin to unfold.
I was chuckling this morning that it occurs to me there's a
lot of Iran expertise on Capitol Hill today. We have a
Presidential candidate up here meeting with the Speaker who
told AIPAC about the Iran deal, ``I have studied this issue in
great detail. I would say actually greater by far than anybody
else.'' So perhaps he should be one of our witnesses, but I
would rather have all of you, the three of you today, instead.
When the details of the agreement were reached last year,
it appeared that when sanctions were lifted the Iranians would
receive a windfall to the tune of tens of billions of dollars.
Last month, Secretary Kerry said that Iran has only come into
about $3 billion as a result of sanctions relief. Now, I am not
losing sleep because Iran can't get its hands on huge sums of
money, but it is worth asking now that the deal is going
forward, why is Iran seeing just a trickle instead of a surge?
The explanation, as I understand it, couldn't be less of a
surprise. Banks don't want to do business with Iran. They
understand the risks. They see the same patterns of dangerous
behavior that the rest of the world has seen for years--an
illegal ballistic missile program, support for terrorist
groups, human rights abuses, corruption and money laundering.
So it is no wonder that the Financial Action Task Force,
what we call FATF, continues to designate Iran as a high risk
jurisdiction. Just like Iran's leaders, Iran's financial
institutions don't play by the same rules as the rest of the
world. As a result, international businesses and financial
firms want nothing to do with Iran.
So what does this mean for the deal? I certainly don't
think we should be making any concessions to Iran beyond the
scope of what is in the deal. As you know, I voted against the
deal. In my view, it is reasonable for the United States to
clarify what is against our law and what is not, what kind of
business transactions are now in bounds, and what kind of
activity might run afoul of other laws and sanctions.
But we have lived up to our end of the bargain. I didn't
like the deal, but I have no doubt that we will keep our word.
At the end of the day, if Iran's leaders are unhappy with the
reluctance of the global business community to play ball, they
have no one to blame but themselves. If Iran wants to shed its
pariah status, it needs to abandon the activities that led it
to isolation in the first place. Stop supporting terrorism.
Stop suppressing the human rights of the Iranian people. Stop
building ballistic missiles.
Incidentally, that is where our focus should be as well,
continuing to hold Iran's feet to the fire in all of these
areas. And I know the chairman and I have had many discussions
and we will hold Iran's feet to the fire.
Secretary Kerry told this committee last summer, ``We will
not violate the JCPOA if we use our authorities to impose
sanctions on Iran for terrorism, human rights, missiles, or any
other non-nuclear reason. And the JCPOA does not provide Iran
any relief from U.S. sanctions under any of these, of those
authorities or other authorities.'' That is a quote from
Secretary Kerry.
So when we see ballistic missiles with the words ``Israel
must be wiped out'' etched on the side in Hebrew from the
Iranians, when tens of millions of dollars go to Hamas to
rebuild its network of terror tunnels, when thousands of
rockets end up in Hezbollah's hands, when Iran continues to
prop up the Assad regime, Shia militias in Iraq and Houthi
fighters in Yemen, when we intercept ship after ship carrying
Iranian weapons, we need to consider whether we are putting
those existing authorities to their best use.
I look forward to hearing from our witnesses today about
what more we can be doing to compel Iran to change course away
from all these harmful and destabilizing actions. I look
forward to your testimony. Thank you, Mr. Chairman.
Chairman Royce. Thank you, Mr. Engel.
We have a distinguished panel before us this morning. Mr.
Mark Dubowitz is the executive director of the Foundation for
Defense of Democracies where he leads projects on Iran on
sanctions and nonproliferation. He is the author of 15 studies
examining economic sanctions, and we welcome him back to the
committee here this morning.
Mr. Juan Zarate is the chairman and co-founder of the
Financial Integrity Network. Previously, Mr. Zarate served as
the Deputy Assistant to the President and Deputy National
Security Advisor for Combating Terrorism. From Orange County,
California, Mr. Zarate was also the first ever Assistant
Secretary of the Treasury for Terrorist Financing and Financial
Crimes. Welcome again.
Ms. Elizabeth Rosenberg is a senior fellow and director of
the Energy, Economics, and Security Program at the Center for a
New American Security, and previously Ms. Rosenberg served as a
senior advisor at the Treasury Department.
So without objection, the witnesses' full prepared
statements will be made part of the record. Members are going
to have 5 calendar days to submit any statements or questions
or any extraneous material for the record. But what we would
encourage is for our witnesses to summarize their remarks. We
will start with former Assistant Secretary Zarate and then go
to Mr. Dubowitz and then Ms. Rosenberg.
STATEMENT OF THE HONORABLE JUAN C. ZARATE, CHAIRMAN, FINANCIAL
INTEGRITY NETWORK
Mr. Zarate. Chairman Royce, thank you very much for the
invitation to be here and the honor to testify before this
distinguished committee. Ranking Member Engel, thank you very
much as well. I am honored to be on this panel with two great
colleagues and friends, and so we are going to have a jovial
panel today. I respect Mark and Liz very much, so thank you
very much.
I also want to say, Mr. Chairman, my father and brother are
here visiting from Orange County, California, so I am very
proud that they are here to see you and to witness this, so
thank you very much.
And a final preambulatory statement here, I want to thank
you for your leadership and the leadership of this committee,
former leadership as well, Congressman Ros-Lehtinen, for issues
that don't often receive a lot of attention in the press.
Issues like Iran obviously do, but ending conflicts in Africa,
worrying about proliferation networks, worrying about arms
trafficking networks like those run by Viktor Bout are all
things that you have worried about for years and we have worked
on together, and I want to thank you for that commitment and
the work of this committee. It has been serious and important.
Chairman Royce. Thank you for your work in helping put
Viktor Bout behind bars.
Mr. Zarate. Thank you, sir. I appreciate that.
Well, let me now summarize some of the points of my
testimony. As this committee may be aware, when the JCPOA was
being debated and when I testified before the Senate I
expressed deep concerns and reservations about the structure,
demands, and effects of the nuclear deal on U.S. interests
especially in anticipation and the likelihood of increased
belligerence and adventurism from Iran. And as we know and we
have witnessed, this belligerence has continued and been
amplified.
Iran has conducted repeated ballistic missile tests in
violation of U.N. sanctions and promises further launches.
Qasam Soleimani, the Iranian general, head of the Quds Force,
traveled twice to Moscow, at least, in contravention of
international travel bans to coordinate military cooperation
with the Russian Government.
Iran remains the leading state sponsor of terror and has
continued its direct support to terrorist proxies throughout
the world from Hezbollah to Iraqi Shiite militias to the Houthi
rebels in Yemen. Iran has deployed shock troops to Syria to
fight for, die, and defend the Assad regime, with reports of
thousands on the ground. Iran has continued to engage in human
rights abuses internally. It continues to detain two Iranian
American citizens, and Robert Levinson missing from Kish Island
since March 2007 remains missing and unaccounted for. And on
January 12, 2016, we witnessed the Iranian naval forces
arresting 10 American sailors at gunpoint and broadcasting the
video of their detention in order to humiliate them and the
U.S. Navy.
Unfortunately these actions are not surprising and they
will continue. But more importantly, the nature of the regime,
its control of the economy, its willingness to use the
financial system to pursue all its goals, internally and
externally, has not changed either. The Iranian system is
corrupt, lacks transparency at all levels, and is centrally
controlled by the regime. This along with the uncertainty of
how the JCPOA, the nuclear deal, will unfold creates enormous
risk for legitimate international actors and companies
considering doing business in or with Iran.
This in part explains why there hasn't been a wave
legitimate Western businesses investing aggressively or
operating directly in Iran. The risks are real and they are
significant and they are under consideration, especially when
the IRGC remains in control of vast swaths of the Iranian
economy, when the banks have been misused to finance terror and
support the regime's causes, when the clerical regime controls
bonyads worth billions of dollars raising issues of kleptocracy
and corruption.
And there is no sign that the Iranians will stop using the
financial system for illicit purposes. In fact, the U.S.
Government and international bodies like the FATF have declared
the Iranian system's Central Bank as primary money laundering
concerns and reason to have high risk and posture toward their
activities.
So this complicated risk environment has dissuaded most
legitimate companies from doing business. There is the risk of
existing sanctions, secondary sanctions, remaining EU and U.N.
sanctions, the potential for enforcement not just by the U.S.
Treasury but by other authorities. Also, the fundamental fact
that there are financial risks that in 2016 are important for
financial institutions and businesses to take into
consideration. We are no longer simply worried about sanctions
risk in Iran. We are worried about other illicit financing
risks.
And certainly it appears that Iran has made it its business
and its strategy to force the United States and Europe to help
rehabilitate itself in the international system. This is
something that we predicted. Something I testified to,
something we had anticipated they would do and they have.
But the U.S. shouldn't fall into this trap. We shouldn't be
in a position of rehabilitating Iran. We shouldn't be sending
delegations around the world to explain how it is that we can
do business in Iran legitimately. We should not be undercutting
our authority by telling European businesses that they need not
listen to the regulatory policy or other actions of U.S.
Treasury or regulatory officials, quite the opposite. We should
be reinforcing the effect and reach and suasion of our
authorities around the world.
And certainly we shouldn't be giving Iran the accommodation
and the ability to use dollars in offshore clearing accounts.
Facilities that would give them something that certainly was
not negotiated in the deal but would also give them the benefit
of international trade and access to dollars. Certainly, not
when this remains the leading state sponsor of terror and,
under Section 311 of PATRIOT Act, a primary money laundering
concern.
Mr. Chairman, I also think we shouldn't diminish our
ability to use targeted unwinding as this negotiation unfolds
to benefit our strategic interests. For example, with respect
to the Iranian banks, as opposed to simply plugging them back
into the global system, we should have a system of strictly
monitoring what is happening in those banks so that we have a
monitored re-entry into the financial system allowing us both
to monitor what is happening in those banks, but also giving
reassurance to the financial system that we understand what is
happening in and through those institutions.
Finally, Mr. Chairman, I think the current state of affairs
reveals that there were some faulty assumptions about where we
were with the deal. The fact that our power was waning in terms
of the ability to use financial suasion and tools of exclusion,
that is not right. The fact that the deal would bring
diplomatic unity, a reward for good behavior, that is not
happening. The fact that the JCPOA would open channels for
discussions with Iran about these other activities, that is not
happening.
In short, Mr. Chairman, the aversion to the risks of doing
business in and with Iran will continue especially if Iran
demonstrates an unwillingness to stop its provocative and
dangerous activities. Iran will not be in a position to join
the international community completely if it does not
demonstrate clearly that it can engage as a trusted and
transparent actor in the financial system.
The onus to prove this should be on Iran's shoulders. Any
complaints about access to capital markets or investment should
be posed to the clerical regime. Iran has to decide whether it
will abide by international standards, norms and obligations,
and we shouldn't give them a free pass. Absent this, it will
remain risky business to do business in or with Iran. Thank
you, Mr. Chairman.
[The prepared statement of Mr. Zarate follows:]
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Chairman Royce. Thank you, Mr. Zarate.
Doctor?
STATEMENT OF MR. MARK DUBOWITZ, EXECUTIVE DIRECTOR, FOUNDATION
FOR THE DEFENSE OF DEMOCRACIES
Mr. Dubowitz. Chairman Royce, Ranking Member Engel, members
of the committee, on behalf of FDD and its Center on Sanctions
and Illicit Finance, thank you very much for inviting me to
testify today. And it really is a great honor to be testifying
with Juan and with Liz, whose work and whose service to our
country I greatly admire.
The nuclear deal with Iran provided Iran with a patient
pathway to nuclear weapons capability by placing limited,
temporary, and reversible constraints on its nuclear
activities. The deal and the interim agreement that preceded it
provided Iran with substantial economic relief to avoid an
economic crisis and return to a modest recovery path.
Iran's return to oil markets and the lifting of
restrictions in Iran's use of some $100 billion in frozen
overseas assets gave the regime badly needed hard currency to
settle its outstanding debts, begin to repair its economy,
rebuild its foreign exchange reserves, and ease a budgetary
crisis which, in turn, freed up funds for the financing of
terrorism and missiles.
Iran already has gotten significant economic relief. It
avoided an economic collapse. And Ranking Member Engel, I hope
we have an opportunity to talk about your comment on the $3
billion that Secretary Kerry made which, interestingly enough,
Glenn Kessler of the Washington Post, yesterday, gave that
claim two Pinocchios, so we should discuss why.
Now the nuclear deal did nothing to address Iran's missile
development, support for terrorism, regional destabilization,
human rights abuses, and all of these things have remained just
as problematic or in some cases have actually gotten worse
since the JCPOA was reached.
During last summer's congressional review period, the
administration pledged that the U.S. would continue to enforce
these non-nuclear sanctions and oppose Iran's dangerous
activities, and Iran has threatened that if these non-nuclear
sanctions are imposed it would walk away from the agreement and
snap back its nuclear program, something that I have called the
Nuclear Snapback in prior testimony.
Congress should reject this nuclear blackmail. It needs to
hold the administration accountable for the commitments that
they made to you. Sanctions against Iran's many malign
activities are clearly not a violation of the JCPOA as Iran
claims, but it is an affirmation of U.S. policy, actually as
Secretary Kerry himself has articulated when he said, ``We will
do everything to oppose Iran's destabilizing policies with
every national security tool available.''
But it sure doesn't appear that the administration is going
to stand behind its own policy. Since the nuclear deal was
reached, only nine individuals and nine entities have been
added to Treasury's sanctions list for all of Iran's ongoing
illicit activities, including missile tests. And the
administration has backed away from using the term
``violations'' instead of arguing that these tests are now
inconsistent with the U.N. Security Council Resolution 2231.
Nor are we likely to see action against human rights
abusers. Indeed, when President Rouhani was elected in June
2013, there was a widespread but incorrect assumption that he
was a moderate who would hail greater freedoms in Iran. But the
regime's domestic repression has only intensified. Since last
summer, the administration has not designated any individuals
or entities for human rights abuses, and only one individual
and two entities since Rouhani came to power in the summer of
2013.
And now the administration reportedly is considering this
new concession that again Iran did not explicitly negotiate as
part of the JCPOA. This is direct or indirect access to
dollarized transactions. This concession undercuts the
effectiveness of our entire non-nuclear sanction strategy,
which depends on the private sector's fear of the risks
involved in transacting with Iran. Allowing dollarized
transactions aids Iran's push to legitimize its financial
sector without ceasing the underlying terrorism proliferation,
missile financing, and related money laundering and sanctions
evasion.
The Iran deal turned the regime from a nuclear pariah to a
nuclear partner without having it come clean on its decades-
long rap sheet of illegal weaponization activities. And it is
important to understand that the regime is now seeking to
follow the same legitimization strategy with respect to its
illicit financial activity and human rights abuses. Iran should
not be allowed to gain international acceptance without
demonstrable changes in all of its dangerous behavior.
And it is important again to understand that this has to go
far beyond a mere exercise in checking the box on technical
requirements from the Financial Action Task Force relating to
money laundering and terror financing and it has to require
fundamental and substantive changes in behavior. As long as
Iran, for example, continues to fund Hezbollah, Iran should
never be legitimatized as a responsible financial actor.
Congress can maintain its leverage by strengthening and
implementing non-nuclear sanctions and by considering some of
the recommendations from my written testimony which I will
summarize very quickly. Number one, we need to protect the
integrity of the U.S. dollar from Iranian illicit financial
activity. We need to codify existing restrictions, require the
administration to report on financial institutions involved in
dollarization, and link these prohibitions to the end of
terrorism and missile development as well as compensation for
victims of Iranian terrorism. There is still $53 billion in
outstanding judgments.
Number two, designate the IRGC in its entirety under EO
13224 as a foreign terrorist organization; number three, impose
sanctions on the IRGC as well as sectors of the Iranian economy
that are involved in Iran's ballistic missile development;
number four, create an IRGC watch list to identify entities
below the threshold for being owned or controlled by sanctioned
entities; number five, expand these human rights sanctions to
protect the Iranian people. Six, to target corruption not only
for money laundering but also as a human rights abuse; and
number seven, push back against Iran's legitimization campaign
at FATF and elsewhere by exposing its threats to the global
financial system.
Let me conclude with this. Secretary Lew has argued that
sanctions are an effective instrument to address illicit
activities but they must be lifted when the illicit behavior
changes. This is a very important principle but it misses a
crucial detail. Iran has not addressed the underlying behavior
that prompted many of the U.S. sanctions in the first place.
Thank you for the opportunity to testify and I look forward
to your questions.
[The prepared statement of Mr. Dubowitz follows:]
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Chairman Royce. Thank you, Mr. Dubowitz.
Now, Ms. Rosenberg.
STATEMENT OF MS. ELIZABETH ROSENBERG, SENIOR FELLOW AND
DIRECTOR, ENERGY, ECONOMICS AND SECURITY PROGRAM, CENTER FOR A
NEW AMERICAN SECURITY
Ms. Rosenberg. Thank you, Chairman Royce, Ranking Member
Engel, and distinguished members of the committee. I appreciate
the opportunity to testify before you today on the risks of
economic engagement with Iran.
The Iran sanctions regime was and remains the most
comprehensive program of U.S. and international sanctions
commensurate with the grave security concerns regarding Iran's
nuclear proliferation activities, its regional destabilization,
ballistic missile programs, support for terrorism, and abuse of
human rights.
Many U.S. and international sanctions on Iran were waived
on implementation day, the milestone of the nuclear deal
recognizing Iran's completion of its major initial nuclear
commitments. However, the United States maintains sanctions
authorities relevant to Iran as part of the deal as well as a
wide array of sanctions on Iran outside the scope of the deal,
as mentioned by my co-panelists and yourself as well. The
existing architecture of Iran sanctions remains very powerful
and affords an enormous amount of leverage to pursue Iranian
security provocations and destabilization.
Following implementation day, there are various reasons why
Iran will expand its links to the international financial
system only very slowly. The cumbersome unraveling of nuclear
sanctions restrictions at banks and companies around the world
in order to engage in now permitted business with Iran is only
one factor. Remaining sanctions of Iran for its terrorist and
ballistic missile activities are a deterrent to those who would
contemplate business with Iran, along with prudential concerns
related to a history of corruption, a lack of transparency and
maneuverability for foreign firms in Iran's financial system.
Beyond remaining sanctions and Iran's self-imposed
financial troubles, its escalating regional provocations and
continued aggression through proxies make the specter of future
confrontation with its neighbors or the United States a real
possibility. Iran has the largest and most lethal ballistic
missile arsenal in the Middle East and has stepped up its
missile tests in recent months, again as has been mentioned. It
has also expanded its material support to the Houthis in Yemen
and continues to support other proxies that destabilize the
region, including President Assad and Hezbollah.
For reasons of political and security risk, the existing
sanctions, and the serious financial challenges associated with
attempting business in Iran, many global banks have made it
clear that they do not plan on doing business with Iran. The
banks and companies that will attempt it are generally moving
slowly with contracts and deals, and they are biding their time
to discover what market pitfalls or potential future sanctions
may mean for their business. And furthermore, many of the banks
that are doing so are regional banks with relatively smaller
capacity to handle trade and structured finance, and retail
services.
U.S. policymakers and European counterparts and others
should publicly identify Iran's self-imposed financial
problems. Doing so will make it clear to Iran and the global
community that Iran bears significant responsibility for
improving its own economic conditions and that the removal of
sanctions under the nuclear deal cannot independently deliver a
windfall to Iran.
The strongest and most credible strategy to highlight
Iran's need to improve its financial transparency and
accountability is for technical experts to point out the
problems in the anti-money laundering, counterterrorist
financing, counter-corruption, and prudential financial
stability domains that Iran must address. Additionally, such
experts should be encouraged and allowed, by license if they
are U.S. persons, to offer technical guidance to Iranian
financial institutions to conduct this work. This will support
U.S. policy interests in achieving greater transparency in the
Iranian financial industry, and it will clearly demonstrate
that the United States is not the roadblock to Iran's economic
reform. It could also help to reinvigorate private business in
Iran to better challenge the insidious control of the IRGC over
significant parts of the Iranian economy.
In pursuing Iran sanctions now and in the future, U.S.
policymakers must prioritize the important work of isolating
Iranian entities engaged in dangerous and illicit behavior
through aggressive implementation of existing sanctions
authorities, and they must balance this with educational
outreach to highlight Iran's self-imposed financial problems
and implementation of strategies to facilitate and encourage
remediation of these problems by U.S. or foreign experts.
Thank you for the opportunity to testify, and I look
forward to answering any questions you may have.
[The prepared statement of Ms. Rosenberg follows:]
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Chairman Royce. Thank you, Ms. Rosenberg. Thank you.
Mr. Zarate, the body that most everybody looks to when
considering these issues is the Financial Action Task Force
headquartered in Brussels. This is the body that is charged
with countering money laundering worldwide. And they have been
quite emphatic in their warnings on Iran, calling it a high
risk jurisdiction.
As a matter of fact, 2 months ago, 2 months ago, the
organization said it was exceptionally concerned about Iran's
failure to address the risk of terrorist financing and the
serious threat that this poses to the integrity of the
international financial system. But yesterday, a senior
Treasury official appeared to suggest Iran might receive an
improved rating from FATF, saying Iran should get credit for
trying to come off that list.
Is this a case of the U.S. working the refs? Are we beating
up on the referee here? How would Iran get off of the FATF
blacklist and do they deserve it?
Mr. Zarate. It is a great question, Mr. Chairman. The FATF
sometimes feels like a bit of a mysterious body to those who
haven't seen it work from the inside. But as you said, it is
the standard setting body. It is the assessment body that looks
at whether or not jurisdictions are abiding by international
anti-money laundering and counterterrorist financing systems.
That is a technical body. And in being a technical body they
look at the formulaic responses and activities of governments,
whether or not they have passed anti-terrorist financing laws,
whether or not they have suspicious activity reporting
requirements for their financial institutions, whether or not
they have regulatory bodies that are inspecting compliance
systems, et cetera. So there is a very technical dimension to
this.
Iran has been recalcitrant across the board. They have not
engaged the FATF, they obviously don't have these kinds of laws
and practices, and they clearly are a state sponsor of terror.
So this is precisely why FATF for a number of years has held
them to be a jurisdiction of high risk and has called on
jurisdictions around the world to inform their financial
institutions that Iran is highly suspect.
What Iran has figured out though, Mr. Chairman, is that
this is a body that can be engaged with and is open to being
engaged with, and we should, I think, be open to that as well.
But the challenge here is what reforms are we asking of Iran?
Are they simply paper reforms that are not meaningful and don't
address the real risks behind what Iran is doing?
And I think this is going to be a challenge for FATF,
because FATF, I think, wants to engage, and the U.S. Treasury
wants to engage this process, but we certainly don't want to
give Iran a free pass. And I don't think my former colleagues
at the U.S. Treasury are going to whitewash this because they
believe fundamentally in issues of financial integrity and
protecting the international financial system. The real
question here is will Iran game the system, and we should not
allow that to happen.
Chairman Royce. But Mr. Zarate, Secretary Kerry is in
London this morning. He and his British counterpart are meeting
with the European bankers. There is a piece in the Financial
Times about how the bankers are pushing back, British major
institutions saying we don't want to invest there in Iran. They
spoke of bridging a gap between the political intention of the
agreement and how the banks are reacting. And Secretary Kerry
noted that as long as banks do their normal due diligence and
know who they are dealing with then there won't be issues.
But isn't the point of the international warnings on Iran
and the Treasury's designation of the entire country as a
jurisdiction of ``primary money laundering concern,'' isn't
that sending the message that due diligence can't even be done
in this environment because of the corruption inside of the
country and the system? The IRGC is nationalized. Most of the
major businesses are in the hands of the Iranian Revolutionary
Guard Corps.
Mr. Zarate. Mr. Chairman, you have it exactly right. And
this is the fundamental tension in the JCPOA, which is an
agreement in which we promised the reintegration of Iran into
the global financial and commercial system without demanding
the change in the underlying conduct that has been the basis of
their financial isolation. And I think what is happening now is
the delta between that strategy of financial isolation for all
of the things that Iran does, from terrorist support to
ballistic missiles to the nuclear program, the nuclear issues
are now off the table but those other issues were not on the
table.
And so the challenge here is we have a system and a set of
sanctions and a set of international requirements, by the way
U.S. requirements, that have become global norms. The global
norms are U.S. standards that demand a change in conduct and a
change in behavior and at a minimum require Iran to demonstrate
that it is a legitimate actor in the system. That we can know
what it is doing with its financial system, that we know the
source of funds, that we understand the actors in the system.
In fact, the Treasury just this past week in the wake of
the Panama Papers has put out new regulations about customer
due diligence which heightens the standards around beneficial
ownership and what we should know about with whom we are
transacting and what we are transacting in. That goes doubly
and triply for Iran.
And so I haven't seen the full remarks of the Secretary,
but I would say that it is a bit dangerous to suggest that all
you have to do is engage in normal due diligence when talking
about Iran, its behavior, and its history of using its
financial and economic system for all of the nefarious conduct
that they have been sanctioned for.
Chairman Royce. Well, let me go to Mr. Dubowitz for a short
answer here too, because I mentioned in my opening statement
that we have had some success for now in pushing back on the
administration's plans to allow Iran access to the U.S. dollar.
But what is Iran's goal in getting access to the dollar? Is it
the ease of doing business or is Iran seeking to get the stamp
of approval in international financial markets without making
the changes to its banking practices or underlying behavior
which is transferring money directly into its missile program,
the terrorism it funds, and so forth?
Mr. Dubowitz. Well, Chairman Royce, it is both. I mean,
Iran wants access to the U.S. dollar because the U.S. dollar is
the global currency. It is responsible for something like 87
percent of global trade, 60 percent of foreign exchange
reserves, and 40 percent of international financial
transactions. On the other hand, Iran was actually getting paid
for its oil under sanctions using euros and yens. So it is
possible for Iran to actually transact internationally without
access to the U.S. dollar, but the real reason they want access
is exactly that. It is a stamp of approval. It is part of the
legitimization strategy. It is to do what they did on the
nuclear side. We are not going to come clean on our
weaponization, but we are going to become a nuclear partner and
a respectable international nuclear power. We are going to do
the same thing on the financial side with the dollar.
Chairman Royce. Thank you, Mr. Dubowitz.
Mr. Engel.
Mr. Engel. Thank you, Mr. Chairman. Last year, when the
agreement with Iran was announced, we were told that because we
were removing sanctions on Iran for its nuclear program it
still did not preclude us from having sanctions on Iran for the
other things they do--support of terrorism, ballistic missiles,
whatever.
The President wrote to our colleague Congressman Nather
last summer during the consideration of the nuclear deal with
Iran, and the letter said and I quote, ``Critically I made sure
that the United States reserve the right to maintain and
enforce existing sanctions and even to deploy new sanctions to
address those continuing concerns which we fully intend to do
when circumstances warrant.''
I would like your opinion about what additional authority
does the administration need now to crack down on Iran's
terrible behavior? Would new non-nuclear sanctions violate the
terms of the nuclear deal? Does the President have the
authority now, enough authority now to go after Iran for
terrorism or for ballistic missiles, or would Congress need to
pass a law to give the President the authority?
Mr. Dubowitz.
Mr. Dubowitz. So Ranking Member Engel, I mean, the
President has always had the authority under IEEPA to use
executive orders to do whatever he wants with respect to Iran.
But I think as Congress realized over the past at least decade
those authorities were insufficient without Congress playing an
important role in passing statutes that actually sent a clear
message to the international business community that if you did
business with Iran and you did business with designated
entities that there would be secondary sanctions that would
have a very powerful impact on your ability to then transact
globally and particularly with the United States.
And I think it is critical to understand that Congress
needs to play that role going forward with respect to non-
nuclear sanctions. And one example would be on the ballistic
missile side that you mentioned. I mean, it is absolutely clear
there are seven, eight sectors of Iran's economy that are
providing key technology and parts and components to Iran's
missile program.
Now does the President have the authority to designate
those sectors of the economy? He does under existing EOs, but I
think Congress can play a very important role in holding the
administration's feet to the fire on identifying what sectors
are playing a key role in Iran's ballistic missile program, and
then imposing secondary sanctions on any foreign entities that
are doing business with those sectors.
Mr. Engel. Thank you. Mr. Zarate, do you agree?
Mr. Zarate. Absolutely. What is interesting, Congressman,
is that not only is there the patchwork of Iran's sanctions
related legislation and sanctions that Ms. Rosenberg talked
about, but there is also a whole suite of executive orders
based on IEEPA that go to the underlying conduct that we are
worried about with respect to Iran. I will just give you a
quick list.
Terrorism, Executive Order 13224; drug trafficking,
multiple executive orders; proliferation finance signed by
President Bush in 2005; the cyber executive order signed by
President Obama, April 1 of last year; the transnational
organized crime executive order; human rights related elements
of IEEPA provisions; the Syria sanctions in executive order;
the Yemen executive order.
So you go down the line in terms of all of the conduct that
we are worried about with respect to Iran, not only does the
administration have the existing authority based on Iran
legislation and Iran sanctions but you also have the ability to
affect the underlying conduct based on the way we have applied
sanctions aggressively over the last 15 years. It also
underscores why the question of Iranian conduct is so
important, because we have built the sanctions program that has
been so effective on Iran and other targets of these measures
around the underlying conduct that they are engaged in. And if
they are not changing their behavior they remain subject to
those sanctions as well as the international program.
So my answer to you is we have existing authorities. The
administration has plenty of authority with which to work. And
to Mark's point, I think Congress' role, I think, is to help
clarify the lines of where that authority is and, frankly,
where the threats still lie from Iran.
Mr. Engel. Thank you. Ms. Rosenberg, you warn against
limitations, and I quote you, that could ``undermine the
attractiveness or primacy of the U.S. financial system and the
dollar as a reserve currency.''
So let me ask you, what are the risks to the U.S. financial
system if oil trade were to be done in, say, euros instead of
dollars? With the amount of dollars in circulation compared to
euros or other currencies it is even possible to shift to other
currencies? And finally, what would be the impact of
restrictions on the use of the dollar on the two U.S. clearance
systems, which are Fedwire and CHIPS, and U.S. surveillance of
financial flows?
Ms. Rosenberg. Thank you for the question. It is hard to
contemplate the trade of oil not in dollars. It is a massive
market, it is highly liquid, and it is overwhelmingly done in
the dollar. And even though conversation about de-dollarizing
oil transactions has been ongoing for quite a long time, it is
difficult to think how that would occur. If, however, there was
a substantial amount of oil trade that did occur not in the
U.S. dollar it would of course reduce the amount of flow
through U.S. clearing mechanisms, financial institutions of
course, which reduces the amount of activity and revenue they
can collect there.
And also, in addition to physical trade in oil, there is
also a tremendous market in what is called paper trade or
financial trade, sometimes called speculative trade, in oil
that occurs around the physical trading. It occurs mostly in
the United States because oil is denominated in dollars, and
that business represents a huge amount of commerce that would
not be in the United States if a majority or a significant
amount of trade moved to a different currency and was therefore
cleared in a different jurisdiction.
And that is something that as a key global commodity, as a
major global commodity market, should be of interest and
concern for people who watch markets, market activity, and the
opportunity for raising business in the United States.
Mr. Engel. Thank you.
Ms. Rosenberg. Essentially, the same is true when you are
thinking about foreign exchange transactions or other dollar
clearing for those U.S. platforms that clear that in the United
States.
Mr. Engel. Thank you very much.
Chairman Royce. We go to Ileana Ros-Lehtinen of Florida.
Ms. Ros-Lehtinen. Thank you so much, Chairman Royce, and
thank you for your continued efforts to highlight the dangers
of the Iranian nuclear deal and the many ways in which the
administration has and continues to deceive Congress and the
American people when it comes to implementing this agreement.
It seems every week there is a new revelation that was
previously undisclosed or some new concessions that the
administration is offering to the regime that were not part of
the agreement.
Every time Iran threatens to walk away from the deal over
perceived slights, the administration caves to Iranian demands.
And the regime knows that it can continue to use this tactic
and get what it wants because President Obama is intent on
maintaining this weak and dangerous deal even if it means
allowing the Iranians to undermine the intent and the letter of
the JCPOA.
Now we are hearing the administration backtracking on
claims that it would not allow Iran access to the U.S.
financial system and is actively working to ensure that Iran
does indeed get its sanctions relief and that was not part of
the deal. So how would the administration go about giving Iran
access, either direct or indirect access to the U.S. dollar and
our financial system, and what would that access mean for
Iran's coffers?
And turning to the IRGC, we know that the IRGC controls a
large portion of the Iranian economy, owning the country's
largest construction company, its main telecommunications
company, and controlling as much as 25 percent of the Tehran
Stock Exchange. It controls and owns banks. The officials sit
on and control the boards of private companies and it is the
primary player in Iran's infrastructure and increasingly its
energy sector.
We know that the IRGC is largely responsible for the
development of Iran's ballistic missile program as well as
overseeing the Quds Force, the asymmetric war and terror
operators who are responsible for the deaths of hundreds of
American servicemen and women and countless other individuals
worldwide.
What sort of impact would Iran getting access to our dollar
and financial system have on the IRGC and the Quds Force? Why
has the administration not designated the IRGC as a foreign
terrorist organization? And more importantly, what do you
suggest, what steps could we take to limit the IRGC's financial
growth, and what impact would Iran getting access to the U.S.
dollar have on its ballistic missile program, its support for
Hezbollah, et cetera?
Lots of questions, you can answer any one of them. Thank
you, ladies and gentlemen.
Mr. Dubowitz. So Congressman Ros-Lehtinen, thank you for
those questions. First of all, the way the administration would
give access to the U.S. dollar, it is important to understand
that the administration is committed not to give Iran access to
the U.S. financial system, and that Treasury officials have
been very clear that that means u-turn transactions to the U.S.
financial system.
My concern is that they are going to give dollarized
transactions. They are going to give access to the U.S. dollar
offshore. And why this is important is because getting access
to the U.S. dollar means that it facilitates international
financial transactions. So most importantly, it actually again,
as Chairman Royce said, it is a stamp of approval on Iran. It
is part of their legitimization strategy. They can say, if the
United States of America is green-lighting the greenback, then
FATF shouldn't have us on the blacklist. Sorry to throw out so
many colors.
But that is their strategy, their financial legitimization
strategy. And this really benefits the IRGC which ultimately is
not going to work directly through designated IRGC entities. It
is going to work through cutouts and front companies, and those
cutouts and front companies are going to be controlled by the
IRGC either through share ownership or boards of directors, and
they are going to be able to use the U.S. dollar.
Ms. Ros-Lehtinen. I will give just 1 minute to anyone else
who would like to----
Ms. Rosenberg. Can I respond? As a point of clarification
it is not practically possible to do a lot of dollar activity
in large transactions, or a large number of transactions,
outside of the U.S. financial system without using a U.S.
financial institution. That is because at some point those
dollars need to be cleared through a U.S. financial system. It
is impossible not to. Possibly you could aggregate them over a
period of time, but even as an omnibus clearing activity that
would occur.
Ms. Ros-Lehtinen. Thank you. Mr. Zarate, you have got 30
seconds. Thank you, ma'am.
Mr. Zarate. I think one of the dangers, Congresswoman, is
that you incentivize systems to actually be created. So even if
there aren't existing sort of volumes in systems, you actually
incentivize actors to create offshore dollar clearing systems
to facilitate IRGC activity, and frankly then allow them to
hide some of their activity even further.
One really important point here, too, is if we allow this
concession in the context of the spirit of the deal, we will be
conceding that access to the dollar is actually a part of the
nuclear sanctions related relief.
Ms. Ros-Lehtinen. Thank you.
Mr. Zarate. That then doesn't allow us to use non-access to
the dollar as a tool for all the other activity that is
important.
Ms. Ros-Lehtinen. Good point. Thank you, Mr. Chairman.
Chairman Royce. Congressman Brad Sherman from Los Angeles.
Mr. Sherman. We have to straighten out the difference
between being pro-Iran deal, and there are many reasonable
people who have taken that position, and pro-Iran. And those of
us who criticize the Iran deal, can it not create a political
circumstance where the defenders of the deal feel they need to
not only defend the deal, which can be done with some
credibility, but to defend Iran?
And what we should be talking about is to demand full
compliance with the deal and ourselves not over-comply and give
to the Iranians more than they bargained for. There are, of
course, those in the United States who would take military
action against Iran, and those who are repelled by the idea of
military action in general and specifically in the Middle East.
That does not mean that letting Iran do what it wants ought to
be the position of liberals and others whose instinctive belief
is peace. Iran is taking its thugs to Syria and killing people
by the hundreds every week, and those who believe in peace have
to realize that they have no allies in Tehran.
Energy prices, the current global decline has led to a
significant pullback in investments in energy worldwide. For
global energy companies what are the factors guiding their
decisions on investing in Iran? Can Iran offer itself as an
attractive place to invest at a time when you cannot be assured
of getting more than $30 for a barrel of oil? Ms. Rosenberg.
Ms. Rosenberg. Can I respond?
Mr. Sherman. Yes.
Ms. Rosenberg. Yes, thank you. Iran is an interesting case
for large international companies, and particularly for
independent companies, not nationally owned companies. They
need to replace their reserves. They are looking for big, good
opportunities to seek the opportunity to produce. Iran is one
such place if you look at it from the perspective of its
geology, the lack of technical difficulty in being able to
produce the oil.
Mr. Sherman. What is the lifting cost of Iranian oil?
Ms. Rosenberg. In the single digits. In the single digits,
so by comparison to much U.S. production which is not
economically liftable today under an oil price in the mid-40s
and higher.
Mr. Sherman. Got you.
Ms. Rosenberg. So this is in the world amongst the lowest
global prices for lifting. Nevertheless, the difficulty, by
comparison to the ease in the geology and the lifting costs, is
the difficulty in making contracts with the Iranian Government.
The IPC, their contract, hasn't been finalized yet. They can't
agree on it. That is an immediate problem. Additionally, making
payments, sourcing equipment, there are incredible----
Mr. Sherman. Is there anything we can do to make it even
harder other than fuel efficient automobiles and low oil usage?
Ms. Rosenberg. It is harder even then--yes, it is harder
even then what I mentioned too.
Mr. Sherman. Rather than describe how hard it is, do you
have any suggestions for making it even harder?
Ms. Rosenberg. For them to produce? There is----
Mr. Sherman. And to get oil companies to invest.
Ms. Rosenberg. There is nothing that the U.S. Government
could do more powerful than the collapse in oil prices which
have shut global oil companies out of sanctioning any kind of
major energy project anywhere in the world.
Mr. Sherman. Does anybody have any suggestions as to,
obviously we can't match the decline in oil prices, but any
suggestions as to how we can make it tougher? Mr. Dubowitz.
Mr. Dubowitz. Well, one of the things that I think would be
interesting, actually, is to look at the Saudis and other Gulf
countries and let them use their enormous economic leverage to
put international companies to a choice between doing business
in Iran's energy sector or doing business in their energy
sector. I mean that would be market based economic and
financial warfare that would have nothing to do with sanctions.
It would have to do with economic leverage being used by the
Saudis----
Mr. Sherman. I want to go on to aircraft. Obviously IranAir
is in a position to buy American aircraft. That was a bad part
of the JCPOA. But Mahan Air is still designated as a terrorist
organization. I hope colleagues here, well, you will be
receiving a letter from me soon about urging the EU to
designate Mahan Air under its terrorism sanctions, and of
course to urge the Ukraine, which is seeking so much American
support, to not allow Mahan Air to land in Kiev. With that I
will yield back.
Chairman Royce. Thank you. Thank you, Mr. Sherman. We go
now to Mr. Joe Wilson.
Mr. Wilson. Thank you, Mr. Chairman, and thank you for
having witnesses here on such an important issue. And it is
somewhat startling, I think the American people need to know
the threats that are still coming out of Iran and the threats
to American families, and somehow an agreement that really
just, I think, promotes it obviously with the funding. And Mr.
Dubowitz in particular I want to thank you for your service as
executive director of the Foundation for Defense of
Democracies. You make a difference promoting freedom worldwide.
And Mr. Dubowitz, with the talk surrounding the
administration's decision to purchase heavy water from the
Iranian Atomic Energy Organization, I want to note that the
last facility to produce heavy water domestically was at the
Savannah River site in Aiken, South Carolina. Nearly all of the
commercial nuclear reactors in the United States use light
water, and the purchase of 32 tons of heavy water from Iran
represents nearly half of the United States' total imports of
this material which usually comes from our great allies, Canada
and India.
I appreciate Chairman Ed Royce, who has questioned this
purchase, inquiring what guarantees there are that the money
wouldn't be used to promote and fund terrorism. Mr. Dubowitz,
are there any guarantees at all?
Mr. Dubowitz. None at all. There are none at all. And the
other thing that is remarkable is that we are actually paying
the Iranians to perfect their ability to produce heavy water so
that when all the restrictions on heavy water production
reprocessing and the plutonium pathway to nuclear weapon go
away over time the Iranians will actually have all of that time
funded by us in order to perfect the essential element of a
plutonium bomb, so I don't know why we are facilitating that
and paying for that.
Mr. Wilson. And thank you for being so clear. And the
American people need to know this, and to me the whole thing is
bizarre, and how in the world we got to this place. And then
Mr. Zarate, your testimony too has been so insightful and
clear. Thank you. Sometimes diplomats come across a bit
obfuscating.
There are a number of senior Iranian officials that are
complicit in human rights abuses, brutal treatment of the
Iranian people. The administration has not sanctioned
individuals such as Iran's interior minister or the head of
judiciary. Has there been any change in Iran since the deal was
agreed to?
Mr. Zarate. None. None that is visible. None that has been
demonstrated. There has been a lot of hope in the parliamentary
elections, but that I think is a bit of a false hope. And we
have seen none of those detained including the leaders of the
Green Movement, those individuals remain detained. And I think
we have bent over backwards both through the negotiating
process and even now to not appear to be instigating or
aggravating the Iranians, and I think that has muted our voice
whether at the start of the Green Movement or even now.
Mr. Dubowitz. Congressman, if I could just add to that.
Mr. Wilson. Yes.
Mr. Dubowitz. 2015 was a record year for executions in
Iran. The human rights situation has gotten worse not better.
That is not me saying that, that is Ahmed Shaheed, the U.N.
Special Rapporteur on Human Rights. And yet the administration
as I said, since Rouhani came to power in 2013, they have only
sanctioned one individual and two entities for human rights
abuses.
What is the rationale for not imposing human rights abuses
on the instruments of repression and the individuals who are
engaged in these human rights abuses? If the administration is
serious about non-nuclear sanctions and serious about
protecting the American people, why has it been so remiss in
using its existing authorities on human rights abuses?
Mr. Wilson. And I thank both of you for referencing the
Green Movement. The people of Iran deserve better, and so thank
you for promoting that. And Mr. Dubowitz, and back right on
point what you said, instead of the administration trying to
encourage companies to do business with Iran, shouldn't the
focus be on cracking down on corruption which is robbing the
Iranian people? And what is Iran's current involvement with
terrorist groups?
Mr. Dubowitz. Well, again Iran is the leading state sponsor
of terrorism. They support Hezbollah. They support Hamas. They
support designated Iraqi Shiite militias, and they are
obviously involved in the slaughter in Syria. And I think your
point on corruption is exactly right. I mean, corruption is a
human rights crime as well. Dictators use the fruits of
corruption in order to both keep power and as instruments of
repression.
And I think that is something that actually has been widely
acknowledged by the U.S. Government and by Assistant Secretary
Danny Glaser in a number of speeches, and that corruption needs
to be addressed through existing authorities. And if existing
authorities are insufficient and clarification is needed,
Congress needs to make it clear that corruption is not only a
money laundering concern but it is a human rights concern, and
actually crack down on those individuals involved in
corruption.
Mr. Wilson. And again, as we conclude, thank you, all three
of you, for raising these issues that are so important to
American families.
Chairman Royce. Mr. David Cicilline from Rhode Island.
Mr. Cicilline. Thank you, Mr. Chairman. Thank you to our
witnesses. The argument was advanced during our consideration
of the JCPOA that successful implementation of the agreement
with rigorous enforcement to ensure full compliance of the deal
would put us in a stronger position to push back on Iran, and
now a non-nuclear Iran and the other areas. And there were even
predictions from many we heard from that there would be likely
an increase in their nefarious and thuggish behavior as a
response to the more extreme parts of the regime after the deal
was struck as a way to sort of reassure them that they were
still in control. And I think based on the testimony today and
my own reading that is what we are seeing, an additional
destabilizing activity.
And so my first question, really, is do we read anything
out of the election and the runoff election results in April?
Some have suggested that there is some evidence that the
reformers have made some progress and that that bodes well for
the future. Can anyone comment on whether we should read
anything into the election results?
Mr. Dubowitz. Well, I think, first of all, it wasn't an
election. It was a selection. Over 90 percent of reformers were
disqualified from running. The lists that were actually
assembled for the parliamentary elections were lists where
hardliners were included as moderates. So it was a great
marketing job, but it didn't fundamentally change the power
structure within Iran.
And I think if we have learned anything from the
revelations on Ben Rhodes, the U.S. Government and the U.S.
intelligence community doesn't believe that the Iranian regime
is moderate in any way and doesn't believe that Rouhani is a
moderate, and so that this whole moderate theme has maybe been
a fiction of our imaginations rather than an accurate
description of the interfactional power balance within the
Iranian Government.
Mr. Cicilline. So are there----
Ms. Rosenberg. If I could add to that.
Mr. Cicilline. Sure.
Ms. Rosenberg. It is true that these most recent elections
are notable for trying to test the wind, if you will, in Iran
and what is happening with the popular sentiment. Nevertheless,
the upcoming Presidential election for Rouhani may be a better
sign post to us. So we don't have that data yet, we won't for
quite awhile until his election, he stands again for election.
But that may be a better sign for us about the popular
sentiment and the control of the Supreme Leader over that
Revolutionary economy.
Mr. Cicilline. Thank you. And I would ask each of the
panelists, are there any risks that you see to passing new
sanctions even if they are outside the JCPOA? Does the
administration need additional authority or is it just not
using the authority it currently has? And maybe you answer that
first and then I have a follow-up question. Yes.
Ms. Rosenberg. Right. So the administration does not need
additional authorities. Mr. Zarate went through a number of
authorities that the administration does have from support to
Syria, Yemen, transnational organized crime, cyber,
proliferation, terrorism. That covers a huge scope, and
furthermore, there is the opportunity for iterations of those
through various prongs within them for derivative designations.
The danger that comes from additional sanctions is if there
is an opportunity to set up statutes or language, definitions
that don't match creating confusion for the private sector. As
was mentioned previously, I have warned about the concerns of
diminishing the attractiveness of the U.S. dollar. That great
power we do have that was spoken of by Mr. Dubowitz as well.
And to the extent that we support and care about the
proliferation security gains that have been accomplished in the
nuclear deal, if imposing additional sanctions that reimpose
sanctions that were lifted occurs and it undermines the deal,
that could be a tremendous setback for proliferation security
concerns.
Mr. Cicilline. Mr. Dubowitz?
Mr. Dubowitz. Yes, if I could just make a quick comment.
And we heard this debate for 10 years. Congress heard this
debate from the administration, that they had all the existing
authorities that they needed, but you still passed CISADA and
ITRSHRA and IFCA and NDAA. So I think that this argument has
been a longstanding argument.
I think what Congress has realized is that A, you can
impose secondary sanctions, which are a very powerful way to
complement the executive orders; and B, through reporting
language and clarification language you can begin to hold the
administration accountable for its commitments to impose non-
nuclear sanctions, which again are not a contravention of the
JCPOA, but as Secretary Kerry said they are very much
consistent with using all national security tools against
Iran's destabilizing behavior.
So again, Congress has played a critical role in the Iran
debate and I think Congress can continue to do so through new
statutes.
Mr. Cicilline. Yes, sir.
Mr. Zarate. Congressman, I think Congress acts and the
administration acts with great authority when the sanctions are
based in fact, based on real activity of concern, and certainly
are in furtherance of not just U.S. law but international
norms. If the sanctions appear to be arbitrary and capricious
and simply reimposing prior sanctions or capriciously targeting
individuals because we don't like them, that is problematic. I
think when there is actual substantive concern about the real
risks and those have been identified by both Congress and the
administration that is incredibly powerful and frankly can't be
disputed.
And one final point here, you know, Iran has emerged out
from under many of these sanctions into a new world of
heightened expectation for global financial transparency. They
are starting at a very low bar. We should do everything
possible to force them to the standards that now exist in 2016,
because those are very real standards and they are very real
risks if they don't meet them.
Mr. Cicilline. Thank you very much. Thank you, Mr.
Chairman, I yield back.
Chairman Royce. Thank you. We go now to Jeff Duncan of
South Carolina.
Mr. Duncan. Thank you, Mr. Chairman. Thanks for this
hearing. You know, how can anyone in America trust anything
that the administration says at this point? They misled the
American people about the Affordable Care Act. They misled the
American people about the attacks in Benghazi and the
motivation behind those attacks. They misled the American
people about the IRS' targeting of conservative groups. And now
we see they have misled the American people over the Iran deal
as evidenced by Ben Rhodes' comments and the New York Times
article this week, confirmed in the Washington Post article
where the administration pushed a certain narrative. Misled not
only the American people, misled the media who in turn misled
the American people. And even White House spokesman Josh
Earnest couldn't find the words to deny the administration
misled you, America.
Mr. Chairman, I would like to recall, reiterate my call for
the State Department to provide to this committee and the
Committee on Homeland Security, a white paper referenced in
their memo as they implemented the Visa Waiver Program
Improvement and Terrorist Travel Prevention Act, which they are
using to circumvent the will of Congress and the letter of the
law to allow foreigners that have traveled to Iran and other
areas of the world that host terrorists to have access to the
Visa Waiver Program.
There was a white paper referenced in their justification.
We asked Secretary Kerry in this committee. We have sent
letters to the Department of State. We have asked the
Department of State officials and Homeland Security Committee
for a copy of that white paper that they used to circumvent
Congress and to circumvent the law. So I reiterate my call for
that.
Mr. Zarate, how much money would Iran have access to with
this Iranian deal, unfrozen assets? Let's just talk about
unfrozen assets for just a second.
Mr. Zarate. Yes, Congressman, the estimates have been
anywhere between $70 billion to $150 billion. And obviously we
have heard----
Mr. Duncan. That is a lot of money.
Mr. Zarate. A lot of money. And I have estimated and I have
said this before in testimony that there are likely assets that
are unaccounted for. Those are known assets----
Mr. Duncan. Known assets, right.
Mr. Zarate [continuing]. And largely central bank
reserves----
Mr. Duncan. And a standing Iranian economy with sanctions
being lifted, their ability to sell their oil in open market
not the black market, would enhance that number somewhat.
Mr. Zarate. Absolutely. And that does not include the
growth of their economy and the----
Mr. Duncan. Exactly. So let me read Ayatollah Khomeini's
words after this deal was struck. ``Whether the deal is
approved or disapproved, we will never stop supporting our
friends in the region and the people of Palestine, Yemen,
Syria, Iraq, Bahrain, and Lebanon.'' Basically, Hezbollah,
Hamas.
Iran is the largest state sponsor of terrorism financially
and with material support. And with his own words they are
going to continue to support those terrorists, his own words.
With a $150 billion and an expanding economy that is a heck of
a lot of money to support terrorism. Should the free world be
concerned?
Mr. Zarate. Absolutely. And it is precisely why we
shouldn't be giving Iran any special exemptions or special
access to the dollar, be it onshore or offshore. I mean, we
should expect and we know not only from what the Iranians have
said but also what the terrorists have said, you know, Hassan
Nasrallah himself said that we expect continued and expanded
support from the Iranians.
And so we know that it is going to happen, we know that
there is an increased risk, a very real risk of flows of
millions if not billions of dollars to Iranian proxies. We have
seen with the interdiction of shipments to Yemen by
international naval forces, including U.S. forces that they are
trying to send arms into Yemen to the Houthi rebels acting as
their proxies. So we know this is----
Mr. Duncan. They are active in Iraq. They are active in----
Mr. Zarate. Yes. It is not just what they say, we see it on
the ground. We understand it. We hear what their allies say.
And so it is a real risk.
Mr. Duncan. Yes. Let me reclaim my time. I chair the
Western Hemisphere Subcommittee, and we have had hearings and
we have been very vocal about the presence of Hezbollah in the
Western Hemisphere. General Kelly, former commander of
SOUTHCOM, has testified about his concern of Iran's activity in
the Western Hemisphere.
Hezbollah is a proxy of Iran. Iran is active here, cultural
centers and areas in Latin America that don't have really
strong Islamic ties or Muslim populations. We know that the
Tri-Border region between Paraguay, Argentina, and Brazil is
very active in Hezbollah.
If Hezbollah is in the Western Hemisphere and Iran has $150
billion to support their friends, Hezbollah and Hamas and the
others that the Ayatollah himself mentioned, would reason not
speak to the fact that they may support Hezbollah in the
Western Hemisphere, and their own activity, Iran's activity, in
the Western Hemisphere that could target American interests or
the interests of our friends and allies closer to home? Not in
the Middle East but here in Latin America and the Western
Hemisphere. Is that fair to assume?
Mr. Zarate. That is absolutely fair, and it is not just in
the Tri-Border Area. It is in places like Venezuela where there
have been traditional and commercial ties between the Iranian
Government and the Venezuelan Government.
Mr. Duncan. And like I say, Air Tehran, Air Terror,
whatever the flights.
Mr. Zarate. Exactly. Not to mention the expanse of
Hezbollah network which the U.S. Treasury and the DEA have been
exposing as a global criminal enterprise in Latin America, in
West Africa, which is part of this infrastructure that Iran can
tap into and certainly support with financing.
One other point I will just say, a friend and colleague of
mine Alberto Nisman, the Argentine prosecutor, I believe was
murdered in part because he was investigating not just the
attacks from Iranian sponsored terrorism in----
Mr. Duncan. In '92 and '94. Go ahead.
Mr. Zarate. But also looking at where Iran had presence in
South America and in Latin America.
Mr. Duncan. And just for the committee's awareness, the
gentleman, the Iranian that was implicated in those attacks was
supposed to come to Colombia and may still lead a delegation to
Colombia, should be arrested by INTERPOL. That is how close to
home this is. With that I yield back.
Mr. Dubowitz. And that is Mohsen Rabbani for those folks at
INTERPOL who are paying attention.
Chairman Royce. Yes. We will make this discussion available
to INTERPOL and talk to the government in Colombia.
Let's go to Mr. Gerry Connolly of Virginia.
Mr. Connolly. Thank you, Mr. Chairman. I think this is our
30th hearing on Iran. And I don't know that this committee has
cloaked itself in glory on the subject. We beat dead horses.
And we have been proved wrong, I think. I am going to ask Ms.
Rosenberg.
Ms. Rosenberg, the JCPOA, the agreement that was completely
decried and opposed by my friends on the other side of the
aisle and some members of my own party--let me see. One of the
requirements was that all uranium enrichment levels had to be
reduced to 3.67 percent. Has that happened?
Ms. Rosenberg. The IAEA has certified that by the beginning
of this year, in January, Iran had met all of its major basic
and nuclear commitments which is the basis for----
Mr. Connolly. I know, tell me one by one. So 3.67 percent,
yes or no.
Ms. Rosenberg. Yes, I believe so.
Mr. Connolly. Did they in fact remove the core of the Iraq
heavy water research reactor and fill it with concrete?
Ms. Rosenberg. Cement, yes.
Mr. Connolly. Did they reduce their stockpile of previously
enriched uranium by 95 percent?
Ms. Rosenberg. Yes.
Mr. Connolly. Did they ship it out of the country?
Ms. Rosenberg. Yes, removed.
Mr. Connolly. Did they subject their centrifuge production
and uranium mines and mills to surveillance by outside
international nuclear inspectors?
Ms. Rosenberg. Yes, and their reports have been made
public.
Mr. Connolly. And did they reduce the number of centrifuges
as required by the agreement?
Ms. Rosenberg. Yes.
Mr. Connolly. Hm. Anything they cheated on that we know of?
Ms. Rosenberg. Not that we know of.
Mr. Connolly. Not that we know of, really. Now, I don't
know. I am not a nuclear expert, but if they met all of those
metrics and we are supposed to believe that this was a
smokescreen to allow Iran to become a, to give it a,
quote, deg. ``patient pathway to the bomb,'' it looks to me
like that is not a patient pathway to a bomb. That actually
reverses the development of a bomb. Would that be a fair
statement from your point of view?
Ms. Rosenberg. Yes. If I may add to that----
Mr. Connolly. Of course.
Ms. Rosenberg [continuing]. Additionally. I don't think,
however, given the grave concerns that the international
community has had about Iran's demonstrated proliferation
activities, that achieving those milestones we have just gone
through, should give anyone any comfort that this is a the end
of the road.
Mr. Connolly. Of course.
Ms. Rosenberg. Which is one reason, of course, why this
nuclear agreement goes on much longer than just implementation
day, and why many people correctly believe that this should be
a strengthening of the international nonproliferation regime.
Not just for Iran, but for any other state of proliferation
concern.
Mr. Connolly. Right. But we know it is a fallacy in reason
to argue because it isn't absolute forever perfect we therefore
should not do it. Sometimes we take incremental progress, real
incremental progress that takes the immediate and short term
existential threat and reduces it or reverses it significantly,
that is better than the alternative, is it not?
Ms. Rosenberg. I think many people feel seriously
reassured, very sincerely reassured, that Iran is further today
from----
Mr. Connolly. Right.
Ms. Rosenberg [continuing]. A nuclear bomb and nuclear
warheads on its ballistic missiles arsenal than it was only a
number of months ago.
Mr. Connolly. And I think they should be, because
objectively they are.
Ms. Rosenberg. I agree.
Mr. Connolly. And that doesn't mean, however, the threat is
removed. It doesn't mean that we are not going to face all
kinds of other problems in the relationship. And it doesn't
mean that 15 or 20 years hence they might want to reevaluate
and reverse the commitments they made in this agreement--god
forbid--and that is what we have got. But we have bought some
time, and we didn't just buy time and freeze it in place. We
reversed it.
And according to your testimony, and you are not the first
to testify here, to the best of our knowledge they have met
every metric. It is really interesting to me that we want to
talk about everything but compliance, having of course
predicted that they wouldn't comply.
Ms. Rosenberg. I think it is appropriate to talk about, and
I assume you would agree, to talk about these other issues of
concern related to Iran.
Mr. Connolly. Absolutely.
Ms. Rosenberg. But nevertheless, very important to
distinguish between nuclear, oversight of this nuclear deal and
these other concerns, something that----
Mr. Connolly. Listen, I am old enough to have lived through
the Cold War. We had nuclear agreements with our bitter enemy
that had promised to wipe us from the face of the earth, the
Soviet Union. That didn't stop us from negotiating under
multiple administrations with Moscow, starting with John
Kennedy after the Cuban Missile Crisis of all things. The first
Nuclear Test Ban Treaty he negotiated with Khrushchev. Now we
are capable of looking at multiple compartments and
manipulating them to our advantage where we can, and this is a
good example. I yield back.
Chairman Royce. We go now to Mr. Randy Weber of Texas.
Mr. Weber. I would follow up that by saying that the
Russians weren't strapping dynamite vests on kids and killing
people in other countries, but that is just me.
Mr. Dubowitz, I think in your exchange with Congressman
Duncan you didn't get to finish your last idea. Would you like
to take time to do that now?
Mr. Dubowitz. Yes, thank you, Congressman, a couple things.
One is I would just make it clear that with respect to the
Revolutionary Guards and Hezbollah, the fact that Boeing and
Airbus are now signing, or trying to sign, multibillion dollar
deals with IranAir, I would say that is incumbent upon those
companies, and I would argue impossible for those companies, to
ensure that the technologies that they are providing to IranAir
are not going to end up in the hands of IRGC Air, which is
Mahan Air. And I think that those agreements are incredibly
difficult to enforce and that the due diligence will be
exceptionally difficult to actually undertake.
I would also actually take some exception to the exchange.
Iran is in flagrant violation of U.N. Security Council
Resolution 2231, which is the implementation resolution for the
JCPOA which replaced all of the previous six U.N. Security
Council resolutions, because it is engaged in multiple missile
tests for long-range ballistic missiles capable of carrying a
nuclear warhead--capable of carrying a nuclear warhead.
A nuclear weapon is not just enrichment, a nuclear weapon
is also a warhead and it is also the delivery vehicle which is
the missile. So Congressman Connolly, Iran is in flagrant
violation of U.N. Security Council Resolution 2231 and that
should give us some serious pause.
Mr. Weber. Well, and thank you for saying that. Let me
point out that my good friend from California earlier said that
liberals, it was their, I believe their instinctive inclination
to peace, and I just want to ask, did he say instinctive or was
it extinctive?
We need to be careful, because you are dealing with a
regime that would take every opportunity to be in flagrant
violation, to use your words, not only on all of the sending
of, as I point out, terrorism to other countries, kids,
dynamite strapped on, blowing up people, their commitment to
destroying Israel, the United States ultimately. I think we
should take them seriously.
So I appreciate, for one, you all being here and pointing
out that we need--and I had this conversation with John Kerry.
We should have made them prove that they wanted to be a good
world community neighbors, if that is the right word, by doing
all of these things in a period of time. You know, they have
been bad actors since 1979 when they took the hostages in
Tehran. That is 30, back then, last year it was 36 years ago.
Half of that time would be 18 years. A fourth of that time
would be 9 years. An eighth of that time would be 4\1/2\ years.
A sixteenth of that time would be 2 years basically.
Couldn't we just make them comply for 2 years to prove that
they were serious, to prove that they were willing to be good
community neighbors? I mean, the whole JCPOA was absolutely a
travesty in my opinion. That is my opinion.
But anyway I wanted to ask you all for your opinions while
you are here. Three things, I want to know three things to
apply pressure on Iran. How do we apply pressure, in your
opinion, Mr. Dubowitz? Just give us three short things that we
could make them comply as closely as possible. What would you
do specifically? Well, give me one or two things.
Mr. Dubowitz. I would require the administration to report
to Congress on the sectors of Iran's economy that are providing
key technology and personnel.
Mr. Weber. That is not going to happen. I don't trust this
administration to report to us. I am sorry, I just don't. What
can we do as a Congress----
Mr. Dubowitz. So you could GAO to do the same report, and
GAO would then look at other organizations that have done
similar reports. We have done a report on Iran's missile sector
looking at the sectors of the economy. Congress could then pass
legislation or affect the legislation.
Mr. Weber. What can we do--it is Mark, right, first name is
Mark?
Mr. Dubowitz. Mark, yes.
Mr. Weber. What can we do, Mark, to cut off funding, in the
House of Representatives if we would have guts, so that when
they want to use access to the United States financial
institutions, we as the United States Congress, I know it would
have to be in the House of Representatives, what could we do to
shut down their access to the U.S. financial institutions?
Mr. Dubowitz. So again I think--and Juan and Liz have
talked about this. I mean, the best thing you can do is appeal
to the market. The best thing that you can do is create this
risk overhang that already is there and you can amplify it.
Require companies and financial institutions to report to the
SEC if they are doing business with IRGC entities. Not just
designated IRGC entities, but entities that are on an IRGC
watch list that GAO or CRS or independent organizations could
provide.
By creating a market risk what you are going to do is you
are going to do what Juan talked about, which is you are going
to focus on the conduct, the illicit conduct that Iran is
engaged in and you can shine a spotlight on that. That does
more to change market calculations by----
Mr. Weber. I am out of time, but let me follow up by this,
and I am not going to be able to get to the other two. How do
we bring our friends on board with that whether it is Britain,
whoever it is, how do we bring our allies on board with that?
Mr. Dubowitz. Well, our allies need access to the U.S.
market. Many of our allies have financial institutions with
corresponding banking relationships in the United States. Many
of our allies have companies that are trading on U.S.
exchanges. So I would go around the governments and I would
appeal to the companies.
British banks today don't want to go back into Iran despite
the fact the British Government is trying to strong-arm them
back into Iran, because they care about U.S. market access,
they care about their reputations and they don't want to be
doing business with the Revolutionary Guards and entities and a
state that is engaged in such illicit and dangerous conduct.
Mr. Weber. Okay. Thank you, Mr. Chairman, and I yield back.
Chairman Royce. Thank you. Now we go to Mr. Ted Deutch of
Florida.
Mr. Deutch. Thank you, Mr. Chairman, and again I would like
to thank you and Ranking Member Engel for your enduring
commitment to ensure that this committee continues to provide
oversight on the nuclear deal and remains engaged and vigilant
on all of Iran's troubling activities.
For much of the week Secretary Kerry has been quoted in the
press as proclaiming that Iran is open for business, and that
as a U.S. official is quoted as saying, it is in fact not U.S.
sanctions but Iran's bad banking practices along with its
ballistic missile launches, support for terrorism, and human
rights abuses including, I might add, a long history of
arresting foreign businessmen that make it an unfriendly
business climate.
And I would agree that every single company that is
considering doing business in Iran should be deeply concerned
by and should consider all of these factors before making any
deal. The Washington Post, yesterday, reported that fear of
running afoul of continued U.S. sanctions for all of these
other bad behaviors is preventing banks and businesses from
dealing with Iran.
I hope that in his travels Secretary Kerry is making clear
to our allies that not only will those sanctions remain in
place and be enforced with vigor, but they too should be
enforcing these sanctions as they are not covered under the
JCPOA. Let's be clear here. If Iran wants business, it is up to
the regime to change its behavior.
Now the Washington Post also reported that detention of
foreign citizens is another reason businesses are and should be
wary of reentering Iran. And I would urge these companies to
give deep consideration to the fact that the longest held
American hostage in history disappeared in Iran. Robert
Levinson went missing in Iran on March 9, 2007 and he is still
not home. And more importantly, Iran is still not providing
information as to his whereabouts.
And I hope that Secretary Kerry has raised the issue of Bob
Levinson in every one of his meetings with foreign banks and
foreign businesses. And I hope that every single oil company,
airplane manufacturer, construction company that meets with
Iranian officials raises Bob Levinson's case. And I hope that
every one of these businesses as they contemplate their
challenges to doing business in Iran contemplate the fact that
Bob Levinson has been missing for 9 years and makes this an
issue in those discussions.
And they should be demanding that if Iran wants foreign
investment to return, then it should begin to prove itself a
responsible actor by fulfilling its oft-stated pledge of
cooperating and providing information on Bob's whereabouts and
then helping to return him to his family. And I might add, I
hope that in the reports in the press that our great media, who
are following these issues so closely, whether or not
businesses want to re-engage in Iran, will also raise in their
discussions the fact that Bob Levinson is the longest held
American hostage and that Iran has not provided the necessary
information to help bring him home.
Mr. Dubowitz, I understand that it may be unusual business
practice for a company to engage with a government in areas
that are commonly left to diplomats. But why should all of
these companies looking to reenter Iran, why should they care
about Iran's human rights abuses? Why should they care about
Iran's support for terrorism? And why, to follow on my opening
statement, why should they be concerned about an American who
has been missing, went missing in Iran more than 9 years ago?
Mr. Dubowitz. Congressman Deutch, I think for two
fundamental reasons. Reason number one is that the next hostage
that could be taken is them. The CEO or the director of
business development for the Middle East for a major oil
company or a major financial institution could be the next
hostage, because Iran takes hostages as part of its standard
operating procedure.
And the second reason is because these international
companies have reputations and those reputations are worth
billions of dollars, and to have a reputation of doing business
with a hostage-taking, genocide-threatening, nuclear-building,
missile-testing, Holocaust-denying regime is just bad,
fundamentally, for business.
Mr. Deutch. Mr. Chairman, I would, before I yield back I
would just say again, the members of this committee are
probably tired of hearing me talk at every single committee
hearing, every meeting we have on Iran about my constituent who
needs to be returned to his family.
But it is just inconceivable to me that all of the stories
we have been reading this week have focused on whether or not
Iran should be open for business, on whether or not other
countries should worry about sanctions and going back in to do
business deals in Iran without mentioning Bob Levinson's name.
I don't understand it. There is an American who has been
missing for more than 9 years. Everybody, everybody should care
about Bob Levinson. And I yield back.
Mr. Weber [presiding]. For the record, Congressman, we do
not get tired of hearing about that. Thank you. And the chair
now recognizes Scott Perry.
Mr. Perry. Thank you, Mr. Chairman. Mr. Dubowitz, Mr.
Zarate, can you tell me in your opinion, I know this might be a
little off-target for the hearing, but is Iran's ballistic
missile capability currently prepared to deliver whatever
payload that it might desire to put on it, whether nuclear or
otherwise, beyond, I don't know, several hundred miles? Do they
currently have that capability on a consistent basis?
Mr. Dubowitz. Well, they certainly have the capability to
in terms of range.
Mr. Perry. Right.
Mr. Dubowitz. The question is do they have the capability
to affix a nuclear warhead to those missiles.
Mr. Perry. With a triggering device. That is in question,
right?
Mr. Dubowitz. Right, that is in question.
Mr. Perry. So that is the continued testing that we see of
the ballistic missiles. That is what they are working on.
Mr. Dubowitz. Right. And the danger on the warhead side is,
again Congressman Connolly seems to think that the Iranians are
in such full compliance, but on warhead issues we don't know
because warhead design is done in a room basically this size.
Mr. Perry. Right.
Mr. Dubowitz. And we don't even know if we are going to
have access to military sites where that warhead design is
likely to take place.
Mr. Perry. I am going to get to another question, but I
just want to make the point, while Mr. Connolly feels that they
are in compliance, and of course you have already elucidated to
the fact that they are not in compliance, they are in flagrant
violation of Resolution 2231, I would remind him that we will
have the same conversation in 10 to 15 years when Iran has
consolidated its gains in Yemen, Libya, Iraq, if I didn't say
Yemen already, Syria, et cetera, and will have also perfected
its ballistic missile technology, will be within months of
right where it was when we left off, when they left off of
nuclear device, an armed warhead, and also have the air defense
artillery from Russia to protect all that stuff, and we will be
able to do very little about it just like we can do with North
Korea right now, and I will revisit the conversation with Mr.
Connolly at that time.
That having been said, let me ask you folks this because we
are talking about financial transactions. In addition to the
sanctions risk, there is a considerable risk to companies
entering Iran from a business perspective. For example, Iran
banks will have to adjust to tougher international regulations
and may need to offload nonperforming loans into a bad bank.
Many of Iran's banks are still struggling after piling up
bad debt during the more than a decade long sanctions era,
several banks having exposure to the country's property market
which turned sour in 2012 leaving problem loans in the system,
compounding the situation. Thus, the Iranian financial sector
is in a precarious situation. Official data showed that the
ratio of nonperforming loans to total loans was 13.4 percent in
the Iranian month ending of June 21, 2015. Market estimates
point to nearly double that figure with the equivalent of $40
billion at the top end investments for nonperforming loans.
Since the 2008 financial crisis, most banks must adhere to
international capital standard known as Basel III which
required them to bolster their balance sheets. Iran remains a
command economy dominated by the Islamic Revolutionary Guard
Corps, the IRGC, to include the banking sector. While the
Secretary is running around telling everybody it is going to
fine to invest in Iran, I just want to know how significant the
reforms would be for Iranian banks to meet international
banking standards particularly with Basel III.
Gentlemen. I would like to hear from them if you could,
first.
Mr. Zarate. I haven't looked at the balance sheets
currently, but you are absolutely right that one of the
questions that any institution going into Iran has to look at
is what is the health of the financial system? And it is not
just sort of, it is not only the balance sheet but it is also
the requirements of safety and soundness post-Basel III.
So you are absolutely right, in terms of capital
requirements as well as transparency and accountability which
is now part of the international system. As I said before, 2016
is a very different environment than 15 years ago in terms of
what the expectations are for a financial system. And so Iran,
I think, has to undertake massive reforms. And what is odd to
me is we are bending over backward to demonstrate that it is
okay to do business in Iran when they aren't even meeting any
of those basic standards, be it post-2008 or 2016.
Mr. Perry. We are bending over backwards. The United States
is bending over backwards to tell the international community
it is okay to invest there, knowing full well that they are far
from compliance with international standards, particularly
Basel III. Is that----
Mr. Zarate. Yes. And we are certainly not sending out road
shows for our allied economies that are struggling with de-
risking and other challenges where major banks and businesses
are de-risking and getting out because they are not meeting
standards. And so I don't see Secretary Kerry talking about
investment in Iraq----
Mr. Perry. Right.
Mr. Zarate [continuing]. Which maybe we should be, but he
is certainly not. And so I think there is a real danger here of
mixing messages and altering our own standards by trying to
meet the needs of the Iranians as they complain about the
restrictions that they are facing in the international system
when the international system is looking clearly at a very
risky environment.
Mr. Perry. I mean, what would be the point of it from your
perspective? Why would the United States engage in this?
Mr. Zarate. We certainly want to demonstrate that there is
a benefit to the deal, that we can honor our side of the deal
and that is to be commended. And I do take a little bit of
issue with those of us who raised questions about the JCPOA. We
very much were open, and certainly in the Bush administration,
to negotiations, and in fact we started the pressure campaign
in 2005 in parallel with the diplomatic process. Deputy
Secretary Burns, who is part of the negotiating process for
President Obama, was also negotiating on behalf of the Bush
administration.
So the reality is that we have used these tools as a way of
isolating rogue behavior, and the challenge with the JCPOA is
that we perhaps have negotiated away our ability to use them
aggressively precisely because we have given Iran the voice to
say you are not giving us the benefit of the deal, which was
reintegration into international financial and commercial
system. We can't do that if they are not changing their
behavior. That is the inherent tension of the deal and it is
precisely what I told the Senate on two occasions when these
issues were being debated.
Mr. Dubowitz. Can I add something very quickly to that? I
mean, just to clarify, we never committed to the Iranians in
the JCPOA anything to do with outcomes. We never said that we
are going to commit to you that you will be reintegrated in the
global financial system. We never said to you that we are going
to commit that your GDP is going to increase by 5 percent and
there is going to be $500 billion of foreign direct investment.
We committed that we were going to de-designate entities,
and we are now, we should now be engaged in providing
regulatory guidance on what those de-designations mean rather
than becoming the business development and trade promotion
authority of the Islamic Republic of Iran.
Mr. Perry. I am sorry, my time is long expired. I yield.
Mr. Weber. I thank the gentleman for yielding back.
Congressman Boyle, you are recognized for 5 minutes.
Mr. Boyle. Yes, thank you. I wanted to associate myself
with comments that were made much earlier by my colleague
Representative Brad Sherman. He, I believe, like myself was
someone on the Democratic side of the aisle who found fault
with the Iranian nuclear deal and ultimately opposed it.
That said, I don't think it is helpful or in any way
productive to keep relitigating old ground, and that the point
of our work today and in the future for what is in our national
security interest as well as the interest of our allies is to
ensure ways moving forward that we can benefit from the
positives of the deal while at the same time addressing those
areas of concern. Chief among them for me, and when I wrote an
op-ed in The Philadelphia Enquirer in August announcing that I
would be voting against the deal, I talked about how not 5
years from now, 10 years from now, 15 years from now, today the
amount of money somewhere in the $2-4 billion range it is
estimated that Iran is using to fund terrorism, whether it be
Hezbollah and the over 100,000 rockets in southern Lebanon that
are being pointed at Israel, whether it is Hamas, whether it is
their actions to prop up the Assad regime, what they are doing
in Yemen, et cetera, et cetera.
So I want to kind of, you know, address my comments looking
forward prospectively on what can be done today to address,
sanctions-wise or other tools we have available, the bad
Iranian behavior and the support for terrorism, while at the
same time not doing anything that would violate our own
obligations under the JCPOA. So with that comment, let me
actually first invite Ms. Rosenberg who hasn't had an
opportunity for awhile to address that.
Ms. Rosenberg. Thank you for the question. There are a
number of things that the United States can do along with
partners and allies in the rest of the world to address these
very serious terrorism concerns, also regional destabilization
concerns, you have mentioned. Since we are talking about
sanctions, first among them is using those authorities
aggressively that the United States has, as has been mentioned
previously.
I fully support the suggestion that Congress could call
upon the administration to designate the IRGC in its entirety
under terrorism authorities as well as an aggressive campaign
to go after its agents, instrumentalities, front companies, et
cetera, in Iran and outside of it as a way to expose this
activity and go after it.
However, sanctions are certainly not the only tool,
possibly not the most important tool, for truly combating
terrorism activities that Iran sponsors in the region and
beyond. Certainly counterterrorism cooperation with partners in
the region, some of Iran's neighbors, is an incredibly
important activity that occurs already and should be a subject
of support from this body and broadly, internationally.
Intelligence sharing and covert operations are also critically
important to that set of activities. So that is just a short
list.
Mr. Boyle. If anyone wanted to add to that.
Mr. Zarate. Congressman, I think Liz is absolutely right. I
think part of this is the position that we need to push back
and push back in ways where there are real threats and real
risk. One of the suggestions that I have made in the past is
much more aggressive interdiction of Iranian shipments, which
we have seen some of in the context of Yemen.
Mr. Boyle. And we have seen some of that increase recently.
Mr. Zarate. Exactly, because the risk is going to increase
precisely because they have more funding, they have more
interest, there is more adventurism. That needs to be ramped up
with our naval forces as well as allied naval forces. That also
raises the specter, which is not included in the negotiations
or how we have looked at the risk of the deal, a proliferation
with North Korea. The very real possibility that Iran and North
Korea continue to collaborate on things like ballistic missile
technology has to be a part of what we are looking at in terms
of risk and pushing back on.
And I also think we shouldn't ignore things like human
rights. We have the Magnitsky Act in terms of Russia, why
aren't we thinking more aggressively about what Iran is doing?
Certainly, I think one could argue that the human rights abuses
in Iran equal if not surpass what is happening in Russia, so
why isn't there legislation or at least focus there? So I think
we have muted our voices a bit because we have wanted the deal,
to be honest, but if that is the case we have the deal, let's
make it work.
Mr. Boyle. Right.
Mr. Zarate. But there are real risks that are still
attendant to this. Let's push back on those risks.
Mr. Boyle. I am down to 12 seconds, so let me just kind of
conclude with this. When Treasury Secretary Jack Lew sat right
there and testified in front of this committee, there was
debate on exactly how much money we were unfreezing or making
available to them. There were estimates upwards of $150
billion. He said no, that actually the accurate figure is $56
billion.
And I took the administration at that. My point was that
even if 90 percent of those funds go toward improving their
basket case economy, if they just siphon off 10 percent to
continue terrorist behaviors that is more money than they have
at their entire disposal now for all their terrorist
activities. So making sure that we tackle those funds for
behavior that they are doing today is, in my view, the single
most important thing Congress can do. I yield back.
Mr. Weber. The gentleman makes a good point. The gentleman
from New York is recognized for 5 minutes.
Mr. Donovan. Thank you, Mr. Chairman. Our hearing is
entitled, Terrorism, Missiles and Corruption, and I wanted to
touch on the corruption in Iran. And the Foreign Corrupt
Practices Act prohibits United States citizens, United States
companies from doing business with people who are bribing
officials for business transactions and purposes.
Part of the implementation day, the administration issued
an edict for the subsidiaries of United States companies to be
able to do business with the Iran Government. I was just
curious if any of you had any position or idea, are these
subsidiaries actually violating the act? And if they are, how
is the parent company protected, the United States parent
company from these subsidiaries protected from violating the
act itself?
Ms. Rosenberg. So this is right that the foreign subs of
U.S. parents are allowed under the agreement to be able to do
business in Iran. There are a number of caveats which say that
they can receive certain back office services from their U.S.
parents, but they cannot avail themselves of U.S. persons,
financial institutions, the dollar, and other services that
many would consider necessary for their functioning.
In practice I think it will be incredibly difficult, if not
virtually impossible, for those foreign subsidiaries to do
their business as long as they are planning to do so in a
responsible manner following existing sanctions and FCPA
regulations. And for the parent, to protect itself adequately
requires, as has been discussed, a tremendous amount of due
diligence to ensure that no part in this company, its
subsidiary, is involved in inappropriate or illicit activities.
Mr. Dubowitz. And Congressman, I will just add, your
question on corruption, I think, is an important one and Juan
underscored this. But the pending Global Magnitsky Human Rights
Accountability Act, which is before Congress, is one mechanism
which can be used to target corruption, because not only does
it target human rights violators but also government officials
and their associates who are responsible for or who are
complicit in significant corruption. So Global Magnitsky, I
think again is not only important for human rights, qua human
rights, but also to target corruption.
And if you look at Iran's regime, and the Supreme Leader
himself runs a $95 billion holdco called the Execution of Imam
Khomeini's Order, which by the way was de-listed under the
JCPOA, but it is a massive corruption mechanism, as are the
bonyads. And so the corruption within the Iranian regime is
something again not only should we target because it is an
effective way to protect the financial system, but also these
are the crooks and thieves that are stealing from the Iranian
people.
And there may be a lot of disagreement in Iran over the
nuclear program or other issues, but on the corruption issue it
is certainly clear that since 1979 and even before that the
Iranian people have been cheated out of their national wealth.
Mr. Zarate. Congressman, I would just say in terms of the
environment in 2016, corruption and the issues of kleptocracy
are now on the global agenda. And you clearly see the
Department of Justice focusing more and more on aggressive
applications of the FCPA. The FIFA case is a great example of
the use of anti-corruption prosecutions to actually go after
prosecution rings and networks around the world, especially
institutions.
But three quick issues that I think are important in terms
of corruption with respect to Iran. One is the lack of
transparency as to who owns what and what is tied to the
leadership, everything that Mark and Liz and we have been
talking about. The second is the rule of law. What does
contractual relationship in Iran look like? What does it look
like and what are the benefits and facilitation fees, et
cetera, tied to dealing with the IRGC or a state-owned company?
What is the rule of law in that context? That is a big
question.
And the third is, there is an international standard around
how you engage and enhance due diligence, ask lots of questions
about politically exposed persons. That is called PEPs. It is a
term of art. While Iran is full of PEPs, it is full of high
risk of corruption. And so for businesses, one of the reasons
they are having trouble with managing how you go in, if you
even wanted to go into Iran, is you have a sea of PEPs that you
now have to deal with and engage and enhance due diligence to
understand how they source their funds, what they are doing,
what businesses they control, and this is all part of these
heightened global standards that Iran is now facing. They are
not just facing potential recalcitrants as part of the deal,
they are facing heightened international standards that they
have never been forced to adhere to.
Mr. Donovan. I thank you all. My time is expired. Thank
you.
Chairman Royce. Thank you. We go to Mr. Ron DeSantis of
Florida.
Mr. DeSantis. Thank you, Mr. Chairman.
Mr. Dubowitz, with this Ben Rhodes article I was thinking,
because I remember during that time when Rouhani was elected
and the people were starting to say he was a moderate and then
this was like this great opening, and I never bought that. I
think most of our members never bought it. But, you know, I did
think that the administration was just being naive about it. It
turns out, I mean, they never bought it either. I mean, they
knew that this a deal that was really going to be done in
conjunction with Iran's hardliners.
But it does seem to me just thinking back, I am interested
in your thoughts that the deception was very effective. I mean,
they did create a narrative in the media that this was a really
important opening. That there was a chance for change here and
that that is what they were grappling onto, even though they
had already started down this road before Rouhani was ever
elected.
Mr. Dubowitz. Congressman, that is exactly right. And the
reason that deception was so important is actually because of
the technical issues around the nuclear deal. When I talked in
my testimony about a patient pathway to nuclear weapon, what I
mean is that these key restrictions that Congressman Connolly
believes are so important are actually going to go away
beginning after 5 years and 8 years, 8\1/2\ years, 10, 15.
Now if Iran ends up in 10, 15 years as a moderate regime
with a nuclear weapons capability, an industrial size
enrichment program and ICBM, a powerful economy, regional
hegemony, then we are not going to be as concerned because
actually they start to look more like Japan which has threshold
nuclear capability. But if Iran is still ruled by the hard men
of Iran, the hardliners, if Rouhani was the Supreme Leader, and
he is a hardliner, then we have a very dangerous regime in
possession of industrial size nuclear capability. That is why
that deception that Ben Rhodes has spun out is so damaging.
Mr. DeSantis. I agree. In terms of the access to the
dollar, I remember the testimony not just from this committee
but others about the administration says, look, they are not
going to have access to the financial system. I believe that
they also said it wouldn't even be indirect. But what is your
recollection of that? Is what they are trying to do now, does
that conflict with any of the testimony that we heard from the
administration to lead up to the deal?
Mr. Dubowitz. Well, it certainly contradicts the spirit of
what they said. I think they were really, really careful to
talk about specific access to the U.S. financial system and u-
turn transactions. And, you know, to Liz's comment, you are
right. At some point a U.S. financial institution is going to
have to be involved in offshore dollar clearing because they
are going to have to provide more dollars into the system. If
those dollars have been used they have to replace the dollars
that have been used.
But you can get around that by providing a license to U.S.
financial institutions that would legally protect them for
providing dollars to the offshore dollar clearing facilities.
You could also do it not only through offshore dollar
facilities but through book transfers, intrabank book transfers
within the same financial institution that does that conversion
and transfer.
So I am concerned the administration has been trying to
very carefully thread the needle between its commitments to
Congress and its desire to give Iran dollarized financial
transactions generally or in specific classes of transactions.
Ms. Rosenberg. If I could just respond to that.
Mr. DeSantis. Hold on. I am going to have one at a time.
Mr. Zarate, the Treasury recommends that people considering
doing business in Iran or with Iranian persons conduct due
diligence to ensure that they are not knowingly doing business
with the Revolutionary Guard Corps. What are these companies
supposed to do? Because, you know, there is a huge percentage
of the businesses that are controlled by the Revolutionary
Guard Corps. You are not going to have a Revolutionary Guard
Corps general show up to broker the deals. I mean, these things
are sheltered and there are different things. And so what are
companies supposed to do, and can they ever really be sure in
some of these instances that they are not providing money for
the Revolutionary Guard Corps?
Mr. Zarate. It is incredibly opaque, and you are right. I
think any due diligence, be it enhanced or otherwise, is
limited by the structure and nature of the environment in which
you are doing that diligence. And, you know, I doubt that Iran
has a corporate registry for all of those companies run by the
IRGC. Some of it is public actually. There has been a lot of
research on some of those. But a lot of it is opaque and we
know that they have used shell companies, we know that they
have used procurement agents, we know that they have used
classic layering in money laundering fashion to hide their
activities.
And so it is a very hostile environment to transparency and
due diligence. And what you have are financial institutions
that are being asked to do that kind of due diligence in other
parts of the world in very harsh and difficult environments now
contemplating that in the Iranian context along with all of the
things that Iran does in using or misusing its financial
system. That is why it is so risky in doing business and it is
very hard for a CEO or compliance at a general counsel of a
bank to say I feel fully comfortable that I understand with
whom we are doing business, how we are doing it, and to be able
to fence-ring the kinds of risk that they are exposed to.
Mr. DeSantis. Yes, I agree. I think that is very well
stated. And my time is up, but I appreciate everyone's
testimony. I yield back.
Mr. Engel. Mr. Chairman, I am wondering if we could let Ms.
Rosenberg finish her answer.
Chairman Royce. Without objection, yes, Mr. Engel.
Ms. Rosenberg. Thank you. I just wanted to offer that as
the President has stated, the U.S. Government is not
considering giving Iran access to the U.S. financial system. In
fact, under current restrictions, the u-turn penalty, this is
something that banks take very seriously. And when they have
abused it, as has been demonstrated in some of the big bank
enforcement cases, including by using book-to-book transfers
that were inappropriate and constituted evasion, they have been
punished severely. So currently they are not considering it, it
is not possible, and it is punishable with severe and expensive
financial penalties.
Mr. Engel. Thank you. Mr. Chairman, I ask unanimous consent
to place into the record this letter from the Treasury
Department explaining the administration's policies related to
Iranian transactions and access to the U.S. financial system.
Chairman Royce. Without objection.
Mr. Dubowitz. Mr. Chairman, may I say one quick thing? When
the President of the United States says very clearly we will
not give Iran direct or indirect access to the U.S. dollar,
then I think you and your colleagues should be more assured.
Chairman Royce. Thank you, Mr. Dubowitz. I thank all of our
panel today. Mr. Zarate, good to see you again. And we thank
you for your time, very insightful testimony. And this was a
particularly timely discussion given Secretary Kerry's meetings
in Europe this week and yesterday, and as international
financial institutions weigh their reputational risks with a
country like Iran, which as we heard is not heeding basic
international standards.
So this hearing stands adjourned.
[Whereupon, at 12:02 p.m., the committee was adjourned.]
A P P E N D I X
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