I want to thank the members of the Subcommittee for attending this first in a series of hearings we will be holding on the implementation of the Iran-Libya Sanctions Act-otherwise known as ILSA. Today's session will focus on Iran.
As many of you know, ILSA was first passed by Congress in August 1996 and was reauthorized on August 3, 2001. The bill places a ceiling of $20 million in investment in the oil sectors of both Iran and Libya, before U.S. sanctions become possible.
The catalyst for the legislation was the mounting concern that investments in these countries' oil fields would provide them with the funds necessary to expedite their development of weapons of mass destruction and expand their ability to fund, train, and supply terrorist organizations around the world.
Six years after the passage of ILSA, Iran, according to the State Department's Terrorism report, "remained the most active state sponsor of terrorism..."
The report continues describing how:
This description is certainly proof of why Iran is deserving of inclusion in President Bush's "Axis of Evil."
Iran's terrorism must be paid for and that could not be done without the sale of oil and natural gas that is abundant in that country. As such, we are reminded of the statement of former Under Secretary of State Peter Tarnoff, who declared at an October 11, 1995 hearing in the Senate Banking Committee regarding oil investment in Iran that,
It is precisely because of this connection that we have called this hearing today.
In the aftermath of the deplorable attacks of September 11, 2001, when we are focused on "starving terrorists of funding", to quote President Bush, we must not lose sight of the crucial need to vigorously pursue this same policy with respect to state-sponsors.
However, it appears that the use of ILSA as a vague and unfulfilled threat is seen by some as more important, than the actual application of it.
As a result, the deterrent effect has been lost. It is not taken seriously by those investing in Iran, as illustrated by the statement made last year by a Washington oil consultant, who refered to ILSA as "a paper-tiger."
How can investing companies accept ILSA as being of any real threat if it has never been used?
While we are grateful for the help and support of some of our European allies in Operation Iraqi Freedom, they and the other nations whose companies are investing in Iran, must comprehend the threat that nation poses. The harm that is being done first, by the investments, and second by the refusal to sanction them, is incalculable.
It is difficult to understand how, on the one hand, our European allies can so fervently wish to be part of the Middle East Roadmap, yet provide the resources, through ongoing investment in Iran, to Hamas and other forces seeking to obstruct and destroy the peace process.
Europe cannot seek inclusion in the diplomatic process while funding its obstruction.
The implementation of ILSA must be viewed in the full context of the War on Terrorism, a battle we can and must win.
Vital to this fight is a world-wide effort to deny terrorist groups the funds they need to pay for their terrorism. As such, we should remember that President Bush declared on September 24, 2001: "Money is the lifeblood of terrorist operations today. We're asking the world to stop payment."
With the Iran-Libya Sanctions Act, I would argue, we would accomplish just that-stopping the flow of money to the terrorists.
Finding ways to restrict the increasing wave of foreign investment into Iran and Libya must be an integral part of the same effort to suppress terrorist financing.
It is just as important to stop the flow of money into Iran and Libya, as it is to terrorist organizations, their leaders, and corporate and charitable fronts. Terrorist funding schemes are difficult enough to stop. If we aim for their largest donors-the state sponsors-we are making a bigger dent in the financial infrastructure of the global terrorist network.
Beyond its ongoing support and active participation in terrorist activities, the Iranian regime is racing to obtain weapons of mass destruction. The regime's weapons programs, especially its nuclear programs, are taking on added concern because Iran is speeding up its efforts to build long-range ballistic missiles to deliver these weapons.
The discovery of the secret Natanz and Arak nuclear sites, combined with the "Jam Missile Project" and successful tests of Shahab-4 missiles, only further explain why investment by European oil companies must be stopped.
I understand that the Administration is discussing the idea of seeking multilateral sanctions through the United Nations Security Council for the recently disclosed Iranian violations of the Nuclear Non-proliferation Treaty.
If this is the case, it is a positive development, but not one that should preclude the use of ILSA as the most effective U.S. tool, short of war, to prevent a pariah state such as Iran from achieving nuclear status.
We prefer the support of the global community in curbing the proliferation of weapons of mass destruction. However, when our safety and security, and that of our allies in the region, is being threatened, we must take immediate action to address the problem and not sit idly by waiting for consensus to be achieved.
Diplomacy does not mean surrender.
Defense Secretary Donald Rumsfeld pointed out the threat posed by countries, such as Iran, securing nuclear weapons. While speaking in Germany at a NATO meeting on June 11th,
With respect to Iran, Under Secretary of State for Arms Control and International Security, John Bolton, testified to the full Committee on June 4th, that the conclusion is inescapable that Iran is pursuing its nuclear energy program, not for peaceful and economic purposes, but as a front for developing the capability to produce nuclear materials for nuclear weapons.
Moreover, the IAEA's condemnation of Iran's failure to declare its nuclear imports and activities, give added credence to its offensive, threatening intentions. Iran 's efforts at building nuclear weapons cannot be achieved without great cost. An influx of hard currency in the form of foreign investments, credits, and loans however, can certainly help.
In this context, ILSA reveals itself as a critical tool in the arsenal of U.S. foreign policy instruments. If there is no foreign investment flowing into these terrorist states, their coffers are depleted, their economies and official budgets are reduced.
This not only results in fewer funds being diverted to WMD programs, but it serves to remove the infusion of financial resources, which props up the regime. and enables it to carry out repression, persecution, and intimidation against those inside the country who want freedom and democracy.
The EU stubbornly continues to believe that only "constructive engagement" will work with Iran. EU External Affairs Commissioner Chris Patten has stated that he believes that only through investment in Iran, can political reform can be achieved.
Years of investment by the EU has proven this assertion to be false, as this is a regime which stones people to death; flogs or hangs them in the public square, in an effort to stifle dissent.
The choice is clear, you are either with the opressor or with those struggling to free themselves from a brutal theocracy. You cannot have it both ways.
Unfortunately, failure to implement ILSA has fueled the assumption that one can.
Lack of ILSA implementation has its origin in the State Department's waiver of the 1998 Total (TOE-TALL) deal that violated ILSA. At that time, former Secretary of State Albright found that the French company Total did indeed violate ILSA, but she refused to impose sanctions, instead invoking the "National Interest waiver" included in the law .
Secretary Albright, however, went too far in granting this waiver. While statutorily permitted to grant Total a waiver, there was no provision in ILSA for extending the waiver to the entire continent nor was there ever intended to be.
Then Secretary Albright stated that, if there was continued cooperation from the European Union on non-proliferation matters with respect to Iran, similar waivers would be granted.
It is Congress' view that this type of waiver, however, is not allowable under the law.
Simply put, because of this action, ILSA has been undermined.
On April 17, 2003, Iran's Oil Minister bragged that his country has signed oil investment contracts worth $20 billion in the last five years-interestingly five years from the time the waivers were issued. Moreover, he bragged that this investment has "boosted Iran's GDP to a great extent."
European oil investment and credit provisions have unquestionably helped the Iranian economy. Iran is issuing bonds on the international market, receiving credit guarantees from Britain for oil and other investment deals, World Bank loans, and Japanese loan guarantees for the its companies' investment in Iran.
In September 2000, only two years after the waivers, Moody's the U.S. Credit rating agency raised Iran's foreign currency ceiling from "stable" to "positive."
In 2001, IMF analysts agreed and said Iran's credit rating had greatly improved. Now, with Iran's economic outlook rising even more, the investment by companies in Europe is only speeding the day when we will see a nuclear Iran.
As frightening a thought as this might be, we must face the facts. Iran's economic rise, and its ability to advance its nuclear and chemical weapons programs are directly tied to our lack of enforcement.
If the waivers had not been granted, the investment flow would not have gone forward as it has.
While we are gratified by recent statements from the EU countries on Iran's nuclear objectives, mere rhetoric while negotiating further investments deals with Iran, are not sufficient grounds-do not justify-lack of ILSA implementation.
We are talking about an extremely dangerous regime-a regime whose leaders have repeatedly vowed to "bring America to its knees" and who are committed to the destruction of our country and our allies in the region.
We intend to review ILSA implementation very carefully.
Now that we have seen the painful truth that the oceans that separate us no longer provide us the protection they once did, we all must be mindful of the actions we take in building up tyrants who may one day grow to hurt us.
I look forward with great interest in hearing the testimony of our witnesses today.