Prepared Testimony by Senator Charles Hagel Before the Senate Banking Committee Hearing: The Iran-Libya Sanctions Act

June 28, 2001
" The greatest threats facing mankind today are those from the increasing proliferation of weapons of mass destruction and the growing scourge of terrorism. I fully agree with the objectives of the Iran-Libya Sanctions Act (ILSA). Combating proliferation and terrorism must remain at the forefront of our foreign policy. I do not agree, however, with a "face value" policy that seeks to combat these twin scourges unilaterally. ILSA cannot work. It has not worked. Right objectives but wrong policy.

We fight proliferation and terrorism through coordinated multilateral action, a strong intelligence capability, a strong national defense, and a strong economy. We accomplish this through engagement in the world, not isolation or unilateral action. We accomplish this through leadership. ILSA embodies none of these essential elements.

ILSA does not directly sanction Iran or Libya - it directly sanctions our allies and friends. It should be clear that this is a policy that contradicts our end-game - stemming the tide of proliferation and terrorism - by breaching the spirit of multilateralism so necessary to achieve success.

Instead of stopping proliferation and terrorism, ILSA has strengthened and encouraged the forces within Iran that are served by a policy of continued hostility toward the United States. These forces include radical Iranian clerics, Saddam Hussein, and radical Islamic forces throughout the Middle East focused on the elimination of the United States from the region, and the destruction of Israel.

Israel is served by far sighted and wise policies that help open the eyes of the next generation of Iranians to the real possibilities for improving their lives -- hope, peace, prosperity and stability. Israel's purposes are not served by polices that needlessly alienate this group. ILSA sends Iran's youth, which represents over 60 percent of its population, the very, message Iran's mullahs want them to hear -- the United States is our enemy.

By discouraging a Western presence in Iran, we have also cut ourselves off from a source of information on terrorism and proliferation. We are left flailing for solutions to a problem we cannot fully understand.

It is unlikely that we will ever pull the ILSA trigger, we never have . . . another example of the fundamental flaws in this law. It is unenforceable. The United States does not have legal jurisdiction over the commercial activities of foreign firms in foreign markets. Imposing unilateral sanctions that condition access to our financial markets on foreign policy considerations is a very risky business.

A new relationship with Iran will require a change in attitude by both countries. We should start with ILSA. ILSA should not be renewed. It has no deterrent capability and is self-defeating for America. The United States is surely capable of developing a more imaginative and relevant policy toward Iran. We are a great nation, and we should act like one."

Attached is a copy of the speech Senator Hagel gave yesterday to the American Iranian Council.

*********

Remarks by Senator Chuck Hagel to the American Iranian Council June 27, 2001

The greatest threats facing mankind today are those from the increasing proliferation of weapons of mass destruction. Nuclear, biological and chemical weapons and their delivery vehicles are the most heinous and destructive forces on earth.

Nations face the growing threat of terrorism - a threat that we have often found ourselves ill-prepared and unequipped to handle. The brave men and women of America's military and foreign service who have given their lives ensuring our security - the names associated with the tragedies at our embassies in Kenya and Tanzania, the Khobar Towers in Saudi Arabia and the USS Cole in Yemen to name a few - are forever burned in America's memory. All Americans are grateful for their sacrifice and the sacrifice of their families.

Terrorism is the scourge of our time and the ultimate act of cowards. Terrorism does not distinguish between combatants and civilians, nor does it exclude children or the elderly ... nor does it care. We remember the terrorist act of Pan Am Flight 103. This was the act of cowards. Libya must take full responsibility for the murder of all 244 passengers, 15 crew and 11 residents of Lockerbie, Scotland.

To deal with this reality, we must develop policies that are coherent, relevant and far-sighted to combat the dual threats of proliferation and terrorism. It does not serve our interests if we adopt policies that have only "face value."

It does not serve our interests if we fail to consider the long-term consequences of our actions by focusing on only the short-term.

Our goal is to stop proliferation and terrorism. We do this through coordinated multilateral action, a strong intelligence capability, a strong national defense and a strong economy. We accomplish this through engagement in the world, not isolation. We accomplish this through leadership. We do not accomplish this with policies that are reactive and unimaginative. We do not accomplish it with unilateral sanctions and specifically the Iran-Libya Sanctions Act (ILSA).

Congress will now be debating the relevance of unilateral sanctions embedded in the Iran-Libya Sanctions Act passed in 1996. ILSA was conceived as a unilateral action by the United States to tighten sanctions on Iran. Its goal was to stem Iran's weapons of mass destruction programs and support for terrorism, by crippling investment in its petroleum sector. Since we could not convince our allies to join us in isolating Iran. we threatened our allies with sanctions.

It is important to remember that ILSA does not directly sanction Iran - it directly sanctions our allies and friends. It should be clear that this is a policy that contradicts our end-game - stemming the tide of proliferation and terrorism - by breaching the spirit of multilateralism so necessary to achieve success. We need the support and cooperation of our allies and friends. Stopping proliferation and preventing terrorism will take a multilateral effort. We should not be implementing policies that alienate the very allies and friends needed to accomplish that goal ... and do nothing to advance it.

ILSA compels the President to impose sanctions on foreign firms engaging in substantial investment in the Iranian or Libyan petroleum sectors. Some of these sanctions, like the procurement sanction against U.S. government contracts, could violate our international obligations under the World Trade Organization. Other sanctions that would condition access to our financial markets threaten our own long- term interests much more than any firm or nation we might sanction.

U.S.

U.S. financial markets are the world's model for transparency, consistency, and trustworthiness, attracting $200 billion a year in new corporate bonds, $20 billion a year from the European Union alone. Pursuing policies that would endanger this trust is a very risky business.

If we begin to condition access to our financial markets on foreign policy considerations, we also begin to generate doubt in those who may choose to invest in the United States. We are not the only choice for investors and source of capital. This would threaten not only our continued economic growth, but the continued success and expansion of the global economy. Economic despair creates instability. Instability is the breeding ground for terrorism. We must be ever vigilant to this reality. An unstable world is a dangerous and unpredictable world.

ILSA serves to isolate us. It isolates us from the forces of change growing within Iran. Iran's reformist President Mohammad Khatemi was re-elected on June 8th with a landside 77 percent of the vote. up from 69 percent in 1997. The Iranian public categorically rejected the slate of nine far more conservative candidates. Within Iran, Khatemi represents the hope for reform and greater personal freedom- the direction the vast majority of Iran's 70 million citizens want to move in.A farsighted and realistic foreign policy' would seek to encourage this trend. ILSA does the opposite. ILSA strengthens the hand of the hardline mullahs and leaves the reformers without any gesture of support or encouragement. Symbolism is important.

President Khatemi faces a powerful block of conservative clerics who oppose loosening personal freedoms and moderating Iran's foreign policy. This block is also served by any policy that shows the United States to be the aggressive and implacable enemy of Iran. Obviously, we must approach Iran with our eyes wide open. Khatemi is no great friend of the United States, or an Islamic Thomas Jefferson, but he does represent change in Iran that coincides with our national interests. We must encourage this trend with openness, not isolation.

Iran closed itself to the West after its 1979 revolution. It is now beginning to open the door. Iran seeks trade and Western investment. It seeks access to the West. If we have learned anything in the last decade, it is that a policy of openness, encouraged by the United States, will bring change, and sometimes even revolutionary change for the better. I believe there is some evidence that there are forces for change and reform in Iran.

By isolating ourselves from Iran we have also blinded ourselves to the actions and intentions inside Iran. ILSA discourages a Western presence in Iran. Combating proliferation and terrorism requires information-gathering. The closer to the source, the better the information. With ILSA, we have moved no closer to building the groundwork for our own future presence in Iran. This is an important, but often overlooked, consequence of this ill-considered law. By cutting ourselves off from a source of information on terrorism and proliferation, we have been left flailing for solutions to a problem we cannot, by our very policies, fully understand.

ILSA has not stopped proliferation. ILSA has not stopped terrorism. It has, however, strengthened and encouraged the forces within Iran that are served by a policy of continued hostility toward the United States.

The United States has appeared weak to these forces. Although threatening sanctions, we have chosen not to use them. In 1998, President Clinton chose to waive sanctions against French, Russian, and Malaysian firms investing in a major petroleum development project, the Iranian South Pars. Originally, this contract was going to an American firm, Conoco. The President waived the sanctions against the foreign firms investing in Iran, as provided for under ILSA, for reasons of national interest.

The United States does not have legal jurisdiction over the commercial activities of foreign firms in foreign markets. It is unlikely that we will ever pull the ILSA trigger ...another example of how fundamentally flawed this law. More important, now that we have deferred ILSA once. the commitment to use ILSA becomes increasingly more difficult to make. Foreign firms know this - ILSA has lost its credibility and thus lost its deterrent capability.

Can the United States impose sanctions under ILSA once we have already chosen to defer them for a chosen few? Inconsistency is not the mark of a great power.

The national security of the United States is not served by isolating Iran. Iran's strategic importance in the region cannot be underestimated.

Located at the intersection of Asia and the Middle East, and bordering both the Caspian region and the Persian Gulf, there are few areas of the world more important to our long-term economic, strategic, geo- political and energy security. And, Iran affects and impacts our long term Iraqi policy. Whether we like it or not, Iran is a key player. We cannot isolate it from the very region from which it belongs. The United States will be better served in the long term by recognizing this and designing policies that seek our common interests and act on them. Implacable hostility between the United States and Iran serves no one except radical Iranian clerics, Saddam Hussein, and radical Islamic forces throughout the Middle East focused on the elimination of the United States from the region, and the destruction of Israel.

Sixty percent of Iran's 70 million citizens are under the age of 25. They are impressionable. They are looking for a better life- and they have no memory of Iran's 1979 revolution. This is the group we must seek to influence - before they come under the influence of Iran's conservative clerics. Israel's purposes are not served by policies that alienate this group. Israel is served by far sighted and wise policies that help open the eyes of the next generation of Iranians to the real possibilities for improving their lives -- hope, peace, prosperity and stability.

ILSA sends Iran's youth the very message that Iran's mullahs want them to hear-the United States is our implacable enemy. Isolation and hostility is a two-way street. The isolation we generate with ILSA breeds hostility and instability in the region. This will not help those seeking peace in the Middle East. The long-term security of Israel depends on stability. Because of its destabilizing impact, I believe ILSA threatens Israel's long-term security.I fully agree with the objectives of ILSA. Combating proliferation and terrorism must remain at the forefront of our foreign policy. I do. however, disagree with a policy that seeks to combat these unilaterally, and without Focus. It cannot work. It has not worked.

A multilateral approach, not the unilateral sanctions embedded in ILSA, resulted in the successful conviction or a Libyan intelligence agent for the bombing of Pan Am 103.

Although United Nations sanctions have been suspended, the pressure of world opinion remains. An end game is now in sight. The United States and the world will continue to call on Libya to take responsibility for its actions and compensate the victims' families.

We must learn from this success and design far-sighted multilateral policies to combat terrorism and proliferation. These policies must truly serve our national interests, and not simply short term political interests. The United States does not further its own interests by enacting policies that alienate us from our friends and allies.

A new relationship will require a change in attitude by both the United States and Iran. Official relations between the U.S. and Iran can only move forward when both are ready to move forward. Any opening of the door by the United States must be met by reciprocal action from Iran. But it still serves our interests to have private channels of exchange and communication as broad and as deep as possible. This is a beginning. The United States will not win this war against terrorism and proliferation until we take a clear headed look at the situation on the ground and design policies that seek long-term stability in the region. Changes in Iran's domestic politics demand changes in U.S. policy. We should start with ILSA. ILSA should not be renewed. The United States is surely capable of developing a more imaginative and relevant policy toward Iran. We are a great nation. We should act like a great nation.