Senate Banking Committee Hearing: The Status and Effectiveness of U.S. Sanctions on Iran

October 11, 1995

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D'AMATO: Committee will come to order. Before we turn to our witnesses, I'd like to make a statement. Just the first two weeks following the President's announcement of Executive Order against Iran -- by the way I give this by way of background so that we can take a look, there have been many who have questioned the wisdom of the embargo against Iran.

So I think it's important to take the look and to ascertain what has been the case as opposed to the popular misconceptions that we oftentimes hear, but the facts I think will indicate something quite differently.

In just the first two weeks following the President's announcement of the Executive Order against Iran the Iranian currency known as the rial fell to an all time low of 7,500 rials to the U.S. dollar. That's down from 4,200 per dollar two weeks before.

You see, it had quite an impact on the currency. The announcement of the ban prompted fears that rising import prices would exacerbate inflation -- put conservatively at 40 percent to even higher levels. As a result of the falling rial, the regime put an artificial ceiling on the exchange rate at 3,000 rials to the dollars.

And this has only aggravated the situation -- creating a black market rate for the money changers who are trading at between 5,000 to the dollar and closer to 6,000 in Dubayy. The artificial rate has also caused a currency flight overseas drawing even more money away from the Iranian national reserves.

Now Iran claims that the ban on purchase of oil by American companies hasn't had no effect. Well, let's look at the record. If this is true than why have they been unable to resell at least 200,000 barrels of their daily production which is 600,000 barrels in crude oil that the U.S. oil companies were buying before the trade. Moreover, if the ban has no effect, why then did Iran make a deal with South Africa to store 15,000,000 barrels of Iranian oil there?

All these factors only hinder Iran's ability to service it's foreign debt. Now, at $5 billion -- double the level in 1995. This has forced the regime to reschedule its debts the foreign creditors, making it harder to line up additional foreign investments inside Iran -- a factor crucial to fund it's regional aspirations.

D'AMATO: Now, we've called this hearing today to explore the status and effectiveness of President Clinton's trade embargo against Iran. To understand the effect of international compliance with the administration's effort to restrict trade with Iran, NS-1228, the Iran Foreign Sanctions Act -- a bill that I, along with Senators Inouye, Pressler, Faircloth, and Kohl introduced several weeks ago -- I feel that the President has made a good first step in banning U.S. trade with Iran. But, I must say, there's more to be done.

We need to have the cooperation of our allies in stopping all trade with Iran. Before the President's executive order, our allies complained that as long as the U.S. was trading with Iran, they would also. Well, today, the U.S. has in place an embargo on Iran. And I'd like to know where our allies stand on this issue now. Why do our allies still trade with Iran?

I'd also like to know what the administration is doing to stop this. We must convince our allies that their companies' help to Iran in developing its oil fields is really unacceptable. The legislation that we propose will help to do that by placing sanctions on any foreign company that supplies Iran with equipment to extract petroleum and natural gas, enabling Iran to obtain hard currency to fund the acquisition of nuclear weapons and to continue its support for terrorism.

Our allies must understand that oil is Iran's lifeline. If we're going to persuade the Iranian regime that its behavior is unacceptable. The world must cut this lifeline.

Apparently, some of our allies have yet to join us in our embargo. In fact, they seem to be playing along with the Iranian regime's plan to flaunt the embargo by agreeing to attend an international investment conference in November in Teheran, hoping to sign contracts worth $6.5 billion. The Iranian regime hopes to take advantage of disagreements with the U.S. sanctions and thumb its nose at the U.S., showing that Iran can survive and even thrive, despite the trade ban.

This is even more reason to pass, I believe, the pending legislation.

I'd like to put into the record a letter to the committee regarding this hearing from Lisa and Ilse Klinghoffer, the daughters of Leon Klinghoffer, who was killed by a terrorist aboard the Achille Lauro (ph). I look forward to hearing the testimony of our witnesses. We certainly look forward to Undersecretary Tarnoff, who will be our first witness.

Mr. Secretary?

TARNOFF: Thank you, Mr. Chairman. It's a pleasure to be back here, and to talk to you about this important subject.

I have a longer statement I'd like to submit, with your permission, for the record.

D'AMATO: So ordered.



Under Secretary of State for Political Affairs


TARNOFF: But in a few minutes, I'd like to summarize the main points of my presentation.

On April 30th of this year, President Clinton announced his decision to sever all trade and investment ties between the United States and Iran.

TARNOFF: These new sanctions represent American willingness to take actions, even those that may hurt competing U.S. interests, to increase the cost to Iran of its irresponsible behavior. Iran engages, as you mentioned Mr. Chairman, in terrorism. It also obstructs the Arab/Israeli peace process, it pursues weapons of mass destruction and it pursues a threatening military buildup in the Persian Gulf, as well as abusing the human rights of its citizens.

The cutoff in U.S. trade and investment with Iran took effect just four months ago. As this committee knows well, economic pressure is not an instant remedy, however, there are signs, as you also noted, that our embargo is already squeezing the Iranian economy, even if it is too early to expect conclusive results.

We must look instead to the trends indicating fundamental deterioration in Iran's key economic indicators. And our action is accelerating this decline. Moreover, the administration is committed to working alone, when necessary, and collectively when possible, to increase the intensity of international pressure on Iran.

Iran's policies threaten not only America's interests, but those of our allies in Western Europe and Japan. We are asking them to forego the narrow economic benefits of trade with Iran and to exercise responsible leadership in the face of Iran's threatening behavior. Adding their collective strength to our effort would increase significantly, the price that Iran's leadership pays for it's rogue activities.

The biggest economic problem faced by Iran today is the government shortage of hard currency. And our Iran policy is designed to make it even tougher for the Iranian government to obtain hard currency and thereby constrict it's ability to fund those policies that threaten our interests.

While our embargo has just begun to take effect, it is already taken a bite our of Iran's wallet in three ways. First, the rial is again, as you mentioned, Iran's currency lost one third of its value following President Clinton's announcement of the trade and investment embargo against Iran. The strict currency controls that Iran imposed to stabilize the rial will lead to slower growth or recession over the long term.

Second, our embargo forced the temporary drop in Iran's income from crude oil sales, because U.S. companies are now prohibited from trading in Iranian oil. The government has had to scramble to sell an additional 400,000 barrels per day. Iran faced the choice of discounting the oil in order to unload it or storing it in the hopes of selling it later at a better price. Iran chose to wait. The resulting cost included delayed oil revenues, increased tanker chartering costs, and increased crude oil storage costs. Although these costs are short-term expenses, it is clear that our embargo has cut into Iran's available hard currency.

Our embargo has had a third impact. By aggravating Iran's cash crunch, we are weakening the government's ability to meet it's external expenses. Moreover, Iran's financial reputation will only worsen, because the government debt payments are scheduled to double in 1996.

Our embargo has exacerbated Iran's difficulty in gaining easy access to foreign capital. Before we impose sanctions on our commercial trade, other governments pointed to American commerce with Iran as a rationalization for promoting bilateral trade and providing financial assistance to Iran.

TARNOFF: Such assistance which includes new government credits and development aid gives Iran new financial resources. By severing the economic activity between the United States and Iran, we increase the political price of such dealings with that country. Since we imposed the embargo, Iran's key trading partners have not extended any new official credits.

My point is this, even if other governments have not yet rushed to copy U.S. policy, the steps we have taken have encouraged them to limit the scope of their commercial relations with Iran. Our investment sanctions prohibit American contributions to the development of Iran's economy particularly the petroleum sector. That was why the President blocked Conoco, an American company, from working with Iran and that is why it is important for us to convince other governments to take similar measures.

Mr. Chairman, it is important to note that we do not underestimate the impact of our policy on American business. These steps were necessary to strengthen our efforts to pressure Iran to abandon those practices that effect our countries national interests. We believe other governments should also act responsibly and take similar steps to deter Iran's threatening behavior. The decision of the French firm, Totale (PH), to take up the Conoco deal is extremely regrettable. We strongly urge Totale to reconsider it's decision and advised others to refrain from similar actions. The highest level officials in this administration will continue to press our case on Iran with our counterparts from other countries.

It would be a mistake for the U.S., however, to exaggerate the gap between our policy and that of most of the other industrialized nations toward Iran. In my discussions as well as those of Secretary Christopher, with top officials of the G-7 countries for example, our counterparts expressed their shared concern about Iran's pursuit of weapons of mass destruction, it's support of terrorism, and it's continued military build up because of these concerns. G-7 countries refuse to engage in any nuclear cooperation with Iran. And they prohibit exports to the Iranian military of arms or sensitive dual-use technology. We do not believe that engagement with Iran, as advocated by some of our friends, will alter Iran's objectionable behavior. That is why we chose to intensify U.S. leadership by unilaterally imposing new sanctions.

The question at hand is how can we most effectively convince other governments to join us. One proposal calls for the United States to boycott those foreign firms that engage in any business activity with Iran. We have carefully reviewed this proposal and rejected it for two reasons. We believe a full secondary boycott will put at risk the cooperation on Iran policy that we share with others particularly cooperation on critical matters such as denying Iran weapons. We also believe that such interference in the international market place would backfire hurting American businesses and harming the American economy.

Another proposal suggested by your new bill is to impose targeted sanctions on foreign companies that provide Iran's petroleum industry with equipment or technology.

TARNOFF: This action would create additional disincentives for European trade and investment with Iran. Yet it could also have negative implications for U.S. economic interests by upsetting our relations with key allies in foreign industry.

For example, our partners in GATT, WTO and NAFTA would argue strongly that even a limited secondary boycott violates our obligations under these agreements. Moreover, it would be difficult to square a U.S. secondary boycott with the free trade rhetoric which we press Arab governments to remove their secondary and tertiary boycotts on Israel.

Other concerns we must all address include our ability to comprehensively monitor the activities of foreign companies. The likely negative reactions of some of our allies and the impact on U.S economic competitiveness. Most importantly, we need to assess whether any additional action would contribute to our goal of gaining international support for pressure of Iran.

Our current approach of leading by example and working cooperatively with allies needs to be given a real chance to work. That will take some time. Our patience, however, is not endless. If, after a reasonable period of time, diplomacy alone proves inadequate in achieving an acceptable level of multilateral support for our efforts, we could then consider additional approaches.

Mr. Chairman, I would like to take this opportunity to remind the committee that our policy of economic pressure is complemented by our ceaseless efforts to convince other governments not to contribute to Iran's pursuit of weapons of mass destruction or its military buildup.

In summary, Mr. Chairman, we believe that our efforts to intensify pressure against Iran are making progress and that the embargo will make an important contribution. More is being done, especially to win greater support from our friends and allies, above all, in the area of investment and financial assistance.

American leadership has been and will continue to be critical to effectively pressing Iran to change its behavior. We are grateful for Congressional support of our actions and to you, Mr. Chairman, for your efforts to focus attention on this very important issue. Thank you.

D'AMATO: Thank you, Mr. Secretary. Mr. Gannon, who is the deputy director of intelligence for the CIA. Mr. Gannon.



Deputy Director for Intelligence,
Central Intelligence Agency


GANNON: Thank you, Mr. Chairman. I am pleased to be able to meet with you this morning. I propose to make some brief general remarks, after which I would be glad to answer any questions you may have.

In my remarks I will offer our assessment of both the short term and long term impact of the sanctions implemented against Iran last May. We have already seen some short term effects, including some disruption in the oil sector and an increase in domestic prices.

Over the long term tightened sanctions are unlikely to have a major impact on the already deteriorating Iranian economy, without strong international backing. And we believe this backing will be difficult to obtain.

Finally, I will offer our view that the current Iranian regime, despite its economic problems, has a much better than even chance of remaining in power over the next three years.

GANNON: I will first discuss the immediate effect of the sanctions. Despite dismissive public statements by senior Iranian officials, the sanctions have caused temporary economic and psychological blows to Teheran.

The ban has fueled domestic price increases and volatility in Teheran's foreign exchange market. In late May, the government imposed strict foreign exchange controls to prevent a further drop in the value of the rial, which fell by one-third in two weeks after the embargo was announced. The rial, however, has since recovered to roughly pre-sanction levels.

The ban has also prompted some disruptions in the oil sector, including higher costs associated with lining up new buyers for Iranian oil. The embargo has set Iranian officials scrambling to establish new contracts for the roughly 400,000 barrels per day of oil that U.S. companies bought during the first four months of the year.

Teheran has opted to market more of its oil abroad rather than directly from its export terminals. This has resulted in somewhat higher transportation and storage costs.

Iran has increased spot oil sales to customers in Europe and South Africa. It is working to increase long-term contractual sales to both existing and new customers. Teheran is trying to conclude a deal with South Africa to store up to 15 million barrels of Iranian oil and sell its oil through a joint Iranian-South African company.

Over the long term, the sanctions are likely to have little impact on Iran's weakening economy, which is driven primarily by oil exports. Iran will maintain its oil sales because it uses sophisticated marketing tactics, and because its crude oil is of good quality.

The ban will not stop major new development projects or prevent maintenance and repairs. At most, it will raise prices, disrupt individual Iranian businesses, and possibly delay some infrastructure projects.

Iran continues to have other trading options. As early as 1980, it was cultivating alternative suppliers to replace U.S. equipment, and has established ties with hundreds of foreign companies. Even the strong growth in U.S. exports to Iran in the early 1990s reflected only an Iranian preference for, not dependence on, U.S. goods.

As you know, Mr. Chairman, the strong and sustained support of other countries is essential for sanctions to succeed. The long-term effect on Iran's economy will be minimal unless many more countries join the embargo or withhold significant loans. To date, there has been little international support.

A few countries do support the embargo -- Israel, El Salvador, and Ivory Coast, for example -- but these countries have limited economic dealings with Teheran.

GANNON: Western governments, including many of our European allies, have voiced doubts about the potential impact of sanctions on Iranian behavior. They argue that engagement, not isolation, of Iran offers the best hope of moderating Tehran's behavior. Those with significant credit exposure to Iran, Germany, Japan and Italy, for example, believe supporting sanctions would jeopardize Iranian debt payments.

They also are concerned that joining the ban would threaten their efforts to expand commercial opportunities for their firms. We have seen a couple of recent exceptions to this trend. Japan decided to delay the release of the second tranch (PH), about $460 million, of a loan to finance building a hydroelectric project, because of the new sanctions.

Paris has said it will not provide the French energy firm TOTAL (PH) with official support for it's involvement in Iran's city offshore oil project, which of course, is the former CONOCO deal.

Other countries have said they might change their policy if other major trading nations did so, or if they had more concrete information on Iran's support for terrorism, its active opposition to the Middle East peace process, its violation of human rights at home, or its pursuit of weapons of mass destruction.

As for the future of Iran's regime, we now give it a three in four chance to stay in power over the next three years, despite the worsening economy. Opposition to the government is weak, divided and tainted by ties to Iraq, which, as you know, fought an eight year war with Iran.

Judging from past experience, the clergy will likely close ranks against any perceived threats to the regime. Government stability depends largely on the clergy's ability to present a United Front in times of crisis. It has done this throughout the life of the Islamic Republic.

GANNON: As living conditions grow harder, public unrest, including demonstrations, will probably increase. This will make it more difficult for the regime to maintain stability.

In closing, let me say that we at the CIA are sensitive to your concerns, and those of the administration and Congress, on this issue. And we will continue, as a high priority, to monitor and report on political and economic developments in Iran and on Teheran's ability to cope with U.S. sanctions.

Thank you, Mr. Chairman.

D'AMATO: Thank you very much, Mr. Gannon.

Mr. Gannon, in your remarks you indicate that a number of our allies have indicated, and have indeed taken some steps as it relates to the embargo with respect to specific deals and with respect to certain of their companies -- France being one. I think you mentioned another country -- who else -- Japan...


D'AMATO: it relates to making available additional credits, et cetera.

You also indicated that some of our allies have indicated that if, indeed, we can give them additional information, or substantiate the Iranian quest for nuclear weapons, or the fact that they are exporting terrorism with more specificity, that they might be willing to consider implementing additional sanctions or implementing these sanctions. Is that correct?

GANNON: Yes, sir, that is.

D'AMATO: Well, what, if anything, are we doing to provide that kind of information to them?

GANNON: We have had dialogues with several of those governments on this.

D'AMATO: Well, let me back up a second. Do we have information, credible information, that will lead us to believe that the Iranians are pursuing the development of nuclear weapons?

GANNON: Sir, I'd have to ask you to allow me to address that issue in a classified session.

D'AMATO: OK. I didn't ask you how you got the information. But, I think it would be safe for me to say, it's been commented on regularly, and I think in the April 20, 1995, "Washington Post," that "...Iranian President Rafsanjani declared today that his government has made no decision to seek nuclear weapons, but pledged to continue efforts to acquire technology for nuclear research."

So, I mean, they have indicated this publicly. So, this is not classified. We know that there are certain things in a non-classified way.

What about as it relates to the export of terrorism?

D'AMATO: Are you convinced that they are pursuing and have pursued that kind of activity?.

TARNOFF: Yes, sir.

D'AMATO: What are we doing then, if you can tell me? Are we engaged in attempting to disseminate that information? Obviously recognizing those areas that have to be dealt with in a classified manner -- and of course you would do that with other intelligence agencies that we cooperate with -- are we attempting to bring them up to date on both the terrorist activities and those activities, if any, in regard to their developing a nuclear capacity?.

TARNOFF: Yes, sir, we are doing that.

D'AMATO: OK. I would hope that we are. Mr. Secretary, have you noticed any change in attitude in dealing with our allies as it relates to the embargo or the sanctions that we have put in place and that we are seeking them to undertake?

TARNOFF: Mr. Chairman, we have noted a change in attitude, not sufficient in our view because we have confirmed here no other government has adopted the range of sanctions that the President mandated earlier this year. But several cases, I think the willingness of governments to provide official credits like the case of Japan which is still withholding additional credits for a major dam project.

Even in the case of the French company Totale which is taking over the Conoco deal, the French Government has stated very explicitly that there will be no official credits, official government credits to promote that deal as well. So, I think our impression is that measures, if taken, have had some effect on attitudes in allied government.

D'AMATO: Now for the information that both Mr. Gannon and you have provided today and others that the committee has received, we see that the Iranians have not been able to dispose of approximately 200,000 barrels of oil on a daily basis. Is that correct?

TARNOFF: I defer to Mr. Gannon for part of that. But our information, Mr. Chairman, is that in recent weeks they have managed to find outlets for the oil as the winter season has come about. But nonetheless they incurred delays in receiving payment for it, they had to assume storage charges and therefore there was a cost. But I believe our information is that slowly they are finding markets for at least a bulk of that oil.

D'AMATO: Is that correct?

GANNON: Mr. Tarnoff's information concurs with ours.

D'AMATO: During the past few weeks, China said first that the deal to provide a reactor to Iran was terminated and then said it was merely suspended.

D'AMATO: Right now, where does that situation stand? And if that deal has merely been suspended, what is the administration doing to persuade the Chinese from terminating it?

TARNOFF: Chairman, the question of cooperation between China and Iran, in several respects, has been the subject of quite a bit of the dialogue that we've been having with China over the past two-and-a- half years.

It is true that in meeting with us in recent weeks, the Chinese government did volunteer the information that they would not pursue the nuclear sale of reactors to Iran. Subsequently, they commented that it was suspended, not terminated. But we believe that it was significant the Chinese volunteered this information. There seems to be no evidence that the deal is on track.

D'AMATO: In light of the recent exposures about how close Iraq was, actually, to obtaining a nuclear capacity, what can we say about Iran's capability in that regard? Is there a time period that you have in which you believe they'll have that capacity? Can you give us an estimate?

TARNOFF: Sir, we, perhaps, could do that. I don't have the, frankly, the competence to answer that question. I'd have to get back to you on that.

D'AMATO: OK. Would you do that? And if that requires a classified briefing, why, then -- which it might -- I certainly would appreciate...

TARNOFF: I will do that, sir.

D'AMATO: ...undertaking that. Mr. Tarnoff, first of all, I applaud the President for undertaking the sanctions. I think they have had an impact, very clearly, in exacerbating the economic situation that the Iranians have. Their weapons acquisition program, we understand, has been curtailed to the extent that they've cut it from $2 billion a year, 1991-1993, now estimated to about $500 million. And they've also reduced funding for Hizbollah and other radical Islamic client organizations.

So, I think that that is a very important contribution that these sanctions have had. And that's why, on a bipartisan basis with people like Senator Inouye and Senator Kohl and another half-dozen of my colleagues, Democrats and Republicans, we have put forth this legislative proposal, S 1288, that would seek to bring about additional pressure and sanctions. And it might, indeed, gain the ire of some of our allies.

D'AMATO: But, how long do you believe we should wait and persevere the course we are now applying? I applaud you for that, before we implement this legislation, before I bring it to the floor because I think it will pass.

TARNOFF: Mr. Chairman, I don't want to set a time line on how long it will be before the measures that the administration decided on in April have the desired affect. We have agreed in our conversation here today that they have had some effect. Our overall concern about the elements in the legislation that you proposed relates to the fact that looked at comprehensively, we believe that in most areas there's really very good cooperation among the major industrialized country's with respect to Iran.

They have indicated refrain from a nuclear cooperation, made very clear that they would not sell arms or arms related technology to Iran. And increasingly in their public statements, including at the G-7 meeting in Halifax this past summer under U.S. leadership, industrialized countries were more and more specific about the dangers in Iran. Our concern would be that if the United States were to take certain actions that they would regard as hostile to their own companies, that our ability to explore increasing cooperation in these many other areas would be jeopardized.

So this is a judgement call. It is something that we are continuing to evaluate and I think the best way for us to continue to form our opinion would be to commit ourselves -- and I will do that here today to have a constant dialogue with you and other members of the committee and staff of the committee -- so that you can sense on a continuing basis what our assessment is both of the affect of the measures the United States has taken, and secondly the degree of cooperation that we are receiving from friends and allies. Some of this information, of course, will have to be conveyed in a classified setting as Mr. Gannon indicated.

D'AMATO: Mr. Secretary, let me first tell you, assure you that I will not bring this legislation to the floor without certainly giving you an opportunity to respond and giving you notice. It is not my intent to attempt to set policy, but rather to put pressure on the Iranians. And I think that the administration, when we proposed the sanctions last year, moved in a way to let them know that we are serious.

D'AMATO: And I commend the President for that. Now, I certainly don't think that this effort -- and we will attempt to gain more in the way of support and broaden that support -- I think we have eight co-sponsors on the bill now. And we'll try to get more because I think it's important that our allies understand that we really are committed and they should join in this effort at attempting to limit the capacity of this nation to obtain war-like materials which it does through its oil reserves and the export of violent revolution and terrorism.

So we all have a stake in this. Some seek to ignore that. Now there are a number of countries -- and I would do a disservice to those countries and to our relationship with them if I were to mention them. But there are several and at some point and time I would like to speak to you privately about those countries that I believe could have a tremendous impact in making these sanctions have some real teeth.

If you were to deny, for example, the ability of the Iranians to sell via long term contract another million plus barrels a day, that would have a tremendous impact. That would get their attention. And I believe that there are two nations, and I'm not talking about Japan -- let's make that clear -- that could easily bring that about with very little in the way of disruption to their own economy. And this is the kind of thing that we have got to begin to be more aggressive with our allies to bring this about.

Now, I recognize there are lots of things that you're doing and lots of things that the administration is undertaking, but I want to leave with you this thought. I'd like, to at some point and time, to review with you and get from you at a classified briefing, exactly what our efforts are with some of these allies.

Again, I don't think it would be appropriate to begin to mention names and to say what are you doing with x and y and z. But I do believe that there are some who could really have a significant impact, and there are allies that we are playing a key role in terms of their security. I won't go further.

Mr. Gannon, you know who they are. Mr. Secretary, I think you have a pretty good idea of who they are, or who I might be referring to. And I would hope that we would begin to use some of this leverage. And again, I think you need to do it quietly behind the scenes, it has a better opportunity of maybe coming to fruition because no one wants to read about this, you know, another government doesn't want to read that the United States says that you should be doing this publicly. So, I'm going to pursue that.

Senator Faircloth, who is one of our prime sponsors and the co- sponsor in this legislation has joined us. I don't know if the Senator has a statement or has any questions to ask. Senator Faircloth?

FAIRCLOTH: Thank you, Mr. Chairman.

FAIRCLOTH: I really don't have a statement, other than just a brief comment. Iran has been an outlaw nation since 1979 and it's well known that they supported terrorism around the world and they're now trying to acquire the nuclear technology and I find this extremely troubling. I have supported the sanctions against Iran and I think the administration is taking the right position by imposing an economic boycott against Iran, but I think we need to go farther.

The question, as I see it, is whether we should do more to get our allies in other countries, Russia, China, France, are not following our lead and I think they should, but I don't think we can sit back and wait for those countries to take the lead. It's up to us to lead and we should do it.

I think we'll have testimony from the CIA today that the current government will probably survive in Iran for about three more years. And I'm sure this is true, and if they are making concerted efforts to acquire nuclear technology then I think it's incumbent upon us to seriously consider taking stronger action than we have and take action such as a secondary boycott, as Senator D'Amato has suggested. And I think we need to do something to get the situation under control. And, Mr. Chairman, I applaud you for taking the lead in this and I welcome the chance to join you in support.

D'AMATO: Thank you, very much. Mr. Secretary, if you have any concluding remarks or thoughts, we'd be pleased to take them.

TARNOFF: Thank you, Mr. Chairman. I just want to reiterate our commitment to increase the pressure on Iran. We agree totally with your assessment of the dangers that this regime represents. This, as I indicated in my formal statement, is a very high priority for the administration, so what we should be talking about, and again, I welcome your invitation to discuss in another setting, some of the details of what our policy involves, is how best to obtain the cooperation of those other countries around the world in this effort, where Senator Faircloth correctly said the United States must lead. And lead because it's in our interest, but we also believe it's in the interest of the international community to work together to increase pressure on this rogue state.

D'AMATO: Let me, if I might, say that the legislation which I am co-sponsoring would provide a series of mandatory sanctions and discretionary sanctions that the President could place upon any foreign company, foreign person, parent or subsidiary who engages in the either trade with Iran in the above-mentioned sector or has requisite knowledge.

And among the mandatory sanctions the President can place upon the offending foreign company are the following: procurement sanctions, export sanctions, inclusions on the table of denial order stating that sanctioned foreign persons shall be included, denial of entry of the persons into the United States.

D'AMATO: So that is it quite extensive -- prohibitions against export/import assistance or exports to foreign persons, denial of loans from U.S. financial institutions, and prohibitions on foreign financial institutions stating that a sanction foreign financial institution will lose its designation as a primary dealer.

They're quite extensive and this would give to the President the ability to impose any and all of these sanctions. Now, again, I made a commitment to you. I will not take this to the floor at this time. I will, though, pursue any additional co-sponsors, along with Senator Faircloth. Again, we have eight, and we have not really begun to pressure this, but I intend to pursue that.

I hope that this will act as the catalyst in a number of areas, both with our allies or with the administration, and also send to the Iranians a message that we do mean business, and that we are not prepared to simply allow them to go their way, as Senator Faircloth has indicated, as a rogue nation, exporting terrorism and looking to develop nuclear capacity.

Senator Faircloth, do you have anything?

FAIRCLOTH: I have one question. Mr. Gannon, we know that Iran has supported terrorism around the world. Are they continuing to do so?

GANNON: Yes, sir.

FAIRCLOTH: Is there evidence that they have supported terroristic acts in this country?

GANNON: I think I'd defer that to a classified session, sir. I'd be happy to do that at your convenience.

FAIRCLOTH: All right. But they are continuing to do so around the world?

GANNON: Yes, sir.

FAIRCLOTH: All right. That's all. Thank you.

D'AMATO: Mr. Gannon, I want to thank you. Mr. Tarnoff, I want to thank you. The length of this hearing should not have anything to do with the significance and the import. Sometimes we think if we have lengthy hearings....I think this was very important. And again I want to thank you personally for your efforts in this area. And we look forward to working with both of you and look forward to asking our staffs to set up a little briefing session so that we might review some of the countries, and then some of the activities in the nature of some of those terrorist activities.

GANNON: Be glad to help, sir.

D'AMATO: Thank you. We can recess. Yes.

FAIRCLOTH: Mr. Gannon, I will get in touch with you. I would like ...

GANNON: We will follow up.

D'AMATO: We stand in recess.