Senate Committee on Foreign Relations Hearing: Engaging Iran: Obstacles and Opportunities

May 6, 2009

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  • Iran

SEN. KERRY: The hearing will come to order.

Thank you all for being here, and again, thank you for being here at this early hour.

Let me just announce ahead of time that we are going to have a little bit of a truncated hearing -- and I'm going to try to expedite it -- the reason being the United States Senate, in its wisdom, has scheduled 10 votes at about 10:40. And 10 votes, as we all know, takes about an hour-and-a-half to two hours around here.

So we're going to try to really move through this as expeditiously as we can. And I appreciate everybody understanding that. It's just one of those things that happens.

It is a huge privilege to welcome our guests here today. And I'll say a few words about both of them in a minute.

But let me just say that faced with a crowded field of foreign policy challenges, we're here today to discuss one of the most complicated and important to all of us. And that is the question of how to engage with Iran and to prevent it from becoming a nuclear- armed nation.

This is our third public hearing on Iran in the last two months, and it is not going to be the last. We're very fortunate to have two panels of witnesses whose broad experience will help us look at the issues that are front and center in this relationship.

Obviously, there are obstacles in our path as we pursue a new policy, but there are huge opportunities. And I want to emphasize the opportunities.

Iran is a country with a huge and important history. We need to recognize that history, and we need to understand the extraordinary skills and capabilities and heritage of the Iranian people.

Theirs is a country with enormous history, with great literature, great art, great architecture, great accomplishment. And I think that it is important for us to view the Iranians and the country in its entire context, not just in the years of difficulty since 1979.

All of us have a right to hope for a restoration of a relationship with Iran that reflects that history and the prospects of what an honest relationship, even with its differences, could bring to us in terms of our mutual interests, and the interest particularly of the Middle East and of that region.

As I've said before, I believe President Obama is 100 percent correct to open the door to direct talks with Iran. We want to join with him here in this committee in seeking a new way forward based on mutual respect and mutual interests.

We start with the reality, recognized by the administration, that merely expressing your desire to engage and then engaging is not in itself a strategy, and talks are not an end unto themselves. They're the beginning of what is probably a complicated effort to forge a new -- not probably -- is a complicated effort to forge a new relationship, a new era in U.S.-Iran relations.

Clearly, progress is not automatic. Our efforts need to be reciprocated by the other side.

It is important to note that Iran, for a number of years, has perceived that the United States' policy is fundamentally regime change. And that perception drives a certain set of choices.

That is not the current policy of this new administration, and it is important for Iran to understand that. Just as we abandon calls for regime change in Tehran and recognize the legitimate Iranian role in the region, Iran's leaders need to moderate their behavior, and particularly that of their proxies, Hezbollah and Hamas.

And Iran's leaders must comply with the international community's requirements that its nuclear program is strictly for peaceful purposes and meet its Nuclear Non-Proliferation Treaty obligations.

Let me emphasize here. That is not a requirement that singles out Iran. That would be a requirement for any country that is a signatory to the NPT that has not complied with NPT requirements.

We obviously can't succeed in this effort alone. We need to work with our allies to establish realistic goals for negotiating with Iran and reach a private agreement on a set of escalating measures should Iran fail to respond to negotiations?

I emphasize again, our preference is engagement. Our preference is not to have confrontation of any kind, through sanctions or otherwise. But that will depend on choices that Iran itself makes.

This is neither the time nor the forum to outline all of the contingencies available to the United States in the event that we fail. This is a time to reaffirm our commitment to giving meaningful negotiations with Iran's leaders a chance and not simply fall back on the stale rhetoric and failed strategies of the previous years.

Still, as policymakers, we also need to understand the nature of the sanctions that have defined our relationship with Iran for more than two decades now, and understanding the past and the choices we have made in implementing it or enforcing it is really critical to understanding how we're going to build a new relationship or how we're going to deal with contingencies in the event we fail to.

Sanctions, even coordinated, multilateral sanctions, still remain a fairly blunt instrument with an imperfect track record. And when it comes to Iran, the verdict on them is mixed at best, and that's part of what we examine here today. Sanctions did slow Iran's nuclear program. But bottom line they did not prevent it from acquiring the capacity to enrich uranium on an industrial scale.

With the help of other countries, we've had more success in denying banks and companies involved in Iran's proliferation and terrorism activities access to the U.S. financial system. But as our first witnesses will explain, the firewalls and filters there don't always work.

The most startling example came to light recently when Britain's Lloyds Bank settled a criminal case with the New York district attorney and Justice Department. And I emphasize, they did settle the case. So that is now a matter of court record.

Lloyds agreed to pay a $350 million fine for helping Iranian banks wash hundreds of millions of dollars worth of prohibited transactions through U.S. financial institutions. The scheme was so pervasive that bank employees were given a handbook on how to evade U.S. prohibitions.

The CIA and FBI are reconstructing several hundred thousand individual transactions to determine whether they involved material and technology destined for Iran's nuclear and missile programs.

We're going to hear about the case and others from a man whom I've known and respected for more years than either of us care to count. And that is Robert Morgenthau, the distinguished district attorney of New York.

They often -- let me say two things here. One -- before I say a few words about District Attorney Morgenthau -- the committee, the majority on the committee will be releasing today or tomorrow -- and it's more logistical, but it will either be later this afternoon or tomorrow -- a report on Iran's nuclear program, sort of establishing a baseline with respect to how we got where we are and where Iran is with respect to its nuclear program.

And needless to say, we have been spending great efforts through the Treasury Department and the FBI and others to enforce those sanctions that are currently in place.

As a former assistant -- I was first assistant district attorney in one of the largest counties in America back in the 1970s to '80, and I will remind folks that there was a saying that crime knows no borders. The truth is, there's one district attorney in the country who from the early -- from the 1970s until today has a reputation that knows no borders.

And malefactors fear his name, not just in mob hangouts in New York or in the corridors of Wall Street, but in foreign capitals, too. And I learned that full well when we worked very closely when the Foreign Relations Committee in the 1980s uncovered the Bank of Credit and Commerce International scandal, which involved not just General Noriega laundering money through it, but also had the bank account of a fellow who was to become well-known by the name of Osama bin Laden.

And that's when we first learned of this interconnected, interlocked series of fronts, shell companies, and various bank accounts that link arms trafficking with narcotics trafficking with terror. And it's an important network for our criminal justice system and law enforcement authorities to understand.

I'm grateful to Mr. Morgenthau for his role in helping to make that happen. But let me just say that from the first days I stepped into a responsible role in a district attorney's office, all of us in the country back then were modeling many of our efforts on what District Attorney Morgenthau had done.

He was a groundbreaker in the way he organized his office, professionalized the office, created different task forces, and really reformed what until then had been a backwater of the criminal justice system. And he set an extraordinary example.

After 35 years of service, he will be retiring at the end of his current term.

But, Mr. District Attorney, we are really privileged to have you here today and we're very grateful to you.

Following his testimony will be another distinguished and familiar face, public servant. Ambassador Nick Burns was the Bush administration's point man on Iran, as undersecretary of state from 2005 to 2008, a very well regarded and strong advocate for diplomacy.

And many of the policies that Secretary Burns advocated and talked about with us are now being implemented. And I'm sure he is pleased to see that. Some of it probably is a little bittersweet.

He'll pick up on the other side of the coin and help us understand the diplomatic challenges and the opportunities for success.

I might add that after serving many years overseas and wandering in the wilderness of Washington, D.C., he is now teaching at Harvard. And I'm very pleased to welcome him here today and back to his home state of Massachusetts.

So we thank you for being here today.

I should mention the secretary -- the secretary? -- the district attorney's assistant, Adam Kaufman, is here who will also present testimony with him.

And we're delighted to have you here.

Mr. District Attorney, thank you for being with us, sir.

MR. MORGENTHAU: Well, thank you for giving me the opportunity to testify here today.

Twenty-one years ago, when you were the chairman of the subcommittee of the Foreign Relations Committee on terrorism and narcotics, I had the honor of testifying before you in connection with the activities of BCCI.

I learned that day the importance of disclosure, the importance of sunlight on corrupt activities. You asked me whether we were getting any cooperation from the Bank of England. And I said no. And that was in the papers the next day. And the following day, I got a call from Eddie George (ph) from the Bank of England saying, "How can we help you?"

So a lot of people who do things in the dark. In the sunlight, this committee focuses attention, things change. So that's why I'm particularly grateful for the opportunity to be here today and to talk about two activities of Iran.

One, the international money movement, hiding the sources of that money. And two, the people who are providing Iran through dummy companies with the materiel for long-range missiles and nuclear weapons. And this is an ongoing and serious problem, very serious.

First case that we brought -- I mean, we've had a lot of investigations which have stopped activities, but we don't talk about that. But the Lloyds case involved, which we did with the Department of Justice, the asset forfeiture people in very close cooperation, showed how the Iranians were moving money through a British bank, stripping the identification, so that the New York banks that were receiving that money did not know it was Iranian money.

And there was a settlement of that case. They paid a fine of $350 million, evenly divided between New York and the Department of Justice. But that had widespread repercussions because people suddenly realized, hey, you do this kind of illegal activity in the dark, and somebody's going to find out about it.

And we have another investigation similar that's fairly well along. And there are others. But we hope to stop -- with the cooperation of the Department of Justice -- we hope to stop the movement of Iranian money into the purchase of materiel for long-range missiles.

The second thing is that we brought a case against a Chinese provider of material. And again, I mean, they used -- they used six dummy corporations. The Iranian used four. And they were buying serious material to be used for long-range missiles.

Just to give you an idea of what was involved, and they were deadly serious about that, about proceeding. And, for instance, the shipping material to Iran included 15,000 kilograms of a specialized aluminum alloy used almost exclusively in long-range missile production; 1,700 kilograms of graphite cylinders used for banned electrical discharge machines, which are used in converting uranium; more than 30,000 kilograms of tungsten copper plates; t200 pieces of tungsten copper alloy hollow cylinders all used for missiles; 19,000 kilograms of tungsten metal powder; and 24,500 kilograms of maraging steel rods.

Maraging steel, and I must say, before we got into this, I'd never heard of it, but it's especially hardened steel suitable for long-range missiles.

And that's just a partial list. There were gyroscopes, accelerometers, armor-piercing Tantalum. Again, I had never heard about Tantalum till we got into this investigation, but Tantalum is used in those roadside bombs that are being used against our troops in Iraq and Afghanistan.

So this is a serious problem. These missiles can reach anywhere in the Middle East, our troops in Afghanistan and Iraq, and elsewhere. And I just think that the work of this committee is so important to let the public know that the Iranians are deadly serious and they're making good progress.

And we've got to intensify our efforts to embargo the shipment of WMD, as it's called, to Iran. And equally important, we've got to let the public know what's going on. I mean -- and that's why the work of this committee shedding sunlight -- to use the words of Justice Brandeis, the best disinfectant is sunlight. And that's what this committee is doing.

And I thank you for the opportunity to be with you.

SEN. KERRY: We thank you very, very much for that summary.

Mr. Kaufman, did you want to add to that?

MR. KAUFMANN: Senator, very briefly, if I may.

What we found, to just give you a quick idea and overview of the conduct that we looked at in the Lloyds investigation with the Department of Justice, so you understand exactly what Lloyds was doing and what its criminal conduct was, essentially, Lloyds offered banking services to Iranian banks.

So Iranian banks need to move money all over the world to pay for many times commercial transactions, at other times military related transactions. And the majority of those contracts between international companies are denominated in U.S. dollars, which means that to clear those -- to execute those transfers, they have to transit through banks in the United States. That is generally the case.

What Lloyds did was it went to the Iranian banks and said, "Look, you're banned from transacting through the U.S. by the Department of Treasury regulations and the Office of Foreign Assets Control."

So U.S. banks, all of the main, U.S. -- major, U.S. banks that operate in this business of clearing U.S. dollar transfers have very sophisticated systems that if a transfer came in referencing Iran, the bank would block it and then investigate it, and either reject or freeze or block the money.

So what Lloyds did was they provided a service to the Iranian banks to make sure their transfers went through the U.S. banks undetected to effectuate Iranian commerce.

And the way they did this was by what we've refer to as stripping. Every wire payment message that came in from Lloyds, that came in from an Iranian bank to Lloyds, would be taken out of the system. Any information that would identify it as being Iranian would be removed, and then that altered payment message would be sent through to the U.S. banks to complete the transaction.

I have here -- it was going to be on a PowerPoint presentation, but since that's -- we're a little technologically disabled at this table -- we have a sample. It's not an actual stripped, SWIFT message. It's one that I put together as an example or a hypothetical, but I'll pass it up to the committee.

And you'll see what it shows is an incoming message sent from Melli Bank, which is a banned Iranian bank, to Lloyds asking for a payment message to be sent on in U.S. dollars. You'll see in the bottom field, which is -- this is a SWIFT message, which is an international payment system -- at the bottom it says, "Please do not mention our name," that's Bank Melli's name, "to any bank in the USA."

And then, underneath that, you'll see an outgoing SWIFT message that is sent to a correspondent bank in the U.S., and if -- when it's reviewed by the automated systems at the U.S. bank, not only does it not mention anything about Melli Bank or Iran, it actually gives the SWIFT message, the payment message going into the U.S. bank, the appearance of having originated with a Lloyds customer.

So in terms of the conduct, it was an intentional effort to defraud the systems of the U.S. banks, and that was the gravamen of the criminal conduct that we investigated.

Now, what we did with the Department of Justice, it was determined that it was appropriate in this case to resolve the case with the deferred prosecution agreement and a rather large fine.

One of the important things about this case that we've seen in terms of the deterrent effect is the impact it's having on other banks that are handling accounts for Iran. And I should note, it wasn't just Iran, it was also Sudan and for a time Libya.

What we're seeing is we're hearing from other banks that they are taking a very hard look -- and not just U.S. banks, but more significantly, international banks, foreign banks are taking a hard look at how they are handling international payments to make sure that the payments they are sending are not violating the sanctions, not necessarily U.S. sanctions, but also sanctions in other countries that might be involved in the transiting of these types of transfers.

So the deterrent impact that we are starting to see from Lloyds -- and as the district attorney mentioned, we have a number of more similar cases coming in -- I think we're going to see a new respect on an international level, an effect in the international banking system of respecting and minding these sanctions so as not to get caught as Lloyds did.

SEN. KERRY: Now, that's true of, let's say, I mean, you've got a certain standard in England and a certain standard -- certain capacity to be able to investigate as you did.

What about some other locations? I mean the same stripping and the same camouflaging can take place in any of the Gulf states, or in any Far Eastern states, South Asian state, could it not, and then be transferred from one of those banks, a bank in Bahrain, a bank, you know, anywhere into the New York finance system. Correct?

MR. KAUFMANN: That's correct, senator.

SEN. KERRY: And what's the -- I mean, the only real way to prevent that from happening ultimately is to have their cooperation in the sunshine effort. I mean, you've got, you know, the banks knowing your customer. The international standard of the banking community is essential here, is it not?

MR. KAUFMANN: It is. I think one answer is that there are two kinds of cooperation. There's truly voluntary cooperation and there is an appeal to enlightened self-interest.

And if we can -- what we're starting to see, and in regards to the China proliferation case, we are -- we've spoken with some of the Chinese banks that were involved in handling those accounts. And it is -- it may not be the world's most voluntary cooperation, but if people or banks think they're going to get caught or exposed, they'll hopefully straighten up their act. And it can't be a universal impact, but...

SEN. KERRY: Is it possible for -- I mean, I've often wondered about this going way back to the BCCI days -- is it possible that we should be asking that the U.S. financial system, which is a critical hub in the flow of funds from various places, ought to demand a higher standard of scrutiny of those funds to make commingling more difficult, to make the stripping effort less?

MR. MORGENTHAU: Well, I think the U.S. banking system has, in these cases that we've seen, has acted responsibly.

The weak link are these foreign banks that are happy to facilitate illegal transactions, provided they don't get found out. And that's why this committee, you turn the spotlight on them, and it goes away.

I mean, we've (inaudible) several transactions, I mean, we've -- eight total where we started an investigation and the transaction has halted completely, because they don't want to be found out and they don't want to be held up to international ridicule for dealing with WMD in Iran.

SEN. KERRY: What I'm wondering...

MR. MORGENTHAU: So the more we can expose this activity, the better.

SEN. KERRY: I couldn't agree with you more. The question is how? In this case, you had information which empowered you to investigate. If you don't have the information that empowers you to investigate, the question is, what's the standard by which people are operating day to day?

And I'm thinking that, you know, as we look at the world financial crisis and the demands of the G-20 and others to really sort of reform the effort and to rewrite how we do this, a little more scrutiny with respect to some of the securitized entities, a little more sunshine with respect to the kinds of transactions that were being sold in the marketplace would have shed -- would have prevented a lot of damage from being done.

So this doesn't only go to Iran. It doesn't only go to the question. It's the whole question of blind, masked financial transactions that purport to be one thing are really another. And it could be in housing. It could be in derivatives. But it can also be in an illegal network to support a nuclear program.

MR. MORGENTHAU: I mean, in the case of Lloyds, I mean, they -- the bank actually printed a brochure explaining exactly how to strip identification and avoid disclosure in the United States. So I mean, this was not kind of an accidental or rogue operation, but this was a major bank operation. And so...

SEN. KERRY: How did you discover that? How did this come to you, Mr. District Attorney?

MR. MORGENTHAU: I'm sure we can -- the banks -- U.S. banks can tighten up. But have not seen a case where U.S. banks have knowingly handled Iranian money. I'm not saying it hasn't happened, but we haven't seen that.

SEN. KERRY: How did you discover this?

MR. KAUFMANN: He asked how we discovered it.

MR. MORGENTHAU: We were looking at the Allawi (ph) Foundation, it was a major Iranian foundation in New York. And we found money going overseas to suspect people. And then we were looking at their banking transactions and we discovered Lloyds through that.

We went to the CIA because we thought they would primarily interested, and they said, well, that's within the FBI jurisdiction. So we then talked to the FBI and then they said, "Main Justice is interested in this." So we then got in touch with Main Justice and we formed a partnership and did the work together.

SEN. KERRY: And you're saying that the international banks have, in fact, been cooperative with you in this effort?

MR. KAUFMANN: Sometimes yes, sometimes no.

I think, Senator, to go back to your point, if I may, for a moment, about what do we do, and transparency across the board in the financial sector, you're certainly preaching to the choir to this table where we've been battling issues, especially the district attorney, for 35 years against secrecy, opaque systems.

A lot of the cases we look at -- and you spoke in your introductory remarks about the interconnectedness of different types of criminal systems -- again and again and again, we see that. We see opaque networks being used, set up for tax evasion, being used by narcotics money launderers. We see those same systems sending money to accounts associated with Hamas on the West Bank.

So the need for transparency is great.

SEN. KERRY: Is that the single most important weapon in efforts to fight this?

MR. KAUFMANN: I think it is. I think at a macro level, the more transparency you have in financial systems, the more difficult you make it for criminals to use systems and move their money and hide. You're never going to legislate to address fraud. We already have fraud laws. And this was a case of fraud.

You know, in this area, where you talk about how do we -- what can the U.S. banks do, I think Mr. Morgenthau is right. The U.S. banks are primarily doing a pretty darn good job of screening for this type of behavior. This was fraud and it was difficult to detect.

I think you have to be careful. There certainly is a need to screen and have a high level of certainty by the banks. But you also can't make it so difficult that you shut down international commerce. We're talking trillions of dollars a day of wire transfers.

So it's a very difficult -- a difficult matter to address proactively.

SEN. KERRY: Which is why it came down to this question of this international standard adopted at the Basel Convention with respect to banking, which is "know your customer."

I remember that's when put into place -- it was a result of our early investigation that we put in place the $10,000 reporting requirement, and subsequently went after some of the cooperative agreements, the mutual legal assistance treaties and other efforts in order to require countries to cooperate with us when we had probable cause.

And I think the cooperation has been raised significantly. The financial syndicate office down at Treasury Department's done a darn good job with too little resources, frankly, in pursuing some of this. We could do more, I think, to hold people accountable if we put more resources into that effort.


SEN. KERRY: Senator Shaheen?

I'm going to call on Senator Shaheen in a minute. Go ahead.

MR. KAUFMAN: I'm sorry.

SEN. KERRY: Make a comment and then I'll call.

MR. KAUFMANN: The NLET system has improved matters. I will tell you, from the view from the trenches, it is still very slow and difficult to obtain information.

Any efforts that would encourage direct cooperation between prosecutors without necessarily going through a centralized clearing system would, I think, go a long way to enhance and expedite matters. It can take -- in a criminal investigation, six months is the end of the world, and it can take six months, a year for us to get anything from the most cooperative countries.

The other thing I'll just say, you speak of Basel, there is one significant happening this year that will go a long way towards promoting transparency in international wire transfers. And that's a movement put forth under the Wolfsberg Principles to require originator information on SWIFT payment messages of a certain type between banks.

Right now, the way -- it's a little technical, but basically, 202 cover payments are bank-to-bank transfers. They're messages between banks to affect money transfers that don't necessarily -- or, in fact, do not have originator information on them. In November of this year there's -- and it's a simple matter of creating a new form at a new computer field, but the automated system will require originator information on those payment messages.

In terms of transparency, that is tremendously significant.


Senator Shaheen?

SEN. SHAHEEN: I just want to follow up on Senator Kerry's question about what more can be done to close the loopholes that exist, and wanted you to talk a little bit more, if you would, about what you meant when you said prosecutor-to-prosecutor cooperation without going through a centralized system. What more could be done to encourage that kind of cooperation?

MR. MORGENTHAU: Well, I mean, the problem with MLAT is even with the phenomenal cooperation -- I mean, we have to go to the Justice Department. That has to go to the State Department. That has to go to the embassy. And by that time, you know, not only has horse been stolen, but the barn has been burned down. So it's a very cumbersome operation, even with the best of intentions.

It takes -- I mean, recently, we had a case where we had to get information out of London. It took us a year-and-a-half before that MLAT information came back. And so we've got to figure out a way to speed that system up both internally and with our cosigners. It's a very, very cumbersome process.

And, by the time you get the information, usually too late to do anything about it.

SEN. SHAHEEN: And is the difficulty the system that's been set up, the process itself? Or is it that the players who are part of that use this as a convenient excuse for delaying information?

MR. KAUFMANN: It can be both, Senator. Some countries are more hypertechnical about the requests than others. And that can be -- that can provide difficulties or, as you say, cover. Some MLATs contemplate direct cooperation between local prosecutors or police. And that is a very simple -- it's usually just a paragraph within the treaty that both country parties are recognizing that while there is a treaty mechanism, there can also be a direct cooperation mechanism.

And where that exists, we are much more able to reach out directly to our foreign counterparts and establish the kind of direct working relationship where if I can pick up the phone and talk to the prosecutor in Poland, and explain to him exactly what I need and find out directly from him what he needs from me to allow him to help me, having some framework that allows that type of direct communication and cooperation is very helpful.

SEN. SHAHEEN: So are you suggesting that we would have that kind of provision as a matter of course in our treaty agreements or our cooperation agreements?

MR. KAUFMANN: I would respectfully suggest that, yes, ma'am.

SEN. SHAHEEN: Thank you.

SEN. KERRY: (Inaudible) Matter of fact, I've just been prompted by your comments to -- I think we're going to request the State Department informally (ph) to see if we can't try to get some kind of a direct bypass. Just I couldn't agree with you more. I mean, you can take forever before you get to what you need to do.

You ought to be able to go directly. And there ought to be an understanding through this process since it's agreed upon. And if they have a problem, then there ought to be a stoppage route rather than an access route.

It seems to me it could become pro forma that way and we could proceed much more rapidly.

MR. KAUFMANN: Just remember to include state authorities in those provisions and not just federal. Throw that pitch in for the local guys.

SEN. KERRY: I'm very sensitive to that given...

MR. MORGENTHAU: Senator, if I could make -- emphasize one point. And that is, I mean, we have Iran's shopping list for materials related to weapons of mass destruction. We have literally thousands of records.

We have consulted top experts in the field from MIT and from private industry and from the CIA. And the one thing that comes out loud and clear is that, one, the Iranians are deadly serious about proceeding with this program. And number two, that it's later than a lot of people think. And frankly, some of the people we've consulted are shocked by the sophistication of the equipment that they're buying.

So we don't have a lot of time to waste. I mean, I'm not an expert on proliferation, but we've consulted a lot of people who are, and it comes out loud and clear it's late in this game, and we don't have a lot of time to stop Iran from developing long-range missiles and nuclear weapons.

SEN. KERRY: Well, Mr. District Attorney, that's a very, very important statement you've just made. And it is the significant reason that we really wanted to have you here today, is so people can see inside, you know, take away the opaqueness and see what's really going on here.

It's uncomfortable for some people, but it's necessary. And the report that we're going to issue from the committee builds on what you've just said and kind of lays out the realities of where we see the Iranian program now.

Now, that has to be in our democracy sort of discussed here. And the Senate and the various committees of jurisdiction here, the Intelligence Committee and Armed Service, need to really confront this question.

Your documents are very important. And we're going to make the committees aware of their existence to the degree that they're not yet. Because it really does help shed light on the seriousness of purpose of their program and of how deep it runs and of what they're getting in terms of materials, and how concentrated it's been. And I think it's a great service that you're providing us through a law enforcement agency that in many cases, would never have dared to touch this.

And that's been true of so many of the cases that you've taken on in the New York jurisdiction. And again, I thank you for that.

So with that note, because of our time constraint, what I'm going to do is leave the record open for any questions that may be submitted. I would like to get the -- we might just ask you for the lessons of the Chinese case particularly, but I don't want to go into it right now just because of the time constraints. But I would like to have that in the record, so we can also see another side of the coin here of how this plays.

But, Mr. District Attorney, I know it's a long way to travel for a shortened testimony. I hope you'll forgive the committee for that fact. Or maybe you're thrilled. Maybe the Senate saved you.


But at any rate, again, I can't say enough about your years of service and your friendship. And we thank you very, very much for coming in here today.

MR. MORGENTHAU: Thank you for the opportunity, and thank you for putting some sunlight on this problem.

SEN. KERRY: Well, we're going to keep doing that, I promise you, in your tradition.

Thank you, sir.

MR. KAUFMANN: Thank you, Senator.

SEN. KERRY: If I could ask, Secretary Burns, if you'd come up to the table. We'll sort of have a transition here without interrupting the hearing, hopefully.

Again, Secretary Burns, we're grateful to you for coming. I know this is an area you've thought about a lot.


SEN. KERRY: Are these some of your graduates, Mr. District Attorney?

(UNKNOWN): There's a few of us here, Senator.

SEN. KERRY: A few of your graduates working here in Washington?

(UNKNOWN): No, sir.

(UNKNOWN): We're members of his staff.

SEN. KERRY: Oh, you're members of the staff.

MORGENTHAU: This is Assistant Attorney Richard Price (ph). We've got Aaron Wolfson (ph) here. They've all worked on these matters.

SEN. KERRY: Well, we're grateful to all of you. Thank you.

I remember my days in a D.A.'s office as among the best. It's a lot of fund. It's a great job.

Take care and keep doing what you're doing. We appreciate it.

Mr. Secretary, thank you for coming. We look forward to your statement.

MR. BURNS: Thank you, Mr. Chairman.

I think, as you know, I've submitted my written testimony for the record. I will not -- I'll be merciful and not read that. But with your permission, I'd just like to make a few points to start off.

First, I'd say, and as I said in my written testimony, I fear that we are on a collision course with the Iranian government.

We've had a 30-year deep freeze in our relationship. We have had no substantial or meaningful discussions from the Carter administration to the Obama administration with a series of Iranian governments. There's no real understanding of each other. And we see each other as adversaries.

So this is a situation that is fraught with a lot of danger for both countries.

I do see the Iranians as a real threat to our country. There's no question they're seeking a nuclear weapons capability. No one doubts that. They're the principal funder of most of the Middle East terrorist groups that are shooting at us, shooting at the Israelis and the moderate Palestinians, and they're influential in Iraq and Afghanistan sometimes in ways that are very negative for U.S. interests.

So they pose a challenge for us in the most important region of the world to us, in the Middle East and South Asia. That's the dilemma.

I do think, however, that our past policies, not just the George W. Bush administration, but for many administrations, of isolating Iran, of refusing to meet with its officials, of calling for regime change, have not worked. They've not influenced the behavior of the Iranian government.

So I see a twin test...

SEN. KERRY: Could it have been influenced them the wrong way?

MR. BURNS: Excuse me?

SEN. KERRY: Could it have influenced them the wrong way?

MR. BURNS: Hard to say. Hard to say. I mean, the Iranians have been fairly consistent in their support for terrorism. They've been trying to build this nuclear weapons program for a long time. This predates the Bush administration. So it's very hard to say that if calling for regime change, if that had an additional negative impact on them.

But I do think that this poses a twin test for the Obama administration.

On the one hand, we've got to counter and, if we can, roll back the more pernicious aspects of Iranian policy.

On the other hand, I do think it makes sense for us to try to seek engagement, not because, as you say, diplomacy's an end -- it's not an end -- it's a means to an end -- but because it might be a vehicle for us to exert greater influence on the Iranians, particularly in conjunction with other countries, like Russia and China, and the European countries.

So I, frankly, think it's time for a new approach and that the Obama administration ought to think very seriously of a policy of engagement reinforced by the threat of sanctions and by the threat of force.

Now, I do not believe it's time for the use of military force by the United States or by anyone else I don't think it would work. I'm not familiar with any scenario where military force could actually fully stop a program that is based on scientific research and whose most important elements are really in the minds of the scientists of Iran.

Secondly, we have to worry about unintended consequences. We learned in Iraq that sometimes when you start a war, you don't know where it's going to end. That would certainly be the case with Iran.

Third, there's every reason to indicate that if we use force now, the Iranians would use asymmetric force back against us through Hamas and Hezbollah, and certainly through the Shia militant groups in Iraq. And I just can't see it being in our best interest to start a third war in the Middle East and South Asia at this time without having tried diplomacy for 30 years.

So I do think that leaves diplomacy as our -- as our best option.

I think what President Obama's been trying to do -- and we only see at this point the outlines of his policy -- has been fairly impressive. In a way, I think he's probably out-pointing the Iranians and he's put them on the defensive, which is a good thing.

I mean, the fact that he's offered to send a diplomat to these P- 5 talks, the fact that Secretary Clinton invited the Iranians to the U.N. conference on Afghanistan, the fact that President Obama says that he wants and is willing to sit down and talk about a variety of issues, I think has probably puzzled the Iranians. And you have not seen any kind of consistent response from the Ahmadinejad government.

And, if we are putting on the defensive for the first time in a long time, I think that's favorable, and it's a good start for the Obama administration.

I would say, however -- and you mentioned this in your early March -- your March 3rd hearing -- we've got to negotiate from a position of strength. We can't go hat in hand to these negotiations and think that just by talking we're going to make progress.

Therefore, I think we've got to have an agreement with Russia and China in advance of sitting down for draconian sanctions on Iran.

Put it another way, if we're going to give up a long-held American position that we shouldn't talk to Iran, if we're going to give that up and talk to them, then our partners in this process, particularly the Russians and Chinese, who are very influential, ought to be with us, agreeing beforehand that if the talks fail, they'll join us in very, very tough sanctions.

I think that makes sense. And I do think it makes sense to keep the threat of force on the table. I don't see Iran negotiating seriously if there isn't a marriage between diplomacy and the threat of force. It's a language they understand. And it's certainly language that, if we took it off the table, I think would probably injure our negotiating position.

So just two final thoughts. Why should we then support diplomacy? And what reason do we have to feel that diplomacy might be useful?

First, it may be the only way we'll ever know if there's a peaceful outcome here, if it's possible to have a peaceful outcome. I don't know if there is. But it's the only way we'll ever be able to test that proposition.

Second, I'd be -- I think it would be unconscionable to go to war without having tried diplomacy first, given the record of the last 30 years.

Third, it could actually work. There's a possibility -- probably not a high probability -- that a combination of American, Chinese, Russian, European influence and pressure on Iran could alter their behavior.

But fourth, even if that does not become the result, even if negotiations fail, we'll be in a much stronger position having tried negotiations, we'll be much more credible with the international community to then say to the rest of the world, to all the trading partners of Iran, "If you don't want to leave us with just one option, a military option, you need to join us in much more -- much more tough sanctions than those that we have tried in the past."

The three sanctions resolutions that I negotiated for the United States for the Bush administration are just the beginning. They haven't really made a dent in Iran's armor. We need to go far beyond that.

But a final thought. If we're going to try diplomacy, we need as a country to be patient enough to let diplomacy work. And what I would predict is if President Obama embarks on diplomacy, there will be the inevitable attempts by the hardliners in Iran to try to deflect that by intemperate statements or even violent actions. I'm sure there'll be attacks on President Obama in our own country. They'll say that diplomacy is weakness, that diplomacy is naive, that diplomacy is appeasement. And I would reject that.

I think that diplomacy can be an effective tool for the United States even in a situation as perilous as this. And we're going to have to give the president some time and some flexibility to negotiate what is going to be an extremely complex diplomatic negotiation with lots of different countries involved, perhaps with a new Iranian government. We'll see what happens in their elections after June.

And finally, I would suggest that, as a country, in addition to trying to negotiate with the government of Iran, we try to open up to the people of Iran.

We should bring thousands of Iranians students to the United States, if it's possible to get them out, to study in our universities. I hope it'll be possible for members of Congress to be able to travel to Iran, for journalists and business people to do that. We haven't had that kind of normal relationship in a long time.

I think the combination of trying to open up to the people of Iran and trying to engage this very tough government in Iran is probably the right way to go at this point.

Since 9/11, we've often led with the military. And at least in the case of Afghanistan, that was appropriate. Sometimes it's better to lead with diplomacy, with the military in reserve. I think this is one of those times.

That I think fairly summarize what I said in my written testimony.

SEN. KERRY: Well, it's a good statement. And we very much appreciate it.

Let me explore a few of the implications of it, if I may.

What do you believe -- what did you learn from your experience? And what do you believe, as a result of it, China's and Russia's attitudes are about this?

MR. BURNS: I'm sorry to say that based on my three-year experience of negotiating with the Chinese and Russians, which was a weekly and sometimes daily occurrence for me to be on the phone with them, to meet them, I think both have approached this from a fairly cynical point of view.

For whatever reason, the Russians decided to withhold their full support from the P-5 effort. I can't see it any other way. They continue to sell arms to Iran. Most of these sanctions negotiations in the U.N. took two or three months longer than they should have because of Russian foot dragging.

And so Russia in an odd sort of way is the one country among the P-5 that has the most to risk because it's closest geographically to Iran. It cannot be in Russia's interest to see Iran become nuclear capable. And yet, they held back.

The Chinese, I think, probably more...


SEN. KERRY: Let me just stay with Russia for one minute. I have had Russian -- various Russian level officials say to me point blank, "We don't want Iran to be a nuclear power." They believe, at least they expressed to me that they believe it's a little further off than we believe it.

Did you conclude that their sense of timing is different here? Or are they just playing a double game? Or is it, in fact, in their interest not to have an Iranian nuclear capacity?

MR. BURNS: I think it's very much in Russia's interest not to have.

SEN. KERRY: And do they perceive that?


MR. BURNS: I believe that some of their officials do. But for whatever reason, the leadership did not give the Bush administration the support that I think the Bush administration deserved from them.

So my hope would be that if the Russian government sees an Obama administration willing to go the extra mile towards negotiations, Russia will choose to put its influence with the U.S.

But here is the only way, I think, we should proceed, Mr. Chairman. I don't believe it's in our interest to sit down with Iran unless we work out a deal with Russia and China ahead of time that when talks fail Russia and China will show up at the sanctions effort.

So the Russians, I think, are acting out of fairly cynical purposes. The Chinese even more so. What's happened with China is that as the Europeans have reduced their export credits to Iran -- they were at 22 billion euro in 2005, they've more than halved -- halved them right now. The Europeans are doing the right thing. They're pulling away from Iranian markets. The Chinese are rushing to fill the void. And China has become Iran's leading trade partner in the process.

So I do think that perhaps the most important element of the diplomacy is not with Iran at this stage. It's with Russia and China, the Europeans beings largely supportive of the direction in which the Obama administration, I think, is heading.

SEN. KERRY: Well, that's an important statement, important concept. And I don't disagree with you.

I believe we have to go two tracks here. I mean, I think -- I hope the Iranians understand the genuineness of the American outreach to engage in a real dialogue and that we are not in regime change mode. I mean, I hope -- I'd say that again and again. This is not about regime change. It is about finding a relationship that meets the needs of the region and satisfies the global interest with respect to the nuclear program.

That said, we need to prepare for the possibility that things don't work. I'm convinced that the economic sanctions have far more likelihood of actually doing something than any potential military option that I've seen, which I think carries with it dramatic potential downsides.

But anyway, let me, since we have time constraints here, because the votes coming up, I want to let my colleagues go right at it and we'll just sort of do a truncated round, if we can.

So, Senator Feingold?

SEN. FEINGOLD: Thanks, Mr. Chairman, for holding our third Iran hearing in the last two months. There's a great deal to discuss.

I continue to be very concerned by the threat that Iran poses, whether with regard to its nuclear ambitions, its support for terrorism, or its general unwillingness to cooperate with the international community.

I am pleased that the Obama administration has tried to address the current impasse with a new approach by calling for strong diplomatic engagement, speaking directly to the people of Iran. I think that extending an open hand on multiple levels while still keeping all options on the table has strengthened the new administration's position and undermine any efforts by the Iranian government to blame others for not coming to the table.

That said, tackling our longstanding tensions and problems with Iran is a considerable task and the administration needs to continually reassess the situation in order to develop a realistic model for engagement that does not put our national security or that of our friends and allies in the region at risk.

Mr. Secretary, the State Department's recently released country reports on terrorism notes that the Quds Force provided aid in the form of weapons, training, and funding to Hamas and other Palestinian terrorist groups, Lebanese Hezbollah, Iraq-based militants, and Taliban fighters in Afghanistan.

These activities obviously affect our national interest on a broad range of fronts, including not only terrorist threat to the U.S. and our partners and allies, but also our policies with regard to stabilizing Afghanistan, redeploying from Iraq, and building support for a two-state solution for the Middle East.

So as we consider our options for engaging with Iran, how do we most effectively confront its support for terrorism as a single, overriding problem? Or do we confront it as one of a number of problems? And what can we reasonably expect in terms of marginal improvements in the behavior here?

MR. BURNS: Well, Senator, I agree with the way you've framed the problem. I think we've got three,major threats from Iran. One is the nuclear threat. The second is the support for terrorism. The third is Iran's influence in Iraq and Afghanistan.

So as I said in my opening comments, in the region of the world which is arguably the most important to the United States, we see Iran everywhere as a negative force. I said in my testimony that I think we've got a -- we have to proceed in two ways.

One is, I think it is time to have a policy of engagement with the Iranian government, not because we believe it's highly probable it will succeed, because we haven't tried it before in 30 years. And it may be that through a process of negotiation and engagement and pressure on them, along with pressure from other countries, we're able to maneuver them to a different place.

If that is not possible, then particularly on the nuclear issue, we're going to have to consider other options. They would be much tougher sanctions than we've seen before. And it will be a real test of the Obama administration -- and I wish them well -- to put together an international consensus for those sanctions. And if we believe that Iran is close becoming nuclear capable, obviously, there'll be this extraordinary difficult choice.

Do we consider the use of force? Or, do we consider constructing some type of containment regime of the Iranians? There'll be lots of countries who would want to see that happen, the moderate Arab states. Israel certainly would want to see that happen. That's a very compelling and very difficult choice for any American president to make. We're not there yet. But if you place this out, that's certainly something that we have to think is the set of choice that we may face down the road.

SEN. FEINGOLD: Thank you, Mr. Chairman. In fairness to my colleagues, I'm just going to ask that questions. I've many other questions but I want them to have a chance.

SEN. KERRY: Well, thank you, Senator Feingold.

Senator Cardin?

SEN. CARDIN: Thank you, Mr. Chairman. It's a pleasure to have back before our committee.

I share the concerns of my colleagues. If Iran to become a nuclear weapons power, it's a game changer and will cause major impact in that region, something we cannot allow to happen. We have to use every tool we have at our disposal effectively to try to make sure that doesn't happen. So I appreciate your observations.

I certainly want to get your best advice as to how much time we have here. There's June elections in Iran. We know that the foreign minister of Israel, Mr. Lieberman, suggested that three months might be the appropriate time to continue negotiations. And then if after that, I don't know what he was implying, but that certainly puts some time issues.

We've all heard about the urgency of this issue to make progress and we know that one of Iran's strategies may well be delay. The longer they can delay issues, the more they can advance towards achieving their goal of becoming a nuclear weapon power.

So I'd just like to get your advice to us as to how urgent these issue are, how much time do we have, and what you would suggest would be the next steps.

MR. BURNS: Well, Senator, as you know, I've been out of government for more than a year, so I'm probably not the best person to ask on an authoritative basis how much time. But my assumption is that there is time.

Now, how much is an open question. And that might be a dynamic question that you have to reassess from time to time. I've not heard anyone else say that three months is the amount of time we have. I've not heard anyone else support that statement of the Israeli foreign minister. So I assume there is a degree of time.

Now, having said that, and having read some of the testimony that was given to you in March, I very much agree with those. In fact, the chairman said that we have to impose a timetable on whatever negotiations we get into with the Iranians. If we just have open- ended negotiation, they could run out the clock. They could continue to enrich, build those centrifuges at their plant at Natanz, and simply keep us at the table until they were ready to declare themselves nuclear capable.

So I think the Bush -- Obama administration would be well advised if they go into negotiations, to do it in a very set bases, a couple of months if there's no progress, then move on to sanctions. I think that would be the best course of action.

SEN. CARDIN: Thank you. Let me just ask very quickly, a second question about Syria.

We know that Syria has gotten much closer to Iran. We know that there's been open negotiations -- discussions now taking place between the United States and Syria, at least the better communication. We also know historically, it's odd to see a close relationship between Syria and Iran. And we also know that Israel was making some progress through Turkey in negotiations with Syria, which would be inconsistent with the relationship with Iran.

So is there hope that Syria, in fact, could be independent of Iran and we could make progress in isolating Iran for (ph) Syria?

MR. BURNS: I certainly think that should be one of our objectives. I read in the paper this morning that Secretary Clinton is sending two senior diplomats to Damascus for their second round of talks, the papers said this morning. I think that's a good sign. I frankly think that you might look at this, we all might look at this, not just as a U.S.-Iran issue, how do we deal with Iran. But it's a triangular issue.

Israel's involved too. Israel has the -- obviously, our responsibility to safeguard Israel, protect its security is an important, vital, American interest. If Israel could make progress with the Syrians, if the United States could open up a better diplomatic relationship with the Syrians, that might help the diplomacy that we're conducting with Iran. And my own judgment would be that Syria's long-term interests are to be much more involved with the Arab states and with Israel than they will be with the government, the present government of Iran.

SEN. CARDIN: Thank you, Mr. Chairman.

SEN. KERRY: Thank you very much, Senator Cardin.

SEN. KAUFMAN: Mr. Chairman? I want to thank you for these hearings on Iran. They have really been very, very helpful in terms of clarifying what we're about. You know, we've talked about, and I agree with all the problems we have with Iran, serious problems. If we're going to do negotiations, we've got to start talking about some common interests. What kind of common interests do you thing we have with Iran?

MR. BURNS: With Iran today?


MR. BURNS: It's hard to define them, but I think there are some. I certainly think that the Iranians have benefited strategically from the removal of the Taliban in power in Afghanistan in 2001. The Iranians have certainly benefited from the removal of Saddam Hussein in Iraq. And so, what we tried to do in the Bush administration, was to open up some talks between our ambassador Ryan Crocker and the Iranian ambassador in Iraq. They didn't go very far.

I would hope that we might look at those potential interests that we share with Iran, try to work with the Iranians productively. It was a good decision by Secretary Clinton to invite the Iranians to this conference in The Hague on narcotics in Afghanistan, because there's another interest. The Iranians have major drug problem in their country that emanates, drug usage, that emanates from Afghanistan. So in this case of diplomacy, we know where we oppose the Iranians. Perhaps by building on some common ground, we might be able to make some progress that could have some benefits elsewhere. I'm not predicting that will be the case. I don't see diplomacy as an absolute panacea here.


MR. BURNS: I think it's worth the try, because we have not done this in the past and as the chairman said, and I agree with him, we ought to make it clear we're not out to change their regime of Iran. We ought to make it clear that we find them distasteful, the government, that we oppose much of what they stand for, but we're willing to work with them if we can find common ground, and certainly willing to work with them if we can convince them to roll back their nuclear efforts.

SEN. KAUFMAN: You know, we all have talked ad infinitum about how so many other of the Arab states, Saudi Arabia, Jordan, Turkey, they're all very much in fear of Iran getting a nuclear weapon. I mean, is this -- do you see them stepping forward and doing something substantial to actually help us in this process?

MR. BURNS: I hope so. I think what you did not see, say, between 2006 and 2008 when the U.S. launched a diplomatic initiative, to try to get Iran to negotiate, Iran walked away. You didn't see a lot of the Arab countries or Turkey significantly diminishing their trade with Iran the way that we had done, the way that France and Germany were doing.

And so, if sanctions are to work and as economic pressure is going to work as an inducement to Iran, you have to look at all the trade partners, China, Russia, Japan, South Korea, United Arab Emirates, Saudi Arabia, Turkey.

And I do think it's in the interest of some of the Arab states now to speak up a little bit more boldly than they've been willing to do in the past. Because probably what you'll hear is anyone who travels in the Arab world, a lot of anxiety about the rise to power of Iran. But we haven't seen, at least in my judgment, the actions, particularly on economic sanctions, that would be very helpful. So these sanctions will only work if they're nearly universal. They are nowhere close to that right now. And that's the real diplomatic challenge for the Obama administration.

SEN. KAUFMAN: Thank you.

SEN. KERRY: Thank you, Senator Kaufman, for your usual, good, probing questions.

How far do you believe the Russians and Chinese are willing to go with respect to economic pressure?

MR. BURNS: Well, I think we're about to test that as the Obama administration sets out to participate in negotiations...

SEN. KERRY: You don't have a -- I mean, your sense is -- well, let me ask it this way because I think it's a tricky question. I mean, it's not meant to be, but it is hard to get your hands around that.

Is it your sense from the discussions that you had that conceivably over a period of time in the past administration, that there were enough other issues floating around Georgia, missile defense, other kinds of things, that the climate just wasn't right for them to be able to brought into an effort with respect to Iran.

But if those dynamics are somehow, you know, further away in history and/or being approached differently, whatever the dynamics may be, does that open up an opportunity in your judgment for them to say you're right, this will be our primary area of cooperative focus with the United States and we're going to get something done?

MR. BURNS: Well, I think you're right, Mr. Chairman, to say this is the key issue. If sanctions are to work, these two countries have to be involved. So why didn't they help us over the last, three years?

One reason might be that were linking, our interests in this with their interests on other issues, like missile defense. The second possible explanation -- this is just really speculation on my part -- is that they fear the United States was really out to use force against Iran and they didn't want to participate in that process. I think they were mistaken. They misread us. I know working for Secretary Rice that we were very much determined to get into negotiations in 2006. We were planning for negotiations, hoping for negotiations.

So I do think the Russians may have -- particularly the Russians -- may have miscalculated and misread and misunderstood the United States. So the challenge now for the present U.S. administration, for President Obama, is to convince the Russians and Chinese, we're willing to give diplomacy a try, but there is -- there should be a price for that. The Russians and Chinese should be therefore willing to give sanctions a try.

That might be the closing of a circle here that we've all been looking for the last, few years.

SEN. KERRY: Well, I might add to that that it seems to me that time is of the essence here as we've heard. Even District Attorney Morgenthau's talked about the seriousness of the evidence that he's been seeing. And so, it seems to me that as much as you might like to begin at some lower level of talking about just narcotics or Taliban or whatever -- we have interests in that regard -- we may have to get at the nuclear issue pretty quick, I think. Do you agree with that?

MR. BURNS: I do. And I think that the signals are from the administration tends to send an administration official to the next round of talks that would be a good thing. But I do agree that if we can perhaps on the margins of those talks, engage, you know, in some of these other bilateral issues, that would be of use as well.

SEN. KERRY: And in addition to that, I might add, people forget that only eight years ago, in 2001, when we launched our efforts against al Qaeda in Afghanistan, Iran was very helpful with this. And in fact, there was significant cooperation in a number of issues. I know they're not fond of the Taliban. I know they're not happy with the narcotic situation on their border.

Seems to me there are legitimate interests, not to mention, a regional partnership. I mean, the fact is that under the right circumstances, unless they desire a confrontation, there are many, many things to cooperate on.

That said, I've been asked to go to the floor because I've got to lead off with my amendment, so Senator Risch, I'll recognize you for questions, and Senator Kaufman, could you close out the hearing, and you'll chair in my absence? Thank you.

Thanks for being with us.

MR. BURNS: Thank you, Mr. Chairman.

SEN. KERRY: I really appreciate it. Thank you.

Senator Risch?

SEN. RISCH: (inaudible) believe the Iranians understand that at the end of the day, however this comes out, when it comes to negotiations, that the Israelis will never allow them to create nuclear weapon and possess a nuclear weapon, one way or another. Do they understand that, do you think?

MR. BURNS: You know, I don't know the level of sophistication on the Iranian government in determining the Israeli position or our position. I think there may be a problem here of Iranians continually misunderstanding, both Israel and the United States.

I certainly have heard both the past Israeli government in their public statements, the current, the new, Israeli government of Prime Minister Netanyahu, say that, that this is an existential threat to Israel.

And I think one of the obligations that the United States has and the interest of the U.S. has is to safeguard Israel, and to try to work in such a way that threat never materializes to Israel.

My judgment is that the best way to do that would not be the immediate use of force against Iran. But this two track policy that we've been discussing in this hearing of engagement and negotiations, but backed up by the threat of force, and backed up by draconian sanctions.

And at some point, it would be -- if negotiations fail -- it would then be this very difficult decision that our president would have to make as to which direction to go in.

But you've asked a very good question. I think the Iranians have isolated themselves from us, from Israel, from a lot of other countries. And it's unclear to me if they fully understand how angry and how worried many of their neighbors are, including Arab neighbors about their rise to power, about their support for terrorism, particularly about the nuclear program.

SEN. RISCH: And I don't disagree with that. It seems to me that the Iranians lump the U.S. and Israel together as far as those two countries edginess towards the ultimate resolution of the issue. And I'm not so sure -- I'm not only not so sure, I'm confident after discussing that we aren't exactly on tract with how close we are to that.

Having said that, it also seems to me that the government in Iran, seems to be the only people on the face of this planet that don't have a clear realization of what the Israeli position ultimately will be on this issue. And I frankly don't understand it. I don't know why they don't understand it. I mean, it seems to me to be clear to just about everyone except them as to what the ultimate resolution's going to be if they continue on the course that they're on.

MR. BURNS: Well, it's a regime that has isolated itself, not just from us, but from many other countries. And I think that strategic isolation is one of its dilemmas right now.

So the test for our diplomacy would be, could we help them relieve that strategic isolation. I mean, essentially, what the Bush administration and the P-5 countries offered Iran on the two track policy was that we would be willing to have an economic relationship with. We would be willing to sponsor or facilitate their entry into the WTO, for instance, if they stood down their nuclear efforts. The Iranians never took us up on that two track offer, unfortunately.

But it would seem to me that the long-range interest of the Iranian government, a government that is suffering economically. The price of oil is falling. And they're having a hard time domestically just taking care of their own people, that opening up trade and investment is in there long-term interest. They seem to be putting other issues first right now. So the task of these negotiations should be to focus on that issue.

The Iranians needs to halt their nuclear weapons development effort, in return for which there should be incentives by the international community to them to have a greater measure of trade and investment.

One other word on Israel. I think it is one of our central interests here to help Israel. I do thing the United States is right to take a lead here. And I think leading diplomatically, not through military force, is in the best interest of both Israel and the United States at this point.

SEN. RISCH: Thank you. I appreciate that.

The other thing that seems to be wound up in this is there seems to be when you read what comes out of Iran, almost -- not almost -- an actual, national pride somehow tied in with this nuclear enrichment. And it permeates not only the government, but it seems the Iranian people seems to be more reasonable than their government are.

But both of them seem to be somehow tied up in the national pride thing, almost like a soccer team or something like that, that they have this national pride tied to the nuclear enrichment, which really complicates matters it seems to me.

MR. BURNS: It does. And President Ahmadinejad unfortunately has made this one of his central initiatives to try to build this sense of pride out of the nuclear project.

I think that if the Iranian people all feel pride in trying to build a civil nuclear capacity, it's been the position of the U.S. for a long time, including the Bush administration, that we would have no objections to the properly monitored and regulated civil nuclear capacity of the government of Iran.

But they shouldn't take pride in unleashing proliferation in the Middle East, unleashing a situation where they might become nuclear weapons capable. Because the impact on the Iranians will be, as you said, to anger Israel, the United States, and nearly all their neighbors.

So helping the Iranian people understand that civil nuclear power is one thing, nuclear weapons are another is really a task for our public diplomacy and for Arab public diplomacy as we go ahead, I think.

SEN. RISCH: Thank you, Mr. Burns.

MR. BURNS: Thank you.

(UNKNOWN): Mr. Ambassador, you've said several times today about, you know, we lead with diplomacy. We have the military. Do you have any doubt that the Iranian government understands that militarily, we would use what we have to use if we have to use it?

MR. BURNS: That's a good question, a hard question to answer. I do think it would be important for the Obama administration to reaffirm our willingness to use force if necessary, if absolutely necessary, not that we would default to it.

(UNKNOWN): Right.

MR. BURNS: Not that we wouldn't go through an agonizing process before doing it. But I don't see diplomacy succeeding unless that threat of the use of force is clearly visible. And I'm not sure, given the change of administration, given the fact it's early days, given the fact that the policy as I've seen it publicly, is not completely ruled out. I think we need to see more definition on that policy. And that would be my advice.

And I'm someone who very much supports the direction that President Obama is heading in and thinks that what he's done tactically has been very astute. You know, his openness to the Arab world. His willingness, the Nowruz message, the video message that he sent to the Iranian people over Nowruz. The fact that he said that we'll be at these talks.

I think President Obama's done all the right things here. But as we get to the negotiations, the consequences of sanctions and the possible use of force, I think need to be very clearly spelled out. That would be my judgment.

(UNKNOWN): I have two questions. I can't let you get away without answering. If you can do anything. Ayatollah Khamenei comment yesterday rebuking Ahmadinejad, do you know anything about that?

MR. BURNS: It's hard to say. It was interesting to see that during an election campaign, he chose to rebuke (inaudible), the supreme leader chose to rebuke Ahmadinejad publicly. It's happened a few times in the past.

I don't know what it means ultimately. We haven't seen him come out for or against the supreme leader, any other candidates. Obviously, what happens in June in their elections will be a major determinant of whether President Obama's policy of seeking the diplomatic approach can be successful.

(UNKNOWN): Well, that brings us to the second question. What do you think is going to happen in June?

MR. BURNS: It's hard to say.

(UNKNOWN): I know. I mean, I realize this.

MR. BURNS: But I do think that Ahmadinejad, unfortunately, has succeeded in some respects in the Muslim world in depicting himself as a champion of the Palestinian people, which he has not been.


MR. BURNS: And Iran has not been much interested in the Palestinian cause until very recently. But at home, as best as I can see, Ahmadinejad is not as popular as he may want to be. His economic policies are largely considered to have been a failure at home. The Iranian people are hurting.

You have this incredible irony. It's a wealthy country. It's the second, largest gas producer in the world. It's a major oil producer. They can't even refine their own gasoline. They're importing nearly half of the gasoline needs. And the average people are having a tough time in Iran. And so, whether we see that expressed in the voting booth in Iran is an open question.

But obviously, my own personal view that Ahmadinejad has been a disaster for the Iranian people, and for Iran's long-term interests.

SEN. KAUFMAN: Thank you for your usual spectacular testimony.

And I'm going to adjourn the meeting.

MR. BURNS: Thank you.