TOWNS: The committee will come to order.

Good morning, and thank you all for being here. The United States has banned nearly all trade with Iran. We have done so for good reason. The extremists who currently rule Iran are a major threat to the safety and security of their own people and to the rest of the world.

It is vitally important to the national security of the United States and its allies to persuade the Iranian regime to end its quest for nuclear weapons and to end its support for terrorism.

Since 1995, our nation has attempted to do that by banning United States companies from doing any business in Iran. In 1996, the Iran Sanctions Act provided for sanctions against foreign firms that invest in Iran's energy sector.

It was revealed earlier this year that the federal government has awarded more than $100 billion in contract payments, grants and other benefits over the past 10 years to the foreign and multinational American companies while they were doing business in Iran.

So not only are some companies doing business in Iran, but they are also getting government contracts at the same time. Obviously, federal agencies all need to get onto the same page.

Earlier this month, Congress acted to strengthen the economic sanctions against Iran. Recognizing that banking is the life blood of international trade, the Comprehensive Iran Sanctions, Accountability and Divestment Act imposes tough new restrictions on banks and insurance companies. It also requires federal contractors to certify that they are not doing business with Iran.

However, for United States sanctions to be successfully, they must be fully implemented and enforced. And I am looking forward to hearing from our witnesses about how they intend to do that.

I particularly want to thank the State Department and the Treasury Department for agreeing to testify today -- at today's hearing. I understand that both agencies are in the process of investigating companies that may be doing business with Iran. We certainly don't want to compromise ongoing investigations. And in that regard, I am going to ask the members to be judicious in their questions.

Sanctions cannot just be a cat-and-mouse game, where the government tries to chase after companies who are evading sanctions and undermining global security in the name of profit.

Companies, especially those doing business with the government, need to take responsibility and avoid supporting the Iranian regime. With each passing week, as Iran moves closer to developing nuclear weapons, the stakes are raised higher and higher and higher.

Today I look forward to hearing how we can ensure that economic sanctions are effectively implemented.

I now yield five minutes to the ranking member, gentleman from California, Congressman Issa.

ISSA: Thank you, Chairman Towns. And thank you so much for holding yet another hearing on this important subject. When we began as a body trying to figure out what to do with the religious-based extreme take-over, it was 1979. I was an Army lieutenant.

The world was a very different place 31 years ago. So although, for the most part, today we will be talking about sanctions, whether the president's outreached hand has been good or bad toward dissuading Iran on its nuclear ambitions, it is very clear to all of us who today have graying hair and 31 years were comparatively young, comparatively fit, and ready to bomb the hell out of Iran in order to get them to release our embassy people that they had taken in violation of international law, protocol and any sense of common decency.

Mr. Chairman, nothing has changed in 31 years. Or has it? Thirty one years ago, as the ayatollah took over, and, quote, "a slight of hand" caused radical students to take our embassy, not the government, we all looked and said, "How do we resolve this?"

Well meaning people, bipartisan and bicameral parts of Congress looked to try to find a way to work out a diplomatic solutions.

Day after day after day, throughout all the waning days of the Carter administration, people of good faith and good will tried to do the right thing without violence, and to no avail.

Mr. Chairman, only the coming of a president willing to do anything necessary to end the humiliation for the American people and this violation of world protocol brought an end to it.

I look forward today to hearing how actual sanctions with greater teeth, passed on a bipartisan basis in this Congress, are working. I look forward to a day in which not only will we be talking about Iran giving up its ambitions for nuclear weapons, a day in which Iran will realize that those sanctions will not just be lifted if they, quote, "stop trying to develop a nuke," but they also abandon their expansionist views of a Shia greater state that goes from the Mediterranean to who knows where.

Mr. Chairman, this is about an organization that began on a lie, has continued a lie, and has transitioned over these many decades. At one time, people thought it was a theocracy.

I think people who have looked at Iran in more detail realize that over time all parts of government have become to a greater extent controlled by the Revolutionary Guard, by people who come up through a very limited, very exclusive military background. That's how you move ahead in Iran.

But, at the same time, there is a religious vein. It is a vein of radical Islam, one that is willing to see people killed or kidnapped in Lebanon as early as the 1980s, one that continues to fund death and a lack of peace in the Middle East, particularly in the Levant.

Mr. Chairman, I look forward to all of the good that can be done by this sanction. I look forward to hearing that it's working at last.

But until or unless we can truly say we look forward to a day in which Iran becomes a part of the nations that obey all of the rules, including not exporting terrorism, not funding overthrow of peaceful governments, we will not have an Iran we can truly work with.

I'm not an extremist. I'm not a person who wants to use weapons. But if the only weapon we have doesn't work, America will eventually have no choice but to use alternate means in order to prevent nuclear holocaust.

With that, Mr. Chairman, I look forward to the hearing and yield back.

TOWNS: I thank the gentleman for his statements. Let me just indicate that we're going to have two opening statements on each side of three minutes. So you will select in terms of the two on your side.

I now yield three minutes to the gentlewoman from New York, Congresswoman Maloney.

MALONEY: Thank you, Chairman Towns, for your leadership on this issue, and for having this very important and timely hearing. Iran is on a fast path toward achieving nuclear weapons capability.

And Iran and its -- an Iran with a nuclear weapon would likely spell the end of the nuclear nonproliferation regime. If Iran acquires such a capability, nuclear weapons could spread throughout the region.

As Iran's nuclear capabilities have increased in the last few years, more than a dozen Arab states have discovered a new-found interest in peaceful nuclear energy.

And if nuclear capabilities proliferate in the Middle East, they will spread across the world. The chances for technology for nuclear technology to fall into the hands of terrorists will rise. And we will all live in a much more dangerous world.

It is not just the United States that thinks so. Five United Nations Security Council resolutions have mandated that Iran stop all its nuclear enrichment and reprocessing activities.

And yet Iran has yet to heed the calls of the international community. Its brutal oppression of the Iranian people continues unabated. Millions of Iranians rose up against a stolen election last summer, electrifying the rule -- the entire world. It was inspiring.

And according to the International Atomic Energy Agency, Iran has already stockpiled enough low enriched uranium that if further enriched, it would be enough for the cores of two nuclear weapons.

So this is very, very troubling. And it underscores the importance of the hearing.

Despite the efforts of President Obama to reach out to the Iranian government and to engage it diplomatically over the course of the last 18 months, the regimes in Tehran continue to spurn our efforts and that of our allies.

That is why the United Nations Security Council adopted more stringent sanctions on Iran this past June. It is why the European Union announced this week the strongest set of sanctions on Iran it has ever proposed. It is why President Obama announced stepped-up U.S. sanctions. And it is most assuredly why Congress overwhelmingly last month passed the Comprehensive Iran Sanctions, Accountability and Divestment Act.

I strongly believe that, if fully implemented, this legislation, in combination with the new multilateral efforts, presents perhaps the best, last hope of changing Iran's nuclear ambitions through diplomatic, economic and political activity.

I'd like to remind the committee that this is the fourth law that has been enacted over the past 14 years that imposes sanctions against Iran. We must ensure that it is the one that we finally -- will make the difference and once and for all squash this enrichment activity.

I see that my time is up. But I have a great deal more to say. I ask unanimous consent to place my entire statement into the record.

TOWNS: Without objection, so ordered.

I now yield to the gentleman from Indiana, Congressman Burton...

BURTON: Thank you, Mr. Chairman.

TOWNS: ... for three minutes.

BURTON: I was one of the conferees on the Iran sanctions bill. And I am not optimistic that it's going to work.

But I would like to refer to some things that my predecessor, the young lady, just mentioned.

There have been three moves to try to control or get Iran to stop its nuclear program. In 1995, on March 15th, President Clinton signed an executive order. A subsequent order was on May 8th, 1995. And that banned virtually all trade with Iran. And Warren Christopher warned the international community that the path Iran was on the following -- was following the mirror image of states taken by other nations that sought nuclear weapons capabilities.

Then in 1996, Congress passed the Iran and Libya Sanctions Act. And that was to encourage foreign persons to withdraw from the Iranian market. And it also was supposed to impose sanctions on any foreign entity that invested $20 million or more in Iran's energy sector.

Now the reason I bring that up is because we passed what I thought was a very, very strong bill. And I thought it was going to have -- in conjunction with the E.U. and others, I thought it was going to have a pretty strong impact on Iran.

But it gave the president waIver authority. And that bothers me a great deal, because this $20 million dollar penalty that was supposed to be imposed in 1996 has never been imposed on anybody.

So whether you're a Republican president or Democrat president, whatever it is, these penalties have not been imposed. And we've given waiver authority to the president once again.

And so the one thing I would like to say today, Mr. Chairman and Mr. Ranking Member, is that we ought to do everything we can to make absolutely sure that the sanctions are followed through and there is no waiver. The reports that are required from the president should be complete, and they should make sure that no waivers have been granted.

If we don't do that, in my opinion, I think we are on the precipice of a war which could threaten the economy of the United States -- not just the Middle East, but the economy of the United States -- because we get about 30 to 40 percent of our energy from that part of the world, and we certainly are not even close to energy independence.

With that, I'll yield back the balance of my time.

TOWNS: I thank the gentleman from Indiana for his statement.

And now yield three minutes to the gentleman from Ohio, Congressman Kucinich.

KUCINICH: Thank you, Mr. Chairman. As some of you know, I voted against H.R. 2194, the sanctions bill. I oppose it because I think that these sanctions will inflict economic hardship on the Iranian people and have no impact on the Iranian government.

As a matter of fact, they'll probably strengthen the Iranian government, which relies on confrontation. And instead of working to build a pro-democracy movement by taking care not to have sanctions that are inevitably going to hurt the people of Iran, we're doing exactly the opposite.

And if there's anyone in this room who thinks that the United States can afford still another war -- with troops in Iraq, in Afghanistan, in Pakistan, if there's anyone who thinks we can afford another war, then maybe you don't need to be in this discussion.

But what we ought to be looking for is a more effective means of engaging Iran and continue to work behind the scenes to try to bring Iran to the table.

This is not an easy issue, granted. But the easy reach that some inside the government -- and I'm not speaking about this committee -- some inside the government have to seek to escalate is very dangerous, quite dangerous.

And I make that we should be thinking more about how you promote democracy without making -- creating sanctions which are going to undermine the very people who we say we care about.

You know, I oppose nuclear proliferation for military purposes for all countries. At the same time, I think it's pretty clear that sanctions have proven to be a failed policy.

I've argued that the sanctions included in the legislation play into the hands of the leaders in Iran, undermine the efforts of Iranian people who courageously challenge their government, often at the cost of their lives.

So I'm hopeful that as we get into this discussion today and down the road that we'll look at -- at the situation as it is, at what happens when you try to use sanctions as a -- as an excuse for diplomacy, and what happens when we get off the diplomatic track and start to move toward escalation.

We cannot have military escalation. As a matter of fact, I want to ask unanimous consent to submit for the record a recent comment by Admiral Mike Mullen, who advised against an attack on Iran.

TOWNS: Without objection, so ordered.

KUCINICH: Thank you, Mr. Chairman.

TOWNS: On that note, I now recognize the gentleman from Missouri, Mr. Luetkemeyer...

LUETKEMEYER: Thank you, Mr. Chairman.

TOWNS: ... for three minutes.

LUETKEMEYER: Thank you. I think that today we need to acknowledge the fact that we have a very fragile political situation in the Middle East, and that Iran is a major portion of that problem. I think the ranking member made -- alluded to the situation that has been brewing there for many, many years.

This isn't a new situation. But now it's continued to grow and fester to the point where we need to acknowledge what's going on. We need to take some action.

The first thing that needs to happen is that we as a country and the president himself need to acknowledge that terrorism exists. These people are -- that are there are willing to do us harm.

Many Americans, Mr. Chairman, believe that the president doesn't understand the threat and is ill-prepared to meet it. According to surveys, nearly 57 percent of Democrats, 59 percent of independents, 80 percent of Republicans think the president is being tough enough -- has not been tough enough on Iran.

Meanwhile, the president's reticence to support popular opposition to the Ahmadinejad regime has extracted an incalculable cost to our strategic efforts and the nation's moral standing.

Indeed, President Obama's general approach to Iran seems to be based on an absurd belief that the Iranian nuclear program has been encouraged by American belligerence and American diplomatic intransigence.

In response, President Obama has offered a course of conciliation and supplication. This response is beyond naive. It's very dangerous.

I think it's also important to note that, going forward, the fact that we are here today discussing sanctions would seem to indicated that -- it's a tacit acknowledgement that the past program and protocol of (inaudible) and the approach of trying to be friends with these people at the expense of our friend, Israel, an ally there in the Middle East, has not worked.

I look forward to the discussion. And I yield back the balance of my time. Thank you, Mr. Chairman.

TOWNS: Thank you. I thank the gentleman for his statement.

And I now ask unanimous consent to leave the record open for seven days so members that may submit their opening remarks and questions for the record.

Of course, we have two panels today. The first panel, we will turn to them now. Mr. Robert J. Einhorn, who is special adviser for nonproliferation and arms control with the United States Department of State.

Our next witness is Mr. Daniel Glaser, deputy assistant secretary for terrorist financing and financial crimes at the United States Department of Treasury.

The next witness is Mr. Joseph A. Neurauter, deputy associate administrator with the Office of Acquisition Policy at the United State General Services Administration.

Our final -- final witness in this panel is Mr. Joseph A. Christoff, who is the director of international affairs and trade at the United States Government Accountability Office.

It is committee policy that all witnesses are sworn in. So if you would stand and raise your right hand?

Do you solemnly swear to tell the truth and nothing but the truth? If so, answer.

Let the record reflect that the witnesses all answered in the affirmative. You may be seated.

I will begin with you, Mr. Einhorn. And, of course, as you know, the lights -- start off, THE light's on green. You go down to one minute, and it turns to yellow. And then after that, it turns to red. Now red means stop. So we'd appreciate it if you would recognize that. And, of course -- which will allow the members to have an opportunity to raise questions with you.

So you may begin. You have five minutes.

EINHORN: Thank you very much, Chairman Towns, Mr. Issa, members of the committee...

TOWNS: Pull the mike just a little closer to you.

EINHORN: Thank you. Thank you very much for the opportunity to appear before you this morning.

A nuclear-armed Iran would severely threaten the security and stability of a part of the world crucial to our interests and to the health of the global economy.

In the face of this challenge, American policy is straightforward. We've pursued our broad policy goals through both engagement and pressure. We've sought to sharpen the choice now before the Iranian leadership.

Last year, we embarked on an unprecedented effort to engage with Iran. Engagement is both a test of Iran's intentions and an investment in a partnership with a growing coalition of countries deeply concerned about Iran's nuclear ambitions.

We have sought, and continue to seek, opportunities for Iran to demonstrate convincingly that its nuclear program is intended entirely for peaceful purposes. These opportunities have not been embraced by Iran.

Iran's intransigence left the international community no choice but to employ a second tool of diplomacy, namely pressure. The adoption of U.N. Security Council Resolution 1929 was an essential first step in that effort, building upon and strengthening previous sanctions resolutions.

It bans transfers of major conventional weapon systems to Iran. It bans all Iranian activities related to ballistic missiles that could deliver a nuclear weapon.

It establishes a framework for cargo inspections to detect and stop Iran's smuggling and acquisition of illicit items. It prohibits Iran from investing abroad in sensitive nuclear activities, such as uranium mining.

It creates important new tools to help block Iran's use of the international financial system to fund and facilitate its nuclear and other destabilizing weapons programs.

It targets directly the role of the Islamic Revolutionary Guard Corps in Iran's proliferation efforts, adding 15 IRGC entities to the list of designees for asset freeze.

And, for the first time, the Security Council highlighted formally in the Security Council resolution the potential links between Iran's energy sector and its nuclear ambitions.

Our goal now is to ensure the most aggressive implementation of these sanctions as possible. We're not alone. The European Union has acted strongly to follow up by endorsing a series of significant steps, as have Australia and Canada.

We've called on states around the world to take additional measures and will continue to engage with these partners.

Our efforts to implement and endorse the multilateral sanctions are supplemented by a number of important national tools, in particular the Iran Sanctions Act and the recently passed Comprehensive Iran Sanctions, Accountability and Divestment Act.

As was the case with the original Iran Sanctions Act, the obligations of the new legislation are already a regular part of our dialogue with foreign governments and the private sector.

Our efforts have yielded significant results. At least $50 billion to $60 billion in oil and gas development deals have either been put on hold or have been discontinued in the last few years, due in part to our conversations with companies about the threat of ISA sanctions.

Our pressure has contributed to the decisions by major international oil companies, such as Total, Statoil, ENI, Lukoil and Repsol not to undertake any new activities in Iran.

In addition, major fuel suppliers, such as Vitol, Shell, Reliance, IPG, Glencore and Trafigura have announced that they will no longer sell refined petroleum products to Iran.

The net result is that the -- is that Iran now faces profound challenges in securing the foreign investment -- in securing the foreign investment in its energy sector that it desperately needs.

The administration has also undertaken to review past activity that could trigger sanctions under the ISA to ensure that we are appropriately implementing the act.

We have already seen that pressure in combination with other goals can have an impact on Iran. Through rigorous trade restrictions and active work to interdict WMD trade -- illicit WMD trade, we have denied Iran access to items that it needs for its nuclear program.

As Treasury Deputy Assistant Secretary Glaser can describe in greater detail, Iran is having great difficulty in obtaining access to financial services that are the lifeblood of international commerce and Iran's proliferation programs.

The international private sector has grown wary of conducting business with any Iranian bank. International financial institutions have voluntarily gone beyond their legal requirements to curtail their interactions with Iran.

The same can be said of Iran's government-owned shipping industry, which lacks both credibility as a legitimate entity and has difficulty obtaining foreign insurance for most of its fleet. Impeding Iran's shipping lines access to foreign ports hinders Iran's ability to exploit those ports.

(CROSSTALK)

TOWNS: Mr. Einhorn, could you summarize? Your time is up.

EINHORN: Sure. The designation of the IRGC's construction arm, Khatam al-Anbiya, has had a similar effect. The company is pulling out of operations in South Pars, Iran's major natural gas field. And KAA referenced recent sanctions in its announcement on why it was doing so.

So in conclusion, our aim has been to use these tool of pressure to sharpen the choice that the Iranian government faces and to press it to negotiate seriously with the international community and the P- 5-plus-1 countries on its nuclear program.

Pressure is meant to complement, not replace, the diplomatic solution to which we and our partners are still committed. We continue to acknowledge Iran's right to pursue civilian nuclear power, but with that right comes a profound responsibility to meet its international obligations.

Our foremost objective is a durable diplomatic solution to the world's concerns about Iran's nuclear program. There is growing international pressure on Iran to live up to its obligations, and growing international isolation for Iran if it does not. Security Council Resolution 1929...

(CROSSTALK)

TOWNS: Mr. Einhorn.

EINHORN: I'm just finishing, Mr. Chairman.

The Comprehensive Iran Sanctions, Accountability and Divestment Act and the amplifying efforts that I've discussed help significantly to sharpen that choice for Iran.

We are pleased that Congress has given the administration the tools to increase pressure even further. We will continue to work very hard to implement them and continue to urge our partners to follow suit with their own tough national sanctions to complement Resolution 1929.

Thank you, Mr. Chairman.

TOWNS: Thank you.

Mr. Glaser?

GLASER: Thank you, Chairman Towns, Ranking Member Issa, distinguished members of the committee. It's a pleasure to appear before you today.

Over the last several weeks, the international community and the United States have significantly enhanced our ability...

TOWNS: You want to pull the mike just a little closer to you? I'm having trouble hearing you.

GLASER: ... the international community and the United States have significantly enhanced our ability to apply financial pressure on Iran and obstruct its ability to further develop its nuclear capabilities.

In particular, new sanctions adopted by the United Nations, United States and allies, such as the European Union, Canada and Australia highlight Iran's increasing isolation.

These multilateral and national measures give us new and powerful tools that enable us, acting in concert with the private sector, to increase the financial pressure on Iran and further protect the international financial system from Iranian abuse.

Our objective over the next few months will be to broaden and deepen the existing sanctions framework. We will, of course, begin by implementing the provisions of the newly enacted Comprehensive Iran Sanctions, Accountability and Divestment Act, and by continuing to take actions under existing sanctions authority.

These domestic actions will be accompanied by a strong diplomatic effort to ensure that the financial isolation of Iran is not limited to the countries that have already acted, but in fact extends throughout the world.

A series of U.N. Security Council resolutions form the core of the international community's Iran sanctions framework. This framework was substantially strengthened last month with the adoption of U.N. Security Council Resolution 1929.

UNSCR 1929 contains important new financial provisions that should meaningfully impact Iran's ability to access the international financial system.

This progress at the U.N. has been enhanced by significant -- by a number of significant national measures taken by the U.S. and our allies.

In the U.S., the Comprehensive Iran Sanctions, Accountability and Divestment Act provides the Treasury Department with a powerful new set of tools with which to put additional financial pressure on Iran, particularly relating to correspondent banking.

In addition, the Treasury Department continues to use preexisting sanctions authorities to designate individuals and entities involved in facilitating both Iran's WMD programs and its support for terrorism.

On June 16th, Secretary Geithner announced numerous Iran designations under our counterproliferation authority, including Post Bank and several related entities -- several entities related to the IRGC.

Many of our partners have also taken recent action. Just this week, the E.U. adopted a common position on Iran sanctions.

The common position substantially augments the E.U.'s current sanctions program, and not only implements but goes well beyond Europe's obligations under UNSCR 1929. It imposes a range of restrictions with regard to business with Iran in the trade, energy and transportation industries.

With regard to financial services, the common position designates seven Iranian banks, designates the IRGC and others, freezing their assets and prohibiting them from engaging in nearly all transactions.

The E.U. also imposed a set of systemic measures aimed at restricting Iran's ability to abuse the European financial system.

Australia and Canada have also taken substantial steps beyond what is required by UNSCR 1929. Like the U.S. and the E.U., Australia has recently designated Bank Mellat and the head of the IRGC's construction arm.

Indeed, just this morning, just within the last few hours, Australia announced that is designating over 100 individuals and entities connected to Iran's nuclear program, and revealed new restrictions on Australian business dealing with Iran's oil and gas sector.

Canada has also adopted systemic measures that go well beyond UNSCR 1929.

In that respect, all of these countries represent a model for the rest of the world to emulate.

As I mentioned earlier, our objective is to broaden and deepen the international sanctions framework. At the same time, we will continue to engage with the private sector, describing the potential effects of the new Iran sanctions legislation on their business and encouraging them to curtail their business with Iran.

As Mr. Einhorn just said, we have already seen how this is producing results. The IRGC's construction arm, Khatam al-Anbiya, recently pulled out of developing the South Pars gas field.

The recent imposition of sanctions on the IRGC and on Khatam al- Anbiya is likely to have played a significant role in this decision, as international corporations are increasingly unwilling to do business with those entities.

We will continue to put in the hard work required to ensure broad global implementation of sanctions. Actions by the U.S., E.U., Canada and Australia should be reinforced by the actions of countries in Asia, the Middle East and South America.

Mr. Einhorn and I, as well as many of our other colleagues, will be traveling to those regions in the weeks to come to encourage them to do just that.

Recent actions have demonstrated that the international community is increasingly united in its efforts to apply financial pressure on Iran. This effort will make Iran's choice increasingly clear: to choose the path of engagement offered by President Obama and the international community or to further deepen its isolation.

Thank you, Chairman. I welcome any questions.

TOWNS: Thank you very much, Mr. Glaser, for your -- your statement.

Mr. Neurauter?

NEURAUTER: Good morning, Chairman Towns and distinguished members of the committee. Thank you for providing me the opportunity to testify on the implementation of Iran sanctions.

Section 102 of the act we've been discussing this morning requires that no later than 90 days after the enactment of the Act, the Federal Acquisition Regulation, known as the FAR, shall be revised to require a certification from each person that is a prospective contractor stating that the person and any person owned or controlled by that person does not engage in any activity for which sanctions may be imposed under the Act.

The FAR is overseen by the Federal Acquisition Regulatory Council, which consists of the administrator of federal -- for federal procurement policy, along with three signatories from DOD, GSA and NASA, respectively.

To work on a rule, we open a FAR case, in this case, number 2010- 012, opened on July 14th, 2010, and assigned to the FAR Acquisition Law Team, whose responsibilities include foreign acquisitions and sanctions activities.

The FAR case was opened as an interim rule due to the timeline requirements of the act. Interim rules become effective upon publication in the Federal Register. We project that the publication of this rule will occur on or before September 29th, 2010, a date that falls within the time frame provided by the act.

The law team held its first meeting on July 20th, 2010, to begin drafting the FAR text to implement Section 102 of the act. The team is drafting solicitation provisions, contract clauses, and a preamble that will be published with the rule to help the public and the affected stakeholders understand the new rule.

The team is consulting with the Department of State's Terrorism Finance and Economic Policy Office and Treasury's Office of Foreign Assets Control as part of this effort.

This is what we have accomplished so far, and we certainly have a sense of urgency in this matter. Let me now briefly describe where we go from here.

Going forward, once the law team finishes developing the new or revised FAR text and the Federal Register notice, the team's proposal will be discussed by two councils -- the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council.

These bodies are staffed with acquisition policy officials who square their agencies' views and offer refinements, as necessary, to address any concerns and achieve consensus on FAR changes and supporting materials.

After GSA's Office of General Counsel goes over the agreed-upon rule for legal sufficiency, the case will be forwarded to the Office of Management and Budget for final review.

Subsequent to that, the Regulatory Secretariat in GSA will then prepare the rule for formal publication, obtain signatures from GSA, DOD, and NASA, and transmit the rule to the Federal Register.

I want to personally assure you, Mr. Chairman and distinguished members of the committee, that we take this matter very seriously and are fully confident that working -- everyone working together in the FAR rule-making process, we will complete this FAR case on time. We know how vital it is to expedite the process and get this done.

Thank you very much for the opportunity to testify here today. And I look forward to any questions you may have.

TOWNS: Thank you very much for your statement.

Mr. Christoff?

CHRISTOFF: Mr. Chairman. members of the committee, thanks for inviting GAO to this important hearing.

I'm here today to discuss our work on the implementation of U.S. sanctions against Iran. The United States has banned most trade and investment with Iran, prohibited firms from shipping U.S. goods through other nations and constrained investments in Iran's energy sector.

The Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 expands existing sanctions and requires the administration to report on its implementation effort.

My testimony will discuss three key challenges the United States faces in, first, deterring the illegal trans-shipment of U.S. goods to Iran; second, restricting foreign investments in Iran's energy sector; and third, assessing the effectiveness of U.S. sanctions. And I also will discuss how the new act addresses these challenges.

First, we found that Iran has circumvented the U.S. trade ban by trans-shipping U.S. military and dual-use items through other countries. Between 2007 and 2008, the United States prosecuted 30 firms and individuals for illegally trans-shipping U.S. aircraft components, night vision goggles and other sensitive technologies to Iran.

In particular, the United Arab Emirates, Malaysia and Singapore have served as key trans-shipment routes for U.S. goods. The new act authorizes the president to designate a country as a Destination of Diversion Concern.

If the country continues to allow illegal trans-shipments of U.S. goods, the United States would either provide technical assistance to strengthen the country's export controls or restrict U.S. exports to the country.

Second, we found that the United States faces challenges in restricting foreign investments in Iran's energy sector. Iran seeks such investment to increase production from its vast oil reserves, the third largest in the world.

According to the IMF, Iran's oil production has remained virtually flat in recent years and will likely stagnate without more investment. In addition, Iran must import about 130,000 barrels of gasoline each day to meet domestic demand.

In March, we identified 41 foreign firms that had commercial activities in Iran's energy sector between 2005 and 2009. Seven had contracts with the U.S. government, valued at almost $880 million. Under existing law, foreign firms that invest more than $20 million in Iran's energy sector in any 12 month period are subject to U.S. sanctions.

However, the only time the United States tried to impose sanctions was in 1998, when it determined that the investments of three foreign energy firms were sanctionable. At that time, the secretary of state waived the sanctions, citing U.S. national interests.

The new act requires additional action on the part of the president. The president is now required to investigate any report of sanctionable activity where there is credible evidence and determine in writing to the Congress whether the activity had, in fact, occurred. The president would then be expected either to impose or waive sanctions.

Finally, we found that U.S. agencies had not collected data on the results of the sanctions they enforced and had not established baseline information for monitoring and reporting.

In addition, we found no comprehensive assessment of the effectiveness of U.S. sanctions. A comprehensive assessment becomes more critical as the new act expands sanctions and imposes new reporting requirements.

For example, the United States can now sanction foreign firms that sell refined petroleum products or sensitive communications technologies to Iran. And the administration must now report on foreign firms' investments in Iran's energy sector, the activities of foreign export credit agencies and Destinations of Diversion Concern.

A comprehensive assessment would provide important information on whether or not the sanctions helped the United States achieve its security and foreign policy goals.

Mr. Chairman, Mr. Issa, that concludes my statement. And I look forward to your questions.

TOWNS: Thank you very much.

Let me thank all of you for your statements. Now we have the question and answer period.

Let me begin with you, Mr. Glaser.

The Treasury Department has had some success in getting certain financial institutions to stop doing business with Iran. The new U.S. sanctions target certain banks. Why shouldn't the United States government target all foreign banks that do business with Iran?

GLASER: Why should we or why shouldn't we? I'm sorry.

TOWNS: Why shouldn't we?

GLASER: Why shouldn't we target all?

TOWNS: Yes.

GLASER: Well, you know, I think that that's the goal. I think -- I think the goal that we have at the Treasury Department, what we've been trying to achieve over the past few years, is to create a dynamic in the international financial system that encourages banks throughout the world, no matter where they are, no matter what their size is, to make the decision not to do business with Iran.

With respect to the actual legal authorities we have, I think Congress made the right decision in the types of activities that it chose to target. I think it's important that we keep our sanctions activities-based, conduct-focused, to demonstrate, to get to Mr. Kucinich's point, that what we're -- that the goal here is not -- is not to harm the people of Iran.

So by focusing on U.N.-designated entities, by entities that have been designated by the Treasury Department for being involved in terrorism and for being involved in proliferation, which, frankly, is virtually all of the Iranian banks, we get the effect that I think we're looking for, which is increased financial pressure on Iran, increased difficulty for Iran to engage in regular international transactions, increased ability to obstruct Iran's proliferation- related transactions, while, at the same time, ensuring that when we go and talk to other countries about this and try to enlist their support, we can emphasize that this is a conduct-based effort, this is an activity-based effort, what we're targeting is the illicit conduct that Iran's engaged in.

TOWNS: Right. Thank you very much. There's nothing we need to do legislatively in order to make it possible for you to have more success?

GLASER: Chairman, I think you have just done legislatively something very important to allow us to have more success.

As you've indicated, and as I indicated in my testimony, I think we have had tremendous progress over the last three or four years in creating a shift in attitude among international financial institutions away from Iran.

We've been largely successful in that, but we have not been completely successful, in that there do still remain financial institutions that we are concerned about, that are engaged in business with Iranian institutions, that are engaged in deceptive financial practices, that are designated by the U.N., that are designated by the U.S., that are designated by the European Union and Canada and Australia. And it's important that we be able to get at those institutions.

And that's precisely what the new legislation allows us to do. You've given us 90 days to issue regulations under that -- under that bill. We have every intention of issuing those regulations in the time allotted to us. And we have every intention of robustly and responsibly implementing that legislation.

I think we have a pretty good track record of -- of using the authorities that have been given to us by Congress to target banks that we think pose a threat to the international financial system, a threat to U.S. national security and a threat to the U.S. financial system. And we will certainly continue to do so.

TOWNS: Thank you very much.

Mr. Christoff, let me direct this question to you: Your report identified 41 foreign firms with commercial activities in Iran's energy sector. You have named names. What reaction have you gotten from those firms? What reaction have you gotten?

CHRISTOFF: From...

TOWNS: Let me also say, what reaction have you gotten from the State Department and Treasury, as well?

CHRISTOFF: Well, let's start with reaction from the firms. There were many firms that did not comment on our report, and we gave them a full opportunity to comment. Generally, those firms were from China, India, Russia and Korea.

The European companies who did comment -- and I think Repsol of Spain, in particular, met with GAO twice now over the past three months since we issued our list. They gave us a letter in which they had sent to the Iranian government indicating that they were pulling out of the $10 billion LNG project where they had a 25 percent stake.

They just met with us again on Monday and said that they had informed their partner, Shell, that they were officially pulling out, effective July 31st, the day after tomorrow.

Other companies, such as Shell, told us that they were still considering the extent to which they were going to continue their investments.

They also have a 50 percent stake in the $10 billion project. And I would think, though, that with the new E.U. sanctions, they would be accelerating their decisions as to whether or not they're going to continue with those kinds of investments.

The State Department's reaction -- we have in the past -- back in 2007, we also put out a list of companies that had commercial activities in Iran's energy sector.

We have been told by that bureau within State Department that is responsible that they are reviewing those kinds of lists and anticipate that there will be actions taken. But we're not aware of what those specific actions will be.

TOWNS: Thank you very much.

My time has expired. I now yield five minutes to the gentleman from California, ranking member, Congressman Issa.

ISSA: Thank you, Mr. Chairman.

Mr. Einhorn, I listened for about 10 minutes to your five-minute opening statement. If I believed everything you said, things are going great. It's all working. You're having tremendous accomplishment.

Would you like to shorten that and characterize it perhaps a little differently, just so that I'd not be -- misunderstand, because everything you talked about -- I mean, I heard it again and again, and I re-read it while the others were speaking. You're telling me it's all working -- after more than three decades, suddenly it's all working. Is that what you want us to have us leave believing?

EINHORN: Congressman, what I would ask you to recognize is that we're working aggressively to implement the law, and to implement and to achieve the objectives of the law, which is to reduce investments in Iran's petroleum sector...

(CROSSTALK)

ISSA: Mr. Einhorn, did you seek this legislation on your watch?

EINHORN: I'm sorry?

ISSA: Did you seek this legislation on your watch? Is this legislation you would have had us pass?

EINHORN: The administration worked very closely with members of Congress on this legislation. We believe it's strong legislation. That's why the president...

(CROSSTALK)

ISSA: Then, Mr. Einhorn, why all the out clauses? Why is it the administration wanted something that didn't tie its hands one bit, but gave the symbolism of strength, because there are many things that could be done, but ultimately the president still has tremendous waiver authority under the current law?

EINHORN: The administration worked with the Congress to develop a tool that could be effective. And sometimes you need flexibility in the tool persuade key targets to do what we want them to do.

(CROSSTALK)

EINHORN: And we've used that -- we've used that flexibility to good effect..

ISSA: Thank you.

Mr. Glaser, you were a little less rosy, so -- but you're at the tip of the spear. You've got to actually follow the money. Is that right?

GLASER: Well, yes, I mean, certainly part of it is following the money. Part of it is just applying broad systemic pressure.

ISSA: OK. The UAE is very often mentioned. On one hand, we have their leader outright making statements that are very bold. And on the other hand, we have some of the emirates openly trading with Iran. Isn't that true?

GLASER: I don't know about the trade side. But on the financial side, there are certainly...

(CROSSTALK)

ISSA: Financial and others. I mean, there's movement of goods and money. It's a facilitation, but it's a facilitation in one region. What are you going to be able to do about that? You've got a partner here who doesn't have control.

And, you know, I think this is something Mr. Christoff touched on, is we have this lack of control. What are you going to do to empower a union, a federation of emirates, that is one of the key challenges to this sanction working?

GLASER: Thank you for the question. And as I -- as I said in both my oral and written remarks, it's not enough, what's happened to date. You've seen vigorous implementation of the U.N. resolution in Europe, in America, Canada, Australia.

And now our challenge is to ensure that it's vigorously implemented elsewhere. And I specifically mentioned the Middle East as one of the key places.

And it goes without saying, but I'll say, I mean, UAE is absolutely key in that as well. I've visited the UAE many times. My boss, Stuart Levey, is planning to go the UAE in the next couple of weeks.

And an important part of that discussion is going to be the provisions of the new legislation, the provisions that force banks to choose -- to put their correspondent banking at risk with the United States if they continue to engage in relationships -- in significant relationships with designated Iranian banks.

That's going to be an important part of that...

ISSA: I appreciate that.

Mr. Christoff, among other things, you touched on this and some of the other failures over time. You probably would not characterize the current success at the same level as others.

Iran is in the process of what they call privatization. And it's a shell game. They announce that they're going to -- they're going to sell something from the government. And then people who somehow have money, but, in fact, the only thing they've ever been is connected to their military, buy it.

As that privatization goes on, isn't it going to get harder and harder to enforce a sanction that right now is failing already?

And, if so, what do we need to do to create a regime in which individuals who can operate much more globally and without the cover of the government are, in fact, part of a shell game of buying assets, often nuclear-related?

CHRISTOFF: I think you're right, and privatization is going to be a challenge in the future.

ISSA: Or currently, privatization, if you will.

CHRISTOFF: Absolutely. But also I think you made a very good point about having more of a collective approach to dealing with the UAE and this trans-shipment issue. I really think that's an important issue.

The UAE is now the number one exporter of goods and services to Iran. The UAE remains the number one country that the Commerce Department is concerned about with these post-shipment verifications that fail. We sell our goods to the UAE. We go over and inspect them. They're either not there or they're not being used as intended.

So there needs to be a concerted focus on the United Arab Emirates.

ISSA: Thank you.

Mr. Chairman, in closing, I went into Libya on the first trip into Libya after we lifted all visitation sanctions. It was in a U.S. military aircraft.

And we had several hours before we met with their, quote, "leader." And what I discovered was that there was more American goods, more American brand names in Libya on that first trip than I would typically see at Wal-Mart.

So, you know, I have been somebody who is critical, not of the laws we pass. I think the sanctions we're passing are right. And they're attempting to give real power.

But it's very clear that unless we get implementation from the administration, some day, somewhere, we're going to have an event no different than October 23rd, 1983, at the Beirut barracks, where 241 Marines lost their lives.

The next one will be nuclear, and it will be exponentially greater. And it's likely to be here in the United States.

I yield back.

TOWNS: That's why we're having this hearing.

Yes, Congresswoman Maloney for five minutes?

MALONEY: First of all, I'd like to thank you, Mr. Chairman, for having the hearing, and all of the panelists for your testimony and for your commitment of implementing the sanctions.

I'd like to direct my question to Mr. Neurauter, since this committee has direct responsibility, both legislatively and with oversight, over procurement.

Mr. Neurauter, under the new sanctions signed by the president, GSA is required to revise the Federal Acquisition Regulations to require a certification from each person that is a prospective contractor that the person and any person owned or controlled by the person does not engage in any activity for which sanctions may be imposed under Section 5 of the Iran Sanctions Act.

Specifically, can GSA commit to meeting the timetable -- you have committed to meeting the timetable under the law -- to require this particular part, to certify that contractors are not conducting any prohibited business.

NEURAUTER: Yes. We are definitely committed to doing that. We are definitely committed to having the interim rule in place. The folks in GSA are fully aware that this has started, because the key is to implement the rule once it is in effect. And that's what we will do.

MALONEY: Well, specifically, what steps has GSA taken to ensure that companies that are making accurate and complete certifications? How do you know they're telling you the truth when they sign that box?

Are you reviewing it or doing any research to make sure that they are accurate in what they're saying? Because obviously many companies have been conducting business in the prior sanctions that we had before our country -- before the world, actually.

NEURAUTER: In the context of certifications and representations, that's a normal part of our business. And that's what companies do. And they certify as to many things. And we...

MALONEY: But what do you do to make sure that what they're certifying is accurate? Is there any -- let me -- what if a company knowingly makes a false certification and you find out, as we found out in Mr. Christoff's report that many companies were doing business with America and Iran, in direct conflict with the prior Iran Sanctions Act?

What do we do if a company knowingly signs that box and made a mistake or is just outright lying?

NEURAUTER: Speaking from my view, as the GSA suspension and debarment official, I am very concerned about contractor integrity and honesty. If that kind of situation comes to my attention, if need be, I'll ask the I.G. to investigate further to get me the facts.

Otherwise, I have the ability to call in the company and ask them whether the certification was accurate or not. And, if not, to tell me what the facts are.

MALONEY: And what if -- the question is, what if you find out that they made a mistake or were outright lying? Is there a fine? Do you debar them? Do you terminate the contract? What do you do if you find that situation?

You know, there was this one article that was in the New York Times, I'd like permission to put it in the record, Mr. Chairman, about U.S. enriches companies defying its policies on Iran.

And this was in March of -- March 6th of 2010, and it talks about companies that were defying our law, yet getting billions, literally, in American contracts. .

What happened? Did we terminate those contracts? Did we fine the people? If you find someone knowingly really violates the law -- you said you'd do an I.G. investigation.

What if the I.G. investigation comes back, or the investigation by the New York Times comes back and says that they are defying our policies, violating the law? Do we fine them? Do we terminate our government contracts with them? What do we do?

NEURAUTER: Specifically, I can speak to what I would do. If I found that contractor nonresponsible based upon an integrity issue, I would debar them.

MALONEY: You would debar them.

NEURAUTER: Yes.

MALONEY: But there's no real requirement in law. What happened to these companies that are getting billions in American contracts and defying prior Iranian sanctions? Did anything happen to these companies?

NEURAUTER: I don't know, ma'am.

MALONEY: Well, could you find out and get back to us, and let us know?

NEURAUTER: Yes.

MALONEY: The new sanctions also prohibit the head of an executive agency from entering into or renewing a contract for the procurement of goods or services with a person that exports sensitive technology to Iran. And what role will GSA play in administering this portion of the law?

That's a very sensitive area, sensitive technology. What role will GSA play in administering this section of the law?

NEURAUTER: Of this statute here?

MALONEY: Yes.

NEURAUTER: As far as I know, that would be included in the FAR case.

MALONEY: That will be included?

My time has expired. Thank you very much.

TOWNS: The gentlewoman's time has expired.

I now yield to the gentlemen from Indiana, Congressman Burton.

BURTON: One of the things that has concerned was I guess back in 19' -- during the Clinton administration, Madeleine Albright waived those penalties on a Russia company and I think a South American company because they had done business with Iran in violation of the law. I think it was Gazprom, 1998, and Petronas oil companies.

But Madeleine Albright waived them at the direction of the president. And the president said that the United States would not impose sanctions on violators from the European Union, presumably with the hope that the E.U. would instead immediately take action on its own. But it didn't.

And so these early sanctions made it clear to violators that they were not seriously threatened by the sanctions.

One of the things that concerns, as I said before -- and I think Mr. Issa mentioned it as well -- is that there's so much waiver authority by the president on almost every one of the sanctions that are in the bill, which I opposed in the conference committee.

But, nevertheless, it's in there. And I just would like to, once again, express my concern about that. Because in the past, no president, going back to beyond Clinton, has ever imposed any sanctions that have been carried through.

The other thing I'd like to ask is I noticed in the -- in the United Nations legislation, it does provide a mechanism for civil penalties for financial institutions that are involved in any kind of a bank transaction -- a $250,000 penalty or an amount that's twice the amount of the transaction that is the basis of the violation.

The one thing that I can't -- I can't really ascertain is whether or not the language in the bill that we've passed provides a mechanism for freezing Iranian assets in the United States. I'm not sure that the U.N. bill -- resolution does as well.

Can you tell me, any of you, whether or not freezing assets in banks, their money, in the United States is allowed in the United States -- the bill that we passed, that went through conference committee, or in the U.N., or any of the other bills that passed, the E.U. or any of them --freezing their assets, absolutely saying you cannot let them have their money?

GLASER: Most Iranian assets in the United States would already be frozen now under virtually -- under a whole wide variety of Iran -- of Iran sanctions legislation.

And the Treasury Department over the past few years has designated most Iranian banks under -- under our counterterrorism or counterproliferation authority.

That freezes their assets, to the extent that there are assets in the United States. There would be, frankly, very few assets, if any, of those banks in the United States.

So I think what the -- the problem that the bill was trying to get at with respect to banks was not -- was not freezing their assets that are under U.S. control, because there aren't any assets under U.S. control and we've already -- we've already designated these banks and applied sanctions on them.

What I think it was trying to get at was third-party banks that were providing -- that were providing these designated Iranian banks indirect access into the U.S. And that's what -- that's what the bill tries to get at.

And I think it's very important -- I think it was a very important that Congress identified, and something that we're going to try to use to solve.

But the assets of these banks, to the extent that they're in U.S. jurisdiction, are likely already frozen.

BURTON: Mr. Einhorn, you're with the State Department. In the event that General Electric, which has been accused of doing business with subsidiaries -- through their subsidiaries to Iran -- if they continue to do business in any way and there are sanctions imposed upon them because of that business being conducted, would the State Department, in any way, recommend a waiver of that penalty?

Because that's been done, as I said before, by Madeleine Albright during the Clinton administration.

EINHORN: Congressman, without reference to any particular U.S. entity...

BURTON: Well, any company, I just used that one.

EINHORN: Any company. When we get information -- credible information that a company is involved in sanctionable activity under the law -- under the law, we will -- we will examine this very closely.

We'll go to the company itself. We'll go to the U.S. embassy, see what they can find out. We'll inquire of the intelligence community. We'll accumulate...

BURTON: Let me just say, will the recommendation of the State Department be that they will not waive the sanctions -- to the president?

EINHORN: I can't predict what the recommendation of the State Department will be. It will depend on the situation.

You mentioned, Congressman Burton -- you've talked about waiver authority and so forth.

Sometimes it's so useful to that authority in there, and I'll tell you why: Sometimes, you deal with a company that may have engaged in sanctionable activity. What you want them to do is to stop that activity and to pledge not to repeat it again. You need some flexibility in the law essentially to bargain with that company.

And if there's a situation where a company has stopped all sanctionable activity and pledges not to resume it, then perhaps the waiver authority, the ability to waive sanctions, is a useful tool to stop that sanctionable activity. And that -- that's worthwhile.

TOWNS: The gentleman's time has expired.

I now recognize the gentleman from Illinois, Congressman Quigley.

QUIGLEY: Thank you, Mr. Chairman.

Mr. Einhorn, I guess what you're getting through some of these questions is whether or not any administration has been strong enough on any of these sanctions through time.

While I have faith in this administration, with all due respect, I'm not sure your testimony would evoke greater faith that we would move forward appropriately with the new sanctions.

And from page four of your testimony, "In this review, we identified a number of cases dating from before the Obama administration which appeared problematic and warranted more thorough consideration."

Given the extraordinary circumstances here and the fact that the time frame for a viable, deliverable weapon seems to be collapsing upon itself, what does problematic mean?

What's -- it's just -- if you add that into the equation and the fact that we are reading articles every day about how spry other countries seem to be circumventing the -- these actions, you know, are we spry enough? Are we forceful enough? And can you be a little more forceful from that testimony?

EINHORN: Thank you, Congressman. I can't speak for previous administrations. I certainly can't speak for the eight years of the George W. Bush administration, where no determinations were made, no sanctions were made, no determinations of even sanctionability.

All I can speak for is the Obama administration. And Secretary Clinton, early on, instructed us to act aggressively to implement the law.

We have carried out a thorough review of a large number of cases. We've winnowed those down to less than 10. We're now in the process of engaging other agencies.

The secretary of state has been delegated authority to take decisions. We have to get the input from other agencies. We'll provide that input to Secretary Clinton. And she will make a decision.

I would -- I would say that she, before very long, will have to make determinations under the law as to the sanctionability of this relatively small number of cases, fewer than 10.

QUIGLEY: Can you ballpark the time frame here?

EINHORN: She wants us to move expeditiously. As I say, this -- the dossiers are out to other agencies. We need to hear back from them, get the recommendations, and feed those to the secretary, and she can make decisions.

QUIGLEY: And I appreciate that.

For the panel, switching directions, given the short time frame we have with you, I just -- to the extent you can, tell us a little more your thoughts about how China plays into this equation, filling the gap, perhaps, flooding everything else that we're trying -- overwhelming everything else we're trying to do here.

CHRISTOFF: Yes, I think China is one of the countries in which the U.S. attention has to turn to.

The E.U. sanctions were passed, but China has gone over the past 15 years from having minimal trade with Iran to being at either the first or the second biggest importer and exporters of good and services to Iran.

They are aggressive in investing in Iran's energy sector. They -- their companies have been sanctioned under the nonproliferation provisions multiple times, to no effect. So that's the next country that I think we need turn our attention to.

QUIGLEY: And by attention, your suggestions?

CHRISTOFF: Mr. Einhorn certainly had some suggestions. But I think there has to be a recognition that at least with some of the nonproliferation sanctions, when you have Chinese companies that have been sanctioned three or more times, there has to be a reevaluation of the effectiveness of those particular sanctions, because it's not changing their behavior.

EINHORN: If I can just follow up, Congressman? You're right to identify China. China is of concern to us in this regard. China has backfilled when a number of responsible countries have distanced themselves from Iran.

We need to speak with the Chinese. We've begun to raise this at the highest levels with Chinese leaders. Deputy Assistant Secretary Glaser and I will be going to China in August to begin a dialogue. And this dialogue will be pursued at all levels.

We need for them to enforce the Security Council resolutions conscientiously, and we also need for them not to backfill when responsible countries have distanced themselves from Iran.

QUIGLEY: Thank you, Mr. Chairman.

TOWNS: Thank you very much.

I now yield five minutes to the gentleman from Tennessee, Mr. Duncan.

DUNCAN: Thank you, Mr. Chairman.

And I want to read some quotes from when this issue -- a couple times that it came up before. And if I have any time -- if there's any time left, then I'd be happy for you to respond.

But a little over three months ago, the Congressional Quarterly, on April 22nd, had an article which said, quote, "Business groups say the House and Senate bills could effectively prohibit" -- "prohibit U.S. businesses from partnering with certain foreign companies even if the relationships have nothing to do with Iran."

And then they added, "The National Association of Manufacturers released a study arguing that at least $25 billion in exports and 210,000 jobs could be lost if sanctions legislation is enacted."

The next day, in The Hill newspaper, Patrick Disney and Lara Friedman -- and I'm not familiar with who they are -- wrote this in an article: They said, "The U.S. has sanctioned Iran for decades with little to show for it." And added that certain -- quote, "certain sanctions have unambiguously failed to achieve their objective, contributing instead to the suffering of ordinary Iranians."

And last December 15th, the National Security Subcommittee had a hearing in this very room in which I participated. And four witnesses testified. And I will tell you that all four of them were against sanctions.

And Dr. George Lopez, chair of the Kroc Institute at Notre Dame, said that sanctions, quote, "will inflict economic pain in Iran but produce no political gain on issues important to the United States. In fact, research in the history of sanctions (inaudible) cases predicts that these sanctions imposed on this Iranian government in the manner imposed in H.R. 2194 will do more harm than doing nothing."

James F. Dobbins, director of the International Security and Defense Policy Center, said that while sanctions are sometimes appealing, they are not without cost to the imposing states, and, quote, "some of that cost is eventually transferred to the American taxpayer.

"Further sanctions against Iran are not likely to alter Tehran's nuclear policies. Sanctions will weaken the state economically, and even militarily, and also strengthen" that imposes -- "and strengthen the regime's domestic support and hold on power." In other words, strengthen Iran's hold on power.

Journalist Robin Wright said, quote, "The regime could exploit new sanctions as an excuse to clamp down further on the opposition," and said, quote, "sanctions also hold the potential to hurt the public more than the regime."

And finally, Suzanne Maloney, a senior fellow at the Brookings Institute, said, quote, "Sanctions do not offer a cure-all or a silver bullet for resolving our longstanding concerns about Iranian policy. There should be no illusions about the likelihood that even more rigorous and more broadly implemented sanctions can produce a reversal of Iran's nuclear calculus."

And what I'm concerned about is is that sanctions will end up hurting the poor and lower income people of Iran more than anybody, while doing very little good for us.

And I noticed that Mr. Christoff said in his testimony a while ago that because these sanctions we have imposed now are the toughest ever, that we need to very soon have a -- a very good analysis of the effectiveness of these sanctions.

Now, if anyone wishes to respond -- yes, sir, Mr. Einhorn?

EINHORN: Thank you, Congressman, for the question. There's a long debate on the utility of sanctions -- do they work, what's their impact and so forth?

Our view is that sanctions are not an end in themselves. They're a vehicle for -- for changing Iran's behavior. We want them to recalculate cost and benefits, and come up with a conclusion that they're better off ending their defiance of the international community and meeting their international obligations.

I think until recently, Iranians have been very self-confidant that they could have their cake and eat it too. They could have their nuclear ambitions, but they could also have good commercial, financial relationships with the international community.

What we've been trying to do is turn up the pressure on Iran so that it has to make a choice between one or the other. And there's pretty good evidence coming in every day that Iranians are feeling the pressure. Every day, another major company decides to distance itself from Iran.

And we think Iran is beginning to feel the heat. We read in the papers by Iranian economists that their economic situation is worsening, that oil production is declining, that the cost of exports -- the cost of imports is increasing because of the difficulty of getting financing.

So we believe we have begun to turn the corner on this, and that Iran is feeling the pressure. But we have to continue stepping that up.

DUNCAN: Well, let me -- let me just say, because my time is up, that we have given people in our government great power through this sanctions legislation. But I hope that it -- that power is exercised in a humane and judicious manner, so that we don't end up hurting an awful lot of people in the process.

TOWNS: The gentleman's time has expired.

I now recognize Mr. Foster from Illinois.

FOSTER: Thank you, Mr. Chairman.

Director Christoff, were the Chinese sanctioned -- the Chinese companies that were sanctioned. state-owned or private -- privately owned companies.

CHRISTOFF: You know, I don't know that, Mr. Foster, but I can try to get that information for you for the record.

FOSTER: OK. Well, what I'm getting at is whether it's reasonable to view the Chinese government as basically a holding company. And so that the sanctions -- you know, presumably if there's a subsidiary that violates the sanctions, that reflects onto the holding company as a general principle. Is that how it must work?

CHRISTOFF: Yes.

FOSTER: Right. And so that, you know, in the case, which I think is likely, that at least some of these sanctioned companies there, you could make a reasonable, logical argument that, in fact, you know, the holding company, namely the Chinese government, might be sanctioned as a whole. And it's -- I was just wondering if you could explore that...

CHRISTOFF: Yes, I'll look into that.

FOSTER: ... for the record.

Deputy Secretary Glaser, what do you view the biggest holes are in the financial net that we're trying to cast around the IRGC? You know, what are -- you know, for example, how are illicit arms or technology shipments typically paid for?

You know, are there enhancements to the international reporting that would really do you a lot of good, that we could encourage at the congressional level?

GLASER: Thank you for the question. I'm glad you focused on the IRGC, because I think that that's really one of the key entities we should be looking at.

The IRGC is engaged in -- you know, the whole range of bad conduct that we associate with Iran, from proliferation activities, terrorist activities, suppression of democracy within Iran, the IRGC is engaged across the board.

It is also a very attractive target because they have such extensive economic and financial networks, both within Iran and throughout the world. So that's their strength, but it's also -- you know, it's also their weakness. It also creates a target-rich environment.

The -- the challenge -- the challenge that we've had up until really the last -- the last month is -- is getting universal -- universal action with respect to the IRGC.

We've had -- we've had tremendous success with that recently with 1929, and really, most especially, with the European Union's common position this week, which applies sanctions to the IRGC in Europe across the board -- the IRGC as an entity, plus numerous subsidiaries.

Again, the challenge now -- I mean, the challenge I don't think is a legislative one. I don't think it's an authority challenge. The challenge is to make this as broad and deep as possible, to get out on the road, present information to the private sector, to present information to foreign governments, to let them know what kind of activity the IRGC is engaging in in their countries, and then expect them to live up to their obligations under international law and under their domestic law.

And that's what -- that's what we have been doing and that's what we are doing. And, as Mr. Einhorn said, I think -- I think we're starting to see that that's working.

And we both mentioned it, but I think it's worth underscoring, Khatam al-Anbiya is one of the primary companies owned by the IRGC, and they just had to pull out of South Pars. And they had to pull out because, as they themselves admitted, it was against Iran's national interest for them to be involved, because they couldn't get -- they couldn't get the international financing.

FOSTER: Are you seeing evidence that individuals are transferring money to, you know, private accounts offshore that you can't identify, in havens? Or is that something you're dealing with acceptably?

GLASER: Well, I mean, the issue of bank secrecy havens is a broader issue than it applies to Iran.

FOSTER: Definitely.

GLASER: Look, you know, the Iranians are, you know, very sophisticated, and they're very smart. And they have complex financial systems. And they know how to engage in deceptive financial practices, and they do. And we try to -- we try to prevent that from happening.

But the fact of the matter is is that, on a case-by-base basis, on a transaction-by-transaction basis, they're going to be able to do transactions that they want to do.

The challenge is on the systemic level, because you can't run an economy on deceptive financial practices. And so the challenge is to make costly or risky or less effective for them to do that. And I do think we're succeeding in that.

FOSTER: OK. Let's see -- oh, Mr. Einhorn, the Iran Sanctions Act, as recently amended, states that the president shall initiate an investigation when a -- credible evidence is presented, and I think a report within 180 days if -- and how's that going? And...

EINHORN: Well, Congressman, the law was only enacted less than a month ago. And we're now in the process of figuring out how to implement it effectively and how to deal with the 180-day period.

You know, often thorough investigations of these activities take longer than 180 days, because often you get some initial public indication that a deal is in the works, but it may not be consummated for, you know, three, five, 10 years.

So it's a challenge to wrap everything up in 180 days. We're trying to figure out how to -- how to do that.

FOSTER: But you are committed to the 180 days...

EINHORN: Absolutely.

FOSTER: ... at least some kind of finding in 180 days?

EINHORN: Absolutely. We're committed to implementing that aspect of the law -- all aspects of the law.

TOWNS: The gentleman's time has expired.

I now yield to the gentleman from Arizona, Congressman Flake.

FLAKE: I thank the chair.

I thank those who have testified. I'm sorry I missed part of it, other obligations. So I hope you are not plowing the same ground here.

Mr. Einhorn, in your view -- let me just step back a bit -- is it possible to have an effective sanctions regime without the active participation of Russia and China?

EINHORN: I think it's -- I mean, as your question implies, it is very important for Russia and China to be involved. They were involved, to some extent, already, in the sense that they voted for Security Council Resolution 1929, which is the base for many of the national measures that have subsequently been taken. So that's positive.

But we also need their effective enforcement of 1929. And we also ask them to recognize their responsibility as permanent members of the Security Council to go beyond 1929, and to join with the European Union and us and the Australians and Canadians and have a strong regime of pressure that can move Iran to meet its international obligations.

But Russia and China are very important.

FLAKE: Very important, but not really helping is what you're saying.

(CROSSTALK)

EINHORN: Well, you know, recently Russian took an important decision. It decided that in accordance with the Security Council resolution, it would not deliver an advanced air defense system, the S-300, to Iran.

We've been pressing Russia very hard for a number of years not to make that delivery, and they've agreed not to make it. And that's positive.

FLAKE: Should we worry about getting too far ahead of our allies, of our European allies and ahead of Russia and China as well?

I mean, there are two schools of thought here: if we lead, that they'll follow, but there's also the notion that if we get too far out ahead -- out ahead, they won't.

Where do you think we are now? Do we risk getting too far ahead, so we don't have active, enthusiastic, ongoing cooperation, not just public, but privately enforcing these resolutions as well, with Russia and China?

EINHORN: We are very grateful that the European Union took the decision it took this week. It set some very high standards for sanctions. We will use that high standard in our discussions.

Danny Glaser and I will be in Seoul and in Tokyo next week to see if Japan and South Korea could come up to that mark. We'll also go to China later in the month. It's important that China step up and recognize its international responsibilities here.

FLAKE: With gasoline -- we keep saying that we're targeting the regime and not the people of Iran, we're just looking at items that would help them build nuclear capacity. How is gasoline used to build nuclear capacity?

EINHORN: Well, gasoline is not directly used, obviously, to build nuclear capacity. But I think by putting some pressure on their access to refined petroleum products, you encourage them to recompute what's in their best interest and to recognize that unless they stop their defiance of the international community, the future for Iran will look a lot dimmer. And hopefully they're coming to that conclusion.

FLAKE: That's my point. I mean, it's not directly, but we all know how -- how these sanctions regimes usually work. They only work if you have leaders that care a little more about the plight of the people. I mean, if we thought rationally, we certainly wouldn't have had the same embargo we've had in Cuba for 50 years, for example.

So I worry that we say publicly we don't want to hurt the Iranian people, we don't want to drive them into the arms of the regime. But then we target items that have nothing to do with building nuclear capacity, but would provide a pinch on the people without hurting the regime.

We all know the regime finds ways, certainly, when we see just example after example after example of ways the black market works here.

And our own secretary of state has said -- used the term "leaky," these sanctions are leaky. And that's quite an understatement.

So, anyway, thank you for your testimony.

EINHORN: If I could just respond to that, all sanctions regimes are leaky, to some extent. But what we're seeing here is that the sanctions are becoming more and more comprehensive. And that's good.

As far as dealing with the people of Iran is concerned, our intention is not to harm the people of Iran. Our intention is to get the leadership of Iran to reconsider.

And that's why we've done things like ensure that organizations like the IRGC and IRISL, the Iran shipping line, is specifically targeted. That will be an important signal to the elites of Iran.

TOWNS: The gentleman's time has expired.

And I recognize the gentleman from Maryland, Congressman Van Hollen, for five minutes.

VAN HOLLEN: (OFF-MIKE) Mr. Chairman. Thank all of you for your testimony today.

I just want to follow up on some of the conversations that have -- questions that have already been asked. And I think, obviously, there's consensus to the extent we can broaden those countries that are participating in the sanctions, obviously, they're much more effective. And the step the E.U. took recently was another positive measure.

To what extent does the sanctions regime that we have here overlap with what the E.U. done? And what specific steps are we taking now with the E.U. to make sure that we have uniform enforcement as much -- as much as possible?

EINHORN: Well, Mr. Glaser may want to add to this. We have the most comprehensive sanctions against Iran any other country in the world. You realize that.

VAN HOLLEN: Yes.

EINHORN: I think what the Europeans did this week really closed that gap quite significantly. There are still differences, but the gap was closed very significantly. And I think it was probably a very rude shock to the leaders of Iran to see the strength of the steps they took.

VAN HOLLEN: Let me -- just to follow up, there's been some concern expressed about the relationship with some of the banks in Germany, specifically, with respect to Iran.

Could you -- could you comment on that, especially in light of the decision taken by the E.U., how the E.U. decision will impact especially the question of German banks doing business with Iran?

CHRISTOFF: Well, I think the E.U. decision -- the E.U. common position is going to significantly impact any German banks or any European banks that are doing business with Iran.

So any German banks that are doing business with any of the seven banks designated by the E.U. will have to stop. Any German or other European banks that do any sizable transaction with Iran will have to get pre-approval for that transaction. And they have to wait for four weeks for that pre-approval. So it's -- it's really -- it's a huge -- it's a huge step forward.

That said, there are some German banks -- there's one German bank that was discussed in the press, EIH, that does remain a concern for us. And that's something that we continue to discuss with the Europeans, and with Germany in particular.

And it's -- it's -- you know, I think their business will inevitably decline based on the -- based on the new E.U. measures. But it is something that's going to remain a subject of conversation with -- between us and our allies in Germany.

VAN HOLLEN: Mr. Einhorn, you mentioned the fact that China had voted for the resolution at the United Nations. Obviously, they also worked very hard to weaken some aspects of the proposal we put forward. So I'm pleased to hear you're going to be traveling there in the near future.

How do you grade the prospects for getting the Chinese to really be serious about this effort in Iran? I mean, I think it's clear, based on their actions to try and dilute sanctions at the U.N., that they're obviously not on board.

What goals do you have specifically for that trip? How would you measure success in your -- in your discussions with the Chinese?

EINHORN: Well, there are two important criteria. One is that they enforce the letter of Resolution 1929 conscientiously, and that if there are Chinese entities that are in any way assisting, for example, the nuclear programs in Iran, that China takes strong steps against those entities. That's one.

Second, we want China to recognize its responsibility not to backfill when responsible governments show restraint and distance themselves from Iran. That will be very important.

The Chinese will argue that they have important energy security needs, tremendous demands for energy; they need to do what's necessary to ensure energy security.

In our view, they are over-achieving in terms of their energy security needs. We think they have to kind of rebalance their priorities, and recognize that as a permanent member of the Security Council, it's their responsibility to prevent proliferation, and to put pressure on Iran and persuade Iran not to pursue nuclear weapons.

VAN HOLLEN: Thank you. My last question relates to the standard that applies to granting a waiver of the sanctions. And as I understand the legislation, the standard is that it be vital to the national security interests of the United States and that the government with primary jurisdiction over the sanctions violator is closely cooperating with the United States in this effort.

This is probably by way of a comment more than a question, but I think it's absolutely essential that we keep that standard as tight as possible. And, you know, for example, I think it would be very difficult to argue today that the Chinese or the Russians were meeting the intent of that language with respect to their cooperation, given their conduct.

And so I would -- I would hope that you send the right signal to others as to how you interpret that, because you don't want it to -- you don't want your decisions -- a flexible interpretation of the rule to send a green light to others that they're going to be able to get away with this. So I hope that will be -- that that discretion will be pursued in a way that maximizes a tight, uniform sanctions regime.

Thank you, Mr. Chairman.

TOWNS: I thank the gentleman from Maryland.

Now I yield five minutes to the gentleman from Utah, Congressman Chaffetz.

CHAFFETZ: Thank you. Thank you all for being here. I appreciate it. I'm -- for the sake of clarity, and in a rapid fashion, I'm looking for like a yes or no here.

I just want to make sure that each of your organizations is committed to the timetable that's laid out in the legislation, you have the infrastructure, you have the resources, and that you're going to be able to make the timetables that are implemented in the legislation.

Perhaps we can start with Mr. Einhorn.

EINHORN: If you want a yes or no, yes.

CHAFFETZ: Is there anything in your way of making sure that you get these done? Please, continue down the line.

GLASER: Yes.

NEURAUTER: Yes.

CHRISTOFF: We don't have anything to implement, but we assure continued oversight, on the part of GAO, to make sure they are implementing it.

CHAFFETZ: Thank you. Thank you. Mr. Einhorn...

TOWNS: So that's a yes, right?

CHAFFETZ: That's a yes. That's an absolutely. That's good to hear.

Mr. Einhorn, let's talk for a moment, if we could, about Turkey, given the recent situation. What -- can you assess the level of commitment that they have to helping and assisting in these efforts?

EINHORN: We believe the government of Turkey shares our objective of preventing Iran from gaining nuclear weapons. We appreciate the hard work that Turkey has put in in trying to persuade Iran to adopt a more reasonable position.

Sometimes we differ on -- with Turkey on tactics. For example, Turkey joined with Brazil and Iran in a -- what was called the Tehran Declaration in May. And they supported a -- what we consider to be an unacceptable version of a proposal we supported back in October on refueling the Tehran research reactor.

We -- we didn't appreciate the timing of that because it was on the eve of the voting on the U.N. Security Council resolution. And perhaps some of the participants had in mind derailing that vote on the Security Council resolution.

So sometimes we disagree with Turkey on tactics. But we believe their motivation is good. They want to solve this Iran nuclear issue just as we do.

CHAFFETZ: Mr. Glaser, any sense or any assessment of using the Patriot Act along the way, if we need to use that authority?

GLASER: Yes, I -- we have -- we have a wide variety of authorities under the Patriot Act, under IEEPA. And we consider all of those -- all of those authorities. Any authority that we have that we think can be put to good use would be considered.

CHAFFETZ: At the Treasury -- and then I'd like to go to State, if I could, I think time will run short here -- what are your top -- just very rapidly, because time's so short.

What are your top there concerns about really fully implementing all of these sanctions? What are the three things that you're worried about that are obstacles we need to overcome to actually fully implement?

Yes, please.

GLASER: To fully implement? You know, I keep coming back. The challenge is -- the challenge is to make these sanctions as broad as possible. And what I mean by that is global -- vigorous global implementation. That's the big challenge.

We now have the tools. We have the authorities, even throughout world. But the challenge is global implementation. And when I say deep, I mean countries as appropriate and as necessary beyond the scope of what...

(CROSSTALK)

CHAFFETZ: Which three -- which three countries, then, would you be most worried about?

GLASER: Well, I'll tell you which three regions I think need to be focused on right now. And that's the Middle East, Asia and South America. Europe has taken strong action. We've taken strong action in North America. Australia has taken strong action.

And, you know, as Mr. Einhorn said, Bob and I are going to be traveling to Japan and South Korea next week. We're going to be in China later in the month. Asia's important.

My boss, as I said before, Stuart Levey, is going to be in UAE in the next couple of weeks. The Middle East is important. South America is important too.

CHAFFETZ: Mr. Einhorn?

EINHORN: I would agree with Danny's characterization. I would just say it's very important to maintain the momentum. Since the -- since June, when the Security Council resolution was adopted, there have been a series of actions, including U.S. executive order designations. We've talked about Australia, Canada, Europe and so forth.

We have to keep up the momentum. The Iranian -- you know, part of this is psychological. Part of it is, you know, practical, on the ground of what's happening economically. But part of it is psychological.

We have to demonstrate to Iran's leaders that the situation is going to deteriorate. It's going to continue to deteriorate unless they change their behavior. So keeping the momentum up throughout the summer, into the fall, will be critical.

CHAFFETZ: Thank you.

ACTING CHAIR: Time has expired.

CHU: Thank you, Madame Chair. The U.N. Sanctions Resolution 1929 was a positive step. However, the financial sanctions in the resolution left something to be desired. For example, only one new bank was added to the list of sanctioned entities.

And even here in the U.S., the sanctions announced by the Treasury Department last month added only one bank to the list of those sanctioned.

Is the Treasury Department aware of foreign financial institutions that continue to conduct business with sanctioned Iranian banks? And what steps is the Treasury Department taking to ensure corresponding relations between the U.S. and foreign banks are not being abused by Iran to gain access to U.S. financial markets?

GLASER: Thank you for the question. I certainly agree that the financial component of this whole -- of this whole effort is key to its success.

I actually was pleasantly surprised by how strong the 1929 was on the financial side. I think we have got some really, really important provisions in the...

CHU: Can you pull up the microphone.

GLASER: I think we got some really important provisions in there that we've been looking for for a long time, especially with respect to correspondent banking. And you saw that the E.U. picked right up on that, and themselves even went beyond the U.N. in terms of correspondent banks.

So I think it's becoming, really just in the past month, increasingly difficult for Iran to access the international financial system through its correspondent banking networks.

Now the issue of -- and that's been reducing over the past three years or so. We've been having a lot of success in banks moving out of the Iran business.

Now, the question is, as you raised, what do you do with respect to the few remaining that are continuing to do this business? And as we discussed earlier, Congress just gave us very, very important authority in that.

And we are -- we have 90 days -- the Treasury Department has 90 days to issue regulations that, when applied, would severely restrict or cut off a third-party bank's correspondent relations with the United States if it's doing business with a designated entity -- a designated Iranian entity.

And we have every intention of meeting that 90-day deadline, of issuing those regulations. And we intend to implement the law that Congress gave us.

So our hope, though, is that as banks around the world -- the few remaining -- see the choice that they have to make, that it's -- that they're -- that they're going to make the economically intelligent decision as to what to do. That's been a part of our strategic dialogue with the international financial sector for years now. And I think that's working.

There are some banks, even after that, that aren't exposed to the United States, that we would have less leverage on. And we're going to have to come up with creative ways of dealing with them as well.

But this is -- this is something that we've been seized with for a long time. And it's really what we see as one of our main contributions to the effort, is to -- is to do precisely what you're suggesting.

CHU: Actually, I am aware about the designation process taking too long to complete, and many companies and banks, including, for instance, subsidiaries of previously sanctioned entities going unsanctioned.

For example, IRISL -- IRISL, Iran's state shipping company and the process there. Because after the U.S. initially sanctioned this company, they began to evade it by bringing in ships and establishing front companies to take over ownership of the vessels.

And last month, more than a year later, the Treasury Department finally updated its sanctions on IRISL. Yet even this failed to identify multiple front companies that were identified by the Commerce Department as it related to the transfer of the speed boat from a South African company to an Iranian company last year.

So what is going on with this -- with actions against these numerous IRISL front companies, some of which have already been identified by the Commerce Department?

GLASER: Yes, I mean, you raise -- you raise a very important point. And it's a challenge that we face, and we face it -- we face it every day.

Chairman Towns, in his opening remarks, said sanctions can't just be a cat-and-mouse game. And I think that's -- I wrote it down when he said it, because I thought it was an extremely important point.

There's two components to our sanctions regime with respect to Iran, and with respect to a lot of different sanctions regimes we have, but certainly with Iran. There's the targeted side and there's the systemic side.

And if they're both -- and if they're not both working, especially the systemic side, then it's going to be -- you're not going to get the results you're looking for.

So, yes, there's a cat-and-mouse aspect to it, and that's what you're referring to, which is, we take an action, and then that causes a response, and we have to catch up to the response.

And if that's the only way we do it, that's not going to be successful, because it's much easier to change a company's name than it is to go through a procedure that has due process and fairness in it, and take a formal government action that has an impact on people.

So that's always going to be an issue. What that has to be combined with is strong systemic protection, obligations on banks and on other private sector entities to themselves be careful, to in themselves understand who they're dealing with, to themselves prevent themselves from being abused by Iranian entities, by Iranian banks, by IRISL. And that's -- and that's part of all this. I'm sorry.

CHU: Thank you.

ACTING CHAIR: Mr. Luetkemeyer is recognized.

LUETKEMEYER: Thank you, Madam Chairman.

Mr. Einhorn, just quickly, has concerns with regards to just the general activity over in the Middle East -- it would seem as though, with the recent agreement with Syria that Iran has had, the recent testing of the missiles that now -- I think 1,200 miles is what their reach is -- that they've made tremendous progress with regards to developing and putting in place a plan not only to make, but also deliver nuclear arms. What do you -- and -- or where are we at?

EINHORN: Congressman, what you -- what you just cited is a source of concern to us. It's not just a question of Iran making progress in its centrifuge enrichment program. It's progress in means of delivering a possible nuclear weapon. And they've been making progress in their missile program. And that's -- you know, that's a problem.

The new Security Council resolution specifically prohibits Iran from -- from any activities related to ballistic missiles that can carry nuclear weapons.

LUETKEMEYER: What's enforceable...

(CROSSTALK)

EINHORN: That gives us leverage. When we believe there's a shipment to Iran from any country that could support the missile program, we will utilize the inspection provisions of that resolution to try to interdict it.

LUETKEMEYER: OK, we have -- there's another country that may be even more interested in what's going on over there than what we are. And that's Israel. Are we discussing the sanctions with them, more then just sending copies of our newspapers every day?

Do we have detailed briefings with the Israeli officials, to where they're drawn into these discussions, made a part of what's going on, so that they're informed and can have some input?

Because I'm sure they've got as good or better intelligence of what's going than what we have, because of the dramatic impact it has on them.

EINHORN: Absolutely, Congressman. We're in close touch with the Israelis. As a matter of fact, this afternoon we have a meeting with a senior Israeli team to talk about Iran and to talk about sanctions. And they are an important source of information.

We cooperate on intelligence matters with lots of friendly countries around the world. But Israeli intelligence is particularly good.

LUETKEMEYER: Where are we going with our relationship with Israel? It seems it's kind of a cold relationship at this point with this administration.

Are we starting to warm up to them a little bit? Are we starting to work with them a little bit more? Because I know they're not very happy, from what I understand, with what's been going on?

EINHORN: Well, my impression is that Prime Minister Netanyahu's recent visit was very successful. We are strengthening the relationship all the time. And I think today's consultations on Iran is an example of how closely we can work with the state of Israel.

LUETKEMEYER: OK. Through this process, is there some sort of retribution or some sort of sanction or some sort of pressure that we're going to be putting on Syria and other countries in the area, just the immediate area, beside Russia and China, that are helping the Iranians?

EINHORN: Syria is on our list of state sponsors of terrorism.

LUETKEMEYER: Right. We admit that they're terrorists. Is that right?

EINHORN: There are many -- well, they're on our list.

LUETKEMEYER: OK.

EINHORN: And there are many sanctions that apply to Syria for that and other reasons, including Syria is a big importer of missile technology, which is a problem also.

So we have -- you know, we have -- we have reached out to Syria. We're trying to explore whether there's a basis for some meaningful dialogue. But we do so without any illusions about the nature of the regime and about some of its ambitions in the area of weapons of mass destruction.

LUETKEMEYER: OK.

With that, Madam Chairman, I yield the balance of my time to Mr. Burton.

BURTON: Yes. I just want to make a real brief comment. I know the four of you have a great responsibility because of the legislation we passed. And I know Mr. Flake and others have indicated that maybe, you know, these sanctions won't work.

But I would just like to say that those who are aware of history realize that this may be one of the last chances we have to stop Iran from getting nuclear weapons. And I'd like to remind you and everybody else that what happened back in the late 1930s led to 50- some million people being killed because we didn't do everything necessary to stop the Luftwaffe and Hitler and everything else.

And I think that Mr. Ahmadinejad is one that can be equated with possibly Hitler. And I think it's very important that we do everything possible to stop them with their nuclear program, so we don't have to face that prospect.

And, with that, I thank the gentleman for yielding.

ACTING CHAIR: Thank you very much.

(OFF-MIKE)

CONNOLLY: Thank you, Madam Chairwoman. And I was going to plead in advance with the panelists -- thank you for being here -- you need to speak into the mike like this, otherwise you cannot be heard. You sound muffled, and I missed much of your testimony. So please, the acoustics are terrible here. We're going to fix that, though.

The Washington Post, Mr. Einhorn, had a story last week about South Pars, and how sanctions may actually be having the intended effect, although the Chinese and the Malaysians are trying to pick up some of the slack.

Are there -- would you agree with that assessment? And are there other salient examples of where we can point concretely and say that's -- that's because of sanctions?

EINHORN: I think it's accurate. I do think it's accurate. I think the Iranians are having some difficulty getting investment in some of the big projects, including South Pars.

Danny Glaser even talked about Khatam al-Anbiya withdrawing from that project. I mentioned in my testimony major oil companies that have pulled back from their -- their interest in Iran.

So I do believe that these sanctions are having the desired effect of discouraging investment in Iran's petroleum sector.

CONNOLLY: You mentioned, speaking of China, that you've -- that the State Department has elevated this to the highest level and it's now a topic of conversation when we have diplomatic discussions. What's -- what's the nature of the representation and what's the nature of the response?

EINHORN: Well, we invested a lot of diplomatic time and effort on the European Union's recent decision at every level of government. A number of us traveled to Europe and spoke to Europeans -- Danny Glaser, of course, Stuart Levey played an important role in this. Secretary Clinton has been very active on the telephone and in her meetings.

Vice President Biden, President Obama, all of them have put a lot of effort into making these sanctions work and generally pressure that can lead to a change in Iran's behavior.

CONNOLLY: Yes, but, I mean, you're not giving us any reassurance that the Chinese care or are receptive to your message. In fact, there's some evidence they don't.

EINHORN: Yes. I mentioned before that after China's yes vote, which was a good thing, China remains a matter of concern.

And this is -- China is going to be the focus of very high level attention over the next weeks and months. But China is an important part of this -- needs to be an important part of this international effort to put pressure on Iran.

CONNOLLY: Well, Mr. Glaser, the March GAO report on enforcing restrictions said that -- it recommended that the Department of Treasury should be ensuring that they're developing a capability to provide all other federal agencies that are relevant and Congress with complete and timely information concerning all licenses issued for the export of goods to Iran.

What progress have we achieved on that recommendation in the Treasury Department?

GLASER: I believe that was a recommendation made to an office of the Treasury Department called the Office of Foreign Assets Control.

CONNOLLY: Can I tell you, I cannot hear you, Mr. Glaser?

GLASER: I'm sorry. I apologize, Mr. Congressman. That recommendation, I believe, was made to a portion of the Treasury Department called the Office of Foreign Assets Control.

So I'll have to take that -- I'll have to take that question back to them in order to provide you with...

CONNOLLY: Would you get back to us for the record, please? I thank you.

Let me ask, U.N. Security Resolution 1540 obligates U.N. member states to develop and enforce measures to prevent the proliferation of weapons of mass destruction to non-state actors. Presumably, that resolution has direct relevance to Iran, even though it's not called Iran sanctions. But it certainly has direct relevance.

Have we been able to use that resolution in our -- in our diplomatic efforts to ensure compliance with Iran sanctions and/or to encourage others to sort of try to see this issue our way?

Mr. Einhorn?

EINHORN: Congressman, 1540 may be an indirect way of addressing the question of Iran. It's basically been seen as a vehicle for strengthening the capacity of lots of countries around the world to cope with the threat of terrorism, the threat from non-state actors.

Iran is a sponsor -- is a state sponsor of terrorism. It has given support to a number of terrorist organizations. We need the -- to increase the ability of countries to cope with that threat, whether it's coming from Iran or other terrorists.

ACTING CHAIR: The gentleman's time has expired.

CONNOLLY: My time has expired. Thank you, Madam Chairwoman.

ACTING CHAIR: Mr. Issa?

ISSA: Thank you, Madam Chair.

Mr. Christoff, in addition to the 41 companies and all the other research you did in your April report, you've also, I assume, observed one of the subjects that's talked about a lot, the gasoline that has to be imported into Iran. Is that not so?

CHRISTOFF: Yes, in fact, Mr. Issa, we're planning on issuing a report next week, as soon as we get all comments from a variety of companies that we've identified as open sources of selling refined petroleum products, particularly gasoline, to Iran.

ISSA: And without asking you to get ahead of your own report, for all practical purposes, Iran's not suffering. They're getting that 145,000 or so barrels of gasoline and petroleum products they need. Right?

CHRISTOFF: Well, the spot market is such that it's a very fungible product. And you can get the product -- even though the cost might be an additional cost to get the product, you can still get the product.

ISSA: So bottom line is, at least that part of the sanction, not so good.

(CROSSTALK)

ISSA: As long as they have money, they get the fuel.

CHRISTOFF: Well, I think it just started. I mean, these new sanctions were just imposed this week, in which the State Department would have to begin identifying companies and starting to enforce sanctions against those who, in fact, do sell refined petroleum products to Iran.

ISSA: But we leaned on Kazakhstan a long time ago, a country that could deliver the refined petroleum quicker, cheaper, easier because they're in the closest proximity to the -- to Tehran, which is where the ultimate shortage is. The shortage is in the north, not the south.

And it didn't help that they didn't supply it. They still got it over this period leading up to this week. Is that right?

CHRISTOFF: They need 140,000 barrels of gasoline every day. That's their domestic shortage. According to even intel sources, they are working to try to increase their refining capacity, but they're still going to be dependent upon imports.

ISSA: OK. You know, Iraq was the same way. And they simply built a pipeline in addition to all the other leakage, shipped oil to Syria. Syria refined it, took a big cut and sent a certain amount back. And it wasn't until after we took Baghdad and bombed that pipeline that we actually stopped it.

Mr. Einhorn, that takes me back, if you will. You've been on the ground since -- and working in this one unique area since Nixon. Is that true?

EINHORN: That's right. Not in the specific area, but I began government service in '72.

ISSA: And you've been in, more or less, in nonproliferation and related subjects for most of -- much of that time.

EINHORN: That's correct.

ISSA: So when you began, there were five countries that had nukes, right? The Gang of Five?

EINHORN: Roughly. Roughly five.

ISSA: Roughly. But my recollection, as a -- as a younger man, it wasn't India. It wasn't Pakistan. It wasn't Israel. It wasn't North Korea. And it wasn't Iran. It was the U.S., the Soviet Union, China, the U.K. and France. Pretty much right?

EINHORN: Those were the acknowledged nuclear weapon states.

ISSA: Right, I realize that there's declared/undeclared. But -- and I realize if Japan wanted a nuclear weapon, it could probably produce it in 90 days. I mean, there are people who have the capability if they chose to.

What I find amazing is I want sanctions to work. I want peaceful activities to work. I want this country that has resisted reform since the revolution 30 years ago -- I want it to work. I wanted North Korea to respond.

But you were clearly on the ground in the Clinton administration when we used a combination of sanctions and gifts to North Korea. And they gave us a promise. And they lied to you. They got away with it. Now they got the bomb.

Why in the world is it any different with Iran? Why is it that Iran, who has a close relationship with North Korea on this particular subject -- why is it that we shouldn't believe they're just lying to you, cheating you, delaying you, and ultimately they're going to end up exactly like North Korea?

Except the difference is North Korea is not killing people in Lebanon and in Israel every day. They're not -- they're not exporting free and subsidizing terrorism. They can barely feed their own people.

Why is that I shouldn't believe that this is a much bigger threat than the failure a decade ago to deal with North Korea before they got a weapon? Because this is a country with money, money to buy that gasoline somehow and everything else. Please?

EINHORN: Clearly, Iran has not earned our trust. Quite the opposite.

ISSA: Hell, they haven't even given back our embassy.

EINHORN: This is -- this is a government we do not trust. Its track record has been very poor in terms of meeting its obligations, fulfilling its commitments. So we remain skeptical about their behavior.

But there's a difference between Iran and North Korea. It's an important difference. North Korea -- North Korea's leaders don't seem to mind being isolated. In fact, they may believe that isolation is the only way their regime can survive.

Iran has different priorities. Yes, they want to move their nuclear ambitions forward. But they also want to be seen as a respected member of the international community. They need commerce. They need trade. They need to engage with the world.

We need to demonstrate to them that they can't have their cake and eat it too. They can't have their nuclear ambitions and have these good relations with the rest of the world.

ISSA: Thank you. My time has expired.

Mr. Chairman, I would at least take this opportunity to say I agree with everything Mr. Einhorn said, that they want to be respected. I would strongly suggest that as we continue looking at future sanctions, we recognize that as long as the world allows them to have embassies and allows them to hold our embassy hostage, that we are, in fact, still allowing them to have normalized relationships with virtually every country on Earth and then hope that sanctions will work.

I, for one, believe that we need to take another step, and a step that is far greater than sanctions, before we do military. But I certainly believe we need to take another step.

And I would hope that as we continue looking at this program, if we see it fail, that you'll join with me in trying to find additional steps to give pressure against Iran.

I yield back, Mr. Chairman.

TOWNS: Thank you very much. And that's the reason why we're having this hearing. No question about it.

I now yield five minutes to Congresswoman Marcy Kaptur from the great state of Ohio, in fact, my classmate. Thank you.

KAPTUR: That's right. Thank you, Mr. Chairman, very much. Glad to see you at the gavel.

Thank you, gentlemen, for appearing.

Mr. Glaser, I just wanted to ask you, to whom do you report at the U.S. Department of Treasury? Who is your superior?

GLASER: My direct superior is Assistant Secretary Cohen. And he, in turn, reports to...

KAPTUR: Assistant Secretary who?

GLASER: David Cohen.

KAPTUR: David Cohen? What is his title?

GLASER: Assistant secretary for terrorist financing and financial crimes. And he reports to Undersecretary Levey.

KAPTUR: And he reports to who?

GLASER: Undersecretary Stuart Levey, who is the undersecretary for terrorism and financial intelligence.

KAPTUR: Thank you for placing that on the record.

Let me just state that I believe history will show that since World War II, U.S. relations with Iran have been very counterproductive to our own interests, both in terms of the advancement of democratic ideals across that vast region, along with the lack of promotion of competitive markets for goods.

Sadly, so much of that history I think will show that oil has been a great diversion for this country. I keep thinking to one of the commandments of my own faith: "Thou shalt not covet thy neighbors' goods."

My question is how does one implement sanctions in a manner that supports U.S. democratic ideals and reform across an undemocratic and mercantilist Middle East?

I think one can argue geostrategically the impact of current sanctions actually operates against U.S. long-term interests, because what we're seeing is a backfill of connectivity by us, by China, by Russia.

You've admitted in your own testimony about the United Arab Emirates. One can look at other countries.

So it must be really frustrating for you to enforce a sieve.

I also wanted to just place on the record, for history's sake, back in 1953, there -- since World War II, really, our relations with Iran -- you know, we never seem to get it right. There was a coup back in the early '50s, when someone by the name of Mohammad Mosaddeq was installed. Well, he had actually taken office early in a democratic election.

But then '53, by spontaneous combustion, he was removed and the shah of Iran, when we were growing up, became -- we remember him as children -- became head of that country.

But the reason the other guy was removed is he was actually trying to change -- attempting to reform the monopoly control that one company had over the extraction of oil from Iran. That company was called the Anglo-Persian Oil Company, commonly known now as B.P. -- B.P. So I think it's important for us to remember a little bit of history here.

And through the decade of the '50s, '60s and '70s, the shah's rule became more and more repressive. And I can remember the Savak -- studying the Savak when I was in college and trying to understand what that was all about.

Then in '79, some of us lived through the Iranian Revolution, and when the shah was removed and U.S. hostages were taken. And American people were just stunned by -- and Terry Anderson from my own state, an ABC reporter, was taken in that, and ultimately released, thank God.

But then, after all that happened -- and I remember those hostages were returned on the day Ronald Reagan became president. You remember that? Some of the people here remember that.

Then, for the next decade, we enlisted Iraqi dictator Saddam Hussein to do some dirty bidding, and there was a terrible war between Iran and Iraq. Millions of people died.

And so, you know, there's a little backdrop to why the Iranians also, looking through whatever lens they're looking through, as they look at us and they look across that region, might feel vulnerable.

I'm not defending their government. I don't defend any government in that region. And I certainly don't defend the economic interests that try to exploit all of them.

But in thinking about the future, if, in fact, we are to be a democratic nation, one that also believes in competitive markets -- the report from the GAO shows that, well, guess who's got their fingers in the till over there -- Halliburton, that's the largest -- if you look at the amount of money that they get in government contracts, Halliburton, number of $27.1 billion.

Well, who's the big investor in Halliburton? The former vice president of our country, for heaven's sake. And their fingers aren't clean.

It seems like the public and private interests get all mixed up here. And then we try to use these pitiful sanctions, which look good on paper and look like we're really doing something.

But they don't do anything to promote our geostrategic interests. They don't do anything to bring competitive markets. They don't do anything to promote democracy in that part of the world.

And I feel sorry for our country. I feel sorry for the road that we're on here, because I don't see that it's really hurting Iran in any way. And it's certainly, most importantly, not advancing the cause of democracy.

So in terms of two-way trade, my question goes to the future generation. That is a literate country. There were hundreds of thousands of students demonstrating for democracy in that country. And there were some sanctions that apparently made it very difficult for them to be able to communicate with the West, with others, in their efforts to try to democratize inside that country.

And my question is: Is the administration or has the administration taken action to allow hardware, software and technology used to access the Internet to be legally exported to Iran?

How do we incentivize future democratic reforms and many of the literate people in that country that can connect to the rest of the world, who are the part of the future, so they don't stub their toe and kill millions of more people, as the last generation has done for 50 years in that extremely important but troubled region.

What are we doing to promote connectivity between those who love democracy?

EINHORN: Thank you, Congresswoman. We very much support your strong statement of support for human rights in Iran. It's very important to us. It's also important that civil society in Iran be able to express themselves, that they have free and secure access to the Internet.

The -- the State Department has worked very closely with the Treasury Department to ensure that U.S. sanctions do not prevent access to tools that allow the Iranian people to freely access the Internet.

State did a waiver recently that enabled Treasury to publish a general license in the Federal Register in March that authorizes U.S. companies to make mass market personnel -- personal communications software available inside Iran.

It's very important that they have the tools to communicate with one another. And we're trying to make that possible. And any adjustments in the sanctions laws that are necessary, we will -- we will seek to adopt.

KAPTUR: You know, I just to say for the record, finally, Mr. Chairman, I represent many people who have immigrated from that part of the world. And, you know, this Ahmadinejad, they always have him on TV, and he goes to the U.N. and really doesn't do a very good job for his own people.

But there are -- the people that hold the real power in that country are many of the clerics. And it just seems to me that anything we can do to bridge walls is extraordinarily important.

I don't share my colleagues' view -- many of my colleagues' view that the answer to everything is military action against any troubled state.

But I think that the power of literacy inside that country, unlike Afghanistan, is so important. Anything one can do to encourage connectivity and enhance those individuals within that country that are trying to meet the rest of the world in a peaceful way is worth the effort.

And I would hope you would think hard about that in the important roles that you -- that you have. And, also, on the oil side...

(CROSSTALK)

TOWNS: The gentlewoman's time has long expired. OK.

I now recognize the gentleman from Illinois, Congressman Davis.

DAVIS: Thank you very much, Mr. Chairman. And let me thank you for calling the hearing.

Mr. Einhorn, let me ask you, how does the State Department measure success, in terms of what would be a successful implementation of sanctions against Iran? Could you share that with us?

EINHORN: Ultimately, the measure of success is whether Iran changes its behavior. That's what we're looking for.

But intermediate steps involve putting serious economic pressure on Iran, so that it recomputes its calculation of costs and benefits, and realizes that the future is going to look bleaker and bleaker unless it alters its behavior and stops its defiance of the international community. That's what we're looking for.

DAVIS: So one could reasonably say that the purpose of sanctions is to change behavior...

EINHORN: Exactly.

DAVIS: ... of whoever it is that's being sanctioned.

Let me ask, are there any items that are not covered in terms of -- I mean, what -- what are we trying to prevent Iran from doing?

EINHORN: The combination of the law the Congress recently gave to us, as well as the recent Security Council resolution, as well as our own executive authorities, the combination of all those tools I think give us what we need to pursue an effective strategy of pressure against Iran.

DAVIS: Are there any items that we would say it's quite all right if we were to interact with those items getting into the country?

EINHORN: There are many items -- for humanitarian purposes, to deal with medical problems -- there are all kinds of items that are legitimate.

We're not trying to interrupt legitimate trade, certainly not trade having to do with humanitarian, civilian kinds of uses. But we're primarily going after their programs to acquire weapons of mass destruction, advance conventional weapons and other sensitive items.

We're not -- we're not interested in a total embargo of Iran. That's not what we're trying to do.

DAVIS: So there is a humanitarian component to the sanctions, especially as it relates to medicine or medical technology or life- saving instruments or advances that may have been made in one country that have not necessarily been made in another country? We're saying that it's quite all right?

EINHORN: That's right. We don't intend to block Iran's access to those.

DAVIS: Let me ask, and if each one of you, perhaps, would address the question: Our government has awarded more than $107 billion in contract payments, grants and other benefits over the past decade to foreign and multinational American companies while they were doing business in Iran.

Is there any way that one could suggest that this is somewhat conflicting, in terms of the overall purpose of sanctions to try and change the behavior of another nation?

EINHORN: This -- this -- this development -- these interactions were what led to an important provision of the new comprehensive sanctions law. I think it was Mr. Neurauter who -- who spoke to that and can describe to you what's involved.

But the idea is to avoid such contractual arrangements between the United States government and these other entities that have dealings with Iran, especially dealings that are sanctioned under our law.

NEURAUTER: Mr. Davis, if I could add to that, that connection is changing behavior.

And I'll give you the best example, Repsol, which is a Spanish conglomerate, had, based on our report, over $343 million in contracts with the U.S. government. They also were investors in Iran's energy sector.

They have since made the decision this week to pull out this $10 billion South Pars project and no longer invest in Iran.

DAVIS: So we would agree, though, that that -- this whole business of sanctions does have a level of complexity that sometimes the average citizen, unless they take a good look, may not fully understand what is taking place in relationship to them, and what they've actually accomplished and what they have actually meant.

NEURAUTER: Absolutely. And I would also note that one other decision that Repsol made was the divestment clauses in the new act. They were concerned about shareholders divesting in their firm. That's one of the reasons why they pulled out of the South Pars project.

DAVIS: Thank you very much.

And that, too, is one of the reasons, Mr. Chairman, that I appreciate your calling this hearing, to try and bring as much clarity to actions that are taken, so that the only way we experience this democracy that my representative friend from Ohio, Ms. Kaptur, was talking about, is that people be able to understand what it is that their government is doing, what it is that their government is trying to do, and what the intents are.

So I thank you again for the hearing, and I yield back the balance of my time.

TOWNS: Thank you very much for your participation as well.

I now yield to the gentleman from California, the ranking member, Congressman Issa.

ISSA: Thank you, Chairman.

Just to wrap up a little bit. Mr. Christoff, in the committee's report -- hopefully you've looked at it -- Ms. Kaptur really sort of talked to this point when she said Halliburton, $27.1 billion.

First of all, just for the record, my understanding is the vice president, when he became vice president, relinquished all stock in the company, most of which -- all of which was not by purchase but by having been an executive there -- and is not an investor.

But notwithstanding her not understanding what an investor is, perhaps, Halliburton's $27.1 billion, that's how much they got for servicing the needs of the U.S. government.

Do you know what they received -- some subsidiary of Halliburton received for participation with Iran during that same period of time?

CHRISTOFF: I don't know those details, sir.

ISSA: So, actually, how much money somebody got from the U.S. isn't particularly important at all. What's important is how important was Iran to these subsidiaries.

And if I understand correctly, under prior law, a subsidiary -- wholly owned, not wholly owned, joint venture, controlled, uncontrolled -- to be honest, they were allowed to do this.

So everything -- everything that's here about these companies, prior to just a short period ago, they were doing things that were perfectly routine, legal and not prohibited by executive order or any other law.

CHRISTOFF: The new act has changed that, as subsidiaries are now affected. But previously they were not.

ISSA: So back to the sanctions -- and I've been very tough on Mr. Einhorn.

But I want to go to you -- based on past performance, compliance with the past laws by companies seems to be reasonably good. And the past service and sales and how everyone was circumventing, they were simply complying with the law, and using -- meeting their responsibility to their stockholders.

We've -- haven't we, with the last sanction regime, changed the message to them, relative to the best interest of their stockholders?

CHRISTOFF: You've definitely changed the message, I think particularly with the divestment clauses, because they are hearing opportunities for shareholders to speak with their voices and pull out of those companies that continue to invest in Iran.

ISSA: Mr. Glaser, I'm going to close with just a question to you: The U.S. financial system is a relatively open system. The chairman and I might disagree on whether or not -- or no, we might agree, but disagree with Treasury on whether or not we've given you all the tools of transparency that we'd like you to have in the way of databases and so on.

But the U.S. companies, companies with a presence and a reporting in the U.S., wouldn't it be fair to say that you get good transparency on them, and if they continue, directly or indirectly, to trade with Iran, you will be able to detect that and thus sanction them?

In other words, you have those tools?

GLASER: Yes. Yes. I think that we know what's going on.

ISSA: Would you -- in closing for me, our partners in Europe on this measure, who have promised to do this same thing, do they have the same tools?

And that's -- the final question, if you answer that they do, is are they going to use them as aggressively as you will?

GLASER: Look, I think -- I've been -- I've been at this for a few -- for a few years now. I think Europe's come...

ISSA: That's why you get to be here before us. We asked for experts.

GLASER: It's an honor.

I think Europe has come a long way. And I -- again, I would -- I -- this has been a very surprising six weeks. The U.N. went farther than I personally thought they would. The E.U. went considerably farther than I would have predicted if you had asked me three months ago how far will the E.U. go.

I think -- I think -- in all sincerity, I think there is a real growing international consensus that something needs to be done and that -- and that countries need to take responsibility.

Does that mean we're always -- we're not going to have issues to work out with particularly European countries? I was talking to Mr. Van Hollen about one of those. There's going to continue to be issues.

But I do think Europe is serious about this. And I think they've been a good partner.

ISSA: Thank you.

Mr. Einhorn, the last word goes to you, as long as you include in it letting us now how our former colleague Ms. Tauscher is doing.

EINHORN: I think -- look, you know Ellen Tauscher. She's got a lot of spirit, a lot of fight, a lot of grit. You know, she's going to have some -- a rough patch. But she's going to come out of it fine. And I'll send to her your best wishes.

ISSA: Thank you very much. Please do.

Thank you. I yield back.

TOWNS: Please associate me with that as well.

Let me just close with you, Mr. Glaser, and I guess Mr. Einhorn, both. First of all, GAO has identified 41 foreign firms with commercial activity in Iran. Do you agree with that 41, the number?

GLASER: This is really something that is outside of the Treasury Department's jurisdiction. We target with our particular authorities entities that are engaged in illicit activities, be it proliferation or -- or terrorism. We don't keep track of -- the Treasury Department is not keeping track of foreign companies that are doing business in Iran as a broad matter. That would be for the Commerce Department or others.

TOWNS: Mr. Einhorn, do you agree with their numbers?

EINHORN: I'm sorry. Could you repeat that, Mr. Chairman?

TOWNS: GAO has identified 41 foreign firms with commercial activity in Iran's energy sector. First of all, do you agree with the number?

EINHORN: We examined all of those cases very carefully. And as I mentioned before, we winnowed that number down to less than 10.

These are a number of entities that are very problematic. I have to say that a number of them have been engaged in sanctionable activity.

But as I also said before, we're reaching the conclusion of this process. It's out for interagency views. And Secretary Clinton will make her decisions on this in -- in the -- in the short period ahead.

TOWNS: Yes. What can you do about these companies? These are the 10 that you...

EINHORN: Well, it's important to recognize that a number of the entities in this small list have already stopped or are in the process of stopping their engagement in Iran's petroleum sector.

So I think what we've found is the law is working. The threat of penalties has encouraged these countries to get out of the business of dealing with Iran. So -- so it's quite effective.

TOWNS: Let me just close by: Is there anything more that we need to do on this side of the aisle, in terms of from a legislative standpoint, in order to make this effective?

EINHORN: I think you've just given us a big and important tool to tackle this threat. And you did that only less than four weeks ago.

We have to work hard within the administration to figure out how best to implement this law to maximum effect. So for the time being, we have nothing else to request of you.

GLASER: I agree with Mr. Einhorn. I think you've just passed a very important new piece of legislation. We're in the process of implementing that. And I think it's going to be a -- have a powerful impact.

TOWNS: Mr. Neurauter?

NEURAUTER: Mr. Chairman, we're proceeding to implement the rule required by the act, and we will do so.

CHRISTOFF: I would encourage vigorous and continuous oversight on the part of the Congress, to ensure not just that the old sanctions are being enforced, which many had not been, but the host of new sanctions that are on the plate of the executive branch.

TOWNS: Thank you very, very much for actually -- I'd be delighted to yield.

MALONEY: Thank you very much.

I really would like to ask Mr. Neurauter and Mr. Christoff something that has come up throughout this hearing, and that is the report that throughout the last decade, GSA spent roughly $170 billion of taxpayers' money contracting with 74 companies doing business in Iran, at the exact same time we were trying to put pressure on Iran.

And my question is, basically, how did this happen? Did the fact that these companies were doing business with Iran ever come up when you were reviewing the contracts or signing contracts in GSA?

Did anyone from anywhere in the federal government point out that we shouldn't be giving part of our federal procurement to companies that were literally in direct violation of our stated foreign policy goals?

Did anyone ever talk to you, Mr. Neurauter, about these contracts and that they should not be getting $170 billion in taxpayer money when we're trying to impose sanctions?

NEURAUTER: The short answer is no, I have not been involved in these matters. I will be happy to look into this and get back to you for the record.

I returned to GSA two years ago as the director of the Office of Acquisition Integrity, with my duties as suspension and debarment official. But before that, I was at HUD as the senior procurement executive, and was not aware of any such matters at HUD.

But I will be happy to look further into this for...

(CROSSTALK)

MALONEY: If you could, and get back to us.

Mr. Christoff, do you want to comment on it? How did this happen that we're handing out billions in federal contracts to companies in direct violation of our stated policy goals, foreign policy and stated laws of the country?

CHRISTOFF: Well, first, I would state that it is -- as we all know, it's the responsibility of the executive branch to investigate companies, determine what is credible evidence, and try to impose the sanctions.

The number that I think you're referring is the New York Times article, where there was over $100 billion in contracts. When I looked at their list, many of those companies are companies that would not be sanctionable under what was then the laws of the land, companies that were in the automobile industry, for example.

MALONEY: Would they be sanctionable now, under this law?

CHRISTOFF: Not necessarily.

MALONEY: Why not?

CHRISTOFF: Because it still doesn't cover items such as the automobile industry. And there was a lot of companies on that list that dealt in the automotive community.

MALONEY: Well, maybe we should cover that in the sanctions.

I just want to mention, Mr. Glaser, that the Treasury Department has done a very good job sub rosa. And I compliment you on the work you've done.

As a member of the Financial Services Committee -- my time is up, and we don't have time to go further, we have another panel, but I have a series of questions, respectfully, I'd like to place in writing to you, so that we can get these answers.

And I congratulate you on your work.

TOWNS: Without objection, so ordered.

MALONEY: Also, the State Department, for your international work to get compliance, thank you very much.

TOWNS: Thank you very much.

And now, this -- this -- actually, let me just state to the members that we -- within a few minutes, we're going to have two votes on the floor. So what I would like to do is to adjourn until 1:30. And we will reconvene at 1:30.

I'm sorry about that, but we have to vote around here. And if we don't vote, they talk about us.

(LAUGHTER)

So -- so this panel is actually dismissed. And the committee will adjourn until 1:30, and we will come back.

(RECESS)

TOWNS: The committee will reconvene.

I'd like to welcome our second panel. As with the first panel, it is committee policy that all witnesses are sworn in. So please stand and raise your right hand as I administer the oath.

Do you solemnly swear to tell the truth, the whole truth and nothing but the truth? If so -- let the record reflect that they both answered in the affirmative. You may be seated.

Mr. Avi Jorisch is the founder and president of the Red Cell Intelligence Group.

Welcome.

And Mr. Mark Dubowitz is the executive director of the Foundation for Defense of Democracies.

Your formal testimony is in the record. And if you could just summarize within five minutes, which will allow the committee members to raise questions with you, I would appreciate it.

So why don't we start with you, Mr. Jorisch?

JORISCH: Thank you. Chairman Towns, Ranking Member Issa, distinguished members of Congress, thank you very much for your service to country and for holding this very important hearing and giving me the opportunity to present some testimony to you.

Today, the world attention has turned to Iran's defiance of the international community in regards to its nuclear program. But there isn't a lot in terms of material, in terms of the banking community and how we might use sanctions in order to really make the Iranians feel financial pain.

Today, per the topic of this hearing, I would like to outline the implementation of sanctions against the Iranian regime, specifically focusing on the banking community.

First, I'll go over an overview of the Iranian banking community, the international sanctions against the Iranian regime, which banks are still in the market, which our previous panel touched on just a little, and the Iranian banks around the world, and wrap up with a little bit of the legislation that was just enacted.

If I could start with the first slide? That's the second slide. First slide. There we go.

When I started looking at the Iranian banking community a few months ago, there was very little in terms of information of actually who -- where -- which banks were actually in the Iranian market.

So I started doing a tremendous amount of research looking at which banks are there. What I found is as follows: If you look on the screen -- that's already the fourth slide. Can we go back to the first slide? One back. There we go.

There are 30 Iranian banks in the market. And some of those banks have been sanctioned by the United Nations. Some of those banks have been sanctioned by the United States.

If you go to the second slide, we'll just go over the international sanctions regime and the domestic sanctions regime. The United Nations has basically designated four Iranian banks: Sepah, Saderat, Melli and the First East Export Bank of Malaysia. That's what the United Nations has done in terms of the four Security Council resolutions in the last few years.

The United States has taken a step further. If we can go to the next slide? The United States has essentially designated another 13 banks. Now, I don't expect you to remember these banks, but essentially we have a total of 17 banks that have been designated by the United States government for its proliferation of weapons of mass destruction.

So that was the first kernel. What I started figuring out was -- I wanted see, OK, now that I know which banks are actually in Iran, and what banks have been sanctioned by the international community and by the United States, who are they actually doing business with?

And there was very little in terms of information whether their correspondent banks -- which were the banks around the world that were actually helping them out. There was no name and shame. There was certainly no bank accounts in the open sphere.

So I wanted to put that all together. So what I started to do was I spoke to every compliance officer I knew in terms of getting information about how we could figure out who was actually helping the Iranian banks conduct their business.

And what I found was very interesting. I found some open research and resources that pointed to something called the correspondent banking relationship.

In short, when a bank does not a physical presence in a country, it tasks another bank and acts as -- in its stead to actually conduct its business.

And in this case, I managed to chart out all of the Iranian banks and their relationships. And what I found out was fascinating.

First, you see these seventeen banks here. If you go to the next slide, there were banks around the world that were providing them with currencies. You'll see here the dollar, the euro, the pound, the yen, et cetera.

But what was more interesting no only was the currencies, but which banks were actually conducting this business.

And if you go to the next slide, you'll see a complete list of 44 banks around the world. If you go to the next slide. Those 44 banks are providing Iran with correspondent banking services.

And they're household names: ING, Bank Tokyo and Mitsubishi, Commerzbank, Deutsche Bank. And I was able to provide all of the bank account numbers and the SWIFT codes for these correspondent accounts. So, in other words, mapping out a financial map of these particular financial institutions.

Then I wanted to figure out how to basically give leverage to Congress. So what I do was I mapped that back to the United States.

So, in other words, which banks -- so you have the Iranian banks in the center. Then you have the banks around them that were supporting them. And then which banks were really in the United States supporting those banks.

So if you go to the next slide, it will probably clarify things. One more. So you'll see in the center, there are 30 Iranian banks. OK? Four have been designated by the U.N., 17 were designated by the U.S.

Then there are 44 international banks that are servicing the designated entities. And then there are 40 -- then there are banks in the United States that are supporting those banks.

The lever point is actually which U.S. banks are doing business with the international community, who is doing business with designated entities.

So there you have examples like JPMorgan, Wells, Bank of New York, that are doing business with the Deutsche Banks, the Commerzbanks, the INGs, the Tokyo-Mitsubishis, that are doing business with the designated entities.

I'd be remiss if I didn't mention where Iran itself had branches around the world. If you go to the next slide, there are U.N.- and U.S.- designated banks that have offices all over the world, including Asia, Europe, South America.

And if you go to the next slide, you'll see there you have banks -- Iranian designated banks operating in Afghanistan, Armenia, Hong Kong, Paris, Frankfurt, Hamburg, Athens, Baghdad, Rome and a bunch of other well-known places. And these are designated banks by the United Nations that are operating in friendly companies.

Let me wrap up by talking a little bit about the sanctions regime and CISADA, the Comprehensive Iran Sanctions and Divestment Act.

Some of the members of Congress talked about this waiver ability. I'll point out that in the way that CISADA was actually written, this is an unbelievable bill. It's a sunlight bill. If the government actually asks for a waiver, it has to actually come back to you and tell you why it's asking for that waiver. That's number one.

Number two, I ask you to remember that what brought down the South African apartheid regime was actually banking sanctions, not anything else.

And then, finally, this is basically a clean hands bill. U.S. banks now need to certify not only who their customers are but who their customers' customers are.

And this is a sea change. So in other words, JPMorgan or BONY or Citibank are going to have declare that not only they are not doing business with a designated entity, but none of their customers' customers, none of the banks that they're working with are dealing with designated entities.

With the passing of CISADA, we have all the tools necessary to pursue and punish banks doing business with Iran. If we're truly going to stop Iran from pursuing nuclear weapons, it would be prudent for us to use all the arrows in our quiver.

Thank you for your time. And I'm open to any questions you might have.

TOWNS: Thank you very much for your testimony.

Mr. Dubowitz?

DUBOWITZ: Thank you very much. Thank you, Chairman Towns and Ranking Member Issa and distinguished members of the committee.

And thank you, Mr. Jorisch, for his work on banking.

President Obama has made it very clear that stopping Iran's nuclear weapons is a priority. His administration can potentially achieve this by striking at the Iranian energy sector.

Let's be clear, the Iranian energy sector is the life blood of the Iranian regime. Oil export revenues constitute 80 percent of export earnings, 76 percent of government revenues. Iran's natural gas reserves are second in the world only to Russia's.

Energy wealth enabled the Iranian regime to fund its proliferation and terrorism activities, as well as a vast system of repression. The threat of sanctions has persuaded many foreign companies to stop doing business with Iran. But many more remain.

The regime increasingly relies on the Islamic Revolutionary Guard Corps to manage the energy industry. And this makes IRGC leaders and IRGC entities prime targets for sanctions.

The U.S. Treasury has adopted this approach, as we heard this morning, with IRGC designations in 2007 and 2010 for proliferation and terrorist activities.

And, Mr. Chairman, as we heard this morning, international energy sanctions are gaining significant support abroad. The new U.N. Security Council resolution establishes for the very first time the nexus between the Iranian energy sector and proliferation activities.

This is a very important development. And, in fact, this development provided political cover to the E.U., Canada and Australia to finally impose their own tough energy sanctions.

In parallel, as we heard this morning, the new U.S. legislation expands the Iran Sanctions Act and it goes after almost all of the Iranian energy supply chain -- almost all. And we can talk about what it doesn't address in Q&A.

Now critics, as you heard, dismiss sanctions as a feckless measure that will enrich Chinese and Russian opportunists at the expense of Americans and Europeans.

I believe that energy sanctions are not a silver bullet. But they are silver shrapnel. And shrapnel can wound this regime as part of a comprehensive economic warfare strategy.

The mere possibility of energy sanctions has had an impact. During Ahmadinejad's first four years in office, foreign direct investments plummeted by 64 percent, from $4.2 billion to $1.5 billion. In fact, without an annual investment of $25 billion, Iran could become a net importer of oil.

Now the results are the Iranian despise this regime, not only for its human rights abuses, but for the disastrous state of the economy. Imagine what serious sanctions, vigorously enforced, could do.

This presents an opportunity to policy-makers. We can leverage the economic malaise in Iran and the political frustration, as expressed by the Green Movement, the Bazaaris merchant class, and disaffected clerics.

Now this is not to say that sanctions are going to have their desired impact. Iran has decades of experience circumventing sanctions. It is implementing counter-measures today. It is using front companies and cut-outs and smuggling. And hot spots for this activity include Dubai and Malaysia, Turkey, Hong Kong and Singapore.

Furthermore, if sanctions are not enforced, companies may assess that their interests are really not in jeopardy, given Washington's poor historical record of sanctions enforcement.

And we're going to face serious challenges to enforcement from China and Russia, but also Turkey and Iraq, Brazil, Venezuela, and perhaps even India.

This administration now has more authority to counter the Iranian threat than any administration in U.S. history. And it should be commended for establishing broad international support for these sanctions.

But let's be clear, we only have a very limited window before Iran realizes its nuclear ambitions.

To this end, I present you the following recommendations. The first is enforce U.S. law. The credibility of sanctions depends on the willingness of the U.S. to sanction violators. Nothing will focus minds like stiff penalties and the denial of federal contracts.

It's worth remembering that the U.S. government imposed almost a billion dollars worth of fines against three European financial institutions for violations of U.S. sanctions law. That sent a ripple of fear through the financial industry. We need to send the same ripples of fear throughout the energy sector.

Now also remember that this new law is not just about gasoline. In addition to banking sanctions, it also leverages the full scope of U.S. laws by sanctioning companies that provide technology, goods and services to the Iranian oil and natural gas sectors.

It also targets energy projects outside of Iran, where foreign companies are partnering with Iranian-controlled government entities in projects off the coast of Scotland and Croatia and Azerbaijan and elsewhere.

We need to encourage Europe to enforce its energy sanctions because, after all, this will be the ceiling for actions by other allies, particularly in Asia and the Gulf.

We should harmonize our sanctions laws with the E.U. We did this in a commission that successfully coordinated sanctions against Serbia. And those sanctions were very effective.

We should expand Treasury's list of energy-related entities. The IRGC operates thousands of front organizations that contribute to Iran's energy sector. Targeted sanctions work only if there are sufficient targets.

And, finally, we need to expose every foreign company that does business in Iran's energy sector.

I believe Congress should establish a standing bipartisan advisory board on sanctions enforcement, a bipartisan congressional commission, to collect open source and classified research, make recommendations, hold hearings, to ensure that sanctions are enforced.

For sanctions to work, they must cripple the Iranian energy sector. And if sanctions yield no compromise from Iran's leaders on its nuclear program, no one can argue that America and its allies did not try all peaceful options.

On behalf of the Foundation for Defense of Democracies, I thank you for the opportunity.

TOWNS: Thank you. And let me thank both of you for your testimony.

I guess let me begin with you, Mr. Jorisch.

Some of these banks are the biggest banks. I mean, why have they been able to get away with this? Some that you had on that chart were some of the biggest? How did they get away with that? Turn your mike on. Yes.

JORISCH: In general, banking is not a transparent business. When you have a bank account, not everyone knows about those bank accounts.

Before this -- before this came out -- before I put out this study, there was nothing on bank accounts, or Iranian bank accounts or otherwise in the -- on the Internet, on the ether. This is the first expose of their accounts all over the world.

TOWNS: So that's the reason you think that -- that's the reason why they were getting away with these things?

JORISCH: The Treasury Department is not in the habit of calling out, naming and shaming, international banks that are doing business with designated entities.

TOWNS: All right.

Mr. Dubowitz, do you believe that our U.S. sanctions are strong enough? Or should we do something else?

DUBOWITZ: Well, I think U.S. sanctions are certainly strong. And I think if we vigorously enforce them and if we impose crippling sanctions against these companies, again, I think it will send a ripple of fear through the energy sector.

I mean, our friends in Treasury have done a superb job in persuading many financial institutions to stop doing business in Iran. But let's remember, as I said in my testimony, the U.S. government and the district attorney of New York imposed a billion dollars worth of fines on three European banks between 2005 and 2009. And that focused minds in the financial sector.

We have never sanctioned any energy companies. And I believe that if we impose the equivalent of a billion dollars worth of fines on the Turkish and Chinese and Malaysian and other companies that are continuing to do business in the gasoline trade and in the oil and natural gas sectors, that could have a profound effect.

TOWNS: Do you believe that the U.S. and E.U. sanctions on Iran will effectively reduce the number of foreign firms conducting business in Iran?

DUBOWITZ: Well, I...

TOWNS: Do you think it will reduce the number?

DUBOWITZ: I was in Brussels a couple weeks ago meeting with the key drafters of the U.S. sanctions order. And I think the Europeans have gone very far in the energy sector.

What they didn't provide were sanctions against the supply of gasoline. And a number of European companies have been involved in that supply chain for many years, though reportedly they're out.

They have cut off or prohibited investment in technology transfer and technical assistance. And, again, I think this is sending a message to European energy firms that Iran is not open for business.

But, again, I'm somewhat skeptical that our European friends are going to enforce those laws. The commercial relationship between the E.U. and Iran is enormous and growing.

TOWNS: Right.

Mr. Jorisch, you have spent time both as a former Treasury official and as a private consultant tracking how Iran manages its resources within the international economy.

Can you discuss why you believe effective sanctions enforcement against Iran's banking sector, in particular, is so important to halting Iran's nuclear weapon program.

(CROSSTALK)

JORISCH: So if you look historically, one of the things, again, as I mentioned in my testimony, that brought down the South African apartheid regime was banking sanctions, firstly.

In addition, if Iran doesn't have access to the international market, it can't procure currency; it can't send wire transfers. If it doesn't have the hub of the banking sector, it can only rely on the informal ways of moving money.

There's only four ways of moving money. There's the banking sector, the informal financial sector, cash and commodities. Mr. Dubowitz talked about the commodity side of the house, gas, oil.

But if they don't -- if you cut off the banking sector, what does the regime have left? It's much more difficult for them to move money.

This is really one of the life bloods of the regime. If you're able to cut off the banking community from Iran, it becomes much more difficult for them to move money.

And that's the power that this last sanctions legislation actually passed. U.S. financial institutions will have to certify that they're not doing business with anyone who's doing business with a designated entity. That -- effectively, that's a third-party sanction. If that really does go through, you'll find that most banks would pull out of the market.

TOWNS: All right. On that note, I yield back.

And I call on the gentlewoman from New York, Congresswoman Carolyn Maloney.

MALONEY: Well, I'd like to thank both the gentlemen for their testimony.

And to -- first to ask Mr. Jorisch, the central bank is not covered under the sanctions. Iraq's -- Iran's central bank is not covered.

So what does that mean -- won't they -- in terms of trying to put sanctions on them?

And what is the role that clearinghouses are playing? Can you give specific examples of how the clearinghouses might be used to get around the sanctions?

And again, the exemption -- am I correct that the exemption -- there is an exemption for the central bank of Iran from the sanctions? And won't that -- what impact does that have on it?

JORISCH: I'll work backwards. There is an exemption for the central bank. It hasn't been designated by the United States or the United Nations. And it's certainly a hole in the sanctions regime.

If you don't designate every Iranian bank, you're -- effectively, there's a hole in the sanctions regime. That's firstly.

In terms of clearinghouses, there's one huge scheme. It's called the Asian Clearing Union. It's based out of Tehran. And it's a conglomerate of somewhere between eight and 10 countries -- the central banks of eight and 10 countries. And they get together and they essentially are moving money through this clearinghouse.

And Iran, effectively, is moving up to 10 percent of its imports and exports yearly. Its biggest trading partner in the Asian Clearing Union is India. It's a way for them to procure dollars and euros and evade sanctions.

I've written about this at length. This is -- this is a -- this is one of the biggest holes, outside of the formal financial sector, the banking community.

And until the United States government either designates or puts them on some kind of sanctions regime, they're going to be able to move money through this formalized informal financial sector.

MALONEY: Well, Mr. Chairman, maybe we should close that loophole, if you're -- if they're pointing it out.

But, Mr. Dubowitz, I'd like to ask you about the international community. We heard, in the prior session that we had, from the State Department that we have been successful this time in engaging the international community, with the exception of Turkey and China and Russia, and we're working on those countries.

But in the past, parts of the European Union did not really work with us on the sanctions.

What has happened that they're now willing to be part of this effort? Could you give your interpretation of what's happening in the international community, and what impact that will have on making them stronger this time?

DUBOWITZ: Thank you for the question.

First of all, I think we -- the U.S. government has done a remarkable job in building international support. But I think we should be careful about not exaggerating the level of international support.

I mean, what essentially we have now is a Security Council resolution, 1929, that lays the predicate for the possibility of further support. We have the Europeans, the Canadians and the Australians, who so far have formally passed their own energy sanctions.

Within Europe, there was a lot of debate within the 27 member union over sanctions. You had the French very aggressive. In fact, the French were willing to include refined petroleum sanctions as part of the final sanctions package. But you had countries like Sweden and others who were pushing back for a variety of reasons.

So there's still a lot of dissension and disagreement within the European Union. You don't see that in the final executive order, in the final sanctions order. But you will see that in enforcement.

And I think we should be very cautious about congratulating the Europeans until we see what they're going to do on the enforcement side.

Are the Germans, who have the largest trade relationship with Iran in the E.U. -- are they going to move forward on some of these remaining banks and on the technology companies and infrastructure players that play a critical role in supporting the Iranian energy sector?

So I think the time for celebration will be when we see the Europeans also imposing their own stiff penalties and sanctions against their own firms or firms that are operating on European soil.

JORISCH: And I wonder if I could just follow up on that for just a moment. I want you -- I beg for you to recall the fact that there are designated Iranian banks sitting in London, Paris, Rome, Frankfurt, Hamburg.

The new legislation barred any new business from taking place with these banks, but not preexisting business.

And a lot of our European allies are congratulating themselves, when, in fact, they're allowing old contracts to go through and using these designated Iranian banks on their soil. They have not closed down these banks in Europe.

MALONEY: And they are among our closest allies, would you not say, in Europe and Asia and the Middle East? And they have the physical branch operations from the Iranian banks.

So you don't -- do you think that we went far enough or we should have had covered also the existing businesses, Mr. Jorisch?

JORISCH: Existing businesses, in other words, the existing banks?

MALONEY: Yes.

JORISCH: I don't if we had the -- we essentially used the ability we had. We leveraged the U.S. financial system. We told these banks you can choose between us and you can choose between them.

It was a clean hands bill. All these U.S. banks now need to certify that they're not doing business with anyone who is doing business with a designated entity. So, in other words, it forces these European, Asian and South African -- South American banks to basically choose between us and them.

In terms of the Iranian banks, there's very little leverage we have. There's very little leverage we have, other than going through the United Nations and the State Department.

MALONEY: What about the correspondent banks? What role do they play in empowering financial services -- expanding financial services for Iran?

JORISCH: So that was -- that was -- that was the thrust of my -- of my -- testimony. I listed -- I found 44 banks around the world that are providing designated Iranian entities with correspondent banking services.

Again, when a -- when a bank doesn't have a physical presence in a country, it pays another bank to act as its agent. Those 44 banks are essentially acting as Iran's tentacles around the world.

And they -- a lot of those banks have a physical presence here in the States. Deutsche Bank, Commerzbank, they have branches here, and they're basically working with designated entities.

Those 44 banks also maintain correspondent banking relationships with our own financial institutions -- again, JPMorgan, Citibank, BONY. So the -- we are -- this latest round of sanctions, we're using the power we have, because we're forcing our own financial institutions to certify that they're not doing business with Iran.

MALONEY: My time has expired, Mr. Chairman.

TOWNS: The gentlewoman's time has expired.

I now yield five minutes to the gentleman from California, the ranking member of the committee, Mr. Issa.

ISSA: Thank you, Mr. Chairman.

I'm a big supporter of trying to use sanctions, trying to make it work. But I'm going to be the devil's advocate a little bit here today for both of you.

I did international banking, if you will, in the import/export business for years. Everybody's got a correspondent bank. Hongkong- Shanghai prides itself on having a correspondent relationship basically with everybody, as does JPMorgan and so on.

As a matter of fact, that's why they call a lot of these guys financial center banks.

Ultimately, isn't it true, Mr. Jorisch, no matter what we do, if they're able to put money into banks, which they can through their private entities that are essentially nongovernment, that has millions if not billions, they can move it to enough banks that eventually they will always have a correspondent?

In your opinion, based on your research, in order to actually make banking sanctions work, don't we actually have to create an audit trail of the money, the transactions, a level of transparency on the actual money transactions, what they're for, who they go to, and follow them on a global basis?

And anything less than that, aren't we really sticking our fingers in a -- in the kind of a sieve that we generally, you know, put spaghetti in when we're draining it?

JORISCH: The short answer is yes. There's no perfect system. This is never -- you're never going to be able to lock out an entire country from the formal financial sector.

Have that said, though, Stuart Levey, my former boss at Treasury Department, only says our job is not to -- our job is not to close down the regime. Our job is to make it more difficult and financially painful for them to move their money. And that's...

ISSA: And to that level, I'd like to ask both of you -- and Mr. Dubowitz, perhaps you could start.

I remember how we went after South Africa. They weren't doing a nuclear weapon. Their weapon was the tyranny over their majority. We did it with pure shame. Nobody -- we basically shut down diplomatic relations with South Africa on a global basis.

We did have banking sanctions. But to a great extent, what happened was we did not welcome their deposits, period. We were able to get more and more banks to recognize that if you took their deposits, you were taking the equivalent of blood money in diamonds today.

Even though our sanctions are strong, even though I know Treasury is doing the best they can -- I'll start with Mr. Dubowitz.

The next step that we have to look at, not just government oversight, but the Congress, isn't it to find those areas in which truly we can change how they're viewed and how they feel they're viewed?

And I've been all over the world. I started on Foreign Affairs in this Congress. The fact is you find Iranians at the finest hotel. We normally don't stay at those hotels. But if I go to a meeting in those really good hotels, you're going to see Iranians.

So isn't that the next step, diplomatic sanctions, including not having ambassadorial postings of Iranians in countries in Europe?

DUBOWITZ: Congressman Issa, that's exactly right. I mean, I think -- take the big picture view of sanctions. Sanctions are a way of putting the Iranians in the wrong and keeping them there.

I mean, there has been a sea change in the narrative about Iran in even 12 months, even in this august body. Twelve months ago, we were talking about a grand bargain with Iran over common interests and common values. You know, today, we're talking...

ISSA: I think that was down the road about 16 blocks.

DUBOWITZ: Now we're talking about how crippling can sanctions be. Now that is a significant change in the narrative in Washington.

It's certainly a significant change in the narrative in Europe. I mean, when I was in Europe 12, 18 months ago, you know, the talk about the Iranian regime and its legitimacy was certainly in the mouths of most diplomats and most politicians from both sides of the aisle.

So I think these sanctions have played a very important strategic communications role in putting the Iranians in the wrong and keeping them. I think we can go further by, in fact, barring their diplomats, barring their embassies.

I was born in South Africa. I have a sense of what was done, actually, in South Africa. And I think what was very important there was to target the legitimacy of the South African government, to show the evil nature of apartheid.

Now I want to make just one further comment, because my fear with sanctions, whether it's in the banking sector or in the energy sector, is that we spend the next 12 months playing a game of whack-a-mole. That's the game in the carnival that we used play as kids, where you hit one mole and another one pops up.

I think if we spend the next 12 months chasing corresponding banking accounts and gasoline suppliers and technology providers, we're going to have not only our folks at the State Department inundated with work, but I don't think we're going to be targeting the real Achilles Heel of the Iranian economy.

Unlike South Africa, Iran is a one crop country. All the Iranians really do is produce energy. And we have to identify a very short list of major investors in the energy sector and major technology providers, of which there are only a few really big ones -- and I can tell you, most of them are German -- who are providing critical technologies for the Iranian natural gas sector.

We should identify them and then penalize them.

(CROSSTALK)

ISSA: My time has expired. And I agree with you. It was in your testimony.

I'm going to just do a yes or no question for both of you at the end. During this time, as we attempt to do that, should we urge the State Department to urge our allies around the world to recall ambassadors and/or to discharge Iranian ambassadors as a way of showing, without hurting one Iranian citizen -- a way of showing that this is not a country that is currently in favor for their actions?

JORISCH: Yes.

DUBOWITZ: Yes.

ISSA: Thank you both.

Thank you, Mr. Chairman.

TOWNS: Thank you very much. And I thank you for your questions.

Let me just ask is there anything that we need to do from a legislative standpoint, on this side of the aisle?

DUBOWITZ: If I could start? I think that Congress can play a critical role in continuing a relentless and determined drive to ensure sanctions are enforced.

As I mentioned in my testimony, I think that it would be very valuable to set up a bipartisan commission on Iran sanctions enforcement and to make sure that the staff that is deployed there has access to the best information, that they are relentless and determined in monitoring what is a very opaque and very complex energy sector and banking sector, and that they are finding the best information in order to ensure that we can name and shame the energy companies and the banks that are doing business with Iran, we can hold hearings, and we can hold the administration to account for its commitment to sanctions enforcement.

I think that can be done legislatively. And I would suggest that could be an important first step.

TOWNS: Right. You can be assured we'll hold hearings.

JORISCH: I wholeheartedly agree with Mr. Dubowitz. I think you -- Congress -- ought to consider, again, echoing Mark's words, a bipartisan body that oversees sanctions, that collects this information, brings it out to the public, and holds the administration's feet to the fire on this, and makes sure they actually -- the implementation is where the rubber meets the road here.

Writing legislation is great. Passing legislation is wonderful. If there's no implementation, you have nothing.

TOWNS: All right.

Gentlewoman from New York, do you have any closing remarks?

MALONEY: I would like to just follow up with what Mr. Dubowitz said, that instead of playing whack-a-mole or whack-a-ball, whatever it's called, we should be focusing on the energy sector, which is the key component.

And could you elaborate a little bit on that?

I know that the bill did not cover refined -- or address refined petroleum trade. It did not penalize companies involved in this trade.

And also, their energy needs help from foreign countries, really, for them to develop their energy business. And according to some estimates, about 60 percent of the technology Iran uses to exploit its natural gas resources comes from one European nation, Germany, the rest from other U.S. allies -- Japan, South Korea, Europe.

And last week, companies were free to provide these products and services to Iran and natural gas businesses. Now that has changed. And Congress really gave the president -- the president has the means now to sanction any company that provides technology, goods or services valued at $20 million or more in any single year to the Iranian energy industry.

What is your opinion of how committed the European Union is to stopping the transfer of this key European technology to Iran?

DUBOWITZ: I was surprised by how tough the E.U. sanctions were. I would not have expected that three to six months ago. They have gone after very specifically the providers of technology and technical expertise.

And they are essentially going after their own companies in writing that order, because they know very well that 60 percent of the key natural gas -- LNG technology is provided by Germany and France and Holland and other European countries. So they have that in mind.

I find it fascinating that they focused on that. Mr. Jorisch is exactly right. They've only focused on new contracts, not existing contracts, which for me provides a massive loophole in which new deals can be characterized as existing deals. And there's a whole array of things that a company can do to circumvent that restriction.

So I'm -- I'm -- certainly, the paper looks good. The words look good. It will be very interesting to see whether -- if Europe sanctions the Linde Group, which is a German natural gas technology player. It's a massive German company. They're providing key LNG technology for the German -- for the Iranian natural gas sector.

If they're not sanctioning the Linde Group or any other organization like that, then I don't think the Europeans are serious.

And then Congress has the authority under this new sanctions law to go after the Linde Group and other technology providers, because you did something brilliant. You eliminated in the Iran Sanctions Act an exclusion under investment which, prior to this, companies providing technology, goods and services were free to do so for the past 15 years. You closed that loophole, and you should be commended for that.

MALONEY: Thank you very much.

And I have additional questions, but I would like permission to place them in writing. And I really want to thank you, Chairman Towns...

TOWNS: Without objection.

MALONEY: ... for putting this hearing together. And I thank your staff, who worked hard. And I thank my own staff for their hard work. And this was not an easy hearing to put together. And I know you persevered. And I want to publicly thank you and the professionalism of your staff. Thank you.

TOWNS: Thank you very much. And I appreciate you giving my staff praise because there's no raise.

(LAUGHTER)

(UNKNOWN): Show me the money.

TOWNS: I want to thank all the witnesses for their testimony today. And I appreciate the participation of the members who attended the hearing as well.

If there is one thing I think we can all agree on, it is that we must do everything we can to prevent Iran from developing nuclear weapons. And we must cut off the Iranian support of terrorism.

I believe the key to doing that is through the financial services system. If banks currently doing business with Iran can be persuaded to withdraw from the Iranian banking market, it will put every significant pressure on the current regime.

Congress has now given the State Department and Treasury the power to do just that. And we fully expect they will carry out the congressional intent. We will be watching, and so will the rest of the free world -- they also will be watching.

There is another important issue I would like to address. Some have argued that economic sanctions may have more of an adverse effect on the ordinary people of Iran than on the current regime.

I think we're all concerned about that. However, I think we need to remember that continued trade with Tehran primarily benefits the Islamic Revolutionary Guard Corps, which despite its name, is a business enterprise that controls almost 70 percent of the Iranian economy and the entire Iranian oil industry.

It is important for the international community to deny resources to the regime which are used to suppress the pro-democracy movement, some of whom have been working to help lift the veil on Iranian nuclear programs.

In closing, let me say to my colleagues and to others, I would just say that there is very strong interest in this issue in the Congress. And I believe that my colleagues on both sides of the aisle will be interested in ensuring that these economic sanctions are implemented effectively and quickly.

Ladies and gentlemen, this concludes this hearing. I thank the members for attending.