SEN. DODD: (Audio break) -- hearing this morning -- (audio break) -- I've talked to my chairman, my fellow chairman, the former chairman, Senator Shelby, about this issue as well very briefly here this morning. For many years this committee and most committees here have had the policy of having witnesses submit their testimony at least 24 hours before a hearing. And the reason for this -- in fact, you can make a case of actually maybe it should be 48, but at least 24, so that when we sit down to have these conversations -- that we call hearings -- between the executive and legislative branches, there's an opportunity for the members here to be familiar with what the testimony will be so we can have a good, deep discussion about the issues in front of us.

And I know that the witnesses here this morning understand this; they're professionals and have been through this on many, many occasions. And yet I regret that despite knowing this, the Department of Treasury submitted its testimony yesterday, late yesterday, as I understand it. And, Secretary Burns, the State Department's testimony arrived about an hour ago, two hours ago, here. And that's just unacceptable. We've got to have this stuff earlier.

I can't -- I don't know whether members will be here or not, but part of what I suspect is that their staffs haven't had a chance to look at this, brief their members about it. When we come in here, it just doesn't lend itself to a very productive session where you have the opportunity to get a clear understanding of where -- because I know the time is spent, and I think this hearing was noticed about a month -- (to staff) -- two weeks ago? -- about two weeks ago, which is -- sometimes hearings are noticed earlier than that, I realize that, with 10 days. But nonetheless, this is a very, very important hearing involving a very critical issue, and it's an issue that comes up all the time among our constituents and others, the subject of Iran and what our policies are going to be.

So I would urge the departments here not to let this happen again under my stewardship here. I just don't accept it. And I'm being relatively mild about it today, but it just doesn't help me at all do a good job from this side of the dais if I don't have that information ahead of time. So please don't let that happen again.

Well, let me welcome all of you here this morning. Secretary Burns, Undersecretary Levey, and Secretary Foulon. Is that -- am I pronouncing that correctly?

MR. FOULON: Yes, Mr. Chairman.

SEN. DODD: Yeah. I want to thank you for joining us here today.

And let me lay out sort of the ground rules here how we'll proceed this morning, if we can. Secretary Burns has a meeting later this morning, I've been told by your -- we were noticed about this earlier enough on that you have a meeting with the president later this morning. And I don't want to be disruptive of your schedule or the president's schedule. So I'm going to propose that Senator Shelby and I make opening statements here this morning. We don't have other members here yet, but I'm going to ask them to defer -- should they show up -- to make any opening comments until their round occurs during the questioning period. And then we're going to begin, if we can, with Secretary Burns, and we'll finish that round with you, sir, in order to allow you, then, to make your schedule later this morning, and then we'll move very directly to our other witnesses as well.

I recognize, you know, that certain foreign policy related questions have to be tightly coordinated by the agencies represented here, and I presume that's been the case. And so this arrangement means that once Secretary Burns leaves, some of the questions related directly to the State's role in all of this will have to probably be submitted in writing, and we'll certainly leave the record open for several days so you have a chance to do that so we can have a full record and response from the Department of State regarding that.

With that in mind, let me begin. I'll make some brief opening comments, and then I'll turn to Senator Shelby.

 

OPENING STATEMENT OF

CHRISTOPHER J. DODD
A Senator from Connecticut, and
Chairman of the Senate Committee on Banking, Housing, and Urban Affairs

 

SEN. CHRISTOPHER J. DODD (D-CT): The purpose of today's hearing is to assist the Congress and the American people to try and understand and make a judgment about the administration's policies towards Iran. The administration has publicly stated, appropriate, in my view, that Iran's leaders must -- and I think I have this correct -- scale back its nuclear ambitions, reverse its support for destabilizing terrorism-related activity in Iraq and throughout the region, mitigate its opposition to the Middle East peace process and stop efforts to undermine the legitimate government in Lebanon. I share those publicly stated aspirations. The issue obviously before us is how do we get from here to there? What steps do we take to try and effectuate the goals that I've just enumerated?

This morning, the committee will receive testimony from key administration officials charged with implementing U.S. policy with respect to Iran to determine whether current policies are likely to achieve satisfactory policy results or whether additional measures should be taken by the administration and/or by the Congress to achieve those policy goals.

It's well known that there are currently many laws on the books providing authority to the Treasury Department, the Commerce Department, the State Department and other federal agencies and financial regulators to undertake steps to increase economic pressures on Iran, including by threatening or imposing sanctions on foreign firms supporting Iranian activities, tightening export and re-export controls, accelerating Treasury's current campaign to press U.S. and foreign private sector entities, including businesses and banks, not to deal with the government of Iran and taking other similar steps.

I support the administration's efforts to engage systematically the private sector, including businesses and banks, in efforts to economically isolate and pressure Iran. Having said that, I fear that a larger, coherent administration strategy and vision is lacking in this regard. As members of Congress, we cannot ignore the ongoing public debate as to whether critical dialogue, calibrated economic pressure and constructive engagement with Iran could bear fruit or whether the wisest policy is one of containment, sanctions and ultimately regime change. There has been a similar debate with respect to our policies towards North Korea, I might add.

I would hope that our witnesses this morning would pay a constructive -- play a constructive role, rather, in that ongoing debate with respect to U.S. policy towards Iran. U.S. economic sanctions are a critical component of our policy towards Iran, as they have been for some time in this and previous administrations. But sanctions alone, in my view, are not sufficient. They must be used as effective leverage, undertaken as part of a coherent, coordinated, comprehensive, diplomatic and political strategy which tips the scale such that it is more beneficial for Iran to foreswear its nuclear weapons ambitions and other behavior that is undermining regional peace and stability.

I don't know if a strict policy of coercion and sanctions will be enough eventually to bring about a more responsible Iranian government. But I do know that strong international reaction against the Iranian president's disgusting declarations about the Holocaust and Israel's right to exist; the public rebuke of a president by the supreme leader for his reckless poring -- posturing, rather, on Iran's nuclear ambitions; the president's party's weak showing in recent local elections; and other similar recent developments offer reasons for hope -- hope that if we work more intensively with our allies, we might be able to identify and engage with Iran's more moderate leadership, inside and outside of current government, that could eventually be persuaded to step back from its nuclear ambitions.

But all of our strategic partners, including the Europeans, the Russians, the Chinese, the Indians and moderate Arab states throughout the Middle East, must agree on an approach will sustain -- that will take sustained diplomatic work to achieve.

Recent U.S. diplomatic and political efforts to develop such a unified front against Iran are coming very late in the game. It was very unfortunate, in my view, that European efforts to secure agreements with the more moderate Khatami government were not encouraged or supported by the administration at a time when the United States' international leverage was decidedly greater than it is today.

Moreover, comments by administration officials hinting at the possibility of military actions against Iran -- and these were faceless names, obviously -- and leaks about plans being drawn up by the Pentagon to target Iranian sites all play into the hands of extremist forces, in my view, in the region and raise questions about U.S. intentions, even among our allies, who might otherwise be with us.

The administration is in a catch-up mode, in my view, in the diplomacy department with respect to Iran, after years of sitting on the sidelines diplomatically. As with most international efforts, only coordinated, effective multilateral efforts have any likelihood, in my view, of success.

The administration's recent efforts at the U.N. seem to be bearing some fruit in a second and tougher U.N. sanctions resolution. But it remains to be seen how tough the Security Council will be with respect to Iran. U.S. representation at the U.N., until recent changes, until recent changes in personnel, has made American efforts to galvanize international support with respect to Iran and other issues of importance to the United States more difficult, in my view. It is my hope that with the appointment of Ambassador Khalilzad, that will change.

Over the years, this committee has provided various statutory tools for U.S. administrations to use as leverage in their efforts to induce change in Iran's behavior. With modifications to the Bank Secrecy Act, Congress has empowered the department's undersecretary of Treasury for Terrorism and Financial Intelligence, working with the Office of Foreign Asset Controls, to freeze funds and recommend the prosecution of entities and individuals who seek to exploit the domestic or global financial system to support international terrorism and weapons proliferation.

Congress has also endeavored, through the enactment and reenactment of the U.N. Sanctions Act, to provide the executive branch with clear authority to, among other things, sanction foreign companies who invest in Iran's principal economic sector, the energy industry. Yet (to date ?), despite more than $125 million in reported investments in Iran's energy sector by foreign investors, not one foreign energy concern has been sanctioned. I and other members of the committee are anxious to hear from our witnesses this morning why this has been the practice.

To sum up, it's my hope today that today's hearing will help us to better understand the administration's policy goals as they relate to Iran, what part economic sanctions play in advancing those goals, what, if any, additional bilateral and multilateral sanctions would accelerate the achievement of those goals, and what the United States Congress ought to do to advance that process.

I know that we have set an ambitious agenda for our witnesses today, but this is a terribly important subject that demands difficult questions and warrants honest answers. And I'm sure that we'll have both this morning from my colleagues and the witnesses.

Senator Shelby.

 

OPENING STATEMENT OF

RICHARD C. SHELBY
A Senator from Alabama, and
Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs

 

SEN. RICHARD SHELBY (R-AL): Thank you, Mr. Chairman.

Since the Banking Committee last met to hear testimony on Iran's support for terrorism and its determination to develop a nuclear capability, I believe the situation has only worsened. Not only does Iran continue to defy overwhelming international opposition to its nuclear-related activities, but in recent weeks we have seen evidence of Iranian complicity in attacks on Americans in Iraq.

Iran's intransigence on all three fronts clearly demonstrate the severity of the situation confronting the U.S. and our allies. Iran's continued support for Hezbollah and Palestinian terrorist organizations dramatically illustrate its strong desire to remain on the wrong side of the war on terror.

Because there's virtually no region throughout the world that has not been the target of a terrorist attack, we must all remain vigilant and employ every available means to detect and to stop future attacks, both here and abroad.

As we learned with the illicit North Korean financial activities ctivities, the U.S. has a powerful weapon in its arsenal -- financial sanctions. Properly employed, sanctions can restrict a rogue regime's ability to cooperate -- to operate with impunity. Treasury's use of Section 311 of the Patriot Act in the case of North Korea and its new authorities under the executive order in the case of Iran, I believe, have proven effective.

We have enjoyed some success at both restraining the ability of these regimes to finance illicit activities and communicating to the world of international finance that business as usual may carry risk.

Unfortunately, terrorism remains disturbing and cost effective. In other words, relatively small amounts of money can support very large attacks. Terror's deadly efficiency is one of the major challenges that we face.

I'm interested in hearing, Mr. Chairman, today's witnesses how current authorities are working and whether any additional authority is needed to meet this challenge. In other words, what can this committee do to help in this regard?

I thank you for calling this hearing.

SEN. DODD: Thank you very much, Senator Shelby. I'd say to my colleague, Senator Tester, Reed and Hagel have arrived. We're going to move right to the witness if that's all right with you, and then any opening comments you want to make I'll make sure we get to you as quickly as we can.

Secretary Burns has got a schedule. We're going to focus on him until he has to leave. He'll submit questions, but he's going to be here for a good round of questioning from the members here. It's not -- I won't suggest that abbreviated, so you'll have a good chance to focus on their issues.

Secretary Burns, we welcome you this morning and appreciate your willingness to participate, and thank you for your work, by the way. I'm someone who admires the job that you do, and I want you to know that.

So thank you for coming.

 

STATEMENT OF

R. NICOLAS BURNS
Undersecretary of State for Political Affairs
U.S. Department of State

 

MR. BURNS: Mr. Chairman, thank you. Senator Shelby, senators, thank you very much for inviting me and inviting my colleagues from Treasury and Commerce to be here.

First of all, Senator -- Mr. Chairman, thank you very much for agreeing to allow me to depart a little bit early. I can stay until about 10:30. I just have to be with the president and the New Zealand prime minister at the White House, so I apologize for that.

I also want to say that I very much apologize for the fact that my testimony was late. That's no sign of disrespect for you or your committee. It's rather a sign of my particular inefficiency yesterday in getting that out to you, so that won't happen again, and I think you were right to make the point.

Mr. Chairman, I submitted a written testimony. I won't read it to you because I think that might take up too much of the time, but with your permission I'd just like to give you an idea of how we do believe that we have overarching concerted policy to block and contain Iranian ambitions in a number of areas. I'd like to go through that a little bit, and I'll be very happy to respond to your questions and that of the other members.

I'd first say that there's no question that the United States is facing in the Middle East today a set of four great challenges, and Iran is caught up in all of them. The effort that we need to make to be successful in Iraq, where Iran has had a perfidious and negative influence, in our judgment; the effort to support the democratically elected government of Lebanon, and Iran and Syria and Hezbollah have been trying to bring that government down by extra-constitutional means; the effort to produce a final peace after nearly 60 years of effort between the Israelis and Palestinians, which the president and Secretary Rice are currently engaged, following on the good work of many past administrations, including that of President Clinton.

Iran has been the primary international force operating against such a peace. It does not believe in such a peace, and it has rejected all of the body of work that we know of as the Middle East peace process over four or five decades.

And finally, the effort by Iran itself to create a nuclear weapons capability of its own -- Iran is the leading state sponsor of terrorism in the Middle East. It's the central banker of the terrorist organizations. So in those four areas, arguably now the most critical set of foreign policy challenges that the United States faces, Iran is a problem in each of those areas.

Now we have devised, over the past several years a multi-faceted effort to try to block the Iranian government in each of these areas, relying on the establishment of diplomatic coalitions. And here, Mr. Chairman, as far back as February 2005, more than two years ago, our administration put our weight behind the EU-3, and we supported the negotiations of the EU-3 with the Khatami government. We have been very much at the heart of building an international coalition of countries against Iran on the nuclear issue since then.

And that coalition is quite broad. It is the EU-3; it's Russia and China, our perm-5 members; it's India and Brazil and Egypt, all of which have voted with us in the IAEA to repudiate the Iranians and to sanction them. So I do believe that we have been able to put together an international diplomatic coalition that is shrinking the diplomatic space for the Iranians, that has the Iranians isolated, and that has some prospect of being successful in the future, although we need to see that diplomacy play out in the future.

But we've taken a number of steps to try to limit Iran's options. On the nuclear sphere as you know, we're in the Security Council this week on the nuclear issue. We're just about to pass -- we hope by the end of this week -- a second Chapter VII resolution with the support of countries from all across the world, and that resolution would go into some new areas.

Secondly, my colleague Stuart Levey has been leading the effort, as Senator Shelby recognized, to put forward financial sanctions, against Iranian state banks, which we think have been particularly effective. Third, the Treasury and the State Department have been combining efforts to try to convince international financial institutions, lending institutions, that they ought to shut down a business-as-usual approach with the Iranians. And that has been successful in part as well, and I'm sure Stuart will speak to that.

Fourth, we are now stationing two carrier battle groups in the Persian Gulf in order to send a message to the Iranians -- it's not your lake. It's an international waterway, and free commerce and free shipping and the security of our friends in the Gulf is important to the United States. And fifth, as you've seen, and the president talked about this in his address back on January 10th.

We have begun to push back on those networks of Iranian intelligence and paramilitary forces who have been providing sophisticated IED technology that Sunni insurgent groups have used to shoot -- to kill our soldiers and to wound our soldiers.

So in these five areas, the United States is pushing back against the Iranians. And I think it's important to note that, because I think the conventional wisdom was about mid-autumn, just after our congressional elections, that there's a sense around the world that Iran was on the march, that Iran was proceeding unfettered in each of these areas, nuclear and terrorism, and in the region, and I think we've had a fair measure of success in now containing them and in limiting their options. And Iran is a country very much on the defensive right now. It has very few friends in the world. Very few countries are sticking up for it, and so the ability to fashion this diplomatic coalition is important.

Second, Mr. Chairman, I would like to say this. We ought to invest in diplomacy concerning Iran. Iran is a dangerous threat to our country, and we shouldn't take that lightly, nor should we underestimate it. But there's no question that diplomacy has a chance of succeeding. We need to be patient in applying diplomacy. It's taken us two years to build up this coalition of countries on the nuclear issue. And if we are consistent and steadfast in diplomacy, we don't have a certainty of success -- and of course the president and many other administration officials have said that all options remain on the table, as they should in dealing with a country that could pose a mortal threat to our own in the future -- but we are accenting and stressing diplomacy, and that's where the great preponderance of our efforts are today. And we believe that we should be patient, that we should apply this, that we should have as big a tent as possible of countries around the world to block the Iranians in each of these areas. And I for one believe that conflict with Iran is not inevitable. It is not inevitable if we play our cards right and are smart about the application of diplomacy.

On the nuclear issue, as I said, we hope to have a Security Council resolution by the end of the week. It would be different from the first Chapter VII Resolution of December in three different respects.

It would for the first time open up Iran to prohibition of arms transfers by Iran to any other state or organization. That would be quite significant, if we can get this by the end of the week.

Second, it would sanction the IRGC, the Iranian Revolutionary Guard Corps command, which is the institution that not only runs the Qods Force, which has been the force opposing us in Iraq, it's also the institution that has been bankrolling and directing the development of Iran's ballistic missile and weapons of mass destruction industry, which we're directly concerned about.

And third, it would open up financial sanctions against Bank Sepah, a bank that the Treasury Department has paid particular attention to -- and Stuart will talk about that -- as well as open up and encourage countries to begin to diminish their export credits to Iran.

And one of the problems we've had in trying to build an effective sanctions regime is that not everybody's in it. The United States of course has had sanctions on Iran for the better part of three decades. Many of our European allies have put billions of dollars out to their firms to sponsor trade and commerce between Germany and Italy and Spain and France, to name four countries, and Iran itself, and we're encouraging those European allies to diminish their export credits. I think as recently as 2005, there were $22 billion in export credits made available by OECD countries, and we've begun to see that come down in Japan, Germany, Italy and France. We'd like to see it come down more, because our view is that American firms have paid the price, have made the sacrifice. Every American administration since President Reagan has made the sacrifice in trying to send this stiff message to the Iranians. We need some help from our allies in Europe and Japan and around the world, and we're pressing on that front.

So I want to assert today -- and I won't belabor this point -- that we do have a diplomatic strategy; that I believe it is beginning to work, because Iran is increasingly isolated. We're working inside the Security Council, but we're also working outside in what Treasury and Commerce have been doing on the financial measures and financial sanctions. And we're encouraging the EU and Japan to think of what they can do outside of the Security Council as well.

And finally, Mr. Chairman, I'd just say this. We're trying to block Iran in other ways. It's the leading state sponsor and central banker of terrorism, of Hamas, Hezbollah, Palestinian Islamic Jihad and the Popular Front for the Liberation of Palestine General Command. And so we're trying to press against the Iranian ability to destabilize the Israeli government, the moderate Palestinian leadership and the Lebanese government by choking off their ability to be successful in funneling arms and funds to those terrorist groups. That's the American national interest.

And finally, I'd just say that we have an obligation to try to reach out to the Iranian people. We don't have diplomatic relations with the Iranian government. We haven't since the hostage crisis of 27 years ago. But we've made a big effort, with support from the Congress.

And Congress has been very generous in giving the administration $76 million last year to fund 24-hour Persian-language radio, United States radio, Radio Farda, into Iran; to fund now 12 hours of Persian- language TV into Iran; to bring Iranian citizens on exchanges to the United States, many for the first time; to send the U.S. National Wrestling Team -- wrestling's their national sport -- to Iran -- and they we were received very enthusiastically -- in January. And now we have a program inviting groups of professionals -- health experts, disaster relief experts -- from Iran to visit our cities, our medical institutions, our government offices, so that there's a degree of normalcy in the people-to-people relationship, because we appreciate that the people of Iran by and large think well of the United States. One of the great ironies in our Middle East situation right now is, the United States is popular -- it seems to be popular in one country, Iran. The Iranian people tend to like Americans.

And so we want to accentuate that people-to-people contact while we stiff-arm, block, contain, oppose the policies of the Iranian government. And we think that this comprehensive policy can work for the United States. It does rely on bipartisan support. And I've been very pleased in my conversations with members of the Senate and House, and I think we do have that bipartisan support for our policy.

So I want to thank you for holding this briefing, and I'm open to any question that you'd like to ask me about any aspect of this very difficult problem for us.

SEN. DODD: Thank you very much, Mr. Secretary. And I appreciate that. And your prepared remarks will be included in the record, as with all the prepared remarks, and any supporting data and information you want the committee to be aware of we'll include.

Secretary Levey.

 

STATEMENT OF

STUART LEVEY
Undersecretary for Terrorism and Financial Intelligence
U.S. Department of the Treasury

 

MR. LEVEY: Thank you, Mr. Chairman, members of the committee, Senator Shelby. Thank you for the opportunity to speak with you today.

I echo what Nick said about apologizing for the lateness of our testimony. I too will promise you that will not happen again.

You just heard about our overall strategy with respect to Iran from Undersecretary Burns. And as he mentioned, the diplomatic efforts have yielded significant successes in a unanimously adopted Security Council resolution and a follow-on resolution that appears set to pass. That our partners are now pressuring Iran to comply with its international obligations is a real credit to our diplomatic efforts and to Undersecretary Burns's patient and persistent diplomacy in particular, which I've been privileged to witness firsthand.

I'd like to give you an overview of Treasury's role in this overall strategy. Working with State and Commerce and other agencies, we have crafted what I think is an innovative strategy to combat the dangerous and illicit conduct of the Iranian regime. Our strategy involves the use of targeted financial measures as well as consultations with foreign governments and with the international private sector about the risks of doing business with Iran. Our initiatives and the State Department's diplomatic efforts, I believe, are mutually reinforcing.

Iran uses its integration into the world's financial system to support and facilitate its proliferation, terrorism and other illicit activities. The regime disguises its hand in terrorism and proliferation through an array of deceptive techniques specifically designed to avoid detection and suspicion by the law-abiding international community. It uses front companies to engage in what are ostensibly innocent commercial transactions but that are actually related to its WMD program.

We've also seen Iranian banks and other Iranian entities request that financial institutions take their names off and take other references to Iran off of transactions when they're processing them in the international financial system. This practice is specifically designed to evade controls put in place by responsible financial institutions, and it has the effect of threatening to involve those financial institutions in transactions they would never willingly choose to be engaged in.

So it's our approach to target those individuals and entities that are engaged in this dangerous and deceptive conduct. These kind of targeted measures have several advantages. Because they single out those responsible for terrorism, proliferation and other criminal activities and they make public the dangerous behavior, they are more apt to be widely accepted around the world than sanctions that are applied to an entire country.

Targeted financial measures also act as a deterrent by warning people and businesses not to deal with a specific designated target and sending a clear message to them that if they do deal with them, they could be next to be targeted.

We're using various types of targeted measures, as Senator Shelby pointed out, to combat Iran's pursuit of nuclear weapons and the development of ballistic missiles as well as its support for terrorism. In September of 2006, we cut off one of Iran's largest state-owned banks, Bank Saderat, from any direct or indirect access to the U.S. financial system. When we did so, we publicly explained why, because the government of Iran was using Bank Saderat to transfer significant sums of money to Hezbollah and was also being used to get money to terrorist organizations that are recognized as terrorist organizations by the EU, like Hamas, the Palestinian Islamic Jihad and the Popular Front for the Liberation of Palestine General Command.

In addition to that, we have acted against 19 separate entities and individuals supporting Iran's WMD and missile programs, including Bank Sepah, as mentioned by Undersecretary Burns, under Executive Order 13,382. This executive order allows us to target proliferators in exactly the same way that we have been targeting terrorist supporters under executive orders.

Bank Sepah provides extensive financial services to Iranian entities responsible for developing missiles that are capable of carrying weapons of mass destruction, and we hope to see Bank Sepah added to the list at the United Nations this week.

Five of the Iranian entities that we have designated under 13382 have already been designated by the United Nations. When our designations are not matched by U.N. designations, I can tell you that they still receive a great deal of international attention. I have traveled all over the world, sharing our list of Iran-designated entities with not only foreign governments, but also with the private sector around the world and stressing the importance of ensuring that these proliferators are not allowed to access the international financial system.

What I found is that our list of proliferators is indeed incorporated into the compliance system at the major financial institutions worldwide, even when there's no legal obligation to do so because they simply don't want to be involved in the business of proliferation.

And that leads to the private sector outreach and why it's so effective, because aside from the formal actions that we've taken, we've engaged in what I think is an unprecedented high-level outreach to the private sector on this. We've met with over -- along with the State Department, we've met with over 40 leading banks worldwide to discuss the threat that Iran poses to the international financial system and to their institutions. Secretary Paulson personally kicked off this effort in Singapore in discussions at the annual IMF World Bank meetings when he met with executives from major banks, from Europe, the Middle East and Asia.

By doing this what we've done is share information about Iran's deceptive financial behavior and raised awareness about the high financial and reputational risk with doing business with Iran. And our use of targeted measures has allowed us to highlight specific threats, and this is has yielded results. As the evidence of Iran's deceptive practices has mounted, financial institutions and other companies worldwide have begun to reevaluate their business relationships. As I think the committee knows, many leading financial institutions have either scaled back dramatically or terminated entirely their Iran-related business, and they've done so of their own accord, concluding that they simply did not wish to be a banker for a regime that deliberately conceals the nature of its illicit business.

A number of them have cut off Iranian business in dollars, but have not done so in other currencies. Regardless of the currency, though, the core risk with Iranian business, which is that you simply can't be sure that the party that you're dealing with isn't engaged in illicit activity, is the same. So scaling back dollar business reduces but does not eliminate their risk.

Mr. Chairman, I think our overall approach is producing results. Countries are implementing U.N. Security Council Resolution 1737, support is coalescing behind a follow-on resolution, and all of this is reinforced by the private sector momentum I described. And the indications are, as you mentioned in your opening statement, Mr. Chairman, that this is having some impact within Iran both financially and by stirring debate about the direction in which that country's being led -- internal debate in Iran.

Thank you for the opportunity to testify. I look forward to answering your questions.

SEN. DODD: Thank you very much, Mr. Secretary.

Secretary Foulon.

 

STATEMENT OF

MARK FOULON
Acting Under Secretary of Industry and Security,
U.S. Department of Commerce

 

MR. FOULON: Thank you, Mr. Chairman, Senator Shelby, members of the committee.

First of all, let me thank you for the support that you have given the Commerce Department and the Bureau of Industry and Security over the years as we pursue our national security and economic mission. And thank you today for the opportunity to appear before you to discuss U.S. export control and sanctions policies toward Iran.

I am pleased to be here with my colleagues from the Departments of State and Treasury with whom we work closely to implement Iran sanctions. As you know, the United States has maintained sanctions against Iran since 1979 with a reinforcing trade embargo starting in May of 1995. Iran has been designated as a state sponsor of terrorism since 1984, and because of Iran's continued active support for terrorism and concerns that it's pursuing weapons of mass destruction, U.S. sanctions were increased until a comprehensive embargo was put in place.

Under the embargo, the Departments of Commerce and Treasury prohibit virtually all exports of U.S.-origin goods to Iran. Due to the comprehensive nature of the embargo, the Treasury Department is the agency with primary jurisdiction for export licensing to Iran. This approach is often used when the broad nature of an embargo requires not only a prohibition on exports of items under the Commerce Department's jurisdiction but also comprehensive restrictions on financial transactions and investments under the jurisdiction of the Treasury Department, as Undersecretary Levey has just discussed with us. Thus, the Commerce Department's primary role in the licensing process is to provide technical assistance to Treasury on the proper classification of items proposed for export or re-export to Iran under a Treasury Department license.

The Commerce Department also plays an important role in the enforcement of the Iran sanctions by investigating for possible prosecution and penalties -- violations of the export administration regulation. Now, these investigations are conducted by the Bureau of Industry and Securities' Office of Export Enforcement which has approximately 100 federal agents in 10 locations throughout the United States. Currently, more than 20 percent of our open investigations -- around 150 -- involve Iran. Since October of 2004, our investigations, which we often taken in conjunctions with sister enforcement agencies, such as Immigration and Customs Enforcement or the FBI, have resulted in 13 Iran-related criminal convictions with five more cases pending sentencing.

Let me just point out two cases in particular as representative of the types of activities and the types of enforcement cases that Commerce agents have been bringing. The first one is last November, the sales director of United Calibration Corporation was sentenced to five years probation, six months home confinement, 100 hours of community service and a fine of $10,000 for attempting to export machinery and calibration software that could be used to measure the tensile strength of steel. One use of such items could be to test the chemical properties of metals that are used in the manufacturing of nuclear materials.

A second example of the kind of cases we bring was last December when a man named Ernest Koh was sentenced to 52 months in prison for exporting parts for C-130 military transport planes and P-3 Naval aircraft. Now, these parts were first diverted to Malaysia and then illegally transshipped to Iran. The investigation also found that Koh had laundered millions of dollars from bank accounts in Singapore through accounts in the United States to promote this illegal scheme.

Now, in addition to criminal penalties, violators of the Iran sanctions regulations can also face administrative penalties. And last year, our investigations led to such penalties in 16 cases, totaling $1.6 million in fines.

I'd like to make one additional point with regard to penalties, particularly relevant to the point that Senator Shelby made about whether we have all the tools necessary to do the job we're trying to do. Our underlying statute, the Export Administration Act, has been in lapse since 2001. While that act is in lapse, we implement the sanctions regime -- our authorities under the president's emergency authorities under IEEPA. The important point to remember is that under IEEPA, penalties are substantially less than they would be under an Export Administration Act, thereby negating some of the deterrent effect of the penalties we're able to bring.

Now, the examples I cited also illustrate enforcement of our comprehensive embargo against Iran involves more than just stopping direct shipments from the United States to Iran. We are also focused on preventing the illegal transshipment of U.S. goods through third countries to Iran and other embargoed destinations. And this effort takes two major forms. The first is in coordination with the State Department. Commerce works with other countries to identify foreign entities that are trying to evade our embargo and our export control laws to divert U.S.-origin goods to Iran. Secondly, the Commerce Department, the State Department, Treasury and other agencies are working to help foreign governments improve their own export control regimes and their own export control practices so they will block those types of shipments going into Iran.

Now recently, in an effort to increase the options at our disposal for combating such illicit transshipment to Iran and elsewhere, we published last month an advanced notice of propose rulemaking to amend our Export Administration Regulations to define a new group for countries which we call Country Group C. This group would be reserved for countries that pose a diversion concern based on certain criteria such as the amount and types of materials that transit through and the strength of their own export controls. Now, at this point, this is still an idea we're working out and a policy we're still developing, so no countries have been identified yet for inclusion in this new Country Group C.

Mr. Chairman, as our presence here today demonstrates, administering and enforcing the Iran sanctions involves many agencies of the U.S. government working together. These two gentlemen to my right are no strangers to me, as we work on Iran issues. We at the Commerce Department are pleased and in fact honored to be a part of the administration's Iran sanctions team. Thank you for this opportunity, and thank you for questions.

SEN. DODD: Thank you all very, very much.

And what I'm going to do here, if I can, we're going to ask the clock go on for seven minutes. I did a quick math count here, and I think, Secretary Burns, we can get every member to get at least a round in here with you before you have to depart, and then we'll move to the other witnesses as well. But during the question, if -- obviously if there's a response that either Secretary Foulon or Secretary Levey feel they want to contribute to, please don't resist.

And I've got a couple of charts I want to put up, and one is here -- which I want to ask you, Secretary Burns, about, and this a flow chart -- because I think a lot of people get confused about who's in control -- who's really -- in Iran, where the power centers are. And I was going to ask you to kind of take a look at this and share with us sort of what the -- how this breaks down, what are the key intersections with these various agencies in the Iranian government, you know, the economic sector, the nuclear sector, the military sector, and how they kind of relate. Obviously a great deal of attention has been focused on the presidency here. In fact, I'd argue to some degree we've probably inflated the role of the presidency as a result of our focused attention on Ahmadinejad over the last number of months, whereas power centers -- there are other power centers in Iran. It goes to the point I think you were raising earlier about pursuing this diplomatic approach in Iran, which I welcome the information from the administration that that door is now opening for us. And it might be worthwhile to run through this a little bit and give us some sense of it.

Before I do that, though, I want to ask you about the news that we saw the other day and the Russian decision to apparently be more supportive on the sanctions issue. And the news stories reported there was -- it was unclear what the motivations were here. Is it, one, to get paid for the contracts that they've already had with Iran that have not been forthcoming, or are they moving more to a recognition of the larger question here, and that is the dangers posed by Iran possessing a weapons capability here.

Can you share with us what the administration's observations are about this? How serious is it and where is it likely to lead?

MR. BURNS: Mr. Chairman, thank you. I'll be happy to take that -- to answer that question, and then go on to the very interesting organizational chart behind you.

SEN. DODD: Thanks.

MR. BURNS: On the nuclear front, I do think that the weight of international opinion is now shifting against the Iranians. It's been very interesting to see the Russian government over the last week decide that they're not going to provide fuel for the Bushehr power plant. They've delayed the implementation schedule in 2007. A very clear message, as we translate it, from the Russian government to the Iranian government is it's not going to be business as usual. And this mirrors a change that we've seen over the past few years.

You referred in your opening remarks, Mr. Chairman, to the fact that as recently as two years ago, there were just three countries negotiating with Iran -- Britain, France and Germany.

SEN. DODD: Right.

MR. BURNS: And that was with the prior Iranian government, before this radical regime of Ahmadinejad took power.

And now you have a large international coalition. The Russians were part of the sanctions decision in December. The Russians are sponsoring, with the Chinese, the sanctions resolution that the United States, Britain and France put on the table just a week ago in New York. And so Russia is very much our partner. Russia is bringing its weight to bear against Iran.

And I think that countries are worried. This Iranian government is just proceeding right down the track towards the ability to master the enrichment and reprocessing process.

They've strung together, we think, the IAEA thinks, about 160 or so; they're trying to -- centrifuges. Their ambition is to engage in P-2 centrifuge research, and also to get to 3,000 centrifuges within a year. If that happens, and if the Iranians proceed without being blocked, then their scientists and nuclear engineers will have the capacity, intellectual capacity, to design and fabricate a nuclear weapon. And it's our opinion, that Iran must not be able to secure a nuclear weapons capability.

That is also how we appreciate the Chinese and the Russian and the European attitude. And it's really been extraordinary to see the dimensions of this international coalition. In the U.N., it's the five permanent members now sponsoring one resolution. In the IAEA, as I said before, India and Egypt and Brazil and Argentina and Japan have all voted against Iran. Iran has essentially four friends in the world. Syria, Belarus, Venezuela and Cuba. And with friends like that -- compared to this large coalition, I think they're rather isolated.

So I think the Russian actions over the last week have been very important. ` SEN. DODD: And they go beyond just an effort to get paid?

MR. BURNS: Well, it's our appreciation that the Russian government does not wish to see Iran possess nuclear weapons. And so, that's a point of agreement. On the organization charts --

SEN. DODD: By the way, all the members have a copy of this chart in front of you as well, and take a look at it. And I presume if you've got any additions you want to make to this chart, please let us know.

MR. BURNS: I think the important message from your chart would be this, to me, and that Iran is not a monolithic power structure. It's not one person. It's not one ideology. It's not one set of motivations. If anything, your organizational chart shows competing power centers. The most important person is the person at the center, at the top, the supreme leader Ali Khamenei. He is the successor of the Ayatollah Khomeni.

Iran is, in many ways, a theologically based state. It is a monocracy of sorts. And the supreme leader is, by far, the most important political, economic and military leader in the country. And the title is accurate. He has supreme power over all others. But underneath him, there are competing power centers. The person directly below him, the president of Iran, is Mahmoud Ahmadinejad. He is this radical, in our view, irresponsible demagogue who has said the Holocaust didn't happen, that Israel should be wiped off the face of the earth, that Iran should be a nuclear weapon state.

He is opposed, we think, by many of the other power centers in your chart. Certainly the expediency council, chaired by Mr. Rafsanjani, the former president of Iran. Most, I think, analysts will say that they are not friends, that they are not partners, and that they are rivals. The National Security Council, I believe -- yes, the National Security Council appears on the upper right of your chart. That's headed by Dr. Ali Larijani, who we also believe is a competing figure to Ahmadinejad.

And so, I think we look at Iran as a divisive government with different power centers, different motivations. And I think you see that in the actions of the government. The most significant thing we've done, in my judgment, over the last 27 years, is to offer negotiations on the nuclear issue last June 1st. Secretary Rice was the first Secretary of State since 1979 to say she would sit down with the Iranians at the negotiating table, along with the Chinese, Russians and the Europeans on our side, in an attempt to forestall a nuclear weapons capability by Iran.

They didn't answer that offer for four-and-a-half months, because we think they were fighting among these various power centers over the offer. We do think that there are elements in the power structure who want to negotiate with the perm-five countries, including the United States. We know there are others, including President Ahmadinejad, who do not want negotiations. So it's a tumultuous political scene as best as we can understand it. And I want to be a little bit humble here, because we haven't had an American diplomat since the hostages left on January 20th 1981.

SEN. DODD: Hmm.

MR. BURNS: We have no embassy there. So we're peering into the country from the outside, trying to understand it, with a lot of help from friends around the world. There are very few American academics or businesspeople there. So, we're somewhat limited. But that's our appreciation.

And finally, Mr. Chairman, the last box that I would draw attention to is the Revolutionary Guard, which is in the center left, right, of your chart. The Revolutionary Guard was created after the revolution to be the arm of the religious ideologues, of the Ayatollah Khomeni and others. They're the people who have sponsored the terrorists attacks against the United States. In 10/83, against our Marine barracks and against our embassy in Lebanon. In 1996, against Khobar Towers in Dhahran, Saudi Arabia.

And it's the Kuds force, a subset of the Revolutionary Guard, that are right now providing this explosive IED technology that we believe Shi'a militant groups have used to target our soldiers in Iraq. So, that's a particular interest of ours, and it's a particularly malevolent branch of the Iranian government.

SEN. DODD: Let me just mention the diplomatic efforts. Have we -- seems to me I've heard we had actually made an offer to establish diplomatic relations, or at least to establish an embassy in Tehran once again. Is that accurate?

MR. BURNS: We have not made such an offer, no. We do not seek at this point normal diplomatic relations with Iran. The problem is, Mr. Chairman, as you know well, they're trying to build a nuclear weapons capability --

SEN. DODD: Hmm.

MR. BURNS: They're the leading state sponsor of terrorism. They've directed that against the United States, and they're the leading force, the radical force against what we want in Israel, in Lebanon, and in Iraq. So, our appreciation is, we're better off -- I think this unites the last few American administrations, President Clinton and President Bush's especially. We're better off trying to isolate and pressure them from the outside, then trying to make nice to them and do business with them from the inside.

SEN. DODD: My time's expired. I had a charge here I wanted to raise about the existing contracts with other countries that you've addressed here earlier. And, I'll lead it off, and presumably you'll want to address it, but these are the $126 billion of agreements that have been reached with other nations, many of them who are allies of ours, ongoing, and no action has been taken on them. And I see Secretary Levey reacting to this already, but this has to be explained to some degree.

The Iranian Sanctions Act does allow us to have tools to deal with some of these issues. You've got a present one here in January of -- (off mike) -- 2007. At least it was on my chart earlier; 2007 for $20 billion to the Malaysian government here. I'm very interested in -- jawboning works, to some degree. But we've given you tools up here now, the Congress has over the years. These are very specific tools that allow you to take much more specific actions than just asking people not to do certain things. And, I'm very interested in some point here this morning that you address the issue of why over $126 billion in contracts in the energy-related areas, totally more than 1.3 billion barrels of oil per day, not to mention some $13 billion of cubic feet of natural gas going forward. That's not exactly a modest amount coming out. If these tools exist, why aren't we using them more definitively, more accurately? But I'll -- let me turn to Senator Shelby, and you can respond to this at some point here in your question.

SEN. SHELBY: Thank you, Mr. Chairman.

Secretary Burns, the administration has worked very hard to get resolutions condemning Iran's nuclear activities, and imposing sanctions through the U.N. Security Council. What additional measures, either within the confines of Security Council Resolution 1737 or in a new resolution, do you believe are necessary to ensure that foreign companies and financial institutions refrain from doing business with Iran? That's banks, oil, gas, you name it, the big ones.

And given the scale of Islamic Revolutionary Guard business activities, and the corps' major role in supporting terrorist organizations, why isn't it listed in Resolution 1737's annex? I understand the commander of the corps is listed, but not the entire corps. You brought up the Revolutionary Guard, and I thought I'd respond.

MR. BURNS: Senator Shelby, thank you very much. First, let me just, if I could, unite your question with that of the chairman. I had the pleasure of testifying before you, Senator Shelby --

SEN. SHELBY: Yes.

MR. BURNS: Last summer to say that the administration agreed with the reauthorization of the Iran Sanctions Act, and we do. I think that we find this act has been useful in deterring some foreign investment in the oil and gas sectors of Iran, but obviously not all as your chart shows. There's still been significant activity. In that respect, Mr. Chairman and Senator Shelby, I know that the last two administrations, and I served in President Clinton's administration, have essentially taken the view that this act is useful as a deterrent.

The problem comes in application. And I just want to be very frank here. I think that the last two administrations, Clinton and Bush, have used the waiver authority once, very infrequently. The problem is, as you try to build a diplomatic coalition to oppose the Iranians, we want the pressure of the sanctions to be on Iran itself, and not so much on our allies, because that would disrupt and maybe even dissemble our coalitions. So, right now we've succeeded in getting France and Britain and Germany and Russia and China all on the same music sheet with us.

And then if we turn around and sanction them but not the Iranians, they might be less willing to support us on some of these diplomatic efforts, like denying Iran a nuclear weapon. And so that 's the dilemma that I think both of the last administrations, if I can say that as someone who served in both, have felt. And we'd like to see the legislation as it progresses. I know there's new legislation in the House being considered by Chairman Lantos and Congresswoman Ros-Lehtinen. We'd like to see it focused on Iran, on the Iranian government and on the state structures of Iran, and not so much on our allies.

But I would say this: if you give us a law and if you pass a law, we will implement the law to the best of our ability. That's our obligation. In this case, I think there have been no new final oil and gas investment deals, I'm told, since 2004. I can check that figure, Mr. Chairman, and get back to you in writing, if you'd like. But we're now beginning to jawbone Shell and the China national oil company and the Malaysians involved in a prospective deal. In all three areas, they've announced the interest to conclude a deal, but haven't concluded one. And we've gone to the CEOs and major financial officers of those corporations, just in the last few weeks and months to say, this is a bad idea, you shouldn't do it.

And if Congress does pass tougher sanctions legislation, you will be subject to our law and we won't be able to protect those companies." So we have made that point.

SEN. SHELBY: But Mr. Secretary, to be effective, you're going to -- they're going to have to believe you're going to do something, the oil companies and everybody else. Otherwise, they probably won't blink.

MR. BURNS: We've asked -- I think that your legislation and whatever comes through the House and Senate this year, new legislation, is coinciding with a general trend, I think, toward sanctions by our allies. Until about a year ago, the European allies in Japan were not interested in sanctions against Iran.

SEN. SHELBY: What about China?

MR. BURNS: I don't think the Chinese are there yet, unfortunately. We differ with the Chinese.

SEN. SHELBY: Sure.

MR. BURNS: We think the Chinese have too much of a business-as- usual attitude with Iran, too much trade going on. But I think that, as your legislation proceeds, you're going to see the EU and Japan consider what they can do to shut off some of this normal commerce that's been underway. And we are in favor of the Europeans doing -- (inaudible) -- not in favor of any of these oil and gas deals.

And Senator Shelby, on the IRGC, we've worked very hard over the last few weeks to put into the second Chapter 7 resolution that's being debated today in New York a specific set of sanctions against IRGC front companies and individuals that are important in the ballistic and WMD area.

SEN. SHELBY: Secretary Burns, as sanctions have taken effect, have they weakened the Iranian leadership or have they given the Iranian people a rallying point behind their president?

MR. BURNS: I think, for the most part, the sanctions and the international efforts against Iran have weakened the government of Ahmadinejad and put him on the defensive in his own political system, because their policy is not working. And the chairman referred to this extraordinary episode when the newspaper controlled by the supreme leader, Khameini, criticized Ahmadinejad about a month ago for his handling of the nuclear issue.

So we think this policy of pressure, the financial sanctions by the Treasury Department, the financial measures, banks stopping lending, the U.N. Security Council sanctions, are beginning to have an effect. And we hope they won't become a rallying point for the people of Iran because we want the people of Iran to know that we want them to have civil nuclear power. We'd be willing to participate in a consortium with the Russians and the Europeans to build a nuclear power center, but without access to the fuel cycle.

SEN. SHELBY: Secretary Levey, in 1998 I was in Islamabad and I had the opportunity to spend some time with the infamous Dr. Khan. And we talked about nuclear proliferation, among other things. And I asked Dr. Khan; I said, "Doctor, in your judgment, how long will it be before Iran has nuclear weapons?" And he didn't blink at all and hesitate at all. He said, "Ten to 12 years." That's been nearly nine years. Are they on track from the statement of Dr. Khan to me?

MR. LEVEY: Well, I wouldn't -- I think what Undersecretary Burns said in his opening statement about where they would be within a year is something we need to take very seriously and why we're working so diligently to stop the proliferation in Iran's nuclear program.

I wouldn't hazard a guess about exactly how long they have, but it's not off by orders of magnitude.

SEN. SHELBY: Is the recent Russian attitude, is this about payments of money from Iran? In other words, are they behind in their payments to the Russians for aid and help in the construction of the power plant, whatever you want to call it? Or is this a change of heart? Or is it too early to say? Could it be about both?

MR. LEVEY: I don't have much more to say than what Nick said about that. I think, you know, we're seeing that they are standing with us in terms of sponsoring this new resolution. I've been to Russia twice, once with Undersecretary Burns, to talk to them about this, and we've been engaging them very diligently. My assistant secretary was just there last week.

We'd like to think that there is a change of heart. And if they'd stand with us on this resolution, that would be an excellent sign.

SEN. SHELBY: But you haven't seen a 180-degree turn yet, have you, Secretary Burns, on the part of the Russians?

MR. BURNS: Oh, we have a very different relationship --

SEN. SHELBY: I know.

MR. BURNS: -- with Iran than does Russia. Russia trades with Iran. Russia sells military arms -- and we disagree with that -- to Iran. Russia has a diplomatic relationship. So we're not -- you know, we don't have a similar exact policy. But the Russians have been turning towards applying pressure, sanctions, and they voted for one resolution; they're sponsoring a second. That's a pretty good indication of where they're going.

SEN. SHELBY: Secretary Levey, is the level of support that you receive from the intelligence community sufficient to allow for additional sanctions, if warranted? Do you have what you need as far as information? I know you work with the intel community.

MR. LEVEY: Senator Shelby, yes, I think we've been getting really excellent cooperation from the intelligence community, not just because of the intelligence office that you helped us create within Treasury, but also because of, I think, a successful integration of that office into the overall intelligence community. We've been getting excellent support.

SEN. SHELBY: How's your office that we created in Treasury doing?

MR. LEVEY: Well, I like to think it's doing quite well. You'll be the judges of that, I suppose, in many ways.

SEN. SHELBY: I think you're making a lot of progress.

MR. LEVEY: Well, I appreciate that. We're working well with the whole interagency. I think we've been putting pressure here in the Iran area, but also, as the chairman pointed out, worked very hard on the North Korea issue and on terrorism as well. So we have a lot more to do, but I think we're making good progress.

SEN. SHELBY: Thank you, Mr. Chairman.

SEN. DODD: Thank you very much.

Senator Tester.

SEN. JON TESTER (D-MT): Thank you, Mr. Chairman. I want to thank the members here who have testified today. I appreciate the work you folks have done and appreciate the potential of continuing to work into the future. I was particularly heartened by Secretary Burns' statement that aggressive diplomacy may really bring Iran to a situation where they become regular good citizens within the world. We can only hope.

Back in 2003 -- and this is for Secretary Burns -- back in 2003 -- I think I read this in the Post last month -- that Iran came forth with a proposition to deal with the nuclear issue. And I don't want to put words in your mouth, but I think you'd said that you didn't think that that was a genuine offer.

And I guess my question is, what would constitute a genuine offer? Now that we've got more people in the fold today, I mean, what would make it a genuine offer if Iran were to come forth with such an offer again?

MR. BURNS: Thank you, Senator.

I was at NATO in 2003, so I didn't participate in this series of discussions. But from talking to people who were in the White House and State Department at the time, there was a lot of doubt about whether or not that particular offer reflected the views of the Iranian leadership. And I know I've seen arguments on both sides of that.

I guess I'd say to you that what's really important is what they're doing now. We've put this big offer out there, June 1 of last year, 2006, by Secretary Rice. We, the United States, will sit down at the negotiating table with you. The offer was made with Russia, China and the Europeans and us. And we only asked one thing: "Suspend, for the life of those negotiations, your enrichment program." And the Iranians have refused to do that.

So I think the ball is in their court. We're willing to negotiate on the nuclear issue. And you've seen on Iraq, we just sat down with the Iranians and the Syrians 10 days ago in Iraq -- our ambassador, Zal Khalilzad did -- to talk about Iraq. And those meetings will continue in the future. So there are lines open to them.

SEN. TESTER: Okay. And just for my information, had Iran been closing off the shipping lanes?

MR. BURNS: The Iranians, of course, call it the Persian Gulf. We call it the Gulf. We've had the American fleet in the Gulf since 1949 to protect the waterways. And since the Iranian revolution of '79, there have been times when we have had to have a show of naval force to keep the Gulf open and to send the signal that we don't want and we will not support and we will not tolerate any interdiction of international shipping in that area.

And so the deployment of two carrier battle groups to the Gulf by the United States in the last two months is an expression of that policy.

SEN. TESTER: I appreciate that answer and appreciate the conciseness of it.

You talked about a $22 billion tax credit -- trade credit, I'm sorry -- at one point in time, and you said it's smaller now than it was then. Specifically, what level is it at now? And these are credits -- and correct me if I'm wrong -- that were used to enhance and encourage trade with Iran. What level are they at now?

MR. BURNS: Of course, the United States has been out of the trade business for 27 years with Iran. These are our allies -- the European allies, the OECD countries, Japan. The 2005 figure is $22 billion of various types of export credits available. And we have been leaning on the European governments to reduce that, because we say to the Europeans, you know, "You can't be business as usual with Iran. You can't try to sanction them on a nuclear issue but make profits on the economic side."

So the Italians, Germans, French and Japanese have told us that their export credit levels are coming down. I don't have '06 figures. Maybe Mark or Stuart do.

SEN. TESTER: It would just seem to me -- and I know you guys are doing the best you can, but it would just seem to me if our allies that understand what's going on with Iran -- why aren't they just zeroing these trade credits out? I know that's what your wish is, certainly what mine is. But it doesn't make a lot of sense to me that if they understand what kind of impact Iran and their nuclear capabilities can have on our world that they don't just say, "Enough."

MR. BURNS: You know, we just have a fundamentally different relationship -- we, the United States -- than the European allies do. They all trade with Iran. They all have diplomatic relations. We've begun to see that comity break down, however. And there's a lot more -- I think the European governments are now of the mind that they should reduce the level of what they do with the Iranians. And they've been good partners on the nuclear issue; I must say that.

SEN. TESTER: If, in fact, you can find out where those trade credits are at, I'd sure like to know. It'd be great if you could.

It's my understanding that half the population of Iran is under the age of 25. You talked about radio and TV as being used as a method for outreach to contact the regular citizenry. What role can the Internet play in this? And does it play in it? Are you utilizing it? Or where are they at technologically?

MR. BURNS: Well, we have the same view that you do. The younger portion of the Iranian population is Internet-savvy. And a lot takes places on the Iranian blogs that they can't do out in the open because the government is so repressive.

And so Congress was good enough to give us $5 million last year, and we're using that to fund what we call a virtual presence embassy -- a virtual presence host. We have a computer network that allows us to speak to young Iranians. We have webpages for different cities in Iran that talk about -- that give the honest truth about U.S. government policy, and we're really encouraging a dialogue with young people through the Internet.

SEN. TESTER: Is there any way you can monitor how effective that is, as well as radio and TVs, too?

MR. BURNS: Yes. And I think, actually, we have to report to the Congress on how we're spending that money and we have established a set of metrics that would give us a rough indication because the problems were not there, but a rough indication of the type of impact we're having. But we're convinced that reaching out to young people through the Internet is a good way to go.

SEN. TESTER: Just one more, if I might.

The situation with Korea and their nuclear -- and then they backed off, and I was told it was because of financial sanctions that were put on. I don't if that was all of it or not, but it seemed to me that working with our allies -- evidently something happened and it was more than just business as usual. Can you apply what happened to Korea and the fact that they backed off on -- or apparently backed off on their nuclear development to Iran? And can we use that as a template to apply pressure to Iran to get the same results, assuming those results are accurate?

MR. BURNS: Senator, I think we can -- in a rough sort of way, I do. It's ironic that a lot of countries criticize the United States for not being willing to engage in one-to-one talks with North Korea. We always felt it made much more sense to have the pressure of China and Russia and Japan and South Korea with us, and that worked. And we've now seen progress in the North Korea talks, and my colleague Chris Hill is in Beijing pushing that today. We have the same view of Iran. This is not about the United States and Iran, this argument over nuclear weapons and terrorism, and we've been able to have this coalition of China-Russia-Britain-France-Germany, and a wider collation including India-Brazil that's been very effective. So I think it is a template of sorts. This multilateral pressure, we think, is the way to go. And diplomacy, we think, can be effective. I can't guarantee that -- it's going to take some time to play out -- but it certainly is the preferred option right now.

SEN. TESTER: Thank you.

Thank you, Mr. Chairman. I'll let the other members have at it.

SEN. DODD: (Inaudible.)

SEN. : Mr. Chairman, thank you.

Gentlemen, welcome.

Secretary Burns, in the regional security conference setting in Baghdad almost two weeks ago, did we take any initiatives, or did the Iranians approach us for any offline conversations, meetings, opportunities to engage?

MR. BURNS: Senator, we had two representatives at that meeting -- Ambassador Zal Khalilzad and Ambassador David Satterfield, and I've spoken to both of them. You know, as one of these first pro forma organizational meetings, there was a lot of talk about whether or not we create working groups to work on particular issues concerning Iraq's security, for instance, being first and foremost, and whether there be further meetings. The United States took the position in that meeting that there should be further meetings. There should be meetings of the neighbors of Iraq with the U.S. and Iraq, and there should be meetings of a larger group of countries, including some of our Perm-5 and G8 allies.

And so we are hopeful that at the ambassadorial level and perhaps even the ministerial level Secretary Rice might engage with the Iranians and Syrians and the other countries in the configuration. To the best of my knowledge -- and I haven't had exhaustive conversations with both of them, but I've had good enough ones -- that's pretty much how the meeting went, and so we have the ability to now talk to them and let them know how unhappy we are with their policy in Iraq. And we have this -- in another channel, we have this offer to negotiate on a nuclear issue, which they keep turning down, which is the also offer that we've made with China, Russia and the Europeans together.

SEN. : Well does that mean we did not have any offline conversations, meetings, engagement with the Iranians at the conference?

MR. BURNS: Senator, as I understand it, Ambassador Khalilzad had a quick conversation with the Iranian deputy foreign minister, but very quick and, I think, rather perfunctory -- kind of standing around as the -- before the meeting was to take place.

SEN. : Is -- to your knowledge, is there a follow-up effort -- planned by either side, or is there a discussion of this as we get to the next meeting at the ministerial level between the Iranians and the United States? Or any initiatives that our on our side for that to happen?

MR. BURNS: We are not anticipating at the present time any one- to-one meetings between Iran and the United States. But we do have this multilateral configuration where Iran and the U.S. are around a table talking about Iraq, and we have the prospect of nuclear negotiations. And that's where our real emphasis is. I mean, the two aspects of Iranian behavior that are most injurious to the United States and to our interests are, "Will they get a nuclear weapon and therefore disrupt the balance of power in the Middle East in a negative way to our interests?" And two, "Will they stop being such a negative influence in Iraq? So we're focusing on those two channels, but they're both multilateral. Neither of them is a singular conversation between the two countries.

SEN. TESTER: You noted in your testimony and some of the responses you've given to the questions, as well as Secretary Levey, that we -- the United States are looking at diplomatic initiatives, engagements, which as I think your term was, Secretary Burns, a more comprehensive policy which some of us have been advocating for some time, using all the instruments of power -- military, economic and diplomatic.

Can you tell this committee whether we are thinking through what we might be in a position to suggest or offer in the way of diplomatic initiatives to Iran if, in fact, we were able to get some agreements. For example, opening up a consulate -- not necessarily formal diplomatic relations yet. You noted, I believe, in your comments about engaging, you've noted that the younger generation - it appears, I think, in your words, "That country is probably, at least by the latest poll numbers, the one country in the Middle East that actually might like Americans." And so what are we doing? What are we contemplating? What are we thinking through in the way of trying to take advantage of that situation in the way of initiatives?

Now I know a number of things have to come together for that to happen, but what can you share with us on that front?

MR. BURNS: Thank you, Senator. I think the most important thing we've done is to put in writing an incentives package for Iran should they come to the negotiating table on the nuclear issue.

We gave them a written document on June 1, 2006 -- the five countries of the permanent five and Germany -- and that document essentially said there are two paths for Iran "in the way you relate to us on the nuclear issue." If you continue to try to build a nuclear weapons capacity, we will sanction you. And you've seen us now, we're on the verge of a second resolution in New York.

We said there's another path -- and that would be a negotiation. Now what would be the subject of that negotiation? We would be willing -- the six countries, including Russia and China -- to help you build a civil nuclear power industry so that the people of Iran have the benefit of nuclear power. But we're not willing to give you access to the more sensitive aspects of the fuel cycle, the enrichment and reprocessing -- that would be done off-shore.

We also added in that package, relief from some sanctions provisions -- normalization of some economic ties between a lot of us, including the United States with Iran. We thought it was a very substantial package because we thought that the Iranians needed to know what might be put on the table when they got to the table, and we thought it would be an incentive.

But as I described, we think there's been this rather tumultuous internal debate which has prevented them from accepting that offer.

Second, Senator, we're not anticipating at this time the establishment of normal diplomatic relations between the United States and Iran. There is too much bad blood. There's too much that Iran has to account for, including a tax on our military personnel and our diplomats. But we are proceeding with the help of the Congress, and with financing from Congress, to try to open up the people-to-people ties between Americans and Iranians in a way that we have never tried before.

SEN. TESTER: For example -- give me an example of a program.

MR. BURNS: Well, I know wrestling's a big sport in the Midwest. And our national wrestling team was -- went to Iran at our suggestion to compete in a tournament against the Iranians. They were received very enthusiastically -- a standing ovation by the crowd in Iran. One of our wrestlers actually won his weight class, which is also a nice benefit.

SEN. TESTER: Must have been from Nebraska.

MR. BURNS: Must have been -- or Iowa. (Laughter.)

And we're trying very hard to bring Iranians here -- so we've brought a group of health professionals to Harvard Medical School and to Washington; we're bringing disaster relief experts. We're trying break down the barriers that have separated us from Iranians for the better part of three decades. So that's very much part of our policy.

SEN. TESTER: Could you give us a quick glimpse into what's going on at the U.N. today regarding the Security Council debate on this resolution -- and it appears obviously, as our colleagues have noted, that the Russians have come a considerable way in this -- but where will that, do you believe, is going to go? And then, how would that enhance our position -- bringing together our allies and using, not just a unilateral sanction -- which there is some question, as the Chairman has noted, and I suspect he's going to get back to you on that -- on why unilateral sanctions may be, in this case, are not particularly effective?

But if you could give us a sense of what you believe is going to happen today and where that goes from today?

MR. BURNS: Thank you, Senator. We hope to have a resolution passed in the Security Council by the weekend. This is a resolution sponsored by the U.S., the U.K., France, Germany, China and Russia -- we're all together on it.

It would substantially increase the type of sanctions placed on Iran from the first resolution passed on December 23. It would add arms sales as a sanction; it would add sanctions on the IRGC, the Revolutionary Guard Corps command; it would open up a process to eventually make progress on export credits. So we think it's a good one.

We're working now with the other members of the Council, the nonpermanent members, and we hope very much that South Africa, the current president of the Security Council, will want to negotiate with us in a productive way. But we're prepared to push this through because it's the right thing to do -- to apply this kind of multilateral pressure on the Iranians.

SEN. DODD: Thank you very much, Senator. Senator Reed.

SEN. REED: Thank you very much, Mr. Chairman. Thank you, gentlemen. Secretary Levey, as I understand the statute, subsidiaries of U.S. firms are not barred from dealing with Iran as long as the subsidiary has no operational relationship to the parent company -- is that accurate assessment of the current status of the law?

MR. LEVEY: Basically, you're right, Senator. That currently -- that foreign subsidiaries are not cut off in that same way.

SEN. REED: Do you have a current list and do you deliberately go out and identity those foreign subsidiaries of American firms that are trading with Iran - and can you give us that information?

MR. LEVEY: We don't have a comprehensive list of this. This is a something which -- there's some ongoing effort in the government, as you may be aware, the SEC has an office of global risk, where they require companies to make disclosures of information, and then they try to put it out in the pubic domain so that investors are aware of information the SEC deems to be material for that purpose. But that that's the status of kind of a governmentally-created set of information.

SEN. REED: Well, it would just seem to me that that would be a very productive use of your time -- to identify subsidiaries of American companies that are dealing in Iran, profiting from Iran, and taking those profits and sending them back to the parent company in the United States.

Just simply I think that knowledge publicly might go a long way in curtailing the activities of these companies. And I presume from your response there are a number of companies operating in Iran that have -- there are subsidiaries of American corporations. Is that correct?

MR. LEVEY: There certainly are some. I think that's it's probably a lot less than some people might imagine. I obviously don't know for certain. My -- what I've been able to glean from sort of an anecdotal perspective is that a lot of companies are pulling out of Iran for much of the same reasons that we've already been discussing here, including moving subsidiary operations. Some of the ones that I think more significant are making that same decision.

SEN. REED: Well, I think the tempo might increase if public attention was more focused, and you might be able to do that through your office. And just one other question about sort of trade with Iran. Is Turkey still buying gas directly from Iran?

MR. BURNS: I believe so, Senator.

SEN. REED: And is there any effort on our part to talk to our NATO ally and convince them not to do that?

MR. BURNS: We are trying to convince all companies seeking investment in oil and gas with Iran to not do it. We're jawboning pretty heavily -- pretty seriously. A number of our allies -- Turkey's a prominent one -- a partner like India are another -- have long term oil and gas relationships and we're trying to suggest that there are alternatives for the future. For instance, with Pakistan, India and Afghanistan, the alternative to Iranian gas would be Kazakhstan. And so we're trying to produce a movement towards a systemic shift away from reliance on Iranian energy. It's very difficult obviously in a neighborhood where --

SEN. REED: Uh-huh.

MR. BURNS: -- countries are energy dependent.

SEN. REED: Right. Mr. -- Secretary Barnes, again thank you for not only your testimony today but for your service over many years. You suggest I think with some credibility that in one sense the position of the Iranian government has weakened because of their growing isolation from the world powers. But in another sense, they've seen their strategic position enhanced. I mean, the regime in Tehran is now an ally of them. They have quite a active participation in western Afghanistan, contrary to the Taliban years, where they have counseled with economic issues, (they're building roads ?), and I -- the issue I have is to -- you -- Senator Dodd has shown this chart of the Revolutionary Guard and I think it's -- and you've talked about it, but the long term relationship between organizations like the Badr Brigade with the Quds force -- with the Revolutionary Guard -- now those people have been transformed into significant members of the Iraqi government. And how does that, you know, complicate our relationship with Iran? I mean, you talk about the Iranian influence in Iraq. Some of it is clearly hostile to our purposes but much of it seems to be at the invitation of Iraqi political figures that we support and deem legitimate, and how do you sort of parse that very difficult dilemma?

MR. BURNS: I think it's a bit of a mix as you suggest. I mean, on the one hand, the Iranians have clearly profited from the fact that Saddam Hussein has fallen from power and now no more. They have clearly profited from the fact that the Taliban disappeared as a power center in Afghanistan. But on the other hand, they're more isolated on nuclear issue than they were a year ago or two years ago. They've played their cards wrong. They've not given any indication of interest in negotiations, which has stiffened the spine of countries like Russia. So I think they've actually miscalculated on the nuclear issue.

I think their credibility's been hurt in the Middle East and around the world by Ahmadinejad. Now, he's popular in some parts of the Middle East because he was seen to be Hezbollah's protector in those parts of the Middle East where Hezbollah is popular. But on the other hand, he's the guy who says that another state -- a member state of the U.N. -- should be wiped off the map of the world -- Israel. He's denied the Holocaust -- that's hurt him very much in Europe. And I think that Iraq -- Iran, excuse me, -- now has responsibilities in Iraq that it didn't have before. And so we're suggesting they have to meet those responsibilities. You're right that many of the Shi'a leaders in power in Baghdad sought refuge in Iran during the Saddam years, and so there are personal and institutional and official links between some of the Shi'a leaders and their institutions and Iran. But now Iran has to act as a normal state and help keep Iraq together and be more responsible than it's been, and I'm not sure Iran is meeting that test either. So overall, while their strategic position has improved in some ways, I think on balance they're weaker today than they were a year ago and they've got much more international opposition to them on a number of fronts.

SEN. REED: And is that weakness a function of declining oil prices in some respects?

MR. BURNS: They've got a problem with energy because they're importing about 40 percent of their gasoline, which is a great irony considering the fact that they're the second leading oil producer in the world. They set prices artificially low and so that's been a major expense for the state. There's a profligate use of energy by people in terms of, you know, the use of automobiles, for instance, in Tehran itself.

SEN. REED: Sounds familiar.

MR. BURNS: And so they're facing an energy challenge, and as the energy prices dip over time, their ability to finance Hezbollah and Hamas is going to be decreased.

SEN. REED: Thank you, sir. Thank you, gentlemen.

SEN. DODD: Thank you, Senator Reed. Senator Allard?

SEN. WAYNE ALLARD (R-CO): Thank you, Mr. Chairman. Welcome, Secretary Burns. I have a question for you. The media has recently reported a chlorine gas aspect to the explosive devices in Iraq, and I made note of your comments here on the Revolutionary Guard, that they were making many of the explosive devices in Iran and then exporting them into Iraq. Is that chlorine coming out of Iran?

MR. BURNS: Senator, I just have no way of knowing. It was very worrisome to see this chlorine gas explosion a couple of days ago. It's not the first that we've seen, and so we're trying our very best to do what we can do diminish the IED and the bomb threats, but they are continuous. What we know about Iran -- what we do know is that they've provided the -- these explosively formed projectiles -- the sophisticated IED technology to Shi'a militant groups. We've seen the markings of the Iranian government. We know that for sure, and we know that the Shi'a militant groups have used those devices to attack American soldiers. We think we have a general estimate -- a rough estimate of how many soldiers have been killed by that and we saw the level of frequency increase in the latter part of 2006 but we have no indication that I know of that Iranians are actually conducting the attacks. These are Shi'a militants inside Iraq doing so.

SEN. ALLARD: Now, if we should happen to tie that to Iran, how does the chemical weapons treaty kick in, or does it at all?

MR. BURNS: Senator, I'm -- I just have no indication whatsoever that Iran is behind the chlorine gas attack. Obviously, we're investigating it with the Iraqi authorities, and I just wouldn't want to speculate on a hypothetical basis because it could be a very serious charge I'd be making and I don't want to do that today. I don't have the intelligence knowledge to do that.

SEN. ALLARD: Understand -- I understand. Let me structure that -- (off mike) -- would the -- how does the chemical weapons treaty handle sanctions?

MR. BURNS: Senator, I'd be very happy to reply to that question in writing. I myself am not an expert on that particular treaty --

SEN. ALLARD: Yeah.

MR. BURNS: -- but it's a good question and I'll be happy to give you a written answer on it.

SEN. ALLARD: Well, good. I'm glad we've got your attention on that -- it's something I've thought about, and if you could get a written response I think it would be helpful both to me and the committee. And also I'd like to follow up a little bit on Senator Reed's line of questioning on the importation of natural gas from Iran to Turkey. My information is that is occurring but they -- when they built the pipeline across Iran to carry Turkmenistan natural gas over to Turkey, and I guess the countries built their respective parts of that pipeline, do we have any monitoring going on as to whether Iran is injecting any natural gas into that line that's transporting from Turkmenistan over to Turkey?

MR. BURNS: Senator, I don't know the answer to that particular question but again, I'd be glad to investigate that for you -- see what we know inside our government report it back to --

(Cross talk.)

SEN. ALLARD: Yeah, I'd like to know just where the -- what level of monitoring is going on there if any. That's the bottom line on that question. So again, if you can provide that in writing I certainly would appreciate it and probably the committee would too also, if you would please. Let me ask you this question. How does the State Department make the determination to provide a waiver of sanctions? What is the process and what criteria are used? Can you share that with me?

MR. BURNS: Well, we're -- we have a waiver provision under the law that's been given to us by the Congress -- the first Iran Sanctions Act and now the Reauthorization of 2006.

And if we believe that a particular foreign company has violated the provisions of the act, then we have a responsibility to report that to you. And the president has the possibility of using the waiver authority in that instance.

As I said to the chairman earlier, I also served in the Clinton administration. I'm a Foreign Service officer. And I believe -- I can check this -- I believe that the Clinton and Bush administrations have only used that waiver authority once.

SEN. ALLARD: Where I'm driving my questions is to establish that belief, what criteria do we rely on?

MR. BURNS: Well, we have a very active effort that encompasses a number of departments, and both Mark and Stuart can speak to this, to try to track what companies are trying to invest or seeking investments with Iran in oil and gas. And as I said before, we've asked our ambassadors to be very active. I know we have in the case of Shell -- Royal Dutch/Shell. I know we have with the Chinese, because I made the de marche' to the Chinese to say to these companies and countries we think it would be a mistake for you to finish an investment deal. A number of the deals that are on the chart that the chairman had, of more recent vintage, are ideas on paper or preliminary deals that have not yet been consummated. So we do have an opportunity here to try to convince these companies not to go forward. And frankly, we also tell them that there is the Iran sanctions act, that the Congress is considering modifications in it. And so the specter of that is useful to the administration as I think it was to President Clinton's administration.

SEN. ALLARD: I didn't want to get into a repeat response that you've given to Senator Reed. My understand is the source is the SEC records that they have online. But I guess to pursue this issue a little further, could we be accused in any way of having a double standard in the way that we deal with various countries?

MR. BURNS: I would not say that. I think that we have applied pressure fairly across the international political spectrum. And we've been as tough on some of our West European allies as we've been on, you know, the Chinese in terms of these prospective oil and gas deals -- if that's what the question is.

SEN. ALLARD: Yeah, that is.

MR. BURNS: We're pressing on all fronts right now. We think that oil and gas investment with Iran is wrong. It's contrary to the international interest to isolate and pressure that regime.

SEN. ALLARD: Well, I just bring that question up because I'm concerned about how our allies might react when we deal with some of these sanctions.

Mr. Chairman, my time's about ready to expire, so thank you.

SEN. DODD: Thank you.

And by the way, these written questions and request for submissions we've already raised with the secretary, and he's promised to comply with that.

Mr. Secretary, we have about three or four members -- I know the time is getting beyond what we promised you could leave. If we could maybe ask my colleagues instead of seven minutes, five minutes at least to try and get these questions in so that everyone has a chance to get some in. Because you got over two-thirds of the members of this committee show up this morning to be a part of this, so I'll try and move along. You let us know when the hour has arrived you just gotta leave, and we'll respect that. So, if you can stay a few more minutes, we'd appreciate it.

MR. BURNS: Mr. Chairman, if you'll permit me, I am very open to talking to members, and I'll be happy to see you individually, too. My problem is I have a boss who is always on time, and I'm expected in his office -- in the Oval Office -- at 11. And I've got to get by car from here to there. And I don't mean to be disrespectful, but I'm supposed to attend this meeting with him with the prime minister of New Zealand. I'd be happy to come to each of the senator's offices to talk to them, or I'd be happy to come back to this committee at any time to testify in open testimony. I apologize for the situation.

SEN. DODD: No, not at all. In fairness to the secretary, he did promise at the beginning that was going to be the circumstances, and I appreciate that very much. Our other two members will stay here, and so we'll continue pursuing this, but thank you very much.

And I must say, Secretary Burns, the administration is very fortunate to have you. You're a voice of moderation and rationality in all of this. And we appreciate it -- I do, certainly, anyway. So, thank you very much.

We'll go ahead with questions here.

SEN. : Mr. Chairman, could I -- I'd be delighted to accept the offer from the secretary. When you have a chance to come by and visit with us -- I hope before the end of this month -- I'd be especially interested in talking about a piece that was written by Walter Isaacson in Time magazine about a week or so ago following his visit with the Iranian ambassador to the U.N. Thank you.

SEN. DODD: Thanks very much.

Senator Bayh.

SEN. EVAN BAYH (D-IN): Thank you.

And Mr. Secretary, thank you.

Gentlemen, I'm grateful for your efforts. This is an important challenge facing our country. You've had some successes. I think you hear from this committee and on my own behalf I urge you to do more.

Secretary Levey, I'd like to start with you. As I understand it, we've been bringing pressure to cut off transactions with regard to two of the Iranian banks. Is that correct? Why not all of them?

MR. LEVEY: That's an excellent question, Senator. Here's what we're -- our thinking on that. We're trying to establish, as Undersecretary Burns said, an international coalition to bring pressure on Iran. What we've found is the most effective way to do that is not just to exercise power -- and I think you'll find that this is going to be the theme of a lot of answers -- not just to exercise the power that we have but exercise it in a way that brings others on board. So what we've done with respect to the two banks that we have taken action against is not just cut them off but to explain why we've cut them off. So with Saderat, it was about terrorist financing. With Sepah, it was about proliferation finance. And what -- the result of that has been to really cause others around the world to take a close look at whether they're going to do business with these banks --

SEC. BAYH: Are you telling us there's no evidence that the other three Iranian banks have been involved in similar activities?

MR. LEVEY: Not at all. And I certainly don't want to suggest that we won't take further actions at the appropriate time. What I am saying is that we thought it was the appropriate time, and we had evidence that we could put in the public domain with respect to those banks. And as Undersecretary Burns mentioned, we're about to see the possibility of Bank Sepah listed at the United Nations in the Security Council resolution annex, which would be a very dramatic step, something which I don't think would have been possible if we had just said we're going to cut off all Iranian banks.

SEC. BAYH: Perhaps -- again, I think what you have done to date is good, but I think we need to be -- you know, keep the pressure on and be even more aggressive. The clock is ticking. We don't know with precision when Iran will reach the point of no return with regard to a nuclear capability. The effort here is to try and avoid the necessity to resort to military force. And so, you know, we want to be aggressive sooner rather than later when it comes to this situation. And so, I would encourage a, you know, very thorough scrutiny of these three additional banks. And if the actions taken with regard to the two have had a beneficial impact, as I understand it, with regard to increasing the inconvenience and cost to Iran, why not do more with regard to the other three?

MR. LEVEY: I take your point, and I think in principle we're very much in agreement. We want to be as aggressive as possible and as effective as possible.

SEC. BAYH: Which of the international banks -- well, let me -- which of the international banks that you've been trying to convince to not do business with the two Iranian entities have not been cooperative? You spoke about the beneficial impacts of risk to reputation. Well, let's put that on the table here. Who hasn't been cooperating?

MR. LEVEY: Generally speaking, I think that all the banks have been taking this seriously. And every single bank that we've engaged with has told us that they're either cutting off entirely their business with Iran or with respect to these specific banks --

SEC. BAYH: Is there a way to verify that when they make those statements? Or are they just facilitating transactions in euros rather than dollars?

MR. LEVEY: Well, some of them have been straightforward with us that they are cutting off only dollar transactions, and I'm glad you asked this. Some of them say we've got your message, we're cutting off the business in dollars. And that's what I think they think they need to do in order to comply with our law. But that's the beginning of the conversation, not the end, from my perspective. Because then I ask them well, what's the difference in the risk of the transactions? If you really want to stay away from the terrorist financing transactions or the proliferation financing transactions, how can you be sure you're doing that if you're doing it in euros? And I don't think there's a really intellectually coherent response to that question. But that gets back to --

SEC. BAYH: Well, when we encounter that situation, since they don't have any intellectually coherent response, what do we do? What is the sanction for them at that point? We cut off a Macau bank for facilitating North Korean business. If European banks are just doing a, you know, bait and switch, why shouldn't they pay some consequence?

MR. LEVEY: I think there's a large step -- to be honest with you, you know, my inclinations are the same as yours, Senator, I can assure you. But what was going on in the Macau bank was --

SEC. BAYH: I'm trying to help you here.

MR. LEVEY: I understand.

What was going on at the Macau bank was illegal under the domestic law of any country, and also putting -- facilitating criminal activity. What's going on when a bank in Europe decides to do business in Euros with an Iranian bank is not illegal under European law, and so it's a big step for us to then take the dramatic action that we did against the Bank of Delta Asia Macau, against a European bank for doing that.

I think what we have to do, at least in the first instance, is really try to persuade them --

SEC. BAYH: Should it be illegal under American law --

MR. LEVEY: I --

SEC. BAYH: -- facilitating transactions with a state that facilitates terrorist acts that's attempting to acquire a nuclear capability? Should that be illegal under American law?

MR. LEVEY: I think that, while it's tempting to say yes to that question, I think we're getting into an area where the reaction to that would be real hostility for the extraterritorial application of U.S. law. What we're doing by trying to persuade these banks is already, I think, viewed by some as trying to project our own policies internationally. It's having some effect. If we were to make it illegal for banks to do business in the United States if they did business with Iran, I think that would be very, very --

SEC. BAYH: So we have to weigh the risk of a backlash to the attempted extraterritorial application of U.S. law versus the facilitation of Iran obtaining a nuclear capability. Those are the two risks we have to weigh.

MR. LEVEY: I think that's one way of putting it. I think the way others would describe that is that they'll say, "We don't want to do any business with Iran that we think is advancing their proliferation efforts, but we want to do what we think is legal business with Iran." And that's what I run into when I have this discussion, that the business they're doing is not advancing their proliferation; it's not advancing terrorism, that they're being very careful. And that's the way the conversation actually goes when we have it.

SEC. BAYH: Well, the reason we're here today is the national security interests of the United States of America are implicated. And I understand the possible financial backlash. But there are greater stakes in this dialogue than that.

Mr. Chairman, my time has expired. I did have one question for Secretary Burns, but I guess I'll have to follow up on that later.

Secretary Levey, you're not as involved as Secretary Burns would be with the application, or the lack thereof, of the Iranian Sanctions Act. Is that correct?

MR. LEVEY: That is correct. I have --

SEC. BAYH: Lucky you.

MR. LEVEY: (Laughter.)

SEC. BAYH: I did have some questions about that, Mr. Chairman, why, in the last decade, there's only been one finding of violation. I find that to be rather incredible. But I guess that will be a conversation for another day.

I would just conclude, Mr. Chairman, thanking you for conducting this hearing. I think it's very important.

And gentlemen, I would urge you on. This seems to be having some impact. But we need to extend that.

And Chairman, I'm grateful to you for emphasizing that today.

SEN. DODD: Thank you, Senator. And we raised the issue earlier; in fact, we had the chart up here talking about the $26 billion in various transactions where there's been zero sanctions against that kind of business. Your questions were excellent. Thank you very much.

Senator Casey.

SEN. ROBERT CASEY (D-PA): Chairman Dodd, thank you very much for this hearing.

And I want to thank both of our witnesses for your testimony and for your public service.

SEN. DODD: By the way, Senator, let me just point out to Senator Bayh as well, Secretary Burns has agreed, by the way, in a very prompt fashion, to respond, knowing his time was going to be limited here, to written questions. And so I'd urge you to frame those questions, submit them to the secretary so we can get some answers right back to complete the hearing so we have a full record on those issues.

Thank you.

SEC. CASEY: Thank you. And I, too, had questions for Secretary Burns. We'll meet him at another time.

I wanted to get back to the issue of terrorism, because it was cited not only in your testimony, Secretary Levey, but also in Secretary Burns's testimony. He said - and I'm quoting from page 10; this is a summary of the section on terrorism, but he concludes with this sentence in the section. He says - and I'm reading halfway through the sentence - "We are disrupting Iran's ability to support groups such as Hezbollah and Hamas while increasing the political cost of this support."

You say in your testimony, which I guess is on page two, that - you speak of Tehran arming and funding and advising Hezbollah, as well as supporting the Palestinian Islamic Jihad and Hamas. You go through there.

The question I have is, based upon the information we have to date, and based upon that long history that you point to, what has happened in the last year in terms of Iran's support for those organizations due to - or maybe there's no connection here - but due to the fact that Iran has been, let's say, distracted because of the international pressure on the nuclear question?

Is there any indication that they've been distracted from that? Or has that support intensified or increased, let's say, in the last year?

MR. LEVEY: Senator, the information that I have is not what I'd like to be able to report to you. I don't think that their support for terrorism has decreased in any way. All the estimates that we have in our assessment is that they're sending over $200 million a year, or in that general amount, to Hezbollah alone. They remain the primary funder for Hamas, the Palestinian Islamic Jihad.

With respect to Palestinian Islamic Jihad, they even condition their funding on attacks is the information we have. So their support for terrorism is not weaning in any way.

Now, the action that we took with respect to Bank Saderat -- I'll just take one minute to mention that -- is disruptive in terms of making that support more difficult, because that really was the node that they were using to supply this money, particularly to Hezbollah.

As I think some of the senators understand, with respect to Hezbollah, it's difficult for the United States to get at this as effectively as we'd like to because the European Union doesn't recognize Hezbollah as a terrorist organization, which is something we'd really very much like to see changed. So that's something that we are working on quite diligently.

SEC. CASEY: You said that with regard to Hezbollah, 200 -- how much money? -- $200 million per year.

MR. LEVEY: Yes.

SEC. CASEY: What do you know about the other two, about the -- do you have a specific number you can apply or attach to Hamas or Islamic Jihad?

MR. LEVEY: I don't have a specific number that I can give you, Senator, but it is our information that they are the primary funder, particularly with respect to Palestinian Islamic Jihad, and that, as I mentioned, they condition their funding on the use for attacks.

SEC. CASEY: Well, with regard to those two or, frankly, any other terrorist organization, if it's not part of the record of this hearing if you're able to calculate and determine that and then submit it as part of your testimony, that would -- I'd ask you to do that.

MR. LEVEY: We'll do the best we can. It may have to be -- as you might understand, it may have to be a classified answer.

SEC. CASEY: Okay. And also with regard to these questions that center on terrorism, I know that when Secretary Burns said the sentence I read before, "We are disrupting Iran's ability to support these organizations," what in particular has been done, if it is not classified?

And secondly, what can you tell us in terms of amplifying the answer to that question about the impact it's had? In other words, what strategies are in place and how have they worked?

MR. LEVEY: Okay. Well, the fact that Iran is a state sponsor of terrorism, designated as such by the United States, as Undersecretary Foulon indicated in his opening statement, subjects them to formal sanctions by the United States in terms of what can be exported to Iran. So there's that.

In addition to that, we have been, one, highlighting exactly what Iran is doing. That's something that is important. We take the action against Bank Saderat that I mentioned, which is cutting off sort of the easiest way that they were funneling the money to these terrorist organizations, which is a way of disrupting. They have to go to something that is much more cumbersome, like shipping cash in trucks across Syria into Lebanon in order to fund this, which is much riskier, for obvious reasons.

But I think maybe the most effective thing that we can be doing is to focus on the IRGC. And Undersecretary Burns mentioned that we're trying to get the IRGC mentioned in this follow-on resolution. But, as I think Senator Shelby said earlier, the commander of the IRGC was already listed in the first resolution.

So one thing that I have been doing is making the point to my colleagues around the world, both in the private sector and the public sector, that the 1737 that already has been passed calls for the freezing of assets, not just for the individual, Safabi (ph), who's listed, but for all the entities under his ownership or control, which obviously already includes the IRGC.

So we've been sharing lists of companies that we think are controlled by the IRCG and trying to put pressure on the IRCG as that organization within Iran that is its coercive arm, that is being used to sort of export terrorism around the world.

SEC. CASEY: My last question is this. I have one minute left.

With regard to your ability -- individually, but also obviously our government -- our ability to have a positive and constructive impact on the question of how we disrupt their terrorist links. What, if any -- and I'm assuming there are some -- but what, if any, stumbling blocks or obstacles are in our way with regard to the Europeans? Have they -- what's the basic impediment to doing that in terms of our ability to engage the Europeans to do what we think they must do in terms of combating this terrorist threat?

SEC. LEVEY: The major stumbling block -- the one that looms larger than all of them -- all the others combined is that the Europeans won't recognize Hezbollah as a terrorist organization. It is a terrorist organization. I think that some in Europe agree with that, but the Europeans will only act as a unanimous body by consensus. And so they have not been willing to recognize Hezbollah as a terrorist organization. Since Hezbollah is often the first stop for Iranian support for other terrorist organizations, that eliminates sort of our best opportunity to stop that external support for terrorism coming from Iran. That would be the most effective change if that could be done.

SEC. CASEY: Thank you.

SEN. DODD: Thank you very much, Senator.

Senator Carper.

SEN. TOM CARPER (D-DE): Thanks, gentlemen. And thanks for staying. You know, you don't have a meeting with the president at noon, do you?

SEC. LEVEY: No such luck for me. (Laughter.)

SEN. CARPER: All right.

I -- this may have been covered before I arrived, and if it has been I would just ask you to bear with me and comment on it, if you will. This may be more in the purview of Secretary Burns, but if you could cast some light on it, I would appreciate it. I mean, following the back and forth between Russia and Iran with respect to Russia's support and willingness to go forward to enable Iran to complete the work on their nuclear power plant. It's a project that I think may have been in the works for several decades. I think the Russians have been involved in it for a number of years, and the Russians are asserting that they're not prepared to go forward because Iran has not been making payments, I guess, since January. And I'm not sure in reading the press accounts who struck John or who struck Ivan what's going on here. Do you all have a sense of what's happening here? What is going on?

SEC. LEVEY: To be honest with you, Senator Carper, I think all I'd be doing is sort of recycling I think what Undersecretary Burns tried to express on this issue before, which is that we have seen a change -- a slow change in Russia in terms of their willingness to stand up against Iran's nuclear program, and the most significant thing being that they're going to -- they are currently sponsoring this resolution that would -- that is being considered at the United Nations right now. And they voted for the first resolution to sanction Iran for its defiance on the nuclear program. I don't know the details of this particular dispute between Russia and Iran and what -- and how that plays into it, but this is an encouraging sign that at least on the resolutions, they're standing up against it.

But there's certainly a difference, as Undersecretary Burns said, between our view of Iran generally and our relationship with Iran than Russia's which has long-standing trade ties and so forth. But we're starting to see that at least on the nuclear issue, they're more on the same page with us.

SEN. CARPER: Is the question, when Iran has been making their payments, do we have any ability to monitor that, or to know?

SEC. LEVEY: I'm not sure that we do, and I would only be speculating. I don't know whether we do or not.

SEN. CARPER: All right, thank you.

Is it -- Secretary Fullon?

Foulon. Okay.

Foul on. That's a --

SEC. FOULON: Foul on. Yes.

SEN. CARPER: That's a good --

SEC. FOULON: It embarrassed me when I used to play basketball.

SEN. CARPER: (Cross talk) -- for this time of year.

Okay. (Laughter.) Welcome to this March Madness here, sir. (Laughter.)

According to your testimony, I think there are a couple of instances in which commerce is -- as I believe, is involved in the sanctions against experts to Iran. First, we're transferring sensitive technologies to Iranian nationals. I think those are deemed exports. Within, the U.S. in second, when sensitive technologies are exported to another country and that country wants to re-export those technologies to Iran. And in both cases, exports wanting to export need to receive, I believe, special licenses from your department -- from Commerce.

A couple questions, if I could. To -- first of all, to what extent has Congress evaluated how well export controls work for running nationals and re-exports?

SEC. FOULON: Let me take it in two different pieces. The first piece around deemed exports, which, as you pointed out, is the transfer of controlled technology to non-U.S. citizens in the United States. And in terms of how that program works, just so you're clear and everybody on the committee is clear, is that we are trying to implement the regulations in such a way that American research institutions -- universities, laboratories -- have access to Iranian citizens without those Iranian students then being able to take that information back. As we evaluate the program as we -- through our intelligence open source and other ways follow the careers of the various Iranian students or researchers who receive the deemed export licenses, then we're able to evaluate the effectiveness. Last year, we provided 38 licenses to Iranians.

To this point, without going into details in open session that we can't do in closed session, we'd be delighted to do so. We believe the program is being implemented successfully with respect to those applications that we receive. The gap that we need to fill now is to make sure that universities, industries, businesses, research laboratories fully understand the regulations, fully understand the need for this extra deemed export license screening. And that's why we do over a hundred outreach events every year to universities, to industries, to others to make sure they are aware.

In terms of the re-exports, for most re-exports of controlled items by American companies or by American persons into Iran, those are covered by the Department of Treasury and the OFAC licenses. Where we -- where the department of commerce has a role is if it is an item that we call EAR99. It's one that doesn't appear on any of the control lists, but it's kind of the all other things catch-all category. If a non-American outside the United States is exporting an EAR 99 item to an end user with proliferation or terrorism, then we must do the licensing for that with the presumption of denial. Since I've checked back as far back as 2000, we've had no instances of that occurring, Senator.

SEN. CARPER: All right. Thank you.

And now a question both, if I could, for you and the secretary.

Do you pronounce your name "lee-vee"?

MR. LEVEY: I pronounce it "le-vee."

SEN. CARPER: All right. (Cross talk.)

MR. LEVEY: I don't take it personally, so I -- (cross talk) -- whatever you call me --

SEN. CARPER: -- closely to yours, and he pronounces it "lee- vee." So, yes -- now you guys have to get together and straighten this out.

Well, a question for both of you, if I could. The Iranian regime has sought for -- I think for some time to acquire, as we know it, technology for its nuclear program, its missile program and its aging military platforms by using middlemen, if you will, in this country, I think in Canada -- maybe Europe, to purchase the technology and illegally export it to Iran. I believe in the middle of December last year, a report to -- in the Financial Times quoted a U.S. administration official saying something to the effect of "Increasing numbers of controlled items are being diverted from ports in the United Emirates to Iran." And I was wondering if you don't mind detail for us the cooperation we're receiving from the international community in combating the exporting of sensitive technologies to Iran.

I believe in the middle of December last year, a report in the Financial Times quoted a U.S. administration official saying something to the effect of increasing numbers of controlled items are being diverted from ports in the United Emirates to Iran. And I was wondering if you all might detail for us the cooperation we're receiving from the international community in combating the exporting of sensitive technologies to Iran. And specifically, is the United Arab Emirates taking necessary measures they need to to ensure the control that export items are not being diverted to Iran?

MR. FOULON: Thank you, Senator. You've put your finger on a very important issue, the issue we call the transshipment issue. And it's one we've given great attention to over the last four or five years. We've tried to develop a toolkit of policies, procedures that we can use in dealing directly with the countries of transshipment concern and the areas of transshipment concern. So, before I turn to the United Arab Emirates, let me lay out in a little bit more detail kind of how we view the toolkit and how we implement those policies which we tailor to each of the individual transshipment countries. It is everything from, with Hong Kong for example, we have annual meetings, close enforcement, data exchange, close enforcement cooperation. Hong Kong has a very sound export control law, and they implement it very well. So, countries have a law. They have how well they implement the law. They have cooperation with us in terms of data sharing, in terms of enforcement cooperation. In some, we actually have Bureau of Industry and Security, Commerce Department people on the ground who do spot checks, end-use checks to identify the magnitude of the diversion concern.

With respect to the United Arab Emirates, we've been in close contact for the past several years in terms of encouraging them to pass and implement an effective export control law that would help screen out sensitive items going into Iran. As you know, geography is destiny, and no one's geography is more destined than that of the United Arab Emirates. We were delighted two weeks ago when the UAE Minister of Economy Sheikha Lubna al Qasimi announced that their export control law was in the final stages. So, we will look forward to seeing that export control law passed. We will provide technical assistance to help them implement it and enforce it. We have an officer on the ground, and we will continue to cooperate and exchange data. So based on the statements that the minister of Economy said two weeks ago, the United Arab Emirates is on the right track we believe.

Let me just close by saying that we are always looking at the list of tools, the types of policies we have, which is why two months ago, we first raised the idea of creating a new country group -- our export controls divide countries into group -- you know, A is the NATO allies and so on -- to create a new Country Group C which would be for countries of diversion concern. So, if we find that there are countries that are not adequately protecting it from their side, we will protect it from our side using Country Group C.

SEN. CARPER: Thanks so much.

Mr. Chairman, thanks for your indulgence.

SEN. DODD: Not at all -- thank you.

And I'm going to come back to this, Secretary Foulon, because, you know, we have one -- one -- agent in the United Arab Emirates. Here with all due respect, this is not what I'd call a very aggressive program considering this is a major port of entry and transit. And the idea that we have one person on the ground there to monitor all of this is -- well, anyway, it speaks for itself quite obviously here. We've got to do a better job than that in my view. We'll come back to it.

Senator Menendez.

SEN. ROBERT MENENDEZ (D-NJ): Thank you, Mr. Chairman. I want to thank you for calling what I think is an incredibly important and timely hearing early on in the committee's agenda.

I appreciate the fact that we didn't let the Iran sanctions act expire at the end of the last session, but I'm one of those, Mr. Chairman, that, as I listen to the testimony here and the testimony that preceded before I got here but got a good sense of it, it seems to me that it's not enough that our current sanction law permits foreign subsidiaries of United States companies to violate the spirit of the U.S. law by investing in Iran's energy sector. That the current sanctions law against Iran continues to allow U.S. pension funds to invest in foreign companies, which invest in Iran, without informing their investors. That in fact the current sanctions law allows a presidential waiver that's so huge and broad that it doesn't provide even for true congressional oversight. And that, you know, it's not enough to have (renewed ?) current sanctions that allow the administration to ignore certain investments in the Iranian energy industry so as to avoid either applying sanctions or waiving them.

And that's a point I want to pick up with you, Secretary Levey. You know, there's only been one determination of a violation. I know that's done by the State Department but nonetheless, there's only been one determination of a violation in nearly a decade of what was ILSA. But in the same period of time, the Energy Information Agency, a part of the Department of Energy, and the Congressional Research Service have both reported major investments. It seems to me that how can we totally dismiss the findings of another arm of the United States government and ignore them in pursuing sanctions against those companies?

MR. LEVEY: I had a feeling I was going to be upset that Undersecretary Burns got away when he did. As you indicate in your question, the Iran sanctions act is a State Department administration. But I think --

SEN. MENENDEZ: I know you all said you work so closely together --

MR. LEVEY: I'm not going to --

(Cross talk.)

SEN. MENENDEZ: -- nature of enforcing this, but I'm sure that you have some insights into it.

MR. LEVEY: Look, I think the general answer applies to the Iran sanctions act. It applies to a lot of the other things that you mentioned in your question about what we do with respect to foreign subs, forced divestment, a lot of the other things I know people are thinking about. And I think the basic response -- and then we can perhaps discuss it in more detail -- is look, we want to put as much pressure as possible on Iran, and the best way to do that, as Undersecretary Burns said at the outset, is to have a broad coalition that will all work together to put pressure on Iran. If we start sanctioning European companies or Japanese companies or fill-in-the- blank companies for investing in Iran, then there will be a kind of backlash against us, and it has a chance of disassembling the coalition.

SEN. MENENDEZ: You mean we'll get weaker sanctions than the ones that we have right now?

MR. LEVEY: I think the theory would be we wouldn't get any sanctions at the United Nations, potentially, without having a coalition.

SEN. MENENDEZ: As I look at the language even of what's going to be ratcheted up now, it's all a suggestion that member countries not do x, y or z, but it's not a ban against doing x, y or z.

MR. LEVEY: I think you're right, Senator. And as I think you know, we've been advocating for stronger resolution at the U.N. in the first instance and I think would support a stronger resolution in the second instance. What we're trying to do -- essentially, this is what we think the market will bear.

SEN. MENENDEZ: Can I ask you this? There are media reports that suggest the administration is considering sanctions against companies investing in Iran's oil sector. Can you shed any light on that? Have you been part of those discussions?

MR. LEVEY: I've seen the same media reports. I think -- what I do know -- and I don't know whether there's anything internally going on in the State Department that there may be -- but I do know that we've been talking to these companies that are considering these oil investments. I know that the Treasury Department has been part of some of those discussions where we're explaining to them that, frankly, that if they do go forward with these investments, that sanctions are certainly a possibility. And that even aside from the sanctions that one of the things we say to them is if you invest in this oil sector, what you're doing is helping this regime generate income that will be put towards al the policies that we've been discussing here today that are so negative -- their nuclear program, terrorism and et cetera. So, we do try to persuade and with some success, as the gentleman said -- not complete success but with some success.

SEN. MENENDEZ: Well, let me ask maybe something you can help me with here -- understand the nature of the law a little better. So under existing U.S. law, if a U.S. company invests $20 million over the course of the year in Iran's energy sector, the president would have to impose sanctions. Is that correct?

MR. LEVEY: I don't know that that's the case. As I understand it, that's not the case, that it's not a --

SEN. MENENDEZ: He could waive it.

MR. LEVEY: He could -- there's a waiver provision and there's also investigations that have to go on.

SEN. MENENDEZ: Well, assuming there was a determination that a U.S. company invests $20 million over the course of a year in Iran's energy sector, what -- is (sic) the president have discretion from imposing sanctions?

MR. LEVEY: I could be wrong with this. I don't think a U.S. company is permitted to do that.

SEN. MENENDEZ: But if a U.S. company does that through a foreign subsidiary?

MR. LEVEY: Well, the rules with respect to foreign subsidiaries is somewhat different -- that essentially if a U.S. company is using a foreign subsidiary to evade our sanctions -- and this is something we have to determine on a case-by-case basis -- then we can investigate that and take action against them. But if their foreign subsidiary is actually acquired for other purposes -- they're not being used specifically to evade our sanctions, then it is permitted to do business in Iran.

SEN. MENENDEZ: But if they have a foreign subsidiary and make that investment to that foreign subsidiary, you're telling me that if that's not their primary purpose then they are -- they can avoid the sanctions regime?

MR. LEVEY: I think you're right with -- I don't know whether the standard is primary purpose or not, so I wouldn't want to say that. But I think you're right.

SEN. MENENDEZ: I think, Mr. Chairman, this is one of the big problems we have. U.S. foreign subsidiaries, as I understand it, can actually make such investments, and they go basically without the purview of the sanctions regime. And so therefore those who believe that an economic enterprise is more important than the security of the United States are allowed to do so.

SEN. DODD: Yeah, I think --

SEN. MENENDEZ: This is just one of the many problems we have with a law that isn't vigorously applied -- that's had only one finding in a decade -- and that, you know, we talk about we want to act tough with Iran, and then it seems to me we act like a pussycat along the way. So in any --

MR. LEVEY: Senator?

SEN. MENENDEZ: -- I'll save the rest of my questions for Secretary Burns since I think that's where the bulk of them might have to be answered.

SEN. DODD: Thank you, Senator. And let me point out -- as I understand on this last point that Senator Menendez has raised here is there can be no U.S. personnel involved in the subsidiary, and its efforts have to be totally independent of the parent. I think those are additional criteria that are included in that. But, obviously, at the end of the day, it can have these additional criteria -- if the resources continue to flow and provide an economic support for activity and increase the coffers of Iran, then obviously the purpose behind it seems to be circumvented. If the intention here is to limit the amount of financial support for this government and its activities, then these provisions -- I want to pick up on the point Senator Menendez has raised and others -- Senator Bayh raised -- I think all of us have to one degree or another here -- Senator Reed -- and that is this call.

I mean, obviously this chart -- I don't have it up here any longer but you've got it in front of you here -- these -- going back to 1999, and as Secretary Burns pointed out some of these are apparently not yet contracts but discussions, the latest being with a Malaysian company for $20 billion, by the way. This is providing a revenue source of $126 billion in the last six or seven years to Iran -- companies that are -- clearly would be subject to sanctions based on the Iranian sanctions act. I mean, you can waive them and so forth -- not a single one has been called on this. And if we're trying to get -- and again, you can make a case, and you have here, that this is the -- the reaction to this could be a negative one on the part of various allies around the world, but I think Senator Menendez raises a very legitimate point. In the absence -- not doing anything here we're not getting stronger sanctions out of the multilateral group here but weaker ones in fact, and that if you want to get serious about it all -- we ought to just -- or the administration ought to take the view that this section of the law ought to go, and instead of having this myth up there that frankly we're going to take actions and never do, it seems to weaken our position, in my view, in terms of building that kind of international support if in fact we use some examples here getting very serious about this.

And the point that Senator Bayh made I think needs to be repeated. We're talking about a government here that is deeply involved in the financing of global terrorism -- of organizations and individuals who are determined to do us great, great harm -- who are trying to acquire a capability that poses incredible risk to the world -- incredible risk to the world. And here we're talking about some economic sanctions. For many of us here who would like to do everything we possibly could to avoid that option that none of us are going to take off the table that some apparently may be trying to rush to a little more quickly and that is the military option in Iran -- the dangerous implications of that step. And one certain way it seems to avoid having to get to that point is to get very, very serious about these sanctions we're talking about, and in the absence of doing that I think that history will be a very tough judge -- that here you have $126 billion in six or seven years flowing into the coffers of a government by allies of ours around the world who are refusing to join in a serious effort here to bring a halt to this. And you've got to get a lot tougher than this in my view or we're going to pay an awful price in the end.

So I'd like to, you know, you've explained it to the best of your ability here and Senator Burns or Secretary Burns obviously has some more responding to do to this -- these issues. But I think you've heard here from a good percentage of this committee here this morning that is very, very concerned about where this is all headed.

MR. FOULON: Mr. Chairman --

SEN. DODD: Yes?

MR. FOULON: -- just bearing to the question that Senator Menendez raised and that you also have raised concerning the sufficiency of legal authority --

SEN. DODD: Yeah.

MR. FOULON: -- and it also bears on your comments on the adequacy of having only one export control office --

SEN. DODD: Yeah.

MR. FOULON: -- in the United Arab Emirates, I would just revert back to the comments I made in my opening statement that there is one area where we do not have the legal authorities that we might otherwise have, which is the fact that the Export Administration Act is in lapse and as a result of that, for example, our attaché in the United Arab Emirates does not have overseas investigative authority but must work through Immigration and Customs Enforcement. And again, the penalties are not sufficient to be an adequate deterrent. So I would just flag that as an area --

SEN. DODD: Good point.

MR. FOULON: -- in which there is opportunity to strengthen our ability to achieve our common goals.

SEN. DODD: I thank you for that. Let me raise a couple of additional quick questions if I can for you here. Concerns have been raised over the FBI's use of national security letters as authorized by the Patriot Act. The banking committee added provisions later incorporated in Title III to expand information access in sharing authorities for financial institutions, regulators and law enforcement. I wonder if you could assure the committee -- this is for you Senator -- Secretary Levey -- assure the committee that you've implemented reasonable standards to enforce these provisions, and that the Treasury Department's complied with both the spirit and letter of the law on that point.

MR. LEVEY: I think I very definitely can give you that assurance, Mr. Chairman. The expansions that -- of authority that we received in the Patriot Act for the most part were not information collection in the sense of the FBI national security letter authority that I think you're referring to, but all of the -- the one provision in there that does allow us to collect information we have very strict standards in place for how it's used and it's only -- it's 314-A of the Patriot Act where we're able to get information from financial institutions in response to law enforcement requests so that they can identify which institution has an account for someone that a person -- that law enforcement is looking for or is investigating that they can follow up with. The 314-A authority works in a way where law enforcement then has to just take that lead and acquire the actual underlying information through legal process. There's no other Patriot Act authority that we were given --

SEN. DODD: Right.

MR. LEVEY: -- that I think implicates any of the concerns that you're referring to.

SEN. DODD: Okay. I appreciate that. Let me go back if I can, Secretary Foulon, to the question we raised. It was raised earlier about the -- by Senator Carper dealing with the number of agents on the ground, and your response to it here. Just so -- what we're talking about here is all of us -- I think most people are aware products can be shipped -- they end up going through three or four or five different countries before they get to their -- that ultimate destination what we're talking about here. Foreign governments may or may not cooperate, and that's what we're trying to drive at here in the overseas export control investigations or arrests here.

How does the Commerce Department ensure effective enforcement of re-export requirements towards Iran and how many enforcement cases have involved illegal re-exports of U.S.-controlled technology to Iran? I'm not expecting you necessarily have that data at your fingertips so you may want to submit in writing, unless you have it. I'd be interested in hearing or some broad response to it.

And are there any cases that suggest a pattern of what technology Iran is seeking and who is supplying it? Can you answer that?

MR. FOULON: Thank you, Senator. One of the cases I referred to in my opening remarks was a case of a transshipment from Malaysia as you'll recall. There are other cases of transshipments through the United Arab Emirates and other economies in the area. I would be happy to get back to you with a greater compilation based on the cases we've had, how many of those involve transshipment.

SEN. DODD: And also whether or not you're getting patterns here. It seems to me that's a very important question to determine whether or not -- it may be it not exists, but it seems to me to be an interesting question to pursue and the patterns of technology that are being sought and requested by Iran as well.

MR. FOULON: I think there are clearly patterns of technology, certainly various types of aircraft parts for civil and military aircraft. But let me get back to you with a more structured analysis of the patterns we see.

In terms of how do we know how we're doing, how do we know we're capturing the transshipments that go through, we use all the tools of law enforcement. And I would say it's not just the Commerce Department and the Bureau of Industry and Security. We work very closely with Immigration and Customs Enforcement. We work with Customs and Border Protection, with the FBI. We work very closely with the intelligence community. We look through the shipper's export declarations. All exporters are required to file a declaration. We have a staff that analyzes those and tries to determine are there vulnerabilities, do we see a pattern of certain types of exports going through. And so, it's the full panoply of law enforcement.

And then the great benefit we have as well, Senator, is because in the Bureau of Industry and Security, we have the licensing officers together with the enforcement people, they talk. And licensing officers see things that enforcement people may not see otherwise -- a certain number of licenses going in a certain way or types of commodities going to a certain area.

SEN. DODD: Have you requested more personnel in the UAE?

MR. FOULON: We haven't at this point. As we've looked at the authorities our person there has, the amount of licensed exports to the United Arab Emirates --

SEN. DODD: Is it your sense you need more people on the ground there -- in your personal opinion?

MR. FOULON: From the Commerce Department perspective, which is all I can speak to as I don't know the larger issues. As we evaluate the workload against the resources, against the amount that a person can do, we're confident that our person there is doing the job that he needs to do.

SEN. DODD: And you don't need any additional personnel there?

MR. FOULON: We believe that the workload and the personnel match at this point, Senator.

SEN. DODD: Okay.

Well, thank you, both, very, very much. And again, we'll leave the record open here for a few days -- some additional questions that may be forthcoming. This is a very, very important hearing, very important subject matter and one the committee's going to pay a lot of attention to in the coming days with the possibility for legislation in this area as well. So we're going to want to be in communication with all of you as we move forward here.

The committee will stand adjourned.