MR. MCCORMACK: Good afternoon, everybody. We can get right into your questions -- whoever wants to start off? Nothing in the front row? There you go.

 

 

 

QUESTION: (Inaudible) talk about Iran cranking up its uranium enrichment capability. It said by December, it could have about 8,000 centrifuges enriching uranium, a significant rise, which -- of its nuclear --

MR. MCCORMACK: Right. I hadn't seen any new reports. Now there's -- the IAEA has put out reports, the Iranians themselves have talked about the fact that they are going to continue to add to their centrifuge cascades. Off the top of my head, I can't tell you exactly where they are right now. I think they're either up in or close to the thousands. I know they're working towards that goal. It's a source of grave concern to the international system that they persist in this behavior in defiance of the will of the international community, the Security Council, the IAEA Board of Governors and the reaction of the world is going to be one that makes it clear to Iran that it can't persist in this behavior; that they have to change course and that failure to change course is only going to result in greater isolation of the Iranian people from the rest of the international system. That'll take the form of international sanctions, Security Council sanctions, that if Iran -- the Iranian Government continues in this behavior, it's going to become more and more punitive in terms of its effect on the Iranian Government. It's not something that we want to see. It's certainly not our desired course of action, but that is the pathway that Iran is taking the world down at the moment.

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QUESTION: Sean, you and the Secretary, Under Secretary Burns, other officials, have said repeatedly that the United States is working with its allies outside the UN Security Council --

MR. MCCORMACK: Right.

QUESTION: -- to impose added financial hardships on the Iranian regime and/or the Iranian economy in order to get the Iranian regime to change its calculus about suspension of uranium enrichment.

MR. MCCORMACK: Right.

QUESTION: Can you tell us some more about those efforts? What do they involve? Are there any statistics associated with this that you could provide for us?

MR. MCCORMACK: At this point, James, I can provide sort of the broad outline of what we're doing. I checked into this, and our Treasury officials have worked with 40 international banks on the issue to talk to them about the activities of the Iranian regime, how they use their banks in the international financial system.

The -- what we want to get at here is informing governments, informing foreign banks, exactly how the Iranians misuse the international financial system for -- to engage in illicit activities. And now, that's not anything -- that's not the type of behavior that any government, any bank, wants to be -- wants their financial system to be used for.

The Secretary, Secretary Paulson, Stuart Levey, who is Under Secretary of Treasury, have been working on this issue for more than a year now and we have made some progress in this regard. I'll give you one example: Bank Sepah. It's a bank that we designated -- one of the largest Iranian banks -- under our regulations, and then it was also designated under the UN Security Council resolution. This is a financial institution that had billions of dollars of assets. It effectively cannot do business anymore in the international financial system. That's one step. So that's some -- one practical effect.

The Government of Germany -- just one more example -- has reduced its export credits to Iran by about 40 percent, and other European countries as well as Japan are looking at what they might do in terms of reducing those export credits. And we're talking about tens of billions of dollars worth of export credits.

Now, why does all this occur? All of this occurs because Iran has clearly, clearly indicated that it is going to take actions that are outside the norms of accepted international behavior. They are working to develop a nuclear weapon, where they signed a treaty saying that they wouldn't do so. There is a cloud that is hanging over Iran and Iran's reputation in the international financial system right now. And that doesn't have to be there. It is brought about only because of the behaviors of this regime. And that will have practical effects. You're already starting to see some of those. I outlined a couple of them for you. And if there's one thing that we have learned about financial sanctions is that they are quite powerful and very difficult to reverse. We've learned that though the BDA issue.

And the Iranian regime should take note that it is -- once they get themselves into this kind of situation where the international financial system doesn't want to take their business, won't touch them, won't touch their money, that it is -- it has severe consequences, and it is very difficult to reverse. And Iran is going to soon find itself at a point where it will become very difficult for this regime to have a normal relationship with the international financial system. It's already not normal, as indicated by the designation of Bank Sepah. It's going to become increasingly more difficult for them, which has real consequences, has real financial implications for them.

QUESTION: Is it possible to estimate the extent to which the ability of Iran to conduct business through the international financial system has been curtailed? Fifty percent there or --

MR. MCCORMACK: It's -- yeah, it's a good question. I can't give you a precise answer, and I'm not sure that we have done those calculations, but it's a good question. They are certainly moving down the scale in a negative way in terms of their ability to use the international financial system. I can't quantify it for you at this point beyond what I have done, but suffice it to say these -- their actions, which have led to these sanctions, will have real consequences for the regime and the Iranian economy.

QUESTION: Two more, if I could, on this issue.

MR. MCCORMACK: Yeah.

QUESTION: Are we satisfied -- is the United States Government satisfied with the efforts of our European allies to follow suit or to also take measures to make Iran feel the pain of its present course of action?

MR. MCCORMACK: Well, they're taking this seriously. I think there's more to do, but they are taking this seriously. And we have been going along with them step-by-step in ratcheting up the pressure on the regime. And there's no difference in that approach. We agree, they agree, Russians and Chinese agree on this approach. So they have been gradually increasing the pressure on the regime. I think they have been serious about it. They've taken serious steps. I think there's more to do. We would do more, but we don't have the same sort of trading relationship with Iran that say, European countries do.

So they're going to take a good, hard look at this. This is going to be a focus of our efforts, not just Europe, but other countries around the world that have a more developed economic relationship with Iran -- economic/financial relationship with Iran, and ask them to take a look at what steps they might make take to indicate to the regime you can't continue to engage in this behavior. The cost for continuing to engage that behavior is further isolation.

QUESTION: And in addition to talking to governments and banking institutions, the Administration is also talking to private companies. Is that correct?

MR. MCCORMACK: Yes.

QUESTION: Across the world?

MR. MCCORMACK: Yeah.

QUESTION: Can you give us an idea of -- you know, you mentioned 40 banking institutions --

MR. MCCORMACK: Right.

QUESTION: -- that have been contacted by Treasury.

MR. MCCORMACK: Right.

QUESTION: Can you give us an idea of the scope of this program and its results?

MR. MCCORMACK: Again, I can't quantify it for you. I don't have the -- you know, the total assets of all of these banks at the tip of my fingers, but -- you know, suffice it to say --

QUESTION: (Off-mike.)

MR. MCCORMACK: Well, we're working mostly -- we're working primarily with the financial institutions. As for companies that might be engaged in trade with Iran, we would certainly -- they would certainly catch our attention if they -- we thought they were engaged in illicit activities and there's a separate set of regulations that govern that.

With respect to the financial institutions, that is the focus of the Department of Treasury. We're working closely with Treasury on it, Hank Paulson and Stuart Levey taking the lead on that. Deputy Secretary Kimmitt's also been deeply involved in that. So I give you the number of 40 institutions that they have reached out to. These are some of the world's largest financial institutions that have --

QUESTION: (Inaudible) was because in his testimony before the Senate in March, Under Secretary Burns specifically mentioned U.S. outreach to specific companies. He mentioned Shell Oil and some others.

MR. MCCORMACK: Oh, I see what you're talking about. That again -- that is yet another category and that falls under the Iran Sanctions Act. And that has to do with international energy companies that are looking at investments in Iran. And when you reach a certain threshold of total investment in a project -- I can't remember exactly what the figure is. It's relatively low. It's -- you know, $50 million or about that order.

Then there's a possibility of the United States looking at various sanctions that it might impose on that company. Now to my knowledge, we have not done so in the history of what was formerly referred to as the Iran-Libya Sanctions Act, but now the Iran Sanctions Act. But we have recently talked to some energy companies that have expressed an interest in investing in Iran. We've talked to Shell Oil. We've talked to the Chinese national oil company.

There have been several others as well that I don't have listed here, but we have talked to some of those companies essentially -- you know, giving them informational briefings and talking to them about whether or not, really, this is the right time to be making those sorts of big bets on the Iranian energy sector when you have a country that is already under Chapter 7 resolution, a pretty exclusive club, I might add, and has the prospect of falling under numerous other Chapter 7 resolutions.

And it raises the question of, well, is this the kind of investment climate that you want to enter into. These are big bets of billions of dollars that people are calculating they're going to get returns over a significant number of years. And if you have that level of uncertainty, I think the business end will make their own calculations about whether or not that's the place where they want to invest their money.

QUESTION: Did you see results from these briefings? Did you see companies not do deals and that sort of thing?

MR. MCCORMACK: Well, I think that the -- where Iran finds itself now is not a place where it wants to be and that -- I think that where Iran finds itself right now gives some companies pause about whether or not they want to make those big bets in Iran.

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QUESTION: You said where Iran finds itself is not a place where it wants to be. It continues to do what it's doing. I mean the Security Council is going about its business in what former U.S. negotiator Dennis Ross called slow-motion diplomacy, and you're taking the steps you're taking, Iran is doing what it's doing. Why do you say it finds itself in a place it doesn't want to be?

MR. MCCORMACK: Because it's one of the few countries on Earth under Chapter 7 sanctions right now. And look, the effect of sanctions is not immediate. It's not like you necessarily flip a switch and all of a sudden the situation is qualitatively worse. Now, you have the example of Bank Sepah. That's an example where immediately overnight their situation became qualitatively worse.

But as we have seen with many other cases around the world, and the BDA issue is a good example of this, reputation and reputational risk are very real factors in the international financial community. If you're in the banking community, one of the -- one of your most valuable assets is your reputation. And banks are going to become increasingly -- and banks and financial institutions are going to become increasingly wary of doing business with entities, in this case the Iranian Government, if that business might somehow significantly tarnish their reputation and open them up to legal action by the United States as well as others. That's a very real calculation that they have to take into account.

Now, you say the Iranian Government continues along this behavior. You're right. But it is our hope that the so-called reasonables within Iran will do a different cost-benefit analysis. Is it really worth the increasing costs that are accruing to continue to build a nuclear weapon? We hope that there are those in Iran that can do that calculation and come out with the answer of, no, it's not worth it; not only do we not want to accrue those costs, but if we engage in negotiations then we can -- we can have peaceful nuclear power, which is what they say they want.

But this is a process that we knew was going to take some time. The Secretary and the President are committed to this course of trying to find a diplomatic solution, as we've said before. In the absence of doing nothing, there are two pathways, both not pathways that anybody wants to go down to -- go down. So what we're trying to find is a diplomatic solution that gives the international community objective assurances that Iran is not going to develop a nuclear weapon and allows the Iranian people to benefit from peaceful nuclear energy.

QUESTION: Are you seeing the Iranians taking any countermeasures in order to blunt the impact of these financial penalties that the U.S. and its allies are seeking to impose on them outside the Security Council? Are they setting up dummy corporations or other ways to continue doing business? Are you detecting anything like that?

MR. MCCORMACK: Nothing that I'd be able to share with you, James. But they -- I think it's widely known that they are pretty clever in setting up corporations and moving their money around. There have been lots of news reports about efforts by the Iranian Government to move their money around. And it's also -- you also ask about costs and one other thing occurred to me. If you look at the situation in Iran at the moment, there -- inflation is ramped up. They are -- the government had to ration gasoline. So there are very real costs -- all of this done while the President of Iran is writing all sorts of checks in every speech he gives in terms of promises or promises of largess to the Iranian population. So there are -- those are some other examples of real costs that are accruing to the Iranian Government for their actions.

Yeah.

QUESTION: Diplomatically, Iran doesn't seem to be isolated at all, has even -- you talk about business deals. You see Iran forging deals with many Asian countries. Malaysia, for example, refining capacity, and then you have the oil pipeline South Asia is still negotiating with Iran. So how do you see that in the context with what you --

MR. MCCORMACK: You know, there's a big difference between talking about an oil pipeline and actually building it. I can't speak to this Malaysia deal. I'm not saying that Iran is completely cut off from the rest of the world, but I don't think you'll find anybody, including the Iranian Government, if they're -- if you catch them in an honest moment that will say that they are in a better position now vis-à-vis the international system than they were five years ago or two years ago or even a year ago. I think that's - you know, if somebody tries to make that argument, I don't think it holds any water.

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