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S. HRG. 114–417 

UNDERSTANDING THE ROLE OF SANCTIONS 

UNDER THE IRAN DEAL 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

ON 

EXAMINING THE NATURE OF THE SANCTIONS RELIEF THAT IS BEING 

PROVIDED TO IRAN, INCLUDING THE RECENT FOCUS ON THE POTENTIAL FOR GIVING IRAN ADDITIONAL ACCESS TO THE U.S. FINANCIAL 

MARKET IN RETURN FOR ITS PREVIOUSLY NEGOTIATED TEMPORARY 

NUCLEAR-RELATED COMMITMENTS SET FORTH IN THE ‘‘JOINT COMPREHENSIVE PLAN OF ACTION’’ 

MAY 24, 2016 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

RICHARD C. SHELBY, Alabama, Chairman 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BEN SASSE, Nebraska 

TOM COTTON, Arkansas 

MIKE ROUNDS, South Dakota 

JERRY MORAN, Kansas 

SHERROD BROWN, Ohio 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

JOE DONNELLY, Indiana 

WILLIAM D. DUHNKE III, Staff Director and Counsel 

MARK POWDEN, Democratic Staff Director 

DANA WADE, Deputy Staff Director 

JELENA MCWILLIAMS, Chief Counsel 

JOHN O’HARA, Senior Counsel for International Terrorist Finance 

LAURA SWANSON, Democratic Deputy Staff Director 

GRAHAM STEELE, Democratic Chief Counsel 

COLIN MCGINNIS, Democratic Policy Director 

DAWN RATLIFF, Chief Clerk 

TROY CORNELL, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

TUESDAY, MAY 24, 2016 

Page 

Opening statement of Chairman Shelby ................................................................ 1 

Opening statements, comments, or prepared statements of: 

Senator Brown .................................................................................................. 2 

WITNESSES 

Juan C. Zarate, Chairman and Cofounder, Financial Integrity Network ........... 4 

Prepared statement .......................................................................................... 31 

Mark Dubowitz, Executive Director, Foundation for Defense of Democracies’ 

Center on Sanctions and Illicit Finance ............................................................. 7 

Prepared statement .......................................................................................... 46 

Michael Elleman, Consulting Senior Fellow for Regional Security Cooperation, 

International Institute for Strategic Studies—Americas .................................. 8 

Prepared statement .......................................................................................... 72 

Elizabeth Rosenberg, Senior Fellow and Director, Energy, Economics, and 

Security Program, Center for a New American Security .................................. 10 

Prepared statement .......................................................................................... 78 

Responses to written questions of: 

Senator Heitkamp ..................................................................................... 84 

(III)

(1) 

UNDERSTANDING THE ROLE OF SANCTIONS 

UNDER THE IRAN DEAL 

TUESDAY, MAY 24, 2016 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 10:30 a.m., in room SD–538, Dirksen Senate Office Building, Hon. Richard C. Shelby, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY 

Chairman SHELBY. The hearing will come to order. 

Today the Committee will receive testimony on the repercussions 

of lifting economic sanctions from the world’s leading State sponsor 

of terrorism—Iran. 

In particular, it is important for this Committee to understand 

the effects of implementing the Joint Comprehensive Plan of Action, or more simply, the ‘‘Iran deal’’. Time and again, Iran’s actions have demonstrated that this deal has placed the U.S. in a position of weakness and given Iran the upper hand. 

As U.S. and global sanctions evaporate, Iran continues, and in 

some cases appears to expand, its dangerous behavior. It continues 

to express its commitment to the destruction of Israel. It continues 

to operate its aggressive ballistic missile programs, including testing these missiles five times since the Iran deal’s implementation 

date. 

Yes, it continues to conduct illicit financing, sending hundreds of 

millions of dollars to groups like Hezbollah. It continues to promote 

severe and widespread human rights abuses, including record numbers of executions and oppressive restrictions on civil liberties. 

We are now more than 4 months into the implementation of the 

Iran deal in which Iran promised to refrain from building a nuclear 

weapon in exchange for significant sanctions relief. 

There is already a growing belief that this Administration has 

little interest in preserving the tools it would need to reimpose 

sanctions, should Iran violate the terms of the deal. 

And while the world relies on the promises of a rogue Nation, 

Iran has begun to see immediate benefits from the agreement, despite its claim that they are not accruing fast enough. 

For example, the deal gave Iran prompt access to approximately $100 billion in previously frozen overseas assets. The deal also suspended virtually all European Union and United Nations sanctions 

imposed since 2010, including those on Iran’s valuable energy sector. 

2 

In addition, it lifted most U.S. secondary sanctions on foreign entities and countries that transact business with Iran, including in 

the energy and banking sectors. 

Still, the Obama administration continues to actively engage in 

further opening Iran’s economy to the world. In March of this year, 

Treasury Secretary Lew said that the Administration would continue to seek ways to ‘‘make sure Iran gets relief.’’ 

In particular, the Administration has indicated its willingness to 

create avenues for a legitimate dollar trade with Iran, notwithstanding assurances that no Iranian transactions will touch the 

U.S. financial system in any way. 

Undoubtedly, access to the world’s strongest and most liquid currency would allow the Iranian economy to flourish in comparison 

to current levels. But with such new-found wealth, there would be 

no restrictions on how Iran would spend their windfall. 

Many fear that there is absolutely no way to restrain a growing 

Iranian economy from funding Hezbollah, the Islamic Revolutionary Guard, Iran’s missile program, and other priorities of Iran’s 

Supreme Leader. 

It is no surprise that, despite the misguided efforts of the Administration to put the global banking system at ease, financial institutions are reluctant to do business with Iran, as well they should 

be. Not only are international banking sanctions extremely—and 

purposefully—complicated to unwind, but the reputational risk 

that Iran poses remains significant. 

Issues like these illustrate how the Iran deal was sealed before 

it was clear on how it would be implemented and, thus, whether 

or not it would work. 

And while Iran has not changed any of its non-nuclear reckless 

behavior, it has become apparent that the Administration will bend 

over backwards to try to make the agreement even more attractive 

to Iran. During last year’s negotiations, the White House gave the 

impression to Iran and the world that it thought any deal was better than no deal. Unfortunately, it is taking extreme measures to 

try to make a bad deal work. 

I look forward to the testimony here today of our witnesses as 

the Committee evaluates the important issues before us and considers necessary and appropriate actions. 

Senator Brown. 

STATEMENT OF SENATOR SHERROD BROWN 

Senator BROWN. Thank you, Mr. Chairman. For the next 2 days, 

this Committee will examine the continuing role of U.S. sanctions 

on Iran, those lifted under the terms of the Joint Comprehensive 

Plan of Action and those still in place, to combat Iran’s ongoing 

malicious behavior. 

Iran is a State sponsor of terrorism. It destabilizes the region. It 

violates the human rights of its people. That is why the United 

States and our ally policymakers decided to focus on preventing the 

single greatest threat to the region and to the world—its nuclear 

program. They knew a nuclear-armed Iran would pose grave risks 

to us in our country, to Israel, and to the region. This original rationale is worth bearing in mind given the partisan rancor on this 

effort in the last 2 years. 

3 

Long before the JCPOA, there had been a broad bipartisan consensus in the Bush administration and the Obama administration 

on using tough economic sanctions to force Iran to the negotiating 

table and to agree to steps to block its pursuit of a nuclear weapon. 

In 2008, President Bush’s National Security Adviser, Condoleezza 

Rice, signed a memorandum with P5+1 allies stating that, in return for Iran agreeing to limit its nuclear program, the U.S. was 

ready to recognize its right to peaceful nuclear energy, to work 

with its leaders to build confidence to begin to normalize trade and 

economic relations, and allow for civil aviation cooperation. A number of my colleagues have forgotten that position taken by an Administration not named Obama. That served as the basis for future 

discussions in the Obama administration. 

That is why I was so disappointed—and I think most people in 

this country were so disappointed—in the partisan nature of the 

debate last year, including from colleagues who opposed the 

JCPOA even before reading it. Contrary to opponents’ dire predictions, Iran complied with its commitments under the 2013 Interim Agreement, and the International Atomic Energy Agency has 

verified that Iran has met its JCPOA obligations. 

Critics said our sanctions regime would unravel. They exaggerated the amount of sanctions relief Iran would receive. They 

claimed Iran would never shut down its centrifuges or disable its 

plutonium reactor or ship out its uranium or allow real-time monitoring of its nuclear sites. More recently, some allege that the Administration was preparing to provide Iran direct access to the U.S. 

financial system. Wrong on every count. 

The nuclear agreement was one of the most significant national 

security achievements in a generation. It was accomplished without 

dragging the United States into another war in the Middle East. 

This history underscores two points: 

First, economic sanctions are means, not ends. Whether applied 

to Iran or Russia or Burma, they are meant to bolster diplomacy 

and force concrete changes in a Nation’s behavior. In Iran’s case, 

economic sanctions strengthened our national security and that of 

allies like Israel by forcing Iran’s leaders to abandon key elements 

of their nuclear program—think back to Condoleezza Rice and 

President Bush—by forcing Iran’s leaders to abandon key elements 

of their nuclear program that could have led to a bomb. 

Second, whether we support it or oppose the JCPOA, we all understand the need to continue to combat the threat that Iran continues to pose to the United States or our allies. That requires the 

Administration to enforce existing sanctions, to designate new 

sanctions targets, to block Iran’s pursuit of military technologies, 

and to take other steps to confront Iran and its terrorist proxies 

like Hezbollah. 

It requires Congress to confirm immediately our chief sanctions 

enforcer from whom we will hear today. Just parenthetically, we 

know that Acting Under Secretary Szubin was originally a Bush 

appointee. Now he is an Obama appointee, and his confirmation 

has been blocked. He should be in place with full powers and the 

full support of the Senate. This nomination has been blocked for 

over a year, first by this Committee, now by Republican leadership 

on the Senate floor. 

4 

Congress must continue to provide close oversight and support 

robust military and other aid to regional partners like Israel. We 

should be focused on holding Iran’s feet to the fire to ensure strict 

implementation of the agreement and to pressure leaders to change 

their own destabilizing behaviors. 

I hope my colleagues will not try to relitigate the JCPOA by trying to reimpose old nuclear sanctions under new labels. Broad new 

sanction legislation that contradicts our commitments and tries to 

tie the President’s hand would undermine the unity we have developed with our P5+1 partners around the world, and we should remember that. That will not help confront the threats Iran continues to pose or help the cause of regional stability. It will be seen 

as transparently political. It will invite a Presidential veto. 

I welcome our witnesses. I look forward to hearing their perspectives. 

Chairman SHELBY. Thank you, Senator Brown. 

First, we will receive testimony from the Honorable Juan Zarate, 

chairman of the Financial Integrity Network, who also served as 

the Deputy Assistant to the President and Deputy National Security Adviser for Combating Terrorism from 2005 to 2009. 

Next we will hear from Mr. Mark Dubowitz, executive director of 

the Foundation for Defense of Democracies. 

Then we will hear from Mr. Michael Elleman, consulting senior 

fellow for regional security cooperation at the International Institute for Strategic Studies. 

Finally, we will receive testimony from Ms. Elizabeth Rosenberg, 

a senior fellow and the director of the Energy, Economics, and Security Program at the Center for a new American Security. 

Mr. Zarate, we will start with you. All of your written testimony 

will be made part of the hearing record in its entirety, and if you 

have been here before, you know you can sum up your remarks. 

Thank you. 

STATEMENT OF JUAN C. ZARATE, CHAIRMAN AND 

COFOUNDER, FINANCIAL INTEGRITY NETWORK 

Mr. ZARATE. Chairman Shelby, thank you for that kind introduction and the honor to be here today before you. Ranking Member 

Brown, thank you. Distinguished Members of the Senate Banking 

Committee, it is an honor to be back before you today, as well as 

to be testifying with this distinguished panel whom I count as 

friends as well as colleagues. 

Chairman, when the JCPOA was being debated, I expressed deep 

concerns about the structure, demands, and effects of the nuclear 

deal on U.S. interests, especially in anticipation of increased Iranian belligerence and adventurism. Predictably, we have seen that 

belligerence continue. 

Iran remains the leading State sponsor of terror and has continued its direct support to terrorist and militant proxies from the 

Golan to Yemen. Iran has conducted repeated ballistic missile tests 

in violation of U.N. sanctions. Iran has deployed troops and dispatched Shi’ite militias from around the world to fight for the 

Assad regime in Syria. Iran has continued to engage in human 

rights abuses. Iran continues to hold two American citizens unjustly while Robert Levinson remains unaccounted for. 

5 

In January of this year, Iranian naval forces arrested American 

sailors at gunpoint, broadcasting the video of their detention. And, 

Mr. Chairman, Iran continues to develop its cyber capabilities and 

has engaged in malicious cyberattacks against U.S. Government 

sites, the private sector, specific individuals, and sites like the 

Bowman Dam in the suburbs of New York. 

Last year, Mr. Chairman, I explained that the JCPOA was fundamentally flawed, in part because it would empower and enrich 

the regime and ultimately constrain our ability to use the most effective financial and economic tools of isolation to counter dangerous Iranian behavior. Those deficits are revealing themselves. 

I think it is important for this Committee to consider three fundamental issues with respect to the important role of sanctions and 

the nuclear deal moving forward. 

First, Mr. Chairman, there is inherent tension and even contradictions in what the JCPOA promises. Ultimately, what we negotiated and promised was reintegration of Iran into the global economic system. Though non-nuclear sanctions were supposedly off 

the table, the agreement neuters U.S. ability to leverage one of its 

most powerful tools: its ability to exclude and unplug rogue Iranian 

actors’ activities from the global financial and commercial system. 

Promising Iranian reintegration into the global system was not 

possible unless we were willing to defang our sanctions regime and 

ignore Iranian behavior, rehabilitate the perception of the Iranian 

regime ourselves, and take the most effective tools of financial isolation off the table. 

The constriction campaign that was applied over the course of 

years—and I appreciate Senator Brown’s reflection on that—was 

intended to use the illicit, dangerous, and illegitimate nature of 

Iranian activity as the driver for unplugging Iran from the global 

financial and commercial system. That underlying conduct has not 

changed. If anything, the risks have increased, especially as Iran 

uses the financial and commercial system to pursue all its goals. 

The Iranian system is corrupt, lacks transparency at all levels, and 

is centrally controlled by the regime. This explains why legitimate 

businesses are wary of reentering the Iranian market and why the 

Iranian leadership continues to complain that the United States 

has not satisfied its side of the bargain. 

Second, Mr. Chairman, and unfortunately, the United States is 

falling into the trap of rehabilitating the Iranian economy. 

Throughout this deal, the onus should remain solely on Iran to alleviate concerns about its activities, lack of transparency, and failure to meet heightened global standards of financial integrity in 

the banking and commercial worlds. Iran should not get a free 

pass. This posture should force the Iranians to turn inward to determine how they can meet international expectations instead of 

trying to compel the United States and Europe to alter their standards or dictate to the private sector where and with whom they 

should do business. 

Some recent U.S. actions have created the impression that the 

U.S. and European Governments have assumed the burden of reintegration of the Iranian economy into the global system. There 

have been reports that the U.S. might offer Iran the ability to access offshore dollar-clearing facilities, to allow for dollar-denomiVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
6 

nated transactions, and ease Iran’s ability to trade internationally. 

The United States should not be offering special exemptions of 

measures to assist Iran with access to dollars while Iran remains 

a leading State sponsor of terror, subject to serious sanctions, and 

designated as a primary money-laundering concern. 

The U.S. Government has been sending delegations around the 

globe to clarify existing sanctions and obligations, and apparently 

to explain how business with Iran may be undertaken with the Iranian regime. The burden instead should fall on Iran to demonstrate 

that its activities, policies, and use of its system is legitimate, 

transparent, and meets international standards. 

The U.S. has announced that it plans to buy heavy water from 

the Iranian nuclear system. The U.S. should not usher Iran into 

the global economy, especially not in the nuclear markets. 

Finally, the U.S. Treasury officials have reiterated their commitment to enforcing existing sanctions vigorously and maintaining 

the ability to use these tools effectively. These commitments, however, are undercut when the U.S. modifies its message to suggest 

that our sanctions regime should not constrain or affect the risk 

calculus of the private sector. Quite to the contrary, Mr. Chairman, 

the U.S. should be doing everything possible to reinforce the power 

and reach of U.S. measures. 

Third, Mr. Chairman, we should continue to view the use of 

sanctions and the process of unwinding itself as critical and strategic levers to effect Iranian behavior. The U.S. should treat the 

JCPOA and its implementation as an ongoing process and evolution where sanctions and sanctions unwinding form a strategic 

part of U.S. and international efforts to not only enforce the deal 

but maintain economic and financial leverage against Iran, to push 

back on dangerous Iranian activity, and force the Iranians to make 

hard decisions about their role in the world. 

Mr. Chairman, the Iranian regime has needed access to capital, 

new technologies, and connectivity to the markets globally. That is 

what it lost over the past decade. It is what the negotiated to regain in the JCPOA. And it is now the source of Iran’s most significant complaint. 

The United States must be willing to use its financial and economic toolkit to constrain dangerous Iranian behavior and encourage responsible Iranian activity. In fact, this is an alternative to 

war. 

And just briefly, Mr. Chairman, this means forcing Iran to deal 

with the demands of the international marketplace on their own 

and addressing the underlying conduct that has proven problematic 

and continuously risky. 

The United States will need to rely on sanctions and financial 

measures even more in the future, and we should be doing everything possible now to reinforce the strength and endurance of these 

powers—against Iran, against its proxies, and against other rogues 

in the international system. 

Thank you, Mr. Chairman. 

Chairman SHELBY. Thank you. 

Mr. Dubowitz. 

7 

STATEMENT OF MARK DUBOWITZ, EXECUTIVE DIRECTOR, 

FOUNDATION FOR DEFENSE OF DEMOCRACIES’ CENTER ON 

SANCTIONS AND ILLICIT FINANCE 

Mr. DUBOWITZ. Chairman Shelby, Ranking Member Brown, 

Members of the distinguished Committee, on behalf of the FDD 

and its Center on Sanctions and Illicit Finance, thank you for the 

opportunity to testify. And it is certainly an honor to be testifying 

with Juan and Michael and Liz, whose work I greatly admire and 

whose service to our Nation I am thankful for. 

Iran is engaged in a robust effort to legitimize its financial sector 

despite a decades-long rap sheet of financial crimes that it shows 

no sign of curbing. Since the conclusion of the JCPOA, the Obama 

administration has missed numerous opportunities to push back 

against this legitimization campaign. Instead of using non-nuclear 

sanctions to deter and punish Iran’s continuing malign activities, 

the Administration runs the risk of being seen as the Islamic Republic’s Trade Promotion Authority. 

Iran complains that it has not received the sanctions relief it was 

promised, and the White House seems to think that it is our responsibility to deliver. But the regulatory and economic realities 

are very different. The Administration honored its commitments on 

Implementation Day in lifting or suspending the entire ‘‘nuclear-related’’ sanctions architecture. Iran, in fact, has already received an 

economic windfall: The JCPOA (as well as the interim agreement) 

provided Iran with economic relief that helped Tehran avoid a severe economic crisis and even initiate a modest recovery. The lifting of restrictions and access to $100 billion in overseas assets and 

Iran’s return to oil markets have all given Tehran hard currency 

to settle its outstanding debts, begin to repair its economy, build 

up its foreign exchange reserves, and ease a budgetary crisis. This 

has now freed up funds for financing terrorism. 

Meanwhile, Iran continues ballistic missile development, regional 

destabilization, and egregious human rights abuses, and all of 

these have become just as problematic or, in fact, have gotten 

worse since the agreement. 

Administration officials repeatedly pledged to you that they 

would continue to enforce non-nuclear sanctions to deter and punish Iran’s dangerous activities. But in response, Iran has threatened to walk away from the deal and snap back its nuclear program if any meaningful sanctions are imposed for any reason. 

Congress should reject this nuclear blackmail and hold the Administration accountable for its commitments. Sanctions against 

Iran’s many malign activities are not JCPOA violations, as Iran 

claims, but, rather, an affirmation of U.S. policy as Secretary Kerry 

himself as articulated to ‘‘oppose Iran’s destabilizing policies with 

every national security tool available.’’ 

But it does not appear that the Administration is going to stand 

behind its own policy. Since the nuclear deal was signed, only nine 

individuals and nine entities have been added to Treasury’s sanctions for all of Iran’s ongoing illicit activities. These measures include ineffectual missile procurement sanctions imposed in response to repeated missile tests, and at the United Nations, the 

Administration has backed away from using the term ‘‘violations,’’ 

8 

instead arguing that the missile tests are inconsistent with Security Council Resolution 2231. 

I would note Iran is in flagrant violation of 2231, which is the 

implementation resolution of the JCPOA. So I ran is not in compliance unless you draw an artificial distinction between the deal and 

the U.N. Security Council resolution that implements the deal. 

Moreover, while the Administration has talked about human 

rights sanctions as a necessary tool to counter the regime’s domestic oppression, that oppression has only intensified. And, in fact, 

the Administration has designated no individuals or entities for 

human rights abuses since the nuclear deal was reached and, in 

fact, only one individual and two entities since President Rouhani 

came into power in the summer of 2013. And now in response to 

Iranian pressure, as Mr. Zarate has said, the Administration is 

considering a new unilateral concession: direct or indirect access to 

dollarized financial transactions. This concession undercuts the effectiveness of our entire non-nuclear sanctions strategy which depends on the private sector’s fear of the risks involved in 

transacting with Iran because of its illicit financial conduct. Allowing dollarized transactions aids Iran’s push to legitimize its financial sector without ceasing the terrorism and missile financing, 

money laundering, and sanctions of Asian activities. 

The JCPOA gave Iran a patient pathway to nuclear weapons capability by placing limited, temporary, and reversible constraints 

on its nuclear activities. It turned the regime from a nuclear pariah 

into a nuclear partner, without requiring it to come clean on its illegal weaponization activities. The regime is now trying to follow 

the same legitimization strategy by trying to gain international acceptance without demonstrable change in its illicit conduct. Change 

has to go far beyond a mere exercise in checking the box on technical requirements from the Financial Action Task Force related to 

money laundering and terror financing, and it has to require substantive changes in behavior. As long as Iran continues to fund 

Hezbollah, Tehran should never be legitimized as a responsible financial actor. 

Let me conclude with this: Secretary Lew recently argued that 

sanctions are an effective instrument to address illicit activities, 

but they must be lifted when the illicit behavior changes. This is 

a very important principle, but it misses a crucial detail: Iran has 

not addressed the underlying illicit behavior that prompted many 

of the U.S. sanctions in the first place. 

Thank you for the opportunity to testify today. I look forward to 

your questions. 

Chairman SHELBY. Thank you. 

Mr. Elleman. 

STATEMENT OF MICHAEL ELLEMAN, CONSULTING SENIOR 

FELLOW FOR REGIONAL SECURITY COOPERATION, INTERNATIONAL INSTITUTE FOR STRATEGIC STUDIES—AMERICAS 

Mr. ELLEMAN. Yes, thank you. Chairman Shelby, Ranking Member Brown, distinguished Members of the Committee, and the 

panel, I thank you for the opportunity to speak before you today. 

As background, I wanted to say that my statement is informed 

by over two decades working as a missile scientist at Lockheed 

9 

Martin’s research laboratories and more than 25 years observing 

and writing about ballistic missile proliferation. In 2010, I authored a dossier by the International Institute for Strategic Studies 

on Iran’s ballistic missile capabilities. I continue to monitor missile 

developments around the world. 

Ballistic missiles are central to Iran’s deterrence posture and will 

remain so for the foreseeable future. This priority assigned to ballistic missiles is reflected by the size and the scope of Iran’s arsenal. Given this importance, Iran is highly unlikely to surrender its 

current stockpile of systems. Even if Iran acquires advanced military aircraft, ballistic missiles will continue to play a primary role 

in Iran’s force structure. 

Iran’s missiles can reach targets throughout the region. When 

armed only with conventional warheads, the missiles have limited 

military utility because they lack the accuracy to be able to predictably and reliably destroy a specific target. They can, however, be 

used to disrupt operations at key air bases, ports, and military facilities. Missile strikes against major cities could sow terror, potentially weaken the political resolve of Iran’s adversaries and our 

partners. Iran exploits this fear of missile attacks by frequently 

brandishing its capabilities, including flights tests. In so doing, it 

seeks to deter, decouple the U.S.–Gulf partnership and intimidate 

regional rivals. 

Ballistic missiles no doubt would be the preferred delivery platform should Iran ever acquire an atomic weapon. There is no formal definition of what constitutes a nuclear-capable missile, although the range-payload thresholds established in the Missile 

Technology Control Regime offer a broadly accepted classification 

measure. The MTCR restricts the transfer of missiles capable of delivering a 500-kilogram warhead to 300 kilometers. 

Iran’s Shahab, Qiam, Ghadr, Emad, and developmental Sajjil 

missiles all fit under this threshold definition. Iran possesses more 

than 300 nuclear-capable ballistic missiles. 

Flight tests are an essential element of any missile program. Because Iran views ballistic missiles as a critical instrument of 

statecraft, deterrence, and warfighting, it will continue to test missiles. Sanctions are unlikely to prevent them from testing. 

The pace of missile testing by Iran last year and this year is consistent with past practices. But Iran did not conduct any nuclearcapable missile launches in 2005, 2013, and 2014, when serious nuclear negotiations were underway. From 2006 to 2012, when the 

talks were going nowhere, Iran averaged roughly five tests per 

year. Three tests were performed last year, and five have occurred 

this year. 

I have seen no evidence to suggest that Iran is trying to actively 

develop an intermediate- or intercontinental-range ballistic missile. 

I cannot speak to a covert program. The need to flight test missiles 

before they are made operational provides advanced warning of any 

new capabilities. Flight trials historically require 3 to 5 years, 

sometimes many more. 

Available evidence, including the recent debut of the Emad missile in October of 2015, indicates that enhancing missile accuracy 

supersedes Iran’s quest for longer-range systems. 

10 

Iran has used large rockets, however, to launch satellites into 

space. Satellite launch activity could in principle be used as the 

springboard to developing an intercontinental-range missile. But no 

country has ever converted a satellite launcher into a long-range 

missile. Iran is highly unlikely to develop and deploy an operationally ready intermediate-range missile before the end of this decade 

or an ICBM before 2022. 

Iran possesses the technical, project management, and industrial 

capacity to develop and field ballistic missiles that it desires within 

reason. However, Iran is not fully self-sufficient. It must still import key components, materials, and technology to support the production and development of missiles. These vulnerabilities can and 

should be exploited. 

Containing the program. Past multilateral sanctions appear to 

have slowed the development of Iran’s Sajjil medium-range missile. 

The U.N. Panel of Experts on Iran sanctions played an important 

role in this success by enhancing international awareness and investigating violations of Resolution 1929. The Panel does not exist 

under Resolution 2231. It should. 

The success of unilateral sanctions against Iranian enterprises 

and individuals is historically ambiguous. As Iran enters into the 

international trade, unilateral sanctions may or may not be more 

effective. It is difficult to predict. 

The Proliferation Security Initiative, initiated under the Bush 

administration, is an international effort to disrupt the flow of 

WMD items, technologies, and related materials and could be an 

effective tool for intercepting shipments from North Korea, Iran’s 

principal if not sole source of liquid propellant missile engines. 

Joint missile defense exercises with our Gulf partners—and 

Israel—offer a tangible counter narrative to Iran’s missile tests and 

will enhance defense effectiveness in the long run. 

And, finally, Iran has said that it does not need missiles with a 

range exceeding 2,000 kilometers. The U.S. should explore options 

that, at a minimum, would codify legally that range limit. Other 

limitations may be ripe for negotiation, including those that increase the transparency of Iran’s space program, which would limit 

its ability to break out and create an ICBM. 

Thank you. I look forward to your questions. 

Chairman SHELBY. Thank you. 

Ms. Rosenberg. 

STATEMENT OF ELIZABETH ROSENBERG, SENIOR FELLOW 

AND DIRECTOR, ENERGY, ECONOMICS, AND SECURITY PROGRAM, CENTER FOR A NEW AMERICAN SECURITY 

Ms. ROSENBERG. Chairman Shelby, Ranking Member Brown, and 

distinguished Members of the Committee, thank you for the opportunity to testify today on the role of sanctions under the Iran deal. 

The Iran sanctions regime was, and remains, the most comprehensive program of U.S. and international sanctions commensurate with the grave security concerns regarding Iran’s nuclear proliferation activities, its regional destabilization, ballistic missile 

program, support for terrorism, and abuse of human rights. Many 

U.S. and international sanctions on Iran were waived on ImpleVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
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mentation Day, the milestone of the nuclear agreement, recognizing Iran’s completion of its major initial nuclear commitments. 

However, the United States maintains sanctions authorities relevant to Iran as part of the deal as well as a wide array of sanctions on Iran outside the scope of the deal, and the existing architecture of Iran’s sanctions remains very powerful and affords an 

enormous amount of leverage to pursue Iran’s security provocations 

and destabilization. 

Following Implementation Day, Iran was able to expand its oil 

sales and has established new oil trading contracts in Europe and 

more deliveries to Asia. It also now has access to $100 billion of 

its formerly frozen assets, as has been mentioned by my fellow panelists. Additionally, the United States, the EU, and the U.N. together removed hundreds of designated Iranian entities from sanctions lists, including Iranian banks, that then gained access to European financial institutions. Some Iranian banks are reestablishing branch licenses and correspondent relationships in Europe 

and are renewing their ties with Asian counterparts as well. Iran’s 

charm offensive to market new deals for trade and investment, including in areas such as automobiles and airplanes, has also met 

some success internationally. 

However, there are various reasons why Iran will expand its 

links to the international financial system only very slowly. The 

cumbersome unraveling of nuclear sanctions restrictions at banks 

and companies around the world in order to engaged in now permitted business with Iran is only one factor. Remaining sanctions 

on Iran for its terrorist and ballistic missile activities are a deterrent to those who would contemplate business with Iran along with 

prudential concerns related to a history of corruption and a lack of 

transparency and maneuverability for foreign firms in Iran’s financial system. So for reasons of political and security risk, existing 

sanctions, and the serious financial challenges associated with attempting business in Iran, many global banks have made it clear 

that they do not plan on doing business in this jurisdiction. 

In pursuing Iran’s sanctions now and in the future, U.S. policymakers must prioritize the important work of isolating Iranian entities engaged in dangerous and illicit behavior through aggressive 

implementation of existing sanctions authorities. This means continuing and expanding sanctions designations targeting Iran’s provocative and dangerous ballistic missile program and its reprehensible support for terrorism and abuse of human rights. This is particularly important with regard to the work of targeting the insidious and dangerous activities of the IRGC within and beyond the 

borders of Iran, including exposing the financial activity and holdings of the IRGC, its agents and instrumentalities, and Iran’s regional terrorist proxies whenever feasible. The U.S. Government 

should designate the IRGC under its terrorism authorities, and it 

should urge EU counterparts to deny access to European airports 

for Mahan Air, given its involvement with Iranian support for terrorism. 

Beyond designating more targets independently and in tandem 

with international partners, U.S. policymakers should also continue 

and expand educational outreach to highlight Iran’s self-imposed financial problems, and this should be paired with a strategy to faVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
12 

cilitate and encourage remediation of these problems by U.S. and 

foreign experts. 

With regard to sanctions relevant to oversight of the nuclear 

deal, policymakers will now want to ensure that sanctions authorities are primed for use so that the United States and international 

allies are able to reimpose sanctions, in part or in whole, if Iran 

violates its nuclear commitments. Keeping authorities up to date 

means reauthorizing the Iran Sanctions Act before it expires at the 

end of the year. Additionally, it means readying potential additional contingency measures, including new approaches to sanctions enforcement or possible new sanctions authorities if Iran fails 

to uphold its commitments under the nuclear deal and if such new 

authorities are deemed absolutely necessary. 

Thank you for the opportunity to testify today. I look forward to 

answering any questions you may have. 

Chairman SHELBY. Thank you very much. 

I will start with Mr. Dubowitz. In your testimony, Mr. Dubowitz, 

you discuss in detail a campaign run by Iran to legitimize its financial structure. Would you elaborate on what Iran is trying to accomplish and why we should be concerned? 

Mr. DUBOWITZ. Thank you, Chairman Shelby. Iran is trying a 

legitimization strategy similar to the one that it did on the nuclear 

side, which involves basically denying, deceiving, and then demanding. And on the nuclear side, it denied illicit conduct, it deceived the international community, and it demanded escalating 

concessions. 

On the financial track, Iran is doing the same thing. They are 

denying their illicit financial conduct, they are continuing that conduct, and now they are demanding new concessions to legitimize 

their financial sector. And greenlighting the greenback or 

dollarizing transactions using our currency would be a big win for 

Iran. It would give them the legitimacy that they seek without actually changing that fundamental conduct. 

Chairman SHELBY. Mr. Zarate, in recent months both Acting 

Under Secretary Szubin and Secretary Lew denied that Iran would 

be given access to the dollar. In fact, Mr. Szubin testified before 

this Committee right here, and I quote, that ‘‘no Iranian banks can 

access the U.S. financial system, not even to execute a dollarized 

transaction where a split second’s worth of business is done in a 

New York clearing bank.’’ Those are his words. 

Secretary Kerry, however, is on a worldwide mission to clarify 

how large non-U.S. banks can engage with the Iranian financial 

system. 

My question: Do you believe there is a disconnect between Treasury and State or the White House with regard to the implementation of the Iran deal? And what is going on here? If so, and why? 

Mr. ZARATE. Mr. Chairman, I think what is reflected in those 

comments that are contradictory and in tension is the fundamental 

tension in the JCPOA, which is that we intend to continue to use 

sanctions, and if that is the case—against underlying illicit conduct 

of the Iranian regime, then that means we are going to not only 

have to deny Iran access to the dollar and the U.S. financial system 

but actually proactively try to encourage others to unplug them 

from the international financial system. That has been the essence 

13 

of the financial constriction campaigns post-9/11 that have been so 

effective. And that has been, frankly, Treasury’s playbook. 

That does not meet neatly with the diplomatic demands that the 

Iranians are placing on the U.S., and I think the Secretary of State 

and the State Department are doing their best to demonstrate that 

the U.S. is adhering to the spirit and letter of the JCPOA, in part 

by encouraging reintegration of the Iranian economy. And so there 

is a disconnect in that regard. 

With respect to the specific dollar issue, I think the one question 

that remains is whether or not the U.S. is going to encourage offshore dollar clearing. There are ways of allowing Iran access both 

for reputational reasons, as Mr. Dubowitz mentioned, but also for 

transactional reasons, to have access to dollars offshore which 

would not touch the U.S. 

Chairman SHELBY. In other words, go in the back door, not the 

front door? 

Mr. ZARATE. The back door, with layers of opacity, which makes 

it even harder to understand the transactions, and given the track 

record of the Iranian Government to use shell companies, front 

companies, that is a dangerous proposition and incentive for them 

to do business globally. 

Chairman SHELBY. Mr. Elleman, you have testified that Iran already has shorter-range nuclear-capable missiles in its arsenal, 

which it continues to test. Could Iran develop and field a longrange missile capable of delivering a nuclear weapon to Europe or 

the United States before the Iran deal sunsets? 

Mr. ELLEMAN. The short answer is probably, and probably yes. 

Iran has two pathways to developing an intercontinental-range 

missile or one that could strike Western Europe. They can use 

their existing systems that they have and just cluster them together, such as they have done with their space launch vehicle. Or 

they could pursue a more difficult, challenging, but fruitful path, 

and that is, leverage the solid propellant technology it is working 

on today. That would allow them to build missiles that are optimized and designed to need. 

Chairman SHELBY. Thank you. Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. 

Ms. Rosenberg, I would like to ask you a series of questions—and 

I would prefer short answers, if you can—on JCPOA. By Implementation Day, had Iran dismantled two-thirds of the installed centrifuge capacity and reduced its enriched uranium stockpile by over 

95 percent? 

Ms. ROSENBERG. Yes. 

Senator BROWN. Did Iran destroy the core of its heavy-water reactor by filling it with concrete, cutting off its path to producing 

significant amounts of weapons-grade plutonium? And did it ship 

out excess heavy water to meet its commitments to hold no more 

than necessary for research? 

Ms. ROSENBERG. Yes. 

Senator BROWN. Did Iran implement all the JCPOA’s verification 

measures, including allowing continuous monitoring of its necessary facilities and subjecting its centrifuge production in uranium 

mills and mines to surveillance by inspectors? 

Ms. ROSENBERG. Yes, as confirmed by the IAEA. 

14 

Senator BROWN. In your view, do these actions move Iran further 

away from a nuclear weapon, making Israel and the region safer? 

Ms. ROSENBERG. Yes, and I think proliferation security experts 

around the world all consider that the case. 

Senator BROWN. Finally, has there been any indication from 

IAEA that Iran has cheated on its commitments under the JCPOA? 

Ms. ROSENBERG. Not to our knowledge. 

Senator BROWN. OK. Thank you for that. 

Let me ask you a more detailed question. I know it is complicated because it is Iranian internal politics, but it seems that in 

Iran there are hardliners who have never reconciled with the nuclear agreement and are trying to sabotage it, and there are others 

who want more economic engagement with the outside world. That 

is the sort of political tension in that Nation’s politics. 

You have warned that new congressional sanctions could threaten JCPOA implementation. As you may know, there are bills before 

this Committee that would require additional mandatory sanctions 

against Iran and in some cases would reimpose a version of the old 

sanctions that the Administration agreed to waive as part of 

JCPOA. 

How do you see such measures that some want to move through 

Congress, how do you seem them threatening JCPOA, the international community’s agreed-upon process for dismantling and 

monitoring Iran’s nuclear program? 

Ms. ROSENBERG. So new sanctions, particularly if they are mandatory, will be broadly perceived as sanctions that undermine the 

deal. So the signatories to the deal agreed that they would not reimpose sanctions removed—nuclear sanctions removed as part of 

the deal. So reimposing those would undermine it and could potentially cause Iran to walk away from the deal. 

However, the problems also exist with the other parties, the 

P5+1 parties. So these are important—they include important security allies, international allies of the United States. And if they 

perceive that the United States has willfully attempted to undermine the deal in this way, it will undermine transatlantic political 

cooperation as well as potentially the ability for those partners to 

work together to monitor evasion of sanctions and go after it. 

Senator BROWN. If these bills were to pass the Senate and the 

House and become law, what would that mean in domestic Iranian 

politics? Which side in Iran would be bolstered by enactment of 

these sanctions bills? 

Ms. ROSENBERG. Well, it certainly strengthens the narrative of 

hardliners in Iran who believe that the United States was disingenuous in negotiating this deal and causing Iran to make the 

concessions it has on its nuclear program and that the intent was 

never to see a successful case of nuclear diplomacy and the deal 

move forward. 

Senator BROWN. So the hardliners in Iran would have fulfilled 

what they predicted all along if we were to do that. 

Ms. ROSENBERG. Yes, and it would strengthen the narrative of 

others outside of Iran who also believe that to be the case. 

Senator BROWN. The questions I asked you, the first series of 

questions—and thank you for answering them concisely—would the 

P5+1, if I were to ask the Ambassadors and the foreign ministers 

15 

and the experts on sanctions in their countries, would they have 

given the same answer, by and large? 

Ms. ROSENBERG. Yes, and they have indicated previously that 

they would view the U.S. imposing new sanctions as unhelpful and 

a serious act of undermining the deal. 

Senator BROWN. OK. Thank you. One last question. I know you 

have written about why you think existing U.S. legal authority for 

sanctions are sufficient to combat Iran’s continuing destabilization 

activities outside of the nuclear arena. Briefly describe the full 

range of these legal authorities. 

Ms. ROSENBERG. They are vast. There are terrorism authorities, 

proliferation authorities, which include not just nuclear capabilities 

but missile and other weapons capabilities as well; authorities related to Syria that would block support for Assad and the Syrian 

Government. There are authorities that deal with Yemen and support the Houthis there. Kingpin, narcotrafficking authorities; 

transnational organized crime; cyber; the gravity EO that deals 

with—the word escapes me at this moment, but human rights authorities, the sanctions evader EO, as well as the variety of statutes passed by this Congress and the previous one and before that 

which also deal with the variety of authorities the Administration 

can implement with regard to Iran. 

Senator BROWN. And these sanctions are sufficient? 

Ms. ROSENBERG. They cover basically the entirety of concerns 

that we would have with Iran and want to pursue, and they are 

not limiting. The IEEPA and TWEA also give additional authorities to the Executive to go after new instances of evasion or activities of threat and concern that we might want to target with such 

authorities. 

Senator BROWN. Thank you. 

Thank you, Mr. Chairman. 

Chairman SHELBY. Senator Rounds. 

Senator ROUNDS. Thank you, Mr. Chairman. 

As I am listening to the testimony here, I think there are shortterm and there are long-term consequences to any deal that you 

make. Our country turns 250 years old in the year 2026, less than 

10 years away. And yet we are looking at a deal with has been put 

together here, which was designed to slow down the Iranian nuclear program. 

Mr. Elleman, as you know, under the JCPOA, Iran’s U.N. ballistic missile restrictions will be lifted 8 years after the JCPOA 

adoption day or until the IAEA confirms the broader conclusion. 

My question is: If Iran continues testing missiles and satellites at 

its current rate, how would you assess Iran’s ballistic missile capability at the completion of the JCPOA? 

Mr. ELLEMAN. Well, it’s difficult to predict, primarily because 

there will be decisions for Iran to make over the course of the next 

decade. Iran presently is focused on trying to increase the accuracy 

or the military utility of its ballistic missiles. In fact, we are seeing 

an evolution in their missile doctrine from one of just simply being 

able to punish an adversary or foe to one where they can actually 

deny an adversary military, you know, space, territory, or capability. 

16 

This is going to be a long, difficult process for them. I do not see 

them achieving it within the next decade to actually make them accurate enough with some sense of reliability. We have seen no evidence, at least in the public domain, of them pursuing an ICBM 

yet. That could change tomorrow. There could be a covert program. 

What I can say is that if they were to attempt to develop longerrange systems that could threaten Western Europe or the United 

States mainland, they would have to do some testing of that system, and that test program would last likely in the 3- to 5-year 

time span, sometimes more. 

Senator ROUNDS. How much would assistance from another Nation State help Iran progress toward a nuclear-capable missile? 

Mr. ELLEMAN. Well, in my view—and not all of my colleagues 

support this conclusion, but in my view, Iran is not capable yet of 

manufacturing on its own the liquid propellant engines that power 

almost all of their missiles. That shortfall can really only be filled 

by importing engines from Korea, North Korea. It is possible they 

could import them from Russia, but I do not think Russia is in any 

mood to sell that type of weapons system, at least in the open market. 

So I would say that this is one of the fundamental limitations 

that they will have, and this is why I made the point that the Proliferation Security Initiative could be a very effective tool in denying them the ability to produce greater numbers of missiles than 

they already have. 

Senator ROUNDS. Thank you. 

Mr. Dubowitz, the Iran deal suspended sanctions on Iran’s economy in exchange for a reversible rollback of certain Iranian nuclear 

activities. It does not, however, preclude the United States from enforcing non-nuclear sanctions. 

As Iran has made abundantly clear through its repeated provocative actions, the nuclear deal did not address Iran’s illicit activities, 

including ballistic missile development, support for terrorism, regional destabilization, and human rights abuses. What is the message Congress should be sending international businesses that seek 

to reenter the Iranian market? 

Mr. DUBOWITZ. Well, Senator, I think it is the complete opposite 

of the message that was part of the last exchange with Ranking 

Member Brown, which is that the JCPOA does not preclude nonnuclear sanctions, and the notion that Iran can threaten to snap 

back its nuclear programs and, therefore, deter us from using those 

non-nuclear sanctions actually contradicts the commitments that 

President Obama, Secretary Kerry, Under Secretary Sherman, 

then-Under Secretary Cohen, and Acting Under Secretary Szubin 

have made to Congress and to the American people, which is that 

they are going to use the full course of power of American economic 

and nonmilitary might to deter Iran from these destabilizing and 

dangerous activities. That is the message we should be sending not 

only the Iranians, but we should be sending it to the international 

community that Iran is engaged in dangerous, malign, and illicit 

conduct, and that the U.S. Government and U.S. Congress is not 

going to be shy about using all instruments, of course, of powering, 

including sanctions, to stop that activity. 

Senator ROUNDS. Thank you. 

17 

My time has expired. Thank you, Mr. Chairman. 

Chairman SHELBY. Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. And thank you 

all for your testimony. 

Let me ask, we have had Secretary Kerry, we have had Assistant 

Secretary—I think that is his title, the number two, Tom Shannon, 

and we have had others probably most significantly before the Senate Foreign Relations Committee, and they have, in the questions 

that I have posed to them and others, said that any new sanctions 

that are not within the nuclear portfolio but continue to pursue the 

issues of Iranian malign actions, whether that be missile technology in violation of U.N. Security Council resolutions, whether 

that be its promotion of terrorism, whether that be the destabilization of the region, that those are not a breach of the P5+1. Is that 

your understanding, Mr. Zarate? 

Mr. ZARATE. Yes, Senator. 

Senator MENENDEZ. And how about you, Mr. Dubowitz? 

Mr. DUBOWITZ. Absolutely, Senator. 

Senator MENENDEZ. Mr. Elleman. 

Mr. ELLEMAN. I would agree. 

Senator MENENDEZ. Ms. Rosenberg. 

Ms. ROSENBERG. Using existing authorities to go after those activities you were talking about? 

Senator MENENDEZ. Using any new sanctions to go after those 

activities outside of the nuclear portfolio. They are not a violation 

of the JCPOA. Is that correct? 

Ms. ROSENBERG. I do not view them as such. 

Senator MENENDEZ. OK. So it is a reaffirmation by the private 

panel of what the Administration itself has told us. 

Now, would it be fair to say that one of the driving elements of 

what brought Iran to the negotiating table was the comprehensive 

sanctions that the Congress led and the Administration enforced? 

Would you say that, Mr. Zarate? 

Mr. ZARATE. Absolutely, Senator. In fact, President Rouhani said 

that the sanctions were moving Iran into the economic stone age. 

Senator MENENDEZ. Mr. Dubowitz. 

Mr. DUBOWITZ. Absolutely, Senator, because of the secondary 

sanctions’ impact that actually reinforces the President’s IEEPA 

power. 

Senator MENENDEZ. So if, in fact, the sanctions brought us to the 

point where the Iranians were willing to negotiate, it shows that 

it has a force in changing attitudes and actions. Now, I may not 

have agreed with the JCPOA, but putting that aside, I am not 

going to relitigate it. The question is I think it is pretty clear that, 

but for the sanctions, the Iranians were on a path that they would 

have continued without feeling any consequence to pursue their nuclear program far beyond what we would want to see, far beyond 

any peaceful activity, and, obviously, for the purposes of nuclear 

weapons. 

So if that is the case, then I do not understand at a time in 

which we seem to be making Iran’s case for it, we seem to be working toward helping them—I mean, if I could strike a deal with 

somebody and have them, my other counterpart, implement all the 

elements that I need for my deal, whether it is buying heavy water 

18 

or whether it is making sure that I get access to the international 

financial markets, boy, I wish I could make a deal like that anytime where my counterpart actually is doing everything necessary 

to make the deal possible. But if I am going to do that, I should 

have an expectation that other things that we are concerned about 

that Iran is going to change its behavior, and it has not. It flouts 

international will, forget about U.S. will, in terms of its missile 

firings, including a missile that says, ‘‘Death to Israel’’. It is out 

there pursuing one of the worst humanitarian disasters we have in 

Syria because of its interests in having Hezbollah be a strong entity as its surrogate, so it does not care how many Syrians die until 

it can get a regime, whether it be Assad or anyone else, who guarantees that. And it continues to destabilize the entire region, and 

it continues to export terrorism. 

So is there anything then that we should not be pursuing—in my 

view, that we should be pursuing a new set of sanctions outside of 

the nuclear portfolio, having nothing to do with the JCPOA, to try 

to get Iran to change its positions on these critical elements that 

is in the national interests and security of the United States? Is 

that a fair statement, Mr. Zarate? 

Mr. ZARATE. It is a fair statement, Senator, and I would also say 

that it is not only a given that Iran is engaged in these underlying 

activities and dangerous activities, but it also comes at a time 

when we are heightening our scrutiny in terms of financial integrity with respect to corruption, with respect to human rights, with 

respect to beneficial ownership, which the Administration just published a final rule on. 

We are actually heightening international expectations in terms 

of how transparency and integrity is undertaken in the international system, and Iran is doing the exact opposite. And so there 

is an inherent tension in that message as well. So not only can we 

and should we use sanctions as we have in the past against these 

underlying activities, but there are heightened expectations moving 

forward that should be placed on Iranian banks, Iranian companies, beneficial ownership, that should heighten scrutiny, not lessen it, with respect to Iranian behavior. 

Senator MENENDEZ. One last question. Mr. Dubowitz, I hear 

many of my colleagues say we should keep Iran’s feet to the fire, 

but if there is no fire, how do you keep their feet to it? 

Mr. DUBOWITZ. Well, Senator Menendez, absolutely, and if you 

give Iran what effectively is a nuclear snapback, which is this ability to threaten us every time that we are going to use non-nuclear 

sanctions to deter the behavior, then, unfortunately, they have the 

upper hand, and their nuclear snapback ends up being a lot more 

powerful than our economic snapback, which means our ability to 

enforce the deal and deter Iranian behavior is much weaker. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Chairman SHELBY. Senator Toomey. 

Senator TOOMEY. Thank you, Mr. Chairman, and thank you very 

much for having this hearing. This is a very, very important discussion. 

I remain strongly opposed to this deal that turns over something on the order of $100 billion to the world’s leading State sponsor of 

terrorism, a very dangerous and violent regime that is very hostile 

19 

to the United States. But not only did we release all of that money, 

but we lifted substantial sanctions, allowed Iran to retain important components of its nuclear infrastructure. And I would just like 

to ask a question for the record. Mr. Zarate, has the Iranian parliament ratified this agreement? 

Mr. ZARATE. To be honest, Senator, not to my knowledge. 

Senator TOOMEY. To your knowledge, have the top political authorities in Iran signed the agreement? 

Mr. ZARATE. I do not think so, Senator. I have not seen evidence 

of that. 

Senator TOOMEY. In fact, doesn’t the Administration argue that 

this is not a legally binding agreement with respect to Iran but, 

rather, a set of political commitments? 

Mr. ZARATE. That is right. They argue that this is not technically 

a treat. 

Senator TOOMEY. Yeah. It seems a rather amorphous commitment on the part of the Iranians, despite the very real changes and 

concessions that the United States has made with the financial release, with the relief of sanctions, with permitting Iran to retain 

this infrastructure. But let me follow up on a line of questioning 

that Senator Menendez pursued. 

Mr. Zarate, you went through a pretty powerful list in your written testimony of the ways in which Iran has behaved, as Mr. 

Dubowitz put it, ‘‘dangerous, malign, and illicit conduct’’ postJCPOA, right? Including the repeated ballistic missile tests, the 

fact that Iran remains a leading State sponsor of terror, the deployment of troops to Syria to support the Assad regime, Iranian continued human rights abuses, detention of two American citizens, 

arresting American sailors at gunpoint, continuing to develop and 

engage in malicious cyberattacks. 

Now, I share the view of Senator Menendez that in response to 

these really outrageous and aggressive behaviors, we have every 

right—in fact, responsibility, really, to impose the kind of sanctions 

that might dissuade these behaviors. But not only does the Administration disagree, it seems, with this approach, but would it be fair 

to say that the Administration appears to believe that it should be 

the United States’ responsibility to facilitate the reintegration of 

Iran into the world economy? 

That is what it looks like to me, and that strikes me as a bad 

idea, but, Mr. Zarate, I would like your thoughts on that. 

Mr. ZARATE. Senator, absolutely, and I warned about this danger 

when I testified during the JCPOA debate before you, that this was 

a potential trap, that the Iranians were going to push the United 

States to help rehabilitate their image, their economy, their reintegration, and that they would argue that the spirit and letter of 

the deal required it. 

Senator TOOMEY. Which is exactly what the Administration—— 

Mr. ZARATE. Exactly what is happening. 

Senator TOOMEY. And what is the problem with that? Why is 

that a bad thing for the U.S. Government to be facilitating the reintegration of this very hostile regime into the world economy? 

Mr. ZARATE. Well, there are three fundamental problems: One, it 

takes Iran off the hook of dealing with the underlying conduct itself 

20 

that is problematic—support to terrorism, support to Assad, human 

rights abuses. 

Senator TOOMEY. Arguably, could it not be seen to be rewarding 

that kind of outrageous behavior? 

Mr. ZARATE. Potentially, and that is the second problem, which 

is creating sort of dual standards. Why are we creating exemptions 

for the Iranians when, as I said before, our expectations are heightened with respect to what financial integrity and transparency 

looks like in the international system? We are fining major global 

banks billions of dollars, and yet we are now promoting the integration of Iranian banks, which we know have been used and will 

continue to be used for these illicit purposes? Why? It does not 

make any sense. So there is an inconsistency there. 

And, third, we are giving up the strategic opportunity in putting 

the onus on Iran to resolve these issues themselves, to explain 

themselves to the market. That actually could promote reforms internally. It could force very hard decisions within Iran itself for the 

reformers, the moderates, to say, ‘‘We can no longer use our banks, 

our economy in this way.’’ So we are taking the hard decisions off 

the table and taking Iran off the hook. 

Senator TOOMEY. And it appears implicitly to be virtually 

condoning the behavior. 

But, Mr. Dubowitz, did you have any comment you would like to 

make on this? 

Mr. DUBOWITZ. Well, very quickly. I mean, the U.S. Government 

did not promise Iran financial and economic outcomes. They specifically did not negotiate outcomes. 

The second is that there is this prevailing and persistent myth 

that somehow we have to economically seduce the hard men of 

Iran, this despite the fact that President Obama’s former DCI, 

Leon Panetta, said the CIA assessment is that there are no moderates in the regime and that the U.S. negotiator, Wendy Sherman, 

has specifically said since the deal, publicly, that in this regime 

there are hard-liners and hard-hard-liners, and President Rouhani 

is a hard-liner. 

So this notion that somehow there is—that continues to persist 

even today—an octogenarian—hard-line octogenarian was just appointed to the Assembly of Experts who is going to pick the Supreme Leader after Ali Khamenei, I do not know why this notion 

continues to persist in the halls of Congress and outside, that there 

are moderates who we should economically seduce. These are hardhard-liners or hard-liners who continue to hold their people hostage 

and continue to engage in very dangerous and destabilizing activities. 

Senator TOOMEY. Thank you very much. 

Thank you, Mr. Chairman. 

Chairman SHELBY. Senator Donnelly. 

Senator DONNELLY. Thank you, Mr. Chairman. 

I want to start out today by addressing what I see as a very big 

problem as we talk about sanctions against Iran, North Korea, 

Russia, or any other adversary of the United States: the fact that 

Adam Szubin has now been waiting more than a year for confirmation as Treasury’s Undersecretary for Terrorism and Financial 

Crimes. 

21 

Despite bipartisan support, despite being an undisputed expert 

in his field, despite our repeated calls for leadership on sanctions 

policy in this Administration, some of my colleagues refuse to give 

him a vote on the floor of the Senate. I hope we confront the irony 

of this situation head-on in tomorrow’s hearing when Mr. Szubin 

testifies and answers our questions, still serving only in an acting 

capacity on matters we all agree are critical to national security. 

We are doing this man and our Nation a great disservice by our 

failure to act. 

And I would like to put this question to all the members of our 

panel here today. What are your views on Mr. Szubin’s nomination 

and do you have any concerns about his qualifications? Mr. Zarate. 

Mr. ZARATE. I know Adam Szubin personally. I worked with him 

directly. I have deep respect and affection for Mr. Szubin. I have 

no question about his integrity and I think he would do a great job. 

Senator DONNELLY. Mr. Dubowitz. 

Mr. DUBOWITZ. I similarly know Mr. Szubin personally and have 

worked with him closely, and I think he is eminently qualified for 

that position. 

Senator DONNELLY. Thank you. Mr. Elleman. 

Mr. ELLEMAN. I do not know him and I am not intimately familiar with what he does, but I also—— 

Senator DONNELLY. That is still OK. 

[Laughter.] 

Mr. ELLEMAN. ——but I have heard no reservations expressed by 

many of my colleagues. 

Senator DONNELLY. Ms. Rosenberg. 

Ms. ROSENBERG. I, too, have had the pleasure of working quite 

closely with Mr. Szubin. He is a dedicated public servant. He is 

knowledgeable. He is respected by those with whom he works and 

those who disagree with him. Not confirming him undermines his 

ability to do his job, which is far beyond the scope of the Iran deal, 

sanctions, and encompasses a much broader array of anti-money 

laundering and terrorist financing activities that are in our broader 

national interest to have him address. 

Senator DONNELLY. Thank you. 

Mr. Elleman, in my other role as Ranking Member of the Armed 

Services Subcommittee on Strategic Forces, I have dedicated a lot 

of time to studying Iran’s missile program and the threat it poses 

to our homeland, our forward-deployed forces, and our allies in the 

Middle East and Europe. I spent a week earlier this year meeting 

with U.S. military leaders and foreign officials in Israel and across 

the Gulf States. One of our unifying concerns is that Iran continued to grow the size and sophistication of its ballistic missile arsenal even under the heaviest years of sanctions. 

I am a firm believer we must invest in U.S. and allied missile 

defense systems to counter the threat posed by Iran’s ballistic missiles. However, I am also interested in your views on how we can 

establish more effective sanctions related to Iran’s missile program. 

So what are your top recommendations for improving our sanctions 

policy and enforcement on Iran’s ballistic missile activities? 

Mr. ELLEMAN. Well, I think for the sanctions to actually retard 

or erode Iran’s capacity to grow the size of their arsenal or the capabilities of its arsenal, the sanctions would have to be interVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
22 

national. You know, the U.S. applying certain restrictions will 

probably not do it because we are not trading with Iran and they 

are primarily relying on equipment—manufacturing equipment and 

components that have been obtained from Europe and other countries. So it has to be multilateral. 

But I would also say the—you know, the primary provider of necessary technologies has been North Korea in the past. I am not 

aware of significant transfers of equipment or technology over the 

past 10 years or so. 

Having said that, if Iran truly wants to expand the size of its arsenal, it is going to have to get missile engines from someone—and 

North Korea would be the most likely source—and the Proliferation 

Security Initiative would probably be the best tool to approach 

that. 

Ms. ROSENBERG. Mr. Senator. 

Senator DONNELLY. Yes? 

Ms. ROSENBERG. May I speak to this issue as well? 

Senator DONNELLY. You may. 

Ms. ROSENBERG. Thank you. 

I agree that internationalization and partnering with international jurisdictions to go after Iran’s dangerous and concerning 

ballistic missile activities is certainly a strong direction for the 

sanctions program, as well as going after the procurement networks, a number of which the components—a number of which you 

have just mentioned. 

Furthermore, additional efforts outside of the sanctions realm 

would certainly be beneficial, including interdiction efforts as well, 

which is a matter for different areas of Government. 

Senator DONNELLY. What is your opinion on—Ms. Rosenberg—on 

how our counterterrorism sanctions can become more effective? 

What are your best ideas on that? 

Ms. ROSENBERG. Thank you for the question. I have offered a 

couple of ideas in my testimony, including naming the IRGC in its 

entirety under Executive Order 13224, the terrorism authority, and 

going after, aggressively, agents, instrumentalities of the IRGC inside and outside of Iran, and asking foreign counterparts in other 

jurisdictions, specifically the EU, to mirror U.S. sanctions wherever 

possible in that domain. 

Senator DONNELLY. Thank you. 

Thank you, Mr. Chairman. 

Chairman SHELBY. Senator Scott. 

Senator SCOTT. Thank you, Mr. Chairman. 

Mr. Dubowitz—is that right? 

Mr. DUBOWITZ. Dubowitz, yes. 

Senator SCOTT. Dubowitz. OK, great. 

In a recent televised interview, you compared the Iran deal to 

the North Korean deal in the 1990s. Obviously, that deal was 

flawed and we are still dealing with the serious ramifications of 

that deal. What specific similarities do you see in the two deals? 

And how strongly do you feel that 10 years from now we will be 

dealing with as volatile of a situation in Iran as we now see in 

North Korea? 

23 

Mr. DUBOWITZ. Thank you, Senator. Well, I think some of the 

similarities are certainly significant flaws and loopholes with respect to the reversibility of the nuclear restrictions. 

The upfront sanctions relief nature of both deals—in fact, as I 

think Mr. Zarate can tell you even in more detail, one of the biggest mistakes that the Bush administration made was trading 

away extensive economic leverage that was established through the 

designation of Banco Delta Asia for a continuation of that—of that 

nuclear agreement and North Korean nuclear concessions that not 

only ended up being reversible but that the North Koreans violated 

egregiously. 

And so the deal itself was fundamentally flawed in its architecture, just like the JCPOA—reversible concessions, big loopholes, 

and trading away significant economic leverage. 

Senator SCOTT. A second question to you, sir. How important is 

enforcement of the sanctions against Iran that remain in place? 

And can you—can you supply any evidence that Iran believes that 

we, as a country, are serious about our enforcement mechanisms? 

It certainly seems to me to be—if I were in Iran, I would not take 

what we have done so far very seriously since they have already 

tested some ballistic missiles, from my perspective. 

Mr. DUBOWITZ. Well, certainly the Iranians have made it clear 

that the procurement sanctions that have been imposed by the U.S. 

Treasury Department are meaningless, because these procurement 

networks can be reconstituted. And I would like to just provide a 

bit more detail on these ballistic missile sanctions. 

For many years people said that you could not use powerful economic sanctions to change the risk-reward calculus of the Iranian 

regime with respect to its nuclear program. I think Congress 

proved that wrong. I think the U.S. Treasury Department proved 

that wrong. 

I think with respect to ballistic missiles, as opposed to these narrow procurement sanctions we should look at sectors of the Iranian 

economy that actually support the ballistic missile program—mining and metallurgy, energy, automotive, telecom, electronics, construction, and the research institutions that back it up. All of these 

sectors of Iran’s economy provide vital technologies, parts and components for Iran’s missile program. If we were to impose sectorsbased sanctions on those essential sectors that support the missile 

program, I think we would have a chance of actually changing this 

calculus. 

So I believe that we need to look at much more coercive sanctions, permissible by the JCPOA, to change the mindset of the 

reigning regime with respect to its missile program. 

Senator SCOTT. Thank you. 

Mr. Zarate or Mr. Dubowitz, Treasury officials stated recently 

that they are not planning on issuing general license, but this contradicts earlier statements by the Obama administration that general license were a possibility. What are some of the specific hazards the U.S. could encounter if it grants a general license to Iran? 

Mr. ZARATE. Senator, the relief to allow Iran to deal in dollars 

for international trade would give not only a stamp of legitimacy 

to Iranian behavior but would facilitate their reintegration into 

international trade, given the fact that the dollar is the predomiVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
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nant currency, the currency that is used in the oil trade in particular but also internationally. 

And so this could take a variety of forms. It could be a general 

license. It could be a specific license. But it could be some form that 

allows an offshore facility that then allows Iran to access dollars 

in some way that then would give the markets confidence to be 

able to do business with Iran. That is what Iran wants and it is 

certainly something that the Secretary of State seems to be suggesting that we should be offering. 

And I think the Treasury officials are trying to back away from 

that, in particular given the fact that, if we give this concession in 

the context of the JCPOA, we are admitting that our ability to 

withdraw the access to the dollar, which is a principal and important financial tool for us, becomes embedded in the JCPOA itself. 

And then we cannot use it for other reasons. 

And so the Iranians are very smart about this. They have been 

gaming this throughout to get as much maximum benefit from U.S. 

concessions and the spirit and letter of the deal as possible. 

Senator SCOTT. Thank you. 

Mr. DUBOWITZ. Senator, if I could just add to that? 

Senator SCOTT. Yes. 

Mr. DUBOWITZ. Tomorrow at the hearing, when the Government 

witnesses are here, please do not get distracted about these commitments about access to the U.S. financial system. Also, do not get 

distracted by the notion of general licenses. 

What I think the Administration is doing is they are using a 

class-of-transactions approach to sort of step by step, drip by drip 

begin to dollarize Iranian transactions. You have seen that with 

heavy water. You have seen that with aircraft licenses. You have 

seen that with the return of restricted oil escrow funds. You have 

seen that with possible humanitarian transactions. 

So it is a class-of-transactions approach where the Administration will attempt to dollarize Iranian transactions, not through a 

wholesale general license but by these classes of transactions, so by 

the end of the Administration the Iranians have effectively gotten 

access to the U.S. dollar and used that legitimization as a way to 

get themselves out from under the strictures that they have been 

imposed. 

Senator SCOTT. Thank you very much. 

Chairman SHELBY. Senator Warren. 

Senator WARREN. I think Senator Tester is up next. 

Chairman SHELBY. OK. 

Senator TESTER. Well, you are very gracious, Senator Warren. 

Thank you. And thank you, Mr. Chairman. And thank you all for 

your testimony. 

I want to go back to one of the questions asked of you, Mr. 

Elleman, about Iran’s testing of missiles. And I do not want to put 

words in your mouth. Did you say they are testing them at the 

same rate since the JCPOA as they were before, or did you say 

something different? 

Mr. ELLEMAN. What I said was the resumed testing since October of 2015 is a historic norm for the way they have tested. But 

I did also note that they did not conduct tests in 2005, 2013, or 

2014 when nuclear negotiations were making process. 

25 

Senator TESTER. OK. All right. So they are—I mean, they are basically acting the same way they did before the JCPOA was put 

into effect as far as missile capabilities? 

Mr. ELLEMAN. In terms of missile capabilities that is correct. 

Senator TESTER. OK. And so from a sanctions standpoint, do you 

advocate putting more sanctions on because of the missile testing 

they have done? Or do you not have a position on that? 

Mr. ELLEMAN. Well, I think sanctioning the individuals and enterprises directly involved in the program is—— 

Senator TESTER. OK. 

Mr. ELLEMAN. ——is an appropriate measure. Whether it is effective or not—— 

Senator TESTER. OK. 

Mr. ELLEMAN. ——is probably another story. 

Senator TESTER. OK, thank you. 

Elizabeth, the last Iranian election, do you know anything about 

that? I mean, did the moderates win or did the hard-liners win? 

What happened there? 

Ms. ROSENBERG. There was a relatively strong showing for what 

we might characterize as somewhat more pragmatist rather than 

hard-liner representatives. Nevertheless, the vetting that occurs in 

order to allow candidates to stand already selects out potential candidates who are on the more hard-line spectrum. Nevertheless, 

there were a relatively good showing by pragmatists. 

Senator TESTER. So let me dig into this a little more because I 

think it goes back to Mr. Dubowitz’s answer, and that is that would 

you classify the last election as being a different step than they had 

taken in previous elections, or same old same old stuff? 

Ms. ROSENBERG. We could characterize it as in line, broadly 

speaking, with the election of President Rouhani, which is to say 

an expression of public sentiment that is veering a bit more toward 

pragmatic interest in international engagement, including economic 

relief. 

Senator TESTER. And do you attribute that to anything specifically? 

Ms. ROSENBERG. Extreme economic difficulty over the last several years and desire to see change, including getting out—— 

Senator TESTER. OK. 

Ms. ROSENBERG. ——from under sanctions. 

Senator TESTER. OK. 

Senator Menendez talked about sanctions, and you talked about 

the fact, Michael, that the sanctions needed to be multilateral, 

whatever we do. Do you think the sanctions that we put on Iran 

would have been effective—would have been effective if it would 

have just been the United States and EU, and China and Russia 

would not have been onboard? 

I am talking to Michael. 

Mr. ELLEMAN. In terms of their nuclear and missile programs, 

likely not. 

Senator TESTER. OK. So you believe it was critically important 

that the P5+1 truly had to stick together on the sanctions? 

Mr. ELLEMAN. Yes. 

Senator TESTER. Do you agree with that, Elizabeth? 

Ms. ROSENBERG. I do. 

26 

Senator TESTER. OK. Let me ask all of you, the Ranking Member 

went through a list of things that Iran had done. Elizabeth answered yes to all of them. Would any of you disagree with Elizabeth’s answers? 

Mr. DUBOWITZ. Yeah, I would disagree. I mean, again, I made 

this point before. 

Senator TESTER. You do not think that they have removed the 

nuclear material? 

Mr. DUBOWITZ. No, I would disagree with the conclusion that 

Iran is in full compliance with the JCPOA. 

Senator TESTER. OK, that is not what he asked. He asked if they 

had removed the material, if they had filled the reactors, if they 

got rid of the heavy water. Would you agree with that? 

Mr. DUBOWITZ. I would—— 

Senator TESTER. Would you agree that they are still two to 3 

months away from having access to a nuclear bomb that they were 

when we ratified the JCPOA? 

Mr. DUBOWITZ. No. Based on the assessment of David Albright, 

they are 6 to 7 months away from having a nuclear weapon because they have the ability to reconstitute, replace, and reinstall 

the P1 centrifuges that did not get dismantled but actually just got 

warehoused. So we gained about 3 or 4 months in terms of nuclear 

breakout. 

Senator TESTER. What about the heavy water? 

Mr. DUBOWITZ. Well, in terms of the heavy water, the Iranians 

continue to produce heavy water. They continue to actually improve their capability to produce heavy water. And when all the restrictions on heavy water and plutonium reactors and reprocessing 

go away, Iran will be in a stronger position to actually develop a 

plutonium bomb. 

Senator TESTER. OK. 

In the heavy water realm, Elizabeth, would you classify it better 

in our hands, or Russia and China’s hands? 

Ms. ROSENBERG. The United States has a strong record on its 

ability to handle dangerous nuclear materials. I feel more confident 

in the United States’ experts managing heavy water in this jurisdiction—— 

Senator TESTER. Yeah. 

Ms. ROSENBERG. ——rather than enabling States of proliferation 

concern to have access to that material. 

Senator TESTER. All right. 

Thank you, Mr. Chairman. Thank you, all of you, for your testimony. 

Chairman SHELBY. Senator Cotton. 

Senator COTTON. Thank you all for appearing today. 

Mr. Zarate, you worked with Stuart Levey at the Treasury Department. Is that correct? 

Mr. ZARATE. I did, Senator. 

Senator COTTON. How long did you all work together? 

Mr. ZARATE. We overlapped for a year and then I went to the 

White House to serve as Deputy National Security Advisor while 

he served as Undersecretary of the Treasury for Terrorism and Financial Intelligence. 

27 

Senator COTTON. And he is now the chief legal officer of HSBC 

Holdings. 

Mr. ZARATE. That is correct. 

Senator COTTON. Did you read Mr. Levey’s Wall Street Journal 

op-ed a couple of weeks ago in the aftermath of John Kerry traveling Europe, acting as the Iranian Chamber of Commerce president? 

Mr. ZARATE. I did read the op-ed, sir. 

Senator COTTON. He said in that op-ed that, Washington is pushing non-U.S. banks to do what it is still illegal for American banks 

to do. Do you agree with that statement? 

Mr. ZARATE. Based on press reports and what I have read, yes. 

Senator COTTON. Could you elaborate a little bit on what Mr. 

Levey might have meant? What is Washington pushing non-U.S. 

banks to do that U.S. banks cannot do? 

Mr. ZARATE. I think the concern was, based on the meetings that 

the Secretary of State was having in addition to some of the road 

shows that had been deployed on behalf of the U.S. Government, 

that there have been messages sent to European banks that there 

are no longer major restrictions to doing business in Iran and that 

they can manage the risks of doing business with or in Iran. 

Senator COTTON. And a nearby article the same day suggested 

that Secretary Kerry was not successful in persuading those European banks to do such business. And Mr. Levey concluded his oped by saying, quote, ‘‘Our decisions’’—HSBC—‘‘will be driven by the 

financial-crime risks and the underlying conduct. For these reasons, HSBC has no intention of doing any new business involving 

Iran. Governments can lift sanctions but the private sector is still 

responsible for managing its own risk and no doubt will be held accountable if it falls short.’’ 

Mr. ZARATE. Right. 

Senator COTTON. Do you agree that that is a—that private actors 

face genuine risk of being held accountable for doing what the current Administration is encouraging them to do? 

Mr. ZARATE. Absolutely, Senator. As part of my private practice 

I work with banks like HSBC and others, dealing with the regulatory and real risks in the sanctions and financial crime environment. And they worry every day that not only are they going to be 

second-guessed but they will be fined billions of dollars, and that 

their access to U.S. markets will be put at risk if they do not manage their risk. 

And so there is a sense in the private sector that there are mixed 

messages coming from the U.S.—strict adherence to U.S. norms 

and values and laws, and then a push to deal with what is an inherently risky jurisdiction in Iran at a time when those expectations are actually higher than ever before; 2016 presents heightened risk for banks to do business in financially risky environments, not less risk. 

Senator COTTON. So you say mixed messages, so not just risk 

that a future Administration or future Congress may view the matter differently but actually different messages from different parts 

of the United States Government at this very moment. 

Mr. ZARATE. Absolutely, and not just the U.S. Government but 

also State and local authorities and regulators. New York authoriVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
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ties have placed some of the most stringent and heavy sanctions 

and enforcement actions against U.S. and European banks. And so 

banks are very worried about not just what the U.S. Treasury says 

or what the State Department says, but what New York and other 

regulator—other regulators have to say about this. 

In addition, there is the real risk that what banks have to worry 

about, which is transparency and accountability, is absolutely absent in the Iranian market. And so the promotion of banking and 

any commercial activity in that environment is completely anathema to the message that the U.S. Government has been sending 

internationally for the last 15 years. 

Senator COTTON. So these banks, and for that matter other companies that might wish to do business with Iran, in your professional judgment, face grave financial, legal, political, and 

reputational risks? 

Mr. ZARATE. Enormous risks, in fact heightened risks after implementation day, as opposed to less risk. 

Senator COTTON. Would you counsel any responsible member of 

a board of directors or a corporate general counsel for such banks 

or companies to accept those risks when the world may look very 

differently in a mere 7 months? 

Mr. ZARATE. I would not because the sanctions environment is 

confused. The risk of Iranian cheating is high. The realities of Iranian lack of transparency, corruption, financial crime, and money 

laundering is incredibly high. And the inability for banks to actually understand who their customers are, who their counterparties 

are at a time when we are putting out new regulations just this 

month with respect to understanding beneficial ownership in shell 

companies, especially in the wake of the Panama Papers, is an incredibly risky proposition to go into Iran at this point. 

Senator COTTON. OK. 

And my time is nearly expired. Mr. Dubowitz, just one question 

about the total value of sanctions relief that Iran can expect to receive under the JCPOA. The President himself has suggested it 

could be as high as $150 billion. Secretary Kerry and other Administrations have suggested it may be a low as 3 or $5 billion. Other 

Administration officials have accused Members of Congress of lying 

by going with figures closer to the president’s own figure than with 

Secretary Kerry’s figure. What would you estimate, based on your 

calculations, is the total amount of sanctions relief that Iran can 

expect to receive under the JCPOA? 

Mr. DUBOWITZ. Well, in terms of restricted oil escrow assets and 

frozen assets that are returned, they will have access to $100 billion, of which they will have about $55 billion in liquid assets and 

the remaining $45 billion to pay off their debts. 

But, Senator, as you know, if I give you $100 and you pocket $55, 

and you take $45 and you pay off your credit card, right, the net 

benefit to you that you have got to report to the IRS is $100. So 

that is the net benefit from the frozen assets. 

In addition, Iran is going to receive hundreds of billions of dollars 

of additional sanctions relief based on oil exports, petrochemical exports, the expansion of its auto sector. And already Iran is predicted to have GDP growth of 3 to 4 percent. Inflation has gone 

down from 40 percent to about 11 percent. 

29 

So Iran has actually already received a significant economic 

windfall from both the JCPOA and the interim agreement numbering in the hundreds of billions of dollars in terms of its macroeconomic stability and recovery. 

Senator COTTON. But from the JCPOA itself somewhere in the 

neighborhood of $100 billion? 

Mr. DUBOWITZ. $100 billion in the access to frozen assets and restricted oil funds. 

Senator COTTON. Yeah. And then of course there is the additional 

benefits of economic growth since the JCPOA and the Obama administration have brought 6 percent growth to Iran while leaving 

us with 2 percent growth. 

Mr. DUBOWITZ. And the Obama administration helped Iran avoid 

a balance-of-payments crisis and a severe economic crisis in 2013 

through the interim agreement and through blocking legislation 

that this Committee and other committees have forwarded. 

Senator COTTON. Thank you very much. 

Chairman SHELBY. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. 

Iranian officials are complaining about what they see as the slow 

pace of sanctions relief and the lack of additional foreign investment that they expected to see as a result of the nuclear deal. Now, 

if Iran complies with its obligations under the nuclear deal, they 

will get the sanctions relief that they bargained for. But Iran has 

a long history of money laundering, terrorist financing, corruption, 

which are among the reasons that Iran remains a pariah State in 

the eyes of the international community. 

Ms. Rosenberg, instead of blaming the United States for its failure to emerge from economic isolation, what steps should Iran be 

taking if it wants to become a responsible member of the international financial and commercial system? 

Ms. ROSENBERG. Thank you for the question. 

To begin with, it could stop funding terrorism—— 

Senator WARREN. Yeah, that would be a good one. 

[Laughter.] 

Ms. ROSENBERG. ——and additionally, use this newly passed 

criminalization of terrorism law to prosecute cases of this, working 

with the IMF and the FATF to improve controls and risks in its 

system related to money laundering and terrorist financing. 

It must address a variety of prudential risks related to capital 

adequacy, corporate governance, tax and financial disclosure, and 

furthermore, on a political level, to cease engaging in the kind of 

provocative regional behaviors that are a disincentive to those who 

would invest in the jurisdiction. 

Senator WARREN. All right. Well, thank you. That is very helpful. 

You know, that is a long laundry list of reasons why companies are 

still reluctant to invest in Iran right now that have nothing to do 

with the nuclear deal. Iran is ranked 130th on the world Transparency International’s Corruption Perceptions Index. It is ranked 

118th on the World Bank’s Ease of Doing Business Index. It is 

ranked 108th on the International Property Rights Index. 

Ms. Rosenberg, if Iran complies with the nuclear deal, gets the 

sanctions relief it bargained for under that deal but fails to address 

systemic problems under these key economic metrics, is it realistic 

30 

for them to expect to be reintegrated into the international financial system or to see serious and sustained economic growth in the 

country? 

Ms. ROSENBERG. I think, as has been pointed out, that there is 

potential for growth even under these difficult circumstances. However, few would believe that they are in any way living up to the 

potential that geological assets, a well-educated youthful population could provide if they were actually managing their risks. 

Senator WARREN. Well, that is very helpful because, you know, 

it is no secret that there are some people in Congress who are committed to seeing the Iran nuclear agreement fail at any price, and 

we are hearing a lot of rumbling from them about holding up sanctions relief even if Iran complies with the deal. 

Now, that might be good politics for some senators, but let us be 

clear: Such a move will play right into the hands of hard-liners in 

Iran who want to blame the West for their economic woes. 

Here is the truth: We could give Iran all of the relief contemplated under the nuclear agreement tomorrow and Iran would 

still need to implement significant structural reforms and change 

its regional behavior in order to attract the sustained investment 

and reintegrate itself into the international financial and commercial system. Iran must implement serious structural reforms, crack 

down on money laundering, as you said, and stop sponsoring terrorism. Our job here is to keep the pressure on the Iranians to 

make sure that those changes are made, and not give them an excuse to avoid making those changes. Our job is to make sure that 

if Iran rejects comprehensive reforms, that it has no one to blame 

for its economic troubles other than itself. Now, there is one more 

thing I would like to ask you, and that is Adam Szubin is the Acting Undersecretary for Terrorism and Financial Crimes at Treasury. He is in charge of enforcing our sanctions against countries 

like Iran and targeting the financial networks of terrorist groups 

like ISIS. It has been more than a year since Mr. Szubin was nominated to this position and the Republicans who control the Senate 

have still not held a vote to confirm him. 

Ms. Rosenberg, given the critical importance of Mr. Szubin’s 

work to our national security, is there any credible reason for Republican senators to continue blocking his confirmation? 

Ms. ROSENBERG. I think there is no credible reason to block his 

nomination—his confirmation. And in fact, it undermines broad national security interests in a variety of areas—proliferation, terrorist financing, the beneficial ownership and CDD rule that was 

mentioned earlier on the panel—if we do not—if he is not confirmed to this position. 

Senator WARREN. So a delay undermines our national security. 

Ms. ROSENBERG. I agree. 

Senator WARREN. Thank you. 

Thank you, Mr. Chairman. 

Chairman SHELBY. Thank you all your appearance today. This 

has been a good hearing. And the Committee will be meeting—continue to meet on this issue. Thank you very much. 

[Whereupon, at 12:03 p.m., the hearing was adjourned.] 

[Prepared statements and responses to written questions supplied for the record follow:] 

31 

PREPARED STATEMENT OF JUAN C. ZARATE 

CHAIRMAN AND COFOUNDER, FINANCIAL INTEGRITY NETWORK

MAY 24, 2016 

Chairman Shelby, Ranking Member Brown, and distinguished Members of the 

Senate Committee on Banking, Housing, and Urban Affairs, I am honored to be 

with you today to discuss the role and significance of sanctions in the Iran nuclear 

deal, the Joint Comprehensive Plan of Action (JCPOA). The JCPOA is an ongoing 

and unfolding agreement, with significant implications for how the United States 

continues to leverage its economic and financial influence to affect Iranian behavior 

and counter its nefarious activity. This is an important moment for the United 

States to examine Iranian activity around the globe soberly and determine how best 

to proceed with the agreement and against the Iranian threat. 

When the JCPOA was being debated, I expressed deep concerns and reservations 

about its structure, demands, and effects on U.S. interests, especially in anticipation 

of increased Iranian belligerence and adventurism. In detailed testimony before both 

this Committee and the Senate on Foreign Relations Committee, I explained that 

the JCPOA was fundamentally flawed, in part because it would empower and enrich 

the regime and ultimately constrain our ability to use the most effective financial 

and economic tools of isolation to counter dangerous Iranian behavior. 

With strategic patience, Iran can march toward a weaponized program with greater capabilities, breakout capacity, and more economic resources, resilience, and 

connectivity to the global oil markets and commercial system. Even if Iran complies 

with all elements of this deal, Tehran will end up with an unfettered opportunity 

to break out and weaponize its nuclear program, overtly or covertly, along with an 

ability to arm itself and its allies more openly and aggressively. The end state of 

the agreement takes us far afield from the declared goal of successive Administrations at the start of negotiations. 

The structure, processes, and nature of this agreement give Iran the benefit of the 

doubt that it is pursuing a peaceful program, when the onus should remain on Iran 

to prove the peaceful nature of its program, as constructed in the prior, relevant 

UN Security Council Resolutions (UNSCRs). 

Ultimately, what we negotiated and promised was Iran’s reintegration into the 

global economic system. The JCPOA sacrifices the ability of the United States to 

use its financial and economic power and influence to isolate and attack dangerous 

and problematic Iranian activity—beyond the nuclear program. Beyond simple sanctions relief, we negotiated away one of our most important tools of statecraft—the 

very financial and economic coercion that helped bring the Iranian regime to the 

table. Though ‘‘non-nuclear’’ sanctions were supposedly off the table, the spirit and 

letter of the agreement neuters Washington’s ability to leverage one of its most powerful tools—its ability to exclude rogue Iranian actors and activities from the global 

financial and commercial system. 

As I explained last year, promising Iranian reintegration into the global system 

was not possible unless we were willing to defang our sanctions regime and ignore 

Iranian behavior; rehabilitate the perception of the Iranian regime ourselves; and 

take the most effective tools of financial isolation off the table. 

This is a critical point as Iran continues the range of dangerous activities that 

have been the subject of sanctions and international opprobrium. In the wake of the 

JCPOA implementation, these activities have included the following: 

1. Iran has conducted repeated ballistic missile tests in violation of UN resolutions, including earlier this month according to Iranian news reports, and 

promises further tests. The launch in March also coincided with Vice President 

Biden’s visit to Israel. 

2. Qassem Soleimani, the head of the Iranian Revolutionary Guard Corps’ (IRGC) 

Qods Force, traveled twice to Moscow in contravention of international travel 

bans to coordinate military cooperation with the Russian Government, to include the delivery of the S-300 system to Iran and defense of the Assad regime 

in Syria. 

3. Iran remains the leading State sponsor of terror and has continued its direct 

support to terrorist proxies throughout the region, to include Hizballah’s activities in Lebanon and Syria, as well as Iraqi Shi’ite militias who were responsible for the deaths of hundreds of Americans in Iraq and are now deployed 

in Syria to fight for the Assad regime. Iran’s support of terrorist proxies is intended to destabilize regional Governments allied with the United States, and 

the Gulf States have uncovered and interdicted Iranian arms shipments to miVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00035 Fmt 6621 Sfmt 6621 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
32 

1Sam Wilkin, ‘‘Iran Excludes Most Candidates in Elite Assembly Election’’, January 26, 2016 

(http://www.reuters.com/article/us-iran-election-candidates-idUSKCN0V419V). 

litias. In recent months, international naval forces have interdicted Iranian 

arms shipments likely headed to Houthi rebels in Yemen. 

4. Iran has deployed troops—regular and from the IRGC—to Syria to fight for 

and defend the Assad regime, with reports of thousands on the ground. Qassem 

Soleimani continues to appear at key battlefronts throughout Syria, and the 

Iranians help funnel Iraqi, Afghani, and Pakistani Shi’ite militias into the battlefield. 

5. Iran has continued to engage in human rights abuses and the restriction of 

democratic norms. In the run up to recent parliamentary elections, Iran disqualified thousands of individuals from running 1 and continues to hold the 

leaders of the Green Movement under house arrest. 

6. Iran detained two Iranian–American citizens, a father and son, in October 

2015 and February 2016, and continues to hold them. In addition, Robert 

Levinson remains missing after disappearing on Kish Island on March 9, 2007. 

7. On January 12, 2016, Iranian naval forces arrested American sailors at gunpoint, broadcasting the video of their detention, and subsequently mocking the 

sailors through a reenactment at a rally commemorating the anniversary of the 

Iranian Revolution. The Iranians detained the American sailors days before the 

implementation of the JCPOA, and hours before the President’s State of the 

Union address. 

8. Iran continues to develop its cyber capabilities and has engaged in malicious 

cyberattacks against U.S. Government sites, the U.S. private sector, and specific individuals. In March 2016, the Department of Justice indicted seven individuals who worked for the IRGC and carried out attacks on forty-six (46) 

American banks (including JPMorgan Chase, Bank of America, Capital One, 

and PNC Bank), the New York Stock Exchange, AT&T, and the Bowman Dam 

in a suburb of New York. In February 2014, Iran launched a cyberattack 

against the Las Vegas Sands Corporation. 

Much of this activity is not a surprise, but it cannot be dismissed as simply the 

bad behavior of a recalcitrant IRGC or extremists within the Iranian system. In the 

Iranian system, these actions are blessed by the Supreme Leader, designed to promote the interests of the regime, and calculated to test the will of the West. 

Importantly, the nature of the regime, its control of the economy, and its willingness to use the financial system to pursue all its goals internally and externally has 

not changed. The Iranian system is corrupt, lacks transparency at all levels, and 

is centrally controlled by the regime. This—along with the uncertainty of how the 

JCPOA will unfold—ultimately creates enormous risk for legitimate international 

actors and companies considering doing business in or with Iran. This explains why 

there has not been a wave of Western businesses investing aggressively or operating 

directly in Iran. It further explains why the Iranian leadership continues to complain that the United States has not satisfied its side of the bargain. 

Exposing the Risky Nature of the Iranian Regime 

The risks are real for the international business and banking communities, given 

the nature of the regime, the opacity of its economy, its continued dangerous and 

threatening activities, and remaining sanctions. 

The constriction campaign that brought Iran to the negotiating table was premised on the suspicion of Iran’s behavior and use of its financial and commercial 

system for illicit and dangerous purposes. The U.S. Treasury targeted Iran’s banks 

by using Iran’s own conduct—its proliferation activity, support for terrorist groups 

and Shi’ite militias, and lack of anti-money laundering controls, as well as the secretive and corrupt nature of the regime itself—as the cornerstone of the campaign. 

Iran’s suite of suspect activities and attempts to avoid international scrutiny 

spurred the private sector to stop doing business with Iran. No reputable bank has 

wanted to be caught facilitating Iran’s nuclear program or helping it make payments to Hizballah terrorist cells around the world. If they did, they would be 

caught and sanctioned, with enormous reputational and business consequences. 

These concerns continue. 

This produced a virtuous cycle of isolation that reduced Iranian access to the 

international financial system more and more over time. The more the Iranians 

tried to hide their identities or evade sanctions, the more suspect their transactions 

would appear and the riskier it would become for banks and other financial institutions to deal with them. Over time, bank accounts, lines of credit, and correspondent 

33 

2Frederic Wehrey, Jerrold D. Green, Brian Nichiporuk, Alireza Nader, Lydia Hansell, Rasool 

Nafisi, and S.R. Bohandy, ‘‘The Rise of the Pasdaran: Assessing the Domestic Roles of Iran’s 

Islamic Revolutionary Guards Corps’’ (Washington, DC: RAND Corporation, 2009). 3 Emanuele Ottolenghi, ‘‘The Pasdaran: Inside Iran’s Islamic Revolutionary Guard Corps’’ 

(Washington, DC: Foundation for Defense of Democracies, 2011), pp.44–45. 4 Ibid, p.43. 

5Department of State, Office of the Spokesman, ‘‘Fact Sheet: Designation of Iranian Entities 

and Individuals for Proliferation Activities and Support for Terrorism’’, October 25, 2007 

(http://2001-2009.state.gov/r/pa/prs/ps/2007/oct/94193.htm). 6Parisa Hafezi and Louis Charbonneau, ‘‘Iranian Nuclear Deal Set To Make Hardline Revolutionary Guards Richer’’, Reuters, July 6, 2015 (http://www.reuters.com/article/2015/07/06/usiran-nuclear-economy-insight-idUSKCN0PG1XV20150706); Emanuele Ottolenghi and Saeed 

Ghasseminejad, ‘‘The Nuclear Deal’s Impact on Iran’s Revolutionary Guards’’, Foundation for 

Defense of Democracies, July 17, 2015 (http://www.defenddemocracy.org/media-hit/emanueleottolenghi-the-nuclear-deals-impact-on-irans-revolutionary-guards/). 7 Benoit Faucon and Asa Fitch, ‘‘Iran’s Guards Cloud Western Firms’ Entry After Nuclear 

Deal’’, The Wall Street Journal, July 21, 2015 (http://www.wsj.com/articles/irans-guards-cloudwestern-firms-entry-after-nuclear-deal-1437510830). 

accounts were shut down. Iran’s own actions to avoid scrutiny and obfuscate transactions led to greater financial constriction. 

The Iranians deepened their greatest vulnerability. They blended legitimate business transactions with illicit ones by funneling them through similar conduits. The 

Iranian regime often tried to hide the nature of its transactions and the identities 

of the Government entities involved. They used front companies, cut-outs, and businessmen to acquire items and goods abroad that were hard to purchase, sanctioned, 

or tied to their nuclear ambitions or their weapons programs. 

At the same time, the Iranian military was taking greater control of the Nation’s 

economy. Importantly, the predominant economic player was Iran’s IRGC, the elite 

military and security unit founded in 1979. The IRGC has gained more power and 

influence over time as the protector and exporter of the revolution and reports directly to the Supreme Leader, Ayatollah Ali Khamenei. 

The IRGC is an economic juggernaut, with responsibilities related to the development of weapons of mass destruction, missile systems, and overseas operations. It 

is deeply involved in the Iranian nuclear program, and its international arm, the 

Qods Force (IRGC–QF), is responsible for providing support to terrorist proxies and 

exporting the Iranian Revolution. Between them, the IRGC and its Qods Force are 

responsible for all the activities—weapons proliferation, terrorist support, and militant activity—for which Iran was sanctioned in the past. 

The IRGC—with its vast network—has embedded itself into more industries within Iran, ultimately building what has been called a veritable business empire. 2 The 

regime and the IRGC’s control of ‘‘charitable’’ foundations—known as bonyads—with 

access to billions of dollars of assets in the form of mortgages and business interests 

for veterans of the Iranian military—served as the baseline of its economic power, 

along with its ability to construct infrastructure through a corps of engineers. The 

reach of the IRGC’s economic empire now extends to majority stakes in infrastructure companies, shipping and transport, beverage companies, and food and agriculture companies. 3

In 2006, the IRGC acquired control of the Iranian telecommunications sector, and 

it began to control more elements of the Nation’s energy sector, including the development of pipelines and the valuable South Pars oil field. This allowed the IRGC 

to exclude competition and make it more difficult for legitimate international businesses to operate. Some estimates note that the IRGC controls between 25 and 40 

percent of Iran’s gross domestic product (GDP). 4 The IRGC is deeply involved in 

building Iran’s infrastructure, pursuing projects such as deep-water ports and underground facilities important to Iran’s defense and economy. These projects and industries give the IRGC political power and access to profits and capital. 

The IRGC intervenes in Iran’s economy through three principal channels: The 

IRGC Cooperative Foundation (its investment arm), the Basij Cooperative Foundation, and Khatam al-Anbiya Construction Headquarters. The Khatam al-Anbiya 

(KAA), a massive IRGC conglomerate, was designated by the United States as a 

proliferator of weapons of mass destruction. 5 It is Iran’s biggest construction firm 

and, according to some estimates, ‘‘may be its largest company outright, with 

135,000 employees and 5,000 subcontracting firms.’’ 6 The value of its current contracts is estimated to be nearly $50 billion, or about 12 percent of Iran’s gross domestic product. 7 KAA has hundreds of subsidiaries in numerous sectors of Iran’s 

economy including its nuclear and defense programs, energy, construction, and engineering. The company is also involved in ‘‘road-building projects, offshore construcVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00037 Fmt 6621 Sfmt 6621 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
34 

8 Ibid. 

9 Iranian Official Journal, accessed July 20, 2015 (http://www.gazette.ir/). 10 U.S. Department of the Treasury, Press Release, ‘‘Finding That the Islamic Republic of Iran 

Is a Jurisdiction of Primary Money Laundering Concern’’, November 18, 2011 (http:// 

www.treasury.gov/press-center/press-releases/Documents/Iran311Finding.pdf). 11 Ibid. 12 U.S. Department of the Treasury, Press Release, ‘‘Fact Sheet: New Sanctions on Iran’’, November 21, 2011 (http://www.treasury.gov/press-center/press-releases/Pages/tg1367.aspx). 

tion, oil and gas pipelines, and water systems.’’ 8 EU sanctions against the company 

will be lifted after 8 years, whether or not the IAEA concludes that Iran’s nuclear 

program is peaceful. 

These three companies are direct shareholders of almost three hundred known 

businesses. My colleagues at the Foundation for Defense of Democracies have created a database of these companies and board members and provided it to the U.S. 

Government. 9 As a result of the IRGC’s control of the economy—control that has 

grown over time—together with sanctions relief, the risk of regime control over the 

economy will grow. In addition, the reality and risks of Iranian sanctions evasion, 

money laundering, the lack of transparency, and other financial crimes—the subject 

of international concern and U.S. regulatory action against Iran under the USA PATRIOT Act Section 311—will increase, not decrease over time. 

With the IRGC in control of an increasing share of the Iranian economy, including 

its infrastructure, telecommunications, and oil sector, risks of doing business in and 

with Iran will increase. The regime will continue to use its control of the economy 

not only to further enrich itself but also to suppress internal opposition brutally and 

ensconce its rule. The concerns over human rights abuses and regime kleptocracy 

will grow. 

As I have noted in the past, sanctions relief will increase risks over time, and 

Iran’s foreign policy will continue to challenge and threaten U.S. interests. 

From the U.S. perspective, the blend of IRGC and regime activities created the 

ultimate vulnerability, particularly the blurred lines between legitimate industry 

and support for Iran’s nuclear program and terrorist groups. Wire transfers to terrorist groups and front companies flooding money into the coffers of the Revolutionary Guard were actions seen to threaten not only international security but also 

the integrity of the financial system. The nefarious nature of the activities, tied with 

the IRGC’s attempts to hide its hand in many of its economic dealings and operations, made Iran’s financial activity inherently suspect. This has not changed. 

As part of past efforts to exclude Iran from the financial system, the U.S. Treasury made the argument directly to banks and companies around the world that it 

was too risky to do business with Iran, since no one really knew who was lurking 

behind corporate veils, pulling the strings, and accessing bank accounts and funding 

in Tehran. Would banks be willing to risk their reputations by doing business, even 

inadvertently, with the IRGC or the Qods Force? Could their compliance officers 

guarantee that they knew who was behind their Iranian customers and transactions? Was trade with Iran worth the risk of access to American markets and 

banks? 

All of this was amplified by parallel national legislation, UNSCRs, greater scrutiny from authorities around the world, and enforcement actions, led by the United 

States. The United States created a layered sanctions regime, with overlapping Executive Orders, designations, and eventually legislation, focused on the key elements 

of the Iranian regime and economy facilitating illicit and dangerous behavior. Each 

U.S. action spurred private sector and allied responses. The effects of this suspicion 

and isolation—driven by the private sector’s risk calculus and Government actions— 

had a real world impact. 

Iranian banks, including its central bank, could no longer access the international 

financial system; its shipping lines could not traverse ports easily or obtain insurance to operate; and—thanks to congressional and international action—its oil sales 

and revenues were suspended. Iran had to create workarounds, evasion schemes, 

and bartering arrangements to continue to do business. 

The Central Bank of Iran (CBI) itself has been designated in part because of 

broader sanctions evasion facilitation on behalf of the Iranian banking system. 

Treasury issued a finding in November 2011, under Section 311 of the USA PATRIOT Act that Iran, as well as its entire financial sector including the CBI, is a 

‘‘jurisdiction of primary money laundering concern.’’ 10 Treasury cited Iran’s ‘‘support 

for terrorism,’’ ‘‘pursuit of weapons of mass destruction,’’ including its financing of 

nuclear and ballistic missile programs, and the use of ‘‘deceptive financial practices 

to facilitate illicit conduct and evade sanctions.’’ 11 The country’s entire financial system posed ‘‘illicit finance risks for the global financial system.’’ 12 Those concerns 

35 

13The Financial Action Task Force, Public Statement, ‘‘FATF Public Statement 19 February 

2016’’, February 19, 2016 (http://www.fatf-gafi.org/publications/high-riskandnoncooperativejurisdictions/documents/public-statement-february-2016.html). 14 Ibid. 15Mark Dubowitz and Rachel Ziemba, ‘‘When Will Iran Run Out of Money?’’ Foundation for 

Defense of Democracies and Roubini Global Economics, October 2, 2013. 16 Eli Lake, ‘‘Iran Spends Billions To Prop Up Assad’’, Bloomberg, June 9, 2015 (http:// 

www.bloombergview.com/articles/2015-06-09/iran-spends-billions-to-prop-up-assad). 17 ‘‘CIA Director Says U.S. Will Keep Pressure on Iran over Nuclear Capabilities No Matter 

Outcome of Ongoing Talks’’, Fox News, March 23, 2015 (http://www.foxnews.com/politics/ 

Continued 

persist and are not alleviated by the JCPOA or any Iranian nuclear commitments 

or actions. 

The concerns about the integrity of the Iranian financial system are international 

in nature. The Financial Action Task Force (FATF), the global standard setting and 

assessment body for anti-money laundering, counterterrorist financing, and counterproliferation financing, has labeled Iran—along with North Korea—‘‘a high risk and 

noncooperative jurisdiction.’’ FATF has called on its members to ‘‘apply effective 

countermeasures to protect their financial sectors from money laundering and financing of terrorism (ML/FT) risks emanating from Iran.’’ 13

As recently as February 19, 2016, FATF issued a statement warning that Iran’s 

‘‘failure to address the risk of terrorist financing’’ poses a ‘‘serious threat . . . to the 

integrity of the international financial system.’’ 14 The international community recognizes that Iran—regardless of the status of its nuclear program—poses a real and 

serious threat to the integrity of the global financial system. 

This financial and economic isolation was premised on the actions and nature of 

the Iranian regime itself. Since the announcement of the JCPOA, neither has 

changed. On the contrary, Iran has demonstrated its desire to continue its aggressive activities and support to causes and groups directly antithetical to U.S. interests. 

The risks from Iran are real and will increase in an environment of sanctions 

unwinding under the JCPOA for a variety of reasons. 

In the first instance, the unfettered return of funds to the Iranian regime will 

allow Tehran the flexibility to fund its allies and proxies and flex its muscles in the 

region. Regardless of amounts available to the regime or percentage used to support 

terrorist proxies, there will be an infusion of terrorist financing into the global system. The Administration has acknowledged that some of the unfrozen funds will go 

to support terrorist and militant groups, like Hizballah, HAMAS, Iraqi Shi’ite militias, and the Houthis in Yemen. This is certainly the expectation of Iran’s allies. 

Iran could even use its capital to support the Taleban and al Qaida, with which Iran 

has maintained a relationship and provided support in the past. 

With Iran expanding its reach and presence throughout the Middle East, and 

IRGC commanders and proxies positioned from the Golan to Yemen, there will be 

more concern about Iran’s misuse of the economy, the benefits of sanctions relief, 

and the international financial and commercial system for dangerous and illicit activities. The infusion of cash as a result of sanction relief will relieve budgetary constraints for a country that had only an estimated $20 billion in fully accessible foreign exchange reserves prior to November 2013 15 but was spending at least $6 billion annually to support Assad. 16

The regime itself, and its core institutions like the Ministry of Intelligence and 

the IRGC, will benefit most immediately and deeply. Iran is a theocratic regime that 

controls the key elements of the economy. The mullahs have used their control of 

the economy—through bonyads and the Supreme Leader’s vast financial network, 

known as Setad or EIKO, and which is worth tens of billions of dollars, to enrich 

themselves and exert more control over the country. 

Despite the notion that the JCPOA resolves all ‘‘nuclear-related’’ concerns, it does 

not address real concerns over continued Iranian proliferation, to include missile 

and arms trade. With the allowance for an Iranian nuclear program, infrastructure, 

and research, the deal will likely increase (not decrease) the risk of proliferation— 

with potential Iranian trade and exchange with rogue third countries like North 

Korea. 

The dangers, challenges, and risks from Iran on a regional and global scale will 

only increase over time. In the wake of the JCPOA, Secretary of State Kerry stated 

that we will need to ‘‘push back’’ against Iran’s provocative and dangerous policies 

and tactics. CIA Director John Brennan said that the United States will ‘‘keep pressure on Iran’’ and ‘‘make sure that it is not able to continue to destabilize a number 

of the countries in the region.’’ 17

36 

2015/03/23/cia---director---says---us---will---keep---pressure---on---iran---over---nuclear---capabilities/). 18Primary sanctions are those that apply directly to (1) the activities of U.S. persons (including persons located in the United States), (2) non-U.S. persons who cause U.S. persons to violate 

U.S. sanctions regulations, (3) activities taking place within the United States, and (4) transfers 

of U.S.-regulated goods, services, and technologies. Secondary sanctions apply to non-U.S. persons where the United States lacks jurisdiction to impose primary sanctions. Such sanctions 

often include privileging a company’s access to U.S. markets on compliance with U.S. sanctions 

regulations. 19 Report available upon request. 20See 50 U.S.C. §1705. 

Indeed, the United States will need to push back, especially against increasing 

risks and threats from Iran. This has been evident in the wake of the JCPOA Implementation Day. To do this, the United States will want to use its financial and economic tools and strategies to make it harder, costlier, and riskier for Iran to threaten the U.S. and our allies. This will mean devising and deploying aggressive strategies to exclude key elements of the Iranian regime and the IRGC, Qods Force, and 

Ministry of Intelligence from the global financial and commercial system. 

The Risks of Doing Business in Iran 

On January 16, 2016, the United States, the European Union, the United Nations, and other countries unwound a substantial number of sanctions on the Islamic Republic of Iran as part of their obligations under the JCPOA. Most notably, 

many EU and UN sanctions, as well as many U.S. ‘‘secondary’’ sanctions, will no 

longer remain in force. ‘‘Primary’’ U.S. sanctions programs barring almost all U.S. 

persons from doing Iran-linked business remain. 18

In the wake of Implementation Day and with remaining sanctions and financial 

crime concerns, important questions exist regarding what doing business in or with 

Iran now means and how to evaluate and manage such risk. 

As Iran attempts to reintegrate into the world economy, many challenges remain 

for companies considering doing business in the Islamic Republic, with Iranian 

counterparties, or supporting customers operating in Iran. Dealing with the spectrum of risk—financial crime, regulatory, reputational, and policy—in the Islamic 

Republic will require that U.S., European, Asian, Middle Eastern, and other firms 

clearly understand the patchwork of sanctions that will remain in place on the country, as well as many of the systemic issues, such as corruption, impacting various 

Iranian business sectors. Companies must also factor into their business decisions 

the risk that sanctions may ‘‘snap back’’ in the medium or long term. 

The risks are amplified by Iran’s long history of sanctions evasion, illicit finance 

and corruption, and opaque financial and commercial practices. In 2015, Emanuele 

Ottolenghi produced a report 19 for the Center on Sanctions and Illicit Finance at 

the Foundation for Defense of Democracies detailing the various illicit and suspicious methods used by the Iranian regime to operate in the global financial and 

commercial system—including the establishment of sophisticated procurement networks and use of gatekeepers to facilitate financing. 

This complicated risk environment has dissuaded most legitimate companies from 

reentering and investing in the Iranian economy. While Iranian markets may appear attractive, companies considering transacting with persons in Iran or doing 

business in Iran are proceeding with caution. The recent parliamentary elections in 

Iran have not altered this analysis or trajectory fundamentally. Companies considering doing business in Iran or with Iranian persons must contend with at least 

eight sanctions and financial crimes-related risks: 

1. Primary U.S. Sanctions. Most U.S. primary sanctions, which broadly prohibit 

U.S. persons from conducting transactions in Iran, with persons resident in Iran, 

or with the Government of Iran, will remain in force. These U.S. primary sanctions 

pose significant risks for any multinational company considering doing business in 

Iran. U.S. jurisdiction is broad and U.S. regulators can use it to target transactions 

that may not initially appear to touch U.S. markets or involve U.S. persons. 

U.S. jurisdiction applies to all U.S. individuals (including U.S. citizens and permanent resident aliens, wherever located, as well as persons located in the United 

States) and entities (including any entity located or operating in the United States, 

organized under the laws of the United States, as well as foreign branches of U.S. 

entities). Further, the United States may impose penalties (civil or criminal) on any 

foreign person who causes a U.S. person to violate sanctions regulations. 20

For example, if a Middle Eastern, European, or Asian financial institution conducts transactions on behalf of an Iranian company and the transaction involves a 

U.S. bank or a correspondent account located in the United States, U.S. regulators 

will likely have jurisdiction over the transaction and can impose penalties on the 

37 

21 Note that U.S. parent companies are permitted to establish policies and procedures that 

allow these foreign subsidiaries to conduct business in Iran and with Iranian persons, though 

after the initial decision to reengage in Iran-related business and the establishment of procedures for doing so, U.S. persons cannot be involved in the activities of their foreign subsidiaries 

relating to transactions with Iranian persons or in Iran. Similarly, U.S. companies can make 

their automated computing, accounting, and communications systems available for their subsidiaries conducting permitted activities in Iran. In effect, this permits foreign subsidiaries doing 

permitted business in Iran to continue to use the same computer systems as their parent companies. Note however that provision does not allow U.S. parents to otherwise be involved in those 

activities in any way. 22Following Implementation Day, non-U.S. entities can now conduct certain transactions 

with: 

•The financial and banking industry in Iran, including maintaining correspondent accounts 

for non OFAC-designated Iranian financial institutions, the provision of financial messaging 

services, dealing in the rial and in Iranian sovereign debt, and issuing credit cards for Iranians; 

•Insurance-related activities consistent with the JCPOA, including payment of claims to nonU.S. persons; 

•The energy industry; 

•Shipping, shipbuilding, and port operations; 

•Precious and raw/semi-finished metals dealers; and 

•The automotive industry, insofar as non-U.S. goods, technology, and services are involved. 

23 Estimates vary on how much of the Iranian economy is controlled by the IRGC, with many 

analysts suggesting the IGRC controls as much as 35 percent. 

non-U.S. financial institution. Similarly, if a Middle Eastern exporting company 

with U.S. offices relies on those offices for back office functions for transactions related to Iran or with an Iranian, the U.S. offices providing back office support will 

be engaged in the prohibited exportation of services to Iran (and can be subject to 

OFAC penalties). Where the Middle Eastern entity caused the U.S. offices to provide 

the services without knowledge of the Iranian nexus, U.S. regulators could impose 

fines on that Middle Eastern entity for causing the U.S. offices to violate the sanctions. 

Even those U.S. companies taking advantage of the new General License H— 

which permits foreign subsidiaries of U.S. companies to engage in certain activities 

in Iran—will face significant sanctions-related risks. While these subsidiaries may 

be allowed to conduct those activities, if the U.S. parent company is involved in any 

Iran-related business or transactions, it will likely be exposed to U.S. primary sanctions. 21 Multinational companies must build a firewall between U.S. parents and 

any foreign subsidiary doing business with Iranian persons or in Iran, which may 

be difficult to effectively do in practice. 

Because the breadth of U.S. jurisdiction is expansive, companies based in Europe 

and Asia must be aware that any engagement with Iran may still expose them to 

remaining U.S. sanctions. Companies, particularly ones operating across borders, 

have to pay careful attention to whether they may be subject to U.S. jurisdiction, 

which might pose one of the most pressing regulatory risks that any company considering entering Iranian markets will face. 

2. Remaining U.S. Secondary Sanctions. Foreign businesses considering doing 

business in Iran will continue to face the risk of violating remaining ‘‘secondary 

sanctions’’ on Iran, which prohibit foreign financial institutions and other non-U.S. 

headquartered companies from doing certain business with Iran. While many of the 

secondary sanctions imposed since 2010 have been unwound, 22 non-U.S. persons are 

still at risk for violating remaining U.S. secondary sanctions if they engage in transactions with any one of more than 200 people and entities listed as Specially Designated Nationals (SDNs) including the IRGC and its affiliates. 

These restrictions pose additional and significant risks because under U.S. law, 

entities owned or controlled 50 percent or more by designated persons—so-called 

‘‘shadow SDNs’’—are by law also considered SDNs. For example, if a foreign financial institution processes transactions on behalf of an entity that is owned or controlled by the IRGC (whether or not that entity is listed on national or international 

lists of designated parties), it could be subject to U.S. secondary sanctions. This creates significant risk for financial institutions and other companies wishing to do 

business in Iran, given that the IRGC controls a significant portion of the economy. 23 This risk is further exacerbated by Iranian attempts to create a ‘‘gold rush’’ 

psychology in the marketplace and to muddy the waters regarding what restrictions 

may apply to specific transactions. We should expect Iranian customers and counterparties to alter ownership interests, names of entities, and ownership structures in 

an attempt to hide links to designated parties. This would match past practices of 

sanctions evasion and obfuscation of financial transactions in the past. 

Determining whether a customer, partner, or counterparty is owned or controlled 

by a designated person will be a challenging task, further complicated by the fact 

38 

24 Under EU law, several engagements previously prohibited, including associated services, 

are now allowed so long as they avoid dealing with listed Iranian persons: 

•Financial, banking, and insurance measures involving Iranian entities—including the provision of insurance to Iranian oil and gas shipments—are now permitted by EU law and do not 

require prior authorization; 

•The import, purchase, swap, and transport crude oil and petroleum products, gas, and petrochemical products from Iran, and the export of equipment to Iran for use in the energy industry 

are now permitted; 

•Engagements with the Iranian shipping, shipbuilding, and transport sectors are no longer 

restricted; 

•Trade with Iran involving gold, other precious metals, banknotes, and coinage is now permissible; 

•While the sale or transfer of certain graphite and raw/semi-finished metals to any Iranian 

entity is no longer prohibited, such activity is subject to an authorization regime; and 

•While the sale or transfer of Enterprise Resource Planning software to any Iranian entity 

for use in activities consistent with the JCPOA is no longer prohibited, such activity is subject 

to an authorization regime. 25Pursuant to the terms of United Nations Security Council Resolution (UNSCR) 2231 (2015) 

(which endorsed the JCPOA), all prior United Nations Security Council Resolutions mandating 

sanctions on Iran—namely, UNSCR 1696 (2006), 1737 (2007), 1747 (2007), 1803 (2008), 1835 

(2008), 1929 (2010), and 2224 (2015)—were formally terminated upon receipt of the IAEA’s report verifying that Iran has met its nuclear-related obligations under the JCPOA. Through 

UNSCR 2231, the UN continues to impose certain restrictions on nuclear, conventional arms, 

and ballistic missile-related activities involving Iran. 

that the Office of Foreign Assets Control (OFAC) at the United States Department 

of the Treasury has provided limited guidance on how companies looking to do business in Iran can determine whether they are inadvertently doing business with the 

IRGC. OFAC recommends only that ‘‘a person considering business in Iran or with 

Iranian persons conduct due diligence sufficient to ensure that it is not knowingly 

engaging in transactions with the IRGC or other Iranian or Iran-related persons on 

the SDN List and keep records documenting that due diligence.’’ Businesses looking 

to enter the Iranian market must make their own determinations about what constitutes ‘‘sufficient’’ due diligence without more precise guidance and while the 

structure of civil and criminal penalties for sanctions violations remains in place. 

Further, non-U.S. persons still need to be aware of remaining U.S. export controls. For example, restrictions still apply regarding the facilitation of Iranian acquisition or development of weapons of mass destruction. In addition, transfers of certain potential dual-use materials must be approved via the procurement channel established by the JCPOA. U.S. origin goods, technology, and services also are subject 

to the Export Administration Regulations, which retain prohibitions on exports and 

reexports to Iran. 

3. Remaining EU and UN Sanctions. While most EU and UN sanctions on Iran 

have been unwound, a number of important restrictions remain in place. 24 Under 

EU law, trade restrictions on the sale, export, provision, or servicing of goods 

deemed to be ‘‘internal repression equipment,’’ or used for ‘‘telecommunications surveillance and interception,’’ remain in place. Likewise, the EU will continue to impose asset freezes and prohibitions on business and trade with individuals and entities designated for committing human rights abuses and restrictions on the trade 

of certain items related to nuclear proliferation. 

Like the United States, the EU has also delisted certain entities that are thus 

no longer subject to its asset freeze, prohibition to make funds available, and visa 

ban. However, certain financial institutions such as Ansar Bank, Bank Saderat 

Iran, Bank Saderat PLC, and Mehr Bank remain listed by the EU. 

UN Security Council Resolutions that imposed sanctions on Iran for its nuclear 

program were terminated on Implementation Day. Thus, the United Nations no 

longer imposes limits on providing insurance and reinsurance products to Iranian 

entities, and no longer prohibits the opening of new Iranian bank branches or subsidiaries outside Iran (nor is there a mirrored prohibition on entities from UN member States doing the same within Iran). However, a UN arms embargo and UN 

sanctions on Iran’s ballistic missile program remain in place. Further, some individuals designated by the UN for participating in nuclear and ballistic missile programs remain designated. 25 The recent missile tests and Iranian promises for more 

simply exacerbate the risk that additional sanctions will be applied. 

4. Likely Additional Sanctions. Businesses interested in entering Iran should be 

aware that additional designations and sanctions are likely as the United States 

Congress continues to focus on illicit Iranian behavior and as Iran continues with 

activities such as ballistic missile testing and the provision of support to terrorist 

groups. Congress has explored additional sanctions legislation, in particular related 

to more stringent sanctions tied to the IRGC and its ownership and control interVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00042 Fmt 6621 Sfmt 6621 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
39 

ests. Though the Administration will resist actions that appear to reimpose lifted 

sanctions, both the House of Representatives and the Senate appear interested in 

pursuing legislation that directly or indirectly impacts Iran, including the recent 

legislation imposing additional sanctions on Hizballah. 

The Administration has wanted to demonstrate its willingness to sanction nonnuclear Iranian behavior, both to stave off additional congressional action and address Iranian threats to U.S. interests. It has not wanted, however, to impose sanctions or financial measures that would allow Iran to claim that the United States 

had violated the terms of the JCPOA. Since Implementation Day, the Treasury Department has twice used ballistic missile-related designations—in January 2016, 

designating 11 entities and individuals involved in procurement on behalf of Iran’s 

ballistic missile program, and then again in March 2016, designating additional parties tied to the missile program. Companies are aware that additional Iranian individuals, companies, and related networks could be designated, effectively requiring 

an end to any financial or commercial relationship. 

This risk increases as Iran engages in activities that spur additional U.S. and possibly EU sanctions. In addition to its support to terrorist groups and the Assad regime, its ballistic missile program, and human rights abuses, there are other risks 

attendant to doing business with Iran. Iran’s link with North Korea, and in particular its cooperation on proliferation and ballistic missile-related issues, increases 

the likelihood that the United States and the European Union will impose additional sanctions on the Islamic Republic. For example, in late January, France requested the European Union consider imposing additional sanctions on Iran for its 

continued ballistic missiles activities. 

5. Iran’s Potential Cheating on the JCPOA. If the United States or other members 

of the P5+1 conclude that Iran is cheating on its obligations under the JCPOA, they 

can snap back many of the sanctions into place. In the context of any potential 

snapback, OFAC has made clear that there will be no ‘‘grandfather’’ clause for pending transactions, meaning foreign companies doing business in Iran would need to 

very quickly wind down their operations, potentially at a significant loss. While the 

Obama administration will be unlikely to push for a comprehensive snapback of 

sanctions unless there is a serious, material breach of the JCPOA, Treasury Department officials have made it clear that they have developed more limited snap back 

mechanisms in the case that Iran pushes the envelope and engages in activities that 

violate its obligations. Similarly, depending on the outcome of the U.S. presidential 

election in November 2016, candidates have expressed a desire to reimpose sanctions on Iran. Such action could pose serious risks for foreign companies doing business in the Islamic Republic. 

6. Sanctions Violations Enforcement Posture. The United States Department of the 

Treasury has indicated it will continue to aggressively enforce regulations remaining in place. For example, acting Under Secretary of the Treasury for Terrorism and 

Financial Intelligence Adam Szubin noted, following Implementation Day, that ‘‘[w]e 

have consistently made clear that the United States will vigorously press sanctions 

against Iranian activities outside of the Joint Comprehensive Plan of Action—including those related to Iran’s support for terrorism, regional destabilization, human 

rights abuses, and ballistic missile program.’’ Indeed, the day after JCPOA Implementation Day, the U.S. Government imposed sanctions on entities and individuals 

in the Middle East and Asia for supporting Iran’s ballistic missile program. These 

types of sanctions will be used to help demonstrate to Iran and U.S. allies that 

Washington remains prepared to use economic measures to enforce existing sanctions. In addition, Iran’s history of using a variety of financial and commercial 

measures to hide its hand to evade sanctions and the scrutiny of the international 

community adds additional risk that sanctions may be applied. 

7. Regulatory Risk From Multiple Enforcement Agencies. From a regulatory and 

enforcement perspective, it is important to note that the Treasury Department and 

OFAC are not the only arbiters of sanctions violations and requirements. The 

United States Department of Justice, the Securities and Exchange Commission, 

State prosecutors, and various New York authorities, such as the Department of Financial Services, will all play a significant role in how existing sanctions regulations 

and related laws are enforced. Local authorities may elect to take a more aggressive 

enforcement posture with respect to sanctions violations, which would fall outside 

of the Federal Government’s control. Any company considering doing business in 

Iran or with Iranian individuals or entities will need to pay close attention to the 

regulatory and enforcement postures taken by these other Government agencies. 

8. Financial Crimes Risks in Iran. Though the recent business attention on Iran 

has understandably focused on sanctions-related issues, banks and businesses must 

remember that other financial crimes concerns in the Islamic Republic remain pervasive. In particular, the nature of the Iranian economy and the role of the GovernVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00043 Fmt 6621 Sfmt 6621 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
40 

ment within the economy present serious risks related to bribery and corruption, 

money laundering, and illicit financing. Iran ranked 130 of 175 countries in Transparency International’s Corruption Perceptions Index as of 2015. 

In 2011, the U.S. identified Iran as a jurisdiction of primary money laundering 

concern pursuant to Section 311 of the USA PATRIOT Act. The FATF first raised 

concerns over Iran’s lack of a comprehensive anti-money laundering/countering the 

financing of terrorism (AML/CFT) framework in 2007, and it still urges Iran to 

meaningfully address AML/CFT deficiencies and will consider urging stronger countermeasures later this year. OFAC also has made it clear that activity inconsistent 

with a wide range of Executive Orders imposing sanctions on Iran (including for 

providing support to terrorism, undermining the stability of Yemen, and other behaviors) could still subject U.S. and non-U.S. persons to sanctions. Now, the Iranian 

Government has indicated that it will begin to target ‘‘financial corruption,’’ and has 

sentenced Iranian billionaire Babak Zanjani, who helped the regime evade oil-related sanctions, and two others to death for corruption. Attention on the issue of 

corruption will now grow, as Iran attempts to do business with the world. Any companies looking to do business in Iran must be acutely aware of serious financial integrity risks beyond those posed by remaining sanctions. 

As some of the sanctions on Iran are unwound, many European, Asian, and Middle Eastern companies understandably want to reengage in the Iranian economy. 

The risk appetites of companies will likely vary by sector, with large oil, aerospace, 

auto, infrastructure, and equipment companies likely more willing to enter Iranian 

markets more quickly and with a higher tolerance for risk. For example, Airbus has 

already agreed to sell Iran 114 airplanes, and Boeing has obtained a license from 

OFAC to begin commercial discussions with Iranian airlines. 

In contrast, other sectors will have a more conservative risk approach. Shipping 

insurers have already recommended a greater degree of caution. For example, the 

London Protection and Indemnity Club, a member of the International Group of 

Protection and Indemnity Clubs, the main association of global tanker insurers, has 

recommended shipping insurers not enter contracts or fixtures involving previously 

sanctioned Iranian trade or entities without performing extensive due diligence. 

Similarly, financial institutions will be more reluctant to reenter Iranian markets, 

given recent enforcement actions targeting their activities and the stricter financial 

crime compliance environment globally. 

A significant challenge will be how financial institutions wary of the risks of doing 

business in Iran respond to pressure from clients with greater risk appetites to provide financial services for activities in Iran. Iran has already complained that European banks have remained reluctant to engage in commercial activity with Iran, 

and is now asking the IMF to help assuage such concerns with a report slated for 

release in 2018. Additional pressure and statements from Iranian leadership, including the Iranian Central Bank Governor, are echoing the charge that the United 

States is not fulfilling its obligations under the ‘‘spirit and letter’’ of the nuclear 

deal. The Iranian charge is that the U.S. sanctions and narrative of Iranian risk 

are still scaring away investment and financial dealings. 

The desire in and from Tehran to see the fruits of the nuclear negotiations, especially with more banking activity with the West, will add pressure to those institutions that remain cautious. For example, some financial institutions, including at 

least one major Japanese bank, have begun processing nondollarized transactions 

for clients operating in the Islamic Republic. Others have begun to flirt with the 

Iranian market, with South Korean commercial bank, Woori Bank, indicating it 

wants to turn its Tehran presence into a branch office, and Austrian Raiffeisen 

Bank International (RBI) signing a memorandum of understanding with Iran’s Department of Environment. Importantly, it appears that the Iranians realize that in 

order to do business legitimately with the West, they must meet the standards demanded in the Western banking world for transparency and accountability. But the 

Iranians are intent to force the United States and Europe to resolve this issue for 

them and to mark this as an essential part of JCPOA implementation. 

Keeping the Burden of Persuasion and Reform on Iran 

In implementing the deal, the United States should not fall into the trap of helping Iran rehabilitate itself. Throughout this deal, the onus should remain solely on 

Iran to alleviate concerns about its activities, lack of transparency, and failure to 

meet heightened global standards of financial integrity in the banking and commercial worlds. Iran should not get a free pass on the reforms, modernization, and accountability necessary for acceptance as a legitimate actor in the world—diplomatically and economically. This posture should force the Iranians to turn inward to determine how they can meet international expectations, instead of trying to compel 

41 

the United States and Europe to alter their standards or dictate to the private sector where and with whom they should do business. 

Unfortunately in the desire to appear to be complying with the deal, some U.S. 

actions have created the impression that the United States and European Governments have assumed the burden of reintegration of the Iranian economy into the 

global system. There are some examples worth noting: 

1. There have been reports that the United States might offer Iran the ability to 

access offshore dollar-clearing facilities, to allow for dollar-denominated transactions 

and ease Iran’s ability to trade internationally. Though such a maneuver would not 

allow Iran direct access to dollar clearing in the United States, it could be structured in a manner to create the same effect. Iranian trade would then be facilitated 

in a way not contemplated in the JCPOA. The United States should not be offering 

special exemptions or measures to assist Iran with access to dollars while Iran remains a leading State sponsor of terror, subject to serious sanctions, and designated 

as a ‘‘primary money laundering concern.’’ 

In addition, if the United States were to provide Iran with access to U.S. dollars 

for offshore transactions, then the United States would lose the ability to threaten 

this access in response to a range of Iranian provocations in the future. In effect, 

by couching access to the Western financial system and the U.S. dollar as part of 

the nuclear deal, the United States would no longer be able to cut Iran off from this 

benefit if it significantly increased its support for terrorism, as Iran would claim 

that such an attempt at coercion would violate the letter of the nuclear agreement. 

This would further give away coercive financial leverage without any bargained-for 

concession by Iran. Iran’s underlying conduct outside of the nuclear issue was not 

on the table during negotiations. The United States and the international community should not open the door to broad benefits of relief from financial exclusion that 

the Iranians neither negotiated nor deserve. 

2. The U.S. Government has been sending delegations around the globe to clarify 

existing sanctions and obligations and apparently to explain how business may be 

undertaken with the Iranian regime. Though regulatory clarity is important, the 

United States should not be launching road shows attempting to dampen concerns 

about the risks of doing business in or with Iran, especially when those risks are 

increasing. The burden instead should fall on Iran to demonstrate to Governments, 

the private sector, and the markets that its activities, policies, and use of its financial and commercial system are legitimate, transparent, and meet international 

standards. Iran should be concentrating on necessary reforms, hard policy decisions, 

and its own road shows to prove that it can be trusted as a responsible international 

player. Until then, Iran will be seen as a risky jurisdiction in which to invest and 

do business. It should not be the responsibility of the United States or Europe to 

prod businesses and banks to enter the Iranian market. 

3. The United States has announced that it plans to buy heavy water from the 

Iranian nuclear system, thus enabling Iran to produce more heavy water than it 

needs and facilitating the economic uses of a nuclear program built in violation of 

previous international sanctions. This also legitimates Iran’s nuclear program in a 

way that is not obligated in the JCPOA and promotes Iran’s expanded nuclear program. Aside from not encouraging and promoting the Iranian nuclear program beyond what is required in the JCPOA, the United States should not be serving as 

Iran’s market safety valve for the sale of heavy water, displacing existing supplies 

to the United States from legitimate suppliers like Canada and Argentina. As with 

any Iranian economic activity, Iran should be forced to deal with the international 

markets on its own, meeting relevant market and regulatory demands directly. The 

United States should not usher Iran into the global economy artificially, especially 

not in the nuclear markets, and allow Iran benefits that were not negotiated in the 

JCPOA and for which the international community has not received consideration. 

4. It has been important that the U.S. Treasury and other U.S. Government officials have reiterated the commitment to enforcing existing sanctions vigorously and 

maintaining the ability to use the tools of financial coercion to affect Iranian behavior. These commitments, however, are undercut when the United States modifies its 

messaging to suggest that our sanctions regime should not constrain or affect the 

risk calculus of the private sector. Though intended to demonstrate that the United 

States is upholding its end of the JCPOA bargain, softened language appears to suggest that the United States is already backing away from its willingness to use existing sanctions against Iran. Recently, Secretary Kerry met with European banks 

and noted that European businesses should not use the United States as an excuse 

not to invest in Iran. European businesses should be encouraged to listen to and 

account for U.S. regulatory, enforcement, and policy concerns—not ignore longstanding and legitimate concerns. 

42 

The United States cannot alter this commitment to enforce sanctions, weaken its 

call for heightened global standards for financial integrity, or jump every time Iran 

complains about its inability to access the global financial system. The United 

States cannot mute itself or its willingness to use some of our most effective financial and economic tools against dangerous Iranian activity. Unfortunately, the 

United States has quieted its voice too often in the face of Iranian aggression and 

violations in the hopes of a nuclear deal—from the deafening silence as the Green 

Movement was crushed brutally to current vacillation on whether recent ballistic 

missile tests violate the letter and spirit of the JCPOA and the related UN Security 

Council Resolution 2231. 

The United States cannot be in the position of rehabilitating the Iranian economy 

and image. This proves highly problematic and undermines U.S. credibility and 

power internationally if this is done without concern for the underlying issues and 

conduct that drove its isolation in the first place—proliferation, support for terrorism, human rights violations, and development of weaponry and programs of concern controlled by the IRGC. It is the threat to the international financial system 

of the illicit and suspect flows of money that is the baseline for Iran’s isolation. Iran 

should be forced to deal with these risks directly. 

The Strategic Use of Sanctions Moving Forward and Targeted Unwinding 

The United States should treat the JCPOA and its implementation as an ongoing 

process, where sanctions and sanctions unwinding form a strategic part of U.S. and 

international efforts to enforce the deal, maintain economic and financial leverage, 

push back on dangerous Iranian activity, and force the Iranians to make hard decisions about their role in the world. Sanctions and financial measures in this regard 

are not just tools that were used to get Iran to the table, but are essential levers 

of influence moving forward. Indeed, how sanctions are deployed and unwound could 

affect the internal dynamics of Iran in furtherance of U.S. and allied interests. 

In the first instance, the United States should not shy away from the use of sanctions against Iranian behavior and underlying conduct that is already subject to 

sanctions. The U.S. Government has the authority and ability to apply sanctions for 

the full suite of nefarious Iranian behavior—to include human rights violations and 

malicious cyber activity. This includes enforcement of existing sanctions and application of new measures to constrain Iranian behavior and discipline the international system. The United States retains the power and credibility to do this. The 

effects of U.S. actions are global and set the international norms for acceptable behavior. Absent U.S. action, attention, and enforcement, Iranian provocations will 

likely not be met with credible international push-back. If U.S. financial and economic measures are based on facts and can be explained credibly as furthering U.S. 

legal requirements and international norms, the impact will remain global and the 

effect real. 

In addition, the United States should not diminish its ability to use targeted 

unwinding tools to force Iran to make hard choices about its behavior in the international system. If implementation of the JCPOA is viewed as an ongoing and longterm process, then the United States should be thinking creatively about how to use 

these targeted unwinding measures to effectuate its strategic goals. 

The JCPOA attempts to unwind sanctions tied to the nuclear file, but the 

unwinding is difficult and complicated given the interconnected nature and effects 

of such sanctions. In some instances, the unwinding can be managed. In many other 

cases, the unwinding schedule and some of the scheduled delistings implicate actors 

and activities beyond the nuclear file, complicating our ability to easily unwind 

sanctions and threatening our ability to impose coercive leverage in the case of Iranian malfeasance beyond the nuclear file. The delisting of some key Iranian entities 

that have facilitated a range of Iranian illicit activities and the cessation of sanctions prohibitions against them, especially terrorism financing, raises serious challenges to U.S. ability to affect Iranian behavior of concern. 

There is no question trying to unwind any effective and global sanctions regime 

is difficult. Unwinding intertwined, conduct-based sanctions for a regime that uses 

its economy for various dangerous and nefarious activities of international security 

concern is incredibly challenging. But tearing down sanctions bluntly—particularly 

when pulling down the nuclear sanctions also threatens to pull down U.S. leverage 

related to issues of missile proliferation and terrorism—without addressing that underlying and related conduct creates real risks and does damage to the ability to 

use the very same tools against Iranian individuals and entities in the future. 

In light of the risks of doing business with Iran, the reintegration of Iranian 

banks into the global financial system, including via the SWIFT bank messaging 

system, presents perhaps the most concerning issue. For example, Bank Sepah was 

designated under U.S. authorities not simply because of its facilitation of the IraVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00046 Fmt 6621 Sfmt 6621 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
43 

26 ‘‘Joint Comprehensive Plan of Action’’, Vienna, July 14, 2015, paragraph 19(iv) (http:// 

eeas.europa.eu/statements-eeas/docs/iranlagreement/iranljoint-comprehensive-plan-of-actionlen.pdf). 27On Implementation Day, the EU lifted sanctions on the Central Bank of Iran and Bank 

Mellat, Bank Melli, Bank Refah, Bank Tejarat, Europaische–Iranische Handelsbank (EIH), Export Development Bank of Iran, Future Bank, Onerbank ZAO, Post Bank, and Sina Bank. Separately, the EU also lifted sanctions on Bank Sepah and Bank Sepah International. On Transition Day, the EU will also lift sanctions on Ansar Bank, Bank Saderat, and Mehr Bank. See 

Attachment 1, parts 1 and 2 and Attachment 2, parts 1 and 2 (http://eeas.europa.eu/statements-eeas/docs/iranlagreement/annexl1lattachementslen.pdf.) 28The Council of the European Union, ‘‘Council Regulation (EU) No. 267/2012 of 23 March 

2012 Concerning Restrictive Measures Against Iran and Repealing Regulation (EU) No. 961/ 

2010’’, Official Journal of the European Union, March 24, 2012 (http://eur-lex.europa.eu/legalcontent/EN/TXT/?qid=1406807228342&uri=CELEX:32012R0267). 

nian nuclear program and procurement but also its role in financing arms and missile deals, activities that should remain a concern and are subject to UN sanctions. 

The JCPOA explicitly called for the lifting of sanctions on ‘‘[s]upply of specialized 

financial messaging services, including SWIFT, for persons and entities . . . including the Central Bank of Iran and Iranian financial institutions.’’ 26 The European 

Union lifted SWIFT-related sanctions for the Central Bank of Iran and all Iranian 

banks 27 originally banned from SWIFT. 28

By allowing most of the Iranian banks back into the international financial order 

without dealing with their underlying conduct or controls, the United States and the 

international community assumed the good faith of the Iranian regime. This has 

heightened the risk that the Iranian banking system would be used by the regime 

to finance and facilitate other issues of significant national security concern. 

Instead, we should consider a process of targeted unwinding that meets our strategic goals—and could even provide Iran relief if it is willing to abide by international rules and norms regarding transparency and accountability of its financial 

system. For Iranian banks, this would mean a stricter, monitored reentry into the 

financial system, given continued concerns about their facilitation of illicit and dangerous activities by the regime. This could be effectuated through a program—led 

by the European Union—to create a monitoring system through SWIFT (akin to the 

Terrorist Financing Tracking Program) to monitor all Iranian cross-border transactions and allow for the tracking and analysis of suspect Iranian banking activities. 

Instead of the blunt unwinding measure of plugging all Iranian banks (minus a few) 

back into the global banking messaging system, an aggressive monitoring program 

could provide a ‘‘halfway’’ house for reintegration of Iranian banks over time while 

managing the risk of more Iranian money traversing the banking system. 

This type of system might actually force the Iranian regime to make some hard 

choices about not using its banks to facilitate illicit or dangerous activities that 

would be subject to monitoring and exposure. A system of targeted unwinding could 

advance the strategic goal that Iran not misuse its economy and financial system 

to benefit terrorists, proxies, and accelerate its nefarious international ambitions 

and capabilities. If such a system could prove effective, it might spur responsible 

reform within Iran as it tries to reintegrate into the global system. This in turn 

would give global banks and businesses some assurance that the Iranian banking 

system is maturing and under some degree of scrutiny. Scrutiny over such financial 

activity and reforms could help alleviate concerns by legitimate banks that they are 

being exposed to dangerous risk, especially if legitimate and trusted Government 

agencies (like financial intelligence units) are involved in the monitoring. This, in 

turn, could blunt Iranian claims that the United States was de facto continuing the 

imposition of sanctions by scaring Western banks away from doing business in Iran 

or with businesses interested in doing business in Iran. 

The current tension with Iran over the unwinding of sanctions underscores that 

the implementation of the JCPOA and ‘‘negotiations’’ with Iran will be ongoing. In 

this regard, we should take full advantage of the leverage we have and devise new 

mechanisms to ensure we meet our strategic goals. We should be reinforcing this 

power and capability, not undermining it. 

Faulty Assumptions 

The current state of sanctions unwinding reveals certain misconceptions about the 

state of play regarding the JCPOA and the position of the United States to strike 

a better bargain. There are many assumptions articulated at the time that need to 

be questioned, and there are a few that are clearly incorrect. It is important that 

this be clarified as the JCPOA unfolds and expectations and precedents are formed. 

44 

At the time of the negotiations, the financial and economic pressure campaign was 

not faltering, and the U.S. was not at risk of losing its ability to squeeze and influence Iran in the short term. 

The regime and the economy were affected by cascading isolation and falling oil 

prices. During the period of the negotiations, the pressure was increasing—belying 

the notion that the United States was facing a cracking sanctions coalition and system. Quite the opposite was occurring. The ayatollahs’ concern over the strangulation of the Iranian economy—in concert with lingering fears of the ghosts of the 

Green Movement—is ultimately what brought them to the negotiating table and 

launched them on the charm offensive that allowed them to turn the tables on the 

West. The sanctions pressure was not sustainable for the regime. President Rouhani 

admitted that these measures threatened to drive Iran into an economic ‘‘Stone 

Age.’’ 

The regime needs access to capital, new technologies, and connectivity to the oil 

markets and the global economy to maintain and sustain itself. That is what it lost 

over the past decade. It is what the Iranians negotiated to regain in the JCPOA. 

This is now the source of Iran’s most significant complaint. 

There was also never a neat divide between ‘‘nuclear’’ and ‘‘non-nuclear’’ sanctions 

when the constriction campaign launched in 2005. This campaign was intended to 

use the illicit, dangerous, and illegitimate nature of Iranian activity as the driver 

for unplugging Iran from the global financial and commercial system. This is something I tried to articulate in my testimonies before the Senate last year. The sanctions were focused on the fact that the Iranians were leveraging their own economy 

to profit the regime and allow the construction of a suspect nuclear infrastructure 

and ballistic missiles, support terrorists and militias, strengthen Assad in Syria, engage in financial obfuscation, and perpetrate massive human rights abuses. Other 

than the nuclear issues, the underlying conduct was not on the table during the 

JCPOA negotiations. Without resolution of those issues, the triggers for financial 

isolation remain. Thus, we are witnessing the difficulty of unwinding sanctions that 

have been triggered by underlying Iranian conduct that has yet to change. 

Moreover, the JCPOA has not resulted in the diplomatic unity promised or rewards for good behavior. Russia has quickly made its own deals and pacts with 

Iran—expanding coordination and cooperation in Syria and Iraq and signing deals 

for weapons systems. The United States has been forced to assuage skeptical allies 

in the Gulf and Israel and mend diplomatic wounds. European countries are engaging at different levels and pace with Iran, sending mixed messages about what is 

expected by the international community. With the varied sanctions regimes, American companies are disadvantaged by the commercial opening provided to European 

companies. Legitimate companies concerned about real and reputational risks sit on 

the sidelines while less responsible actors dive into the Iranian market. Our closest 

allies are worried, and the responsible actors are losing market opportunities. 

Finally, it is not clear that the JCPOA has opened a channel through which Iran 

can constructively engage with the international community and address the other 

serious concerns about its dangerous policies and behavior. On the contrary, Iran 

appears intent and willing to exacerbate those risks and tensions across the board. 

The JCPOA may have emboldened the regime to take more aggressive steps, exacerbating concerns among U.S. allies that Iran is being given free rein to expand its 

influence and threaten their interests. Just as important, the United States seems 

not to have a plan as to how to use the JCPOA implementation to drive broader 

strategic goals of constraining Iranian adventurism and sparking internal reforms. 

The Iranians need to decide that they are willing and able to address those issues 

of concern and change their behavior—to include issues of financial transparency, 

terrorist financing, and corruption. The Iranians must find tangible ways to demonstrate that necessary reforms are possible before they can expect to be treated as 

legitimate actors in the financial and commercial systems. This is the source of their 

isolation. 

Conclusion 

In the short term, the aversion to the risks of doing business in and with Iran 

will continue, especially if Iran continues to demonstrate an unwillingness to stop 

its provocative and dangerous activity. More importantly, Iran will not be in a position to join the international community completely, if it does not demonstrate clearly that it can engage as a trusted and transparent actor in the financial system. 

The onus to prove this should be on Iran’s shoulders. Any complaints about lack of 

access to capital, markets, or investment should be posed to the clerical regime. Iran 

has to decide whether it will abide by international standards, norms, and obligations. Absent this, it will remain a risky environment in which to do business, no 

matter how attractive the opportunities. 

45 

The United States must be willing to use its financial and economic toolkit to constrain dangerous Iranian behavior and encourage responsible Iranian activity. This 

means forcing Iran to deal with the demands of the international market place on 

its own and addressing the underlying conduct that has proven problematic and 

risky. The United States must continue to isolate rogue Iranian activity—and that 

of its proxies—through the use of sanctions and financial measures that exclude 

such actors from the global financial and commercial system. The United States 

cannot abandon its use of these tools, especially as the JCPOA unfolds and Iran continues to test the bounds of U.S. will. The United States will need to rely on sanctions and financial measures even more in the future, and we should be doing everything we can to reinforce the strength and endurance of these powers—against Iran 

and other rogue actors in the international system. 

46 

PREPARED STATEMENT OF MARK DUBOWITZ 

EXECUTIVE DIRECTOR, FOUNDATION FOR DEFENSE OF DEMOCRACIES’ CENTER ON

SANCTIONS AND ILLICIT FINANCE

MAY 24, 2016 

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PREPARED STATEMENT OF MICHAEL ELLEMAN 

CONSULTING SENIOR FELLOW FOR REGIONAL SECURITY COOPERATION, 

INTERNATIONAL INSTITUTE FOR STRATEGIC STUDIES—AMERICAS

MAY 24, 2016 

Chairman Shelby, Ranking Member Brown, distinguished Members of the Committee, I am pleased to testify before you today about Iran’s Ballistic Missile Program and the role of sanctions under the Iran Deal. 

My statement is informed by two decades of work as a missile scientist at Lockheed Martin’s R&D laboratory, and more than 25 years observing and writing about 

ballistic-missile proliferation. I have participated in technical exchanges and visited 

missile production and testing facilities in at least seven countries, and have worked 

missile-related issues with technical experts from throughout the world. Over the 

past decade I have interviewed, formally and informally, Russian and Ukrainian 

missile experts who have worked in Iran and witnessed first-hand the status of its 

missile program and its indigenous capabilities. In 2010, I authored a dossier by the 

International Institute for Strategic Studies on Iran’s Ballistic Missile Capabilities, 

which was a collaborative study supported by missile specialists from Russia, Germany, France, Israel, and the U.S. I continue to monitor missile developments 

around the world. 

My statement today reflects my views and not necessarily those of any organization to which I consult. 

Iran’s Ballistic Missile Doctrine and Capabilities 

Ballistic missiles are central to Iran’s deterrence posture and will remain so for 

the foreseeable future. The priority assigned to ballistic missiles is reflected by the 

size and scope of Iran’s arsenal, the largest and most diverse in the region. Given 

this importance, Iran will not surrender its current systems, except, possibly, under 

the direst of circumstances. Even if Iran acquires advanced military aircraft in the 

near future, ballistic missiles will continue to play a prominent role in its force 

structure. 

Iran’s pursuit of ballistic missiles predates the Islamic revolution. Ironically, the 

shah teamed with Israel to develop a short-range system after Washington denied 

his request for Lance missiles. Known as Project Flower, Iran supplied the funds 

and Israel provided the technology. The monarchy also pursued nuclear technologies, suggesting an interest in a delivery system for nuclear weapons. Both programs collapsed after the revolution. 

Under the shah, Iran had the largest air force in the Gulf, including more than 

400 combat aircraft. But Iran’s deep-strike capability degraded rapidly after the Islamic Revolution and the break in ties with the West limited access to spare parts, 

maintenance, pilot training and advanced armaments. Consequently, Tehran turned 

to missiles to deal with an immediate war-time need after Iraq’s 1980 invasion, and 

the subsequent air and missile attacks on Iranian cities. Iran acquired Soviet-made 

Scud-Bs, first from Libya, then from Syria and North Korea. It used these 300-km 

missiles against Iraq from 1985 until the war ended in 1988. 

In Tehran’s view, ballistic missiles played a critical role in responding to Iraqi 

missile attacks, and deterring future ones. The Iranian regime also witnessed how 

quickly the U.S-led coalition devastated the Iraqi army in 1991, the same army Iran 

battled to a standstill during an 8-year war. The only notable response from Iraq 

during Operation Desert Storm came in the form of ballistic-missile attacks against 

Israel, Saudi Arabia, and other Gulf countries. The diversion of coalition aircraft to 

the ‘‘Scud-hunting’’ mission, and away from the assault on Iraqi troops and equipment, further informed Tehran’s thinking. 

Throughout the 1990s and beyond, Tehran steadily expanded its missile arsenal. 

It invested heavily in its own industries and infrastructure to lessen dependence on 

unreliable foreign sources, and is now able to produce its own missiles, although 

some key components still need to be imported. Iran has demonstrated that it can 

also significantly expand the range of acquired missiles, as it has done with Nodong 

missiles acquired from North Korea. Iran’s missiles can already hit any part of the 

Middle East, including Israel. Tehran has established the capacity to create new 

missiles to address a most of its strategic objectives. 

Iran’s Arsenal 

The Islamic Republic’s arsenal now includes several types of short-range and medium-range missiles. Estimates vary on specifics, and Iran has exaggerated its capabilities in the past. There is widespread consensus that Tehran has acquired and 

creatively adapted foreign technology to continuously increase the quality and quanVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00076 Fmt 6621 Sfmt 6621 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
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tity of its arsenal. It has also launched an ambitious space program that works on 

some of the same technology. The arsenal includes: 

Shahab missiles: Since the late 1980s, Iran has purchased additional short- and 

medium-range missiles from foreign suppliers and adapted them to its strategic 

needs. The Shahabs, Persian for ‘‘meteors,’’ were long the core of Iran’s program. 

They use liquid fuel, which involves a time-consuming launch. They include: 

The Shahab-1 is based on the Scud-B. (The Scud series was originally developed 

by the Soviet Union). It has a range of about 300 km or 185 miles, and carries a 

one-ton warhead. 

The Shahab-2 is based on the Scud-C. It has a range of about 500 km, or 310 

miles, but with a 720-kg warhead. In mid-2010, Iran is widely estimated to have 

between 200 and 300 Shahab-1 and Shahab-2 missiles capable of reaching targets 

across the Gulf. Iran began modifying its Shahab-2s in 2010 to create the Qiam missile. The Qiam can fly roughly 600 km and has a detachable warhead, making it 

more difficult to detect and track using missile-defense radars. 

The Shahab-3 is based on the Nodong, which is a North Korean missile. It has 

a range of about 900 km or 560 miles. It has a nominal payload of 1,000 kg. A modified version of the Shahab-3, renamed the Ghadr-1, began flight tests in 2004. It 

theoretically extends Iran’s reach to about 1,600 km or 1,000 miles, which qualifies 

as a medium-range missile. It carries a smaller, 750-kg warhead. 

Although the Ghadr-1 was built with key North Korean components, Defense 

Minister Ali Shamkhani boasted at the time it first appeared, ‘‘Today, by relying 

on our defense industry capabilities, we have been able to increase our deterrent 

capacity against the military expansion of our enemies.’’ 

A modified version of the Ghadr-1 missile, known as Emad, was tested in October 

2015. Emad has four fins mounted at the base of the detachable warhead. In principle, the fins can steer the warhead toward the target as it descends through the 

atmosphere. In practice, however, full development of the Emad will take a decade 

or more, and scores of flight tests. The Emad’s appearance indicates that Iran seeks 

to improve the accuracy of its missiles, a priority that supersedes the need to develop longer-range missiles. Iran has repeatedly said that it does not need missiles 

with a range of greater than 2,000 km, or 1,200 miles. 

Sajjil means ‘‘baked clay’’ in Persian. The Sajjil-2s are medium-range missiles that 

use solid fuel, which offers many strategic advantages. They are less vulnerable to 

preemption because the launch requires shorter preparation—minutes rather than 

hours. Iran is the only country to have developed missiles of this range without first 

having developed nuclear weapons. 

The Sajjil-2 is domestically produced. It has a range of about 2,000 km or 1,200 

miles when carrying a 750-kg warhead. It was test fired in 2008 under the name, 

Sajjil. The Sajjil-2, which is probably a slightly modified version, began test flights 

in 2009. This missile would allow Iran to ‘‘target any place that threatens Iran,’’ according to Brig. Gen. Abdollah Araghi, a Revolutionary Guard commander. 

The Sajjil-2 appears to have encountered technical issues and has not been fully 

developed. No flight tests have been conducted since 2011. If Sajjil-2 flight testing 

resumes, the missile’s performance and reliability could be proven within a year or 

two. The missile, which is unlikely to become operational before 2017, is the most 

probable nuclear delivery vehicle—if Iran decides to develop an atomic bomb. 

Space program: Iran’s ambitious space program provides engineers with critical 

experience developing powerful booster rockets and other skills that could be used 

in developing longer-range missiles, including ICBMs. 

The Safir, which means ‘‘messenger’’ or ‘‘ambassador’’ in Persian, is the name of 

the carrier rocket that launched Iran’s first satellite into space in 2009. It demonstrated a new sophistication in multistage separation and propulsion systems. 

The Simorgh, which is the Persian name of a benevolent, mythical flying creature, 

is another carrier rocket to launch satellites. A mock-up was unveiled in 2010. The 

Simorgh may have been flight tested in April 2016, though it either failed, or only 

the first stage was launched. The first stage is powered by a cluster of four-Nodong 

engines. 

Military and Strategic Utility of Iran’s Missiles 

Iran’s ballistic missiles have poor accuracy. The successful destruction of a single 

fixed military target, for example, would probably require Iran to use a significant 

percentage of its missile inventory. Against large military targets, such as an airfield or seaport, Iran could conduct harassment attacks aimed at disrupting operations or damaging fuel-storage depots. However, the missiles would probably be 

unable to shut down critical military activities. Missile defenses would further degrade the military utility of Iran’s missiles. 

74 

Without a nuclear warhead, Iran’s ballistic missiles are likely to be more effective 

as a political tool to intimidate or terrorize an adversary’s urban areas, increasing 

pressure for resolution or concessions. Such attacks might trigger fear, but the casualties would probably be low—likely less than a few hundred, even if Iran unleashed its entire ballistic missile arsenal and a majority succeeded in penetrating 

missile defenses. 

The technology adopted for use on the new Emad indicates that Iran hopes to improve the precision of its larger missiles. Substantial improvements in missile accuracy will take years, if not a decade, to materialize. 

Ballistic missiles no doubt would be the preferred delivery platform should Iran 

ever acquire an atomic weapon. There is no formal definition of what constitutes a 

‘‘nuclear-capable missile,’’ although the range-payload threshold established in the 

Missile Technology Control Regime (MTCR) offers a broadly accepted classification 

measure. The MTCR restricts the transfer of missiles capable of delivering a 500 

kg payload to 300 km. 

Iran’s Shahab, Qiam, Ghadr, Emad, and developmental Sajjil missiles exceed the 

MTCR performance threshold. Under this definition, Iran possesses more than 300 

nuclear-capable ballistic missiles. 

Flight tests are an essential element of any missile program. Flight tests are used 

to: 

• Validate the design, performance and reliability of a missile, under a variety 

of operational conditions; 

• Verify the quality of indigenously produced missiles; 

• Ensure reliability as the missiles as they age; 

• Provide troop training and ensure readiness; 

• Strengthen the credibility of a Nation’s deterrence capabilities; 

• Threaten and coerce rivals. 

Because Iran views ballistic missiles as a critical instrument of statecraft, deterrence, and war-fighting, Tehran will very likely continue with missile testing. Sanctions are unlikely to deter Iran from testing its missiles. 

The pace of missile testing by Iran last year and this year is consistent with past 

practices. Iran did not conduct a nuclear-capable missile launch in 2005, 2013, or 

2014, when serious nuclear negotiations were underway. From 2006 to 2012, when 

talks were going nowhere, Iran averaged roughly five test launches per year. Three 

flight tests were performed in 2015, and five have occurred this year. 

To place this in perspective, the U.S. and Soviet Union, on average, conducted 

more than 10 flight tests per year for each operational system throughout the Cold 

War. Given the number of systems deployed, each side conducted about one test a 

week. 

75 

Long-Range Missiles 

I have seen no evidence to suggest that Iran is actively developing an 

intermediate- or intercontinental-range ballistic missile (IRBM or ICBM, respectively). I cannot speak to a covert program. The need to flight test missiles before 

they are made operational provides advanced warning of new capabilities. Flight 

trials involve a dozen or more test launches, and historically require 3 to 5 years 

to complete, sometimes more. 

Available evidence, including the recent debut of the Emad medium-range missile, 

indicates that enhancing missile accuracy supersedes Iran’s quest for longer-range 

systems. 

Iran could attempt to use Sajjil technologies to produce a three-stage missile capable of flying 3,700 km or 2,200 miles. But it is unlikely to be developed and actually 

fielded before the Sajjil-2 missile is fully developed. 

Iran could elect to develop a ‘‘second-generation’’ intermediate-range missile of 

4,000 km to 5,000 km, or 2,500 miles to 3,100 miles, using solid-fuel technology. 

This path would provide a basis for also developing an ICBM. However, Iran’s engineers would need to design, develop and test a much larger rocket motor to support 

IRBM and ICBM projects. Large motor development typically requires 2 to 3 years, 

and involves many ground tests to validate design and production, as well as performance and reliability. Ground testing would necessarily be followed by at least 

3 years of flight trials. Thus, there is little reason to believe that the Islamic Republic could field an IRBM before 2020. Moreover, Iran would still have to rely on imported technologies, production materials, components and technical assistance. 

Iran’s past missile and space-launcher efforts suggest that Tehran would probably 

develop and field an IRBM before trying to develop an intercontinental ballistic missile capable of reaching the United States more than 9,000 km or 5,600 miles away. 

If development of an intermediate- and intercontinental-missile are pursued in tandem, Iran could conceivably field an operational ICBM in 2022, at the earliest. If 

done sequentially, Iran will struggle to achieve a viable ICBM capability before 

2025. 

Iran could attempt a short-cut to an IRBM or ICBM capability. Satellite launch 

activity could, in principle, be used as a springboard to developing an IRBM or 

ICBM. However, no country has converted a satellite launcher into a long-range ballistic missile. There are sound reasons why such a conversion has not materialized. 

Without question, rockets designed to boost a satellite into orbit and long-range 

ballistic missiles employ many of the same technologies, key components, and operational features. There are, however, key characteristics that differentiate satellite 

launchers from ballistic missiles, apart from the payload itself. Firstly, ballistic missile payloads must survive the rigors of reentry into the earth’s atmosphere. Protecting a long-range missile’s payload from the extreme heat and structural loads 

experienced during reentry requires the development and production of special materials, as well as testing and validation under real conditions. 

Secondly, satellite-launch vehicles and long-range ballistic missiles employ distinctly different trajectories to fulfil their respective missions. The different trajectories call for different propulsion systems for optimal performance. One cannot simply swap out one engine for another and expect the missile to perform with high 

dependability. Multiple flight tests of the new configuration are needed to validate 

performance and reliability. 

A third, less obvious difference lies with the operational requirements. Before 

flight, satellite launchers, unlike their ballistic missile counterparts, are prepared 

over a period of many days, if not weeks. Components and subsystems are checked 

and verified prior to launch. The mission commander has the flexibility to wait for 

ideal weather before initiating the countdown. If an anomaly emerges during the 

countdown, engineers can delay the launch, identify and fix the problem, and restart 

the process. 

In contrast, ballistic missiles, like other military systems, must perform reliably 

under a variety of operational conditions with little or no warning. These operational requirements impose a more rigorous validation scheme, which includes an 

extensive flight-test program. Normally, only after successfully completing validation testing is a missile deemed to be combat ready. This latter requirement, and 

the need to ensure prelaunch survivability, explain why the Soviets and Americans 

never converted a satellite launcher into a ballistic missile, though the reverse process occurred frequently. China developed its early long-range missiles (DF-3, DF-4, 

and DF-5) and satellite launchers (CZ-2 and CZ-3) in parallel. However, running the 

developmental programs in tandem did not obviate the need to conduct a full set 

of flight trials over many years for the military missiles. Nor did the parallel programs shorten the development timeline significantly. 

76 

Iran’s Safir and Simorgh rockets are optimized to lift a satellite into orbit. The 

second stages used by the Safir and Simorgh are powered by low-thrust, long-action 

time engines, which accelerate the satellite along a path that parallels the earth’s 

surface. A ballistic missile trajectory must climb to higher altitudes to optimize its 

range capacity. An underpowered second stage would necessarily fight gravitational 

forces over a longer time, robbing the payload of velocity and thus range. Iran would 

likely modify the Simorgh by replacing the second stage’s propulsion system with 

a Scud or Nodong engine. 

Iran could opt to modify the Simorgh satellite-launch platform for use as a ballistic missile, though the transformation would not be simple or quick. There would 

still be a need to flight test the transformed Simorgh in a ballistic missile mode. 

If Iran built a ballistic missile using the Simorgh’s first stage, and replaced the second stage with a Nodong, the notional missile might achieve a maximum range of 

4,000 to 6,000 km, depending on configuration details and the payload. To reach the 

continental U.S., a powerful third stage would have to be developed and added to 

the first two stages of the Simorgh. The notional missile would remain poorly suited 

for use as a ballistic missile, because it would be too large and cumbersome to deploy on a mobile launcher. It would therefore have to be placed in a silo, making 

it an attractive target for adversaries possessing advance reconnaissance and strike 

capabilities. 

Nonetheless, Iran could elect to upgrade and modify its Simorgh. The Soviet 

Union considered an analogous upgrade in 1957, when the Yangel Design Bureau 

suggested combining the main boosters of the R-12 and R-14 missiles to create the 

R-16 ICBM. The R-16 was successfully developed, but only after substantial redesign, including the development of new engines using more energetic propellants. 

The Soviet experience suggests that Iran would find it challenging and time consuming to build an operational ICBM derived mainly from Simorgh hardware. A 

new missile design seems more plausible. 

Indigenous Capabilities 

Iran possesses the technical, project-management and industrial capacity to develop and field the ballistic missiles it desires. But development of new systems will 

require sustained investment, years of patience and a tolerance for failed projects. 

The modifications of the Shahab-2 and Shahab-3, to create the Qiam and Ghadr 

missiles, respectively, demonstrate Iran’s technical prowess and ingenuity. North 

Korea has no equivalent, suggesting that Iran is slowly surpassing its original supplier of systems, components and technology. Iran has also leveraged Shahab-3 technology to develop the Safir and Simorgh satellite launchers. Finally, Iran has, over 

the course of three decades, mastered many key aspects of solid-propellant motor 

production. 

However, Iran is not fully self-sufficient. Available evidence indicates that Iran 

cannot fabricate reliably the Scud and Nodong liquid-propellant engines that power 

its operation missiles. This may change in the future, although the history of ‘‘reverse-engineering’’ complex equipment suggests otherwise. The Soviet Union, for example, could not successfully clone the German V-2 missile after the war, despite 

have access to much of the original production line, the original blueprints and 

many of the key German specialists that developed the V-2. Similarly, the Soviet 

attempt to reverse-engineer the American B-29 bomber resulted in a Tu-4 which did 

not perform like the original. It seems much more likely than not that if Iran wishes 

to expand its arsenal of liquid-fueled missiles, it will have to import additional engines from North Korea. North Korea’s liquid-fueled engines were very likely fabricated in the Soviet Union in the 1980s and 1990s. 

Iran’s development of the Sajjil-2 missile appears to have stalled, partly because 

it cannot indigenously produce some of the key ingredients used in the manufacture 

of solid-propellant motors. Iran has successfully imported key ingredients, though 

disruptions to the supply chain have forced it to use multiple providers. Relying on 

different suppliers, each of whom produces key ingredients to different standards, 

introduces many new variables to the solid-propellant production process, which is 

challenging enough under the best of circumstances. The challenges are amplified 

many fold as the size of the rocket motor to be produced grows. Iran’s reliance on 

foreign suppliers creates opportunities for those countries that seek to slow the development of large missiles propelled by solid propellant. 

Iran–North Korea Missile Cooperation 

North Korea supplied Iran with ballistic missiles and technology beginning in the 

mid-1980s and receding in the late 1990s. The relationship was highly transactional; missiles and missile technologies were exchanged for cash. Evidence over 

the past decade indicates that North Korea–Iran cooperation is limited in both scope 

77 

and depth. Some testing data may have been exchanged in the early 2000s, as Iran 

began efforts to modernize the design of the Nodong/Shahab-3 to create the Ghadr 

missile. North Korea is not known to have tested an equivalent version of the 

Nodong, although imprecise mock-ups of a missiles having a nosecone geometry 

similar to the Ghadr’s were shown during a military parade in Pyongyang in late 

2010. 

Sharing of blueprints and other sensitive information seems unlikely, primarily 

because of security issues. Interviews with Russian and Ukrainian missile specialists who worked in Iran during the late-1990s, and early-2000s reveal that Tehran 

heavily compartmentalizes its most valued weapons programs. This was done to 

prevent foreigners from understanding the scope and status of Iran’s missile endeavors, its indigenous capabilities, and its technology import requirements. It 

seems reasonable that the same security standards and practices are applied to the 

North Koreans who may continue to assist Iranian efforts. The barriers erected to 

preserve security would also, by definition, impede cooperation. 

Signs of minimal cooperation are also evidenced by the missiles and satellitelaunch vehicles developed by the two countries. North Korea’s Taepo-dong 1 satellite 

launcher, which overflew Japan in 1998, was a three-stage system. Iran’s Safir 

launch vehicle uses two stages. North Korea abandoned the Taepo-dong 1, in favor 

of the larger Taepo-dong 2 (Unha) launcher, after only one (unsuccessful) flight. The 

Safir has been used at least seven times since 2008, with just over half of the 

launches resulting in success. 

Iran’s Simorgh launch vehicle, like the Safir, is a two-stage rocket. North Korea’s 

Unha is a three-stage system. And while it is true that the first stage of the Unha 

and Simorgh are powered by a cluster of four Nodong engines, the two designs are 

significantly different. South Korea recovered from the ocean two Unha first stages, 

the first from the December 2012 flight, the second from the February 2016 launch. 

After analyzing the recovered debris, the South Korean Government concluded that 

in addition to the four main engines, four small ones were also used to steer the 

Unha during first-stage operation. Each of the steering engines received its fuel and 

oxidizer by tapping into the plumbing that feeds an adjacent main engine. This arrangement reduces slightly the thrust output of the main engines by depriving it 

of the propellant flow diverted to the steering engines. The small reduction in thrust 

is compensated, though not fully, by the thrust generated in the steering engines. 

The Unha configuration is a reasonable, low-risk design. 

Photographs of the Simorgh’s first stage show that it too employs four steering 

engines for flight control. However, a separate pump—scavenged from a Scud engine—is used to deliver fuel and oxidizer to the four steering engine. The Iranian 

design provides the Simorgh’s first stage with an extra 13 tons of thrust when compared to the Unha’s first stage. The different designs indicate that North Korea and 

Iran do not share blueprints for their respective satellite launchers. Given the more 

sensitive nature of ballistic missile designs, it is reasonably safe to conclude that 

the two countries do not codevelop military missiles. 

Containing Iran’s Ballistic Missile Program 

Multilateral sanctions, most notably UN Resolution 1929, likely played a prominent role in retarding development of the Sajjil medium-range missile. Technical 

challenges and the deaths of several key personnel in late-2011 may also contributed to the delays. The apparent success of the sanctions, which disrupted the supply of critical ingredients used to produce solid fuels, was facilitated by the UN 

Panel of Experts on Iran. The Panel was responsible for investigating potential violations. The investigations, and reporting to the Panel by Governments interdicting 

proscribed shipments to Iran, raised international awareness of the sanctions. The 

Panel’s work also identified illicit networks and pathways, which further underscored the international community’s role in enforcing Resolution 1929. 

However, the Panel does not exist under Resolution 2231. The U.S. should work 

with the Security Council to reinstate the Panel, with a focus on enforcing the trade 

restrictions contained in Resolution 2231. 

The success of unilateral sanctions, especially those leveled against Iranian enterprises and individuals, is historically ambiguous. Iran creates new trading companies to replace those that have been sanctioned. As Iran renews international trade 

under the relief granted by the JCPOA, unilateral sanctions may or may not become 

more effective. It is difficult to predict. 

The Proliferation Security Initiative—and international effort to disrupt the flow 

of WMDs and related technologies—could be an effective tool for intercepting shipments from North Korea, Iran’s principle, if not sole source for missile engines. 

Without a supply of additional engines from North Korea, Iran will find it difficult 

to expand its arsenal of liquid-fueled missiles. This may drive Iran to seek greater 

78 

1 ‘‘Written Testimony of Adam J. Szubin, Acting Under Secretary of Treasury for Terrorism 

and Financial Intelligence United States Senate Committee on Banking, Housing, and Urban 

Affairs’’, U.S. Department of the Treasury, press release, August 5, 2015, https:// 

www.treasury.gov/press-center/press-releases/Pages/j10144.aspx. 

self-reliance, but the cost of developing and qualifying a production line for these 

engines will be high. 

In response to the growing threats posed by Iran’s ballistic-missile arsenal, the 

Pentagon has worked tirelessly with our Gulf partners, Israel and NATO to deploy 

regional-missile defenses for protection. Joint missile-defense exercises with our 

Gulf partners—and Israel—offer a tangible counter narrative to Iran’s missile tests, 

and possibly deter Iranian use of missiles. Joint-exercises will also serve to enhance 

the capabilities and effectiveness of the missile-defense systems deployed in the region. 

Iran has said it does not need missiles with a range exceeding 2,000 km. The U.S. 

should explore options that, at a minimum, would legally codify that range limit. 

Other limitations may be ripe for negotiation, including those that increase the 

transparency of Iran’s space program. 

PREPARED STATEMENT OF ELIZABETH ROSENBERG 

SENIOR FELLOW AND DIRECTOR, ENERGY, ECONOMICS, AND SECURITY PROGRAM, 

CENTER FOR A NEW AMERICAN SECURITY

MAY 24, 2016 

Chairman Shelby, Ranking Member Brown, and distinguished Members of the 

Committee, thank you for the opportunity to testify today on the role of sanctions 

under the Iran deal. 

Sanctions on Iran created the pressure necessary to compel Iran to agree to a deal 

with the international community last year. In exchange for economic relief, the Iranian Government agreed to curb its nuclear weapons capability. The effectiveness 

of Iran sanctions can be traced directly to the diligence and creativity of policymakers in Congress and in this Administration, as well as the previous one. Specifically, the leadership of U.S. lawmakers and executive branch implementation and 

enforcement officials helped to craft a coherent international message regarding 

Iran’s threatening proliferation behavior, a multilateral coalition to isolate Iran diplomatically and financially, and the collective financial leverage so critical to delivering the Iran nuclear deal. This deal was a major step forward in proliferation security in the Middle East and I applaud the work of this Committee for your important role in facilitating effective nuclear diplomacy. 

The Iran sanctions regime was, and remains, the most comprehensive program of 

U.S. and international sanctions, commensurate with the grave security concerns regarding Iran’s nuclear proliferation activities, as well as its ongoing regional destabilization, ballistic missile program, support for terrorism, and abuse of human 

rights. Many U.S. and international sanctions on Iran were waived on Implementation Day, the milestone of the nuclear deal recognizing Iran’s completion of its major 

initial commitments to ship out nearly all of its enriched uranium, disassemble 

thousands of centrifuges, and submit to a much more comprehensive inspections regime. However, the United States maintains sanctions authorities relevant to Iran 

as part of the deal, as well as a wide array of sanctions on Iran outside the scope 

of the deal, including those that bar U.S. companies and citizens from doing business with Iran. The existing architecture of Iran sanctions remains very powerful 

and affords an enormous amount of leverage to U.S. policymakers to pursue Iranian 

security provocations and destabilization. 

Unwinding Nuclear Sanctions Under the Iran Deal 

On Implementation Day the removal of many EU sanctions and the exercise of 

U.S. sanctions waivers and issuance of licenses permitted Iran to expand its oil 

sales and access $100 billion in frozen assets. 1 Additionally, the United States, the 

EU, and the UN together removed hundreds of designated Iranian entities from 

sanctions lists, including Iranian banks that then gained access to European financial institutions. Iranian institutions have been able to expand their international 

ties since January, though this expansion is far from the tidal wave of new economic 

activity that many hoped for or feared. Iran has established new oil trading conVerDate Nov 24 2008 13:09 Dec 20, 2016 Jkt 046629 PO 00000 Frm 00082 Fmt 6621 Sfmt 6621 L:\HEARINGS 2016\05-24 UNDERSTANDING THE ROLE OF SANCTIONS UNDER THE IRA
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2 ‘‘Italy’s Renzi Signs Potentially Huge Business Deals in Iran’’, Reuters, April 12, 2016, 

https://www.reuters.com/article/us-iran-italy-idUSKCN0X91I2. 3 Chen Aizhu, ‘‘Exclusive: Iran Renews Oil Contracts With China, Taps New Buyers’’, Reuters, December 3, 2015, http://www.reuters.com/article/us-china-iran-oilidUSKBNOTM0CN20151203. 4Martin Arnold, ‘‘British Regulators Help Iranian Banks Come in From the Cold’’, Financial 

Times, January 31, 2016, http://www.ft.com/intl/cms/s/0/54144ec2-c692-11e5-b3b1- 

7b2481276e45.html#axzz45ojdIkOv. 5Mehrnosh Khalaj and Michael Stothard, ‘‘Peugeot Agrees Deal To Revive Iran Partnership’’, 

Financial Times, February 7, 2016, http://www.ft.com/intl/cms/s/0/71b1acd8-cdbb-11e5-831d09f7778e7377.html#axzz45oJdIkOv. 6 Barbara Slavin, ‘‘Central Bank Governor: Iran Expects Access to U.S. Financial System’’, AlMonitor, April 15, 2016, http://www.al-monitor.com/pulse/originals/2016/04/iran-expects-limited-access-us-financial-system.html; Patrick Clawson, ‘‘Iran Locks Itself Out of the International 

Financial System While Blaming Washington’’, The Washington Institute, Policywatch 2600, 

April 5, 2016, http://www.washingtoninstitute.org/policy-analysis/view/iran-locks-itself-out-ofthe-international-financial-system-while-blaming-w. 7 ‘‘FATF Public Statement—19 February 2016’’, FATF, High-risk and noncooperative jurisdictions, February 19, 2016, http://www.fatf-gafi.org/publicacions/high-riskandnoncooperativejurisdictions/documents/public-statement-february-2016.html. 8 ‘‘Corruption by Country/Territory: Iran’’, Transparency International, accessed April 14, 

2016, https://www.transparency.org/country/#IRN. 9 ‘‘Ease of Doing Business Index’’, World Bank, Accessed April 14, 2016, http:// 

data.worldbank.org/indicator/IC.BUS.EASE.XQ. 10 ‘‘Islamic Republic of Iran—2015 Article IV Consultation—Press Release; Staff Report; and 

Statement by the Executive Director for the Islamic Republic of lran’’, International Monetary 

Fund, IMF Country Report No. 15/349, December 2015, http://www.imf.org/external/pubs/ft/ 

scr/2015/cr15349.pdf. 11Kambiz Foroohar, ‘‘U.S. Frowns on New Iran Sanctions by Congress After Missile Test’’, 

Bloomberg, April 13, 2016, http://www.bloomberg.com/news/articles/2016-04-13/u-s-arguesagainst-more-iranian-sanctions-after-missile-tests. 

tracts in Europe 2 and expanded oil deliveries to Asia. 3 Several Iranian banks are 

reestablishing branch licenses and correspondent relationships in Europe and are 

renewing their tics with Asian counterparts. 4 Additionally, Iran’s charm offensive 

to market new deals for trade and investment, including in areas such as automobiles and airplanes, have met some success internationally. 5

There are various reasons why Iran will expand its links to the international financial system slowly, however. The cumbersome unraveling of nuclear sanctions 

restrictions at banks and companies around the world in order to engage in nowpermitted business with Iran is only one factor. Remaining sanctions on Iran for its 

terrorist and ballistic missile activities are a deterrent to those who would contemplate business with Iran, along with prudential concerns related to a history of 

corruption, and a lack of transparency and maneuverability for foreign firms in 

Iran’s financial system. Beneficial ownership information for Iranian legal entities 

is notoriously unavailable and confusing, and there is a lack of confidence in Iranian 

due process mechanisms for foreign entities conducting business there. Iranian 

banks also lag behind many emerging market peers in compliance with global tax, 

financial reporting, capital requirements, and anti-money laundering standards, a 

fact tacitly acknowledged by Iranian financial overseers. 6 The Financial Action Task 

Force has pointed out risks associated with Iran’s economy in grave terms, 7 Transparency International ranks Iran 130 out of 168 on their corruption index, 8 the 

World Bank’s Ease of Doing Business Ranking puts Iran at number 118 out of 189, 9

and the International Monetary Fund has recently called attention to Iran’s troubled banking system. 10 These various factors represent tremendous impediments to 

foreign investment in Iran and the creation of new commerce for the Iranian regime 

and people. 

Beyond Iran’s self-imposed financial troubles, its escalating regional provocations 

and continued aggression through proxies make the specter of future confrontation 

with its neighbors or the United States a real possibility. Iran has the largest, most 

lethal ballistic missile arsenal in the Middle East and has stepped up missile tests 

in recent months. 11 It has also expanded its material support to the Houthis in 

Yemen and continues to support other proxies that destabilize the region, including 

Hezbollah. Iran’s aggressive rhetoric and flagrant disregard for the United Nations’ 

restrictions on ballistic missile activity is a red flag to potential partners, who are 

already wary of the reckless behavior of Iran’s revolutionary leaders. 

For reasons of political and security risk, existing sanctions, and the serious financial challenges associated with attempting business with Iran, many global 

banks have made it clear that they do not plan on doing business with Iran. In addition, as HSBC has pointed out, the different rules for U.S. banks and foreign banks 

when it comes to dealing with Iran is another road block for many foreign banks 

80 

12Stuart Levey, ‘‘Kerry’s Peculiar Message About Iran for European Banks’’, The Wall Street 

Journal, May 12, 2016, http://www.wsj.com/articles/kerrys-peculiar-message-about-iran-for-european-banks-1463093348. 13 ‘‘Verification and Monitoring in the Islamic Republic of Iran in Light of United Nations Security Council Resolution 2231 (2015)’’, IAEA, February 26, 2016, https://www.iaea.org/sites/ 

default/files/gov-2016-8-derestricted.pdf. 14Ladane Nasseri, ‘‘Executives Are Confused by Iran Sanctions’’, Bloomberg, May 17, 2016, 

http://www.bloomberg.com/news/articles/2016-05-17/iran-s-allure-tempered-by-confusion-onsanctions-survey-shows. 15 ‘‘Treasury Sanctions Those Involved in Ballistic Missile Procurement for Iran’’, U.S. Department of the Treasury, press release, January 17, 2016, https://www.treasury.gov/press-center/ 

press-releases/Pages/jl0322.aspx. 16 ‘‘Treasury Sanctions Supporters of Iran’s Ballistic Missile Program and Terrorism-Designated Mahan Air’’, U.S. Department of the Treasury, press release, March 24, 2016; ‘‘Treasury 

Sanctions Key Hizballah Money Laundering Network’’, U.S. Department of the Treasury, press 

release, January 28, 2016, https://www.treasury.gov/press-center/press-releases/Pages/ 

jl0331.aspx; ‘‘Publication of the Hizballah International Financing Prevention Act of 2015 Related Sanctions Regulations; Counter Terrorism Designations Updates; Syria Designations Updates’’, U.S. Department of the Treasury, April 15, 2016, https://www.treasury.gov/resourcecenter/sanctions/OFAC-Enforcement/Pages/20160415.aspx. 

that work to create institution-wide compliance protocols across all the jurisdictions 

in which they operate. 12 It can be too difficult, risky, or impractical to have different compliance practices for U.S. business units by comparison to those for business units outside the United States, and foreign banks reasonably fear that creating different standards may expose them to complicated and expensive regulatory 

actions in the future if policy changes. The financial institutions and companies that 

will attempt new Iran business are generally moving slowly with actual contracts 

and deals, biding time to discover what market pitfalls or potential future sanctions 

may mean for their business. Furthermore, many of these banks are regional banks 

with a relatively smaller capacity to handle trade and structured finance, and retail 

services. They may also be more concentrated in Asia, with more limited exposure 

to the U.S. financial system than their European counterparts. 

Overseeing the Nuclear Deal and Addressing Non-Nuclear Concerns With 

Iran 

The core technical work of overseeing the Iran deal falls to nuclear experts involved in compliance and verification activities. The International Atomic Energy 

Agency (IAEA), the lead institution on this effort, has so far given Iran fair marks 

for upholding its nuclear commitments under the deal. In February, it issued its 

first monitoring report following Implementation Day, raising no concerns about 

Iran’s activities. 13

For sanctions officials, overseeing the nuclear deal involves two primary lines of 

effort. The first is education and outreach to the global community to clarify what 

new business activities are permitted under the nuclear deal and what remain off 

limits pursuant to existing sanctions. This educational initiative is, by necessity, ongoing, given the dynamic nature of sanctions and evasion techniques that designated entities may pursue. The U.S. Government has sent delegations around the 

world in this effort, but much more must be done to address confusion within the 

global private sector about what business is now allowed with Iran and the appropriate controls that must be in place to prevent sanctions violations in the future. 14

The second primary effort for sanctions officials overseeing the nuclear deal is ensuring that sanctions authorities are primed for use, so that the United States and 

international allies are able to reimpose sanctions in part or in whole if Iran violates 

its nuclear commitments. Keeping authorities up to date means the reauthorization 

of the Iran Sanctions Act before it expires at the end of the year. Additionally, it 

means readying potential additional contingency measures, including new approaches to sanctions enforcement or possible new sanctions authorities, if Iran fails 

to uphold its commitments under the nuclear deal. 

Using sanctions to address non-nuclear concerns with Iran is distinct from oversight of the nuclear deal. Unique authorities exist for sanctioning Iran’s support for 

terrorism and use of ballistic missiles, its involvement in narcotics trafficking and 

malicious cyberattacks, as well as its human rights abuses. The Treasury Department has announced scores of designations under these authorities over the years, 

including a number of designations during negotiations on the nuclear deal. In recent months the Obama administration announced sanctions on Iran for its ballistic 

missile procurement activities and tests, including new sanctions on Implementation 

Day. 15 It also announced designations highlighting Iran’s support for terrorism, including through designations of entities and individuals that support Mahan Air, in 

March, and Hezbollah, in January and April. 16 This is important work and I urge 

81 

17Joint Comprehensive Plan of Action, July 14, 2015, 13–14. 

the Administration to expand its sanctions implementation and enforcement in 

these areas. This is particularly important with regard to the work of exposing and 

targeting the insidious and dangerous activities of the IRGC within and beyond the 

borders of Iran, including exposing the financial activity and holdings of the IRGC, 

its agents and instrumentalities, and Iran’s regional terrorist proxies, whenever feasible. The U.S. Government should, at a minimum, designate the IRGC under its 

terrorism authorities. 

Beyond designating more targets, sanctions officials in the Administration should 

pursue non-nuclear concerns with Iran by urging foreign counterparts to match U.S. 

sanctions measures related m Iran’s support for terrorism and use of ballistic missiles, as well as its human rights abuses. This includes outreach to European officials in the position to enhance EU sanctions lists to include more IRGC targets and 

entities involved in Iran’s ballistic missile program and support for terrorism. As a 

specific example, outreach to the Europeans should include encouraging EC authorities to use sanctions restrictions to deny access to European airports for Mahan Air, 

given its involvement with Iranian support for terrorism. Expanding transatlantic 

unity on sanctions targeting Iran’s continued security provocations and destabilizing 

regional role will send an important message to Iran: the international community, 

led by the United States and Europe, broadly condemns Iran’s threatening behavior 

and is expanding its campaign to expose, interdict, and counter it through security 

and diplomatic means. 

Alongside this additional sanctions implementation and coordination activity, U.S. 

policymakers and their European counterparts should also specifically and publicly 

identify Iran’s self-imposed financial problems. Doing so will make clear to Iran and 

the global community that Iran bears significant responsibility for improving its economic conditions, and that the removal of sanctions under the nuclear deal cannot 

independently deliver a windfall to Iran. The strongest and most credible strategy 

to highlight Iran’s need to improve its financial transparency and accountability is 

for technical experts inside the U.S. Government, as well as outside at institutions 

such as the International Monetary Fund, the Financial Action Task Force, Transparency International and elsewhere, to point out the technical problems in the 

anti-money laundering, counterterrorist financing, and countercorruption domains 

that Iran must address. Additionally, such experts should be encouraged and allowed, by license if they are U.S. persons, to offer technical guidance to Iranian financial institutions to conduct this work. This will support U.S. policy interests in 

achieving greater transparency in the Iranian financial industry, and it will clearly 

demonstrate that the United States is not the roadblock to economic reform. It could 

help to reinvigorate private business in Iran to better challenge the insidious control 

of the IRGC over significant parts of the Iranian economy. Also, it could allow Iran 

to reap the economic benefits of the nuclear deal, thereby strengthening this important proliferation security accomplishment. 

A Strategy for Powerful, Sustainable Sanctions on Iran 

In pursuing Iran sanctions now and in the future, U.S. policymakers must 

prioritize both the important work of isolating Iranian entities engaged in dangerous and illicit behavior, as well as a methodological approach to sanctions as a 

policy tool that supports sanctions’ continued cogency and sustainability. Given that 

Iran sanctions authorities are already extraordinarily extensive and powerful, this 

means focusing on aggressively using existing authorities and avoiding the creation 

of new authorities that might sow confusion or undermine existing ones. 

There are three particular hazards that U.S. sanctions policy officials must avoid. 

First, policymakers must refrain from the reimposition of sanctions waived under 

the nuclear deal. Parties to the Iran deal agreed to refrain from reimposing sanctions waived under the accord. 17 Reimposing these sanctions would be seen at best 

as undermining confidence and adherence to the deal and at worst as contravention 

and grounds for throwing out the deal, a significant setback to proliferation security. 

Second, policymakers must avoid creating new standards, terminology, or timelines 

that do not line up with existing statutes and create significant confusion for those 

working to implement and abide by sanctions. The establishment of mismatched 

standards or terminology may be accidental, but can be difficult to correct and unintentionally harmful to the private sector or policy interests. 

The third hazard that sanctions policymakers must avoid is one of strategic and 

wide-ranging national security significance. Policymakers must be careful not to put 

in place new sanctions that so significantly alter international financial flows and 

banking activities that they undermine the attractiveness or primacy of the U.S. financial system and the dollar as a reserve currency. If powerful new sanctions 

82 

18 ‘‘Remarks of Secretary Lew on the Evolution of Sanctions and Lessons for the Future at 

the Carnegie Endowment for International Peace’’, U.S. Department of the Treasury, press release, March 30, 2016, https://www.treasury.gov/press-center/press-releases/Pages/jl0398.aspx; 

‘‘Treasury Secretary Jacob J. Lew Remarks at Council on Foreign Relations: America and the 

Global Economy: The Case for U.S. Leadership’’, U.S. Department of the Treasury, press release, 

April 11, 2016, https://www.treasury.gov/press-center/press-releases/Pages/jl0415.aspx. 19 ‘‘Press Conference by President Obama, 4/1/2016’’, The White House, press release, April 

1, 2016, https://www.whitehouse.gov/the-press-office/2016/04/01/press-conference-presidentobama-412016. 20Patricia Hurtado, ‘‘BNP Paribas Pleads Guilty in U.S. to Violating Sanctions’’, Bloomberg, 

July 9, 2014, http://www.bloomberg.com/news/articles/2014-07-09/bnp-paribas-pleads-guiltyin-u-s-to-violating-sanctions. 

cause companies and banks to leave U.S. jurisdiction out of a desire to avoid confusing, cumbersome, expensive, and threatening sanctions restrictions, then U.S. security and intelligence leaders will have less insight into illicit financial flows and 

will face a less transparent international financial system. Additionally, the reach 

and leverage of U.S. sanctions will shrink and this critical security tool will be 

dulled. Treasury Secretary Lew has warned against the overuse of sanctions multiple times in recent weeks, urging his colleagues and successors in the sanctions 

arena not to use them lightly as ‘‘they can strain diplomatic relationships, introduce 

instability into the global economy, and impose real costs on companies here and 

abroad. And of course they carry a risk of retaliation.’’ 18 Policymakers could diminish the power of the U.S. financial system with zealous overuse of the tool. 

Policy proposals to create new sanctions restrictions on Iran’s use of the dollar in 

all financial transactions may be an instance of flirtation with the hazards outlined 

above. It is not the most effective way to draw attention to Iran’s significant illicit 

activities of concern, and it adds little additional bite to U.S. sanctions on Iran while 

lending strength to the argument that the United States seeks to undermine the 

nuclear deal by making it difficult for Iran to reap the economic benefit of its bargain. Furthermore, it may undermine the strength of the U.S. financial system over 

the longer term. As background, in 2008 U.S. policymakers barred so-called U-Turn 

transactions for Iranian entities—the transfer of funds by a foreign bank through 

a U.S. financial institution to a second foreign bank for the benefit of an Iranian 

bank. Since that time, Iran has been able to use the U.S. dollar if a transaction does 

not touch a U.S. bank or citizen. In practice this means that Iranian banks or companies cannot deal in dollars for any transaction of significant size or for any significant number of transactions, as any transaction (or series of transactions) of scale 

must be cleared through a U.S. financial institution and would therefore violate the 

U-Turn rule. In simplest terms, Iran is virtually barred from use of the U.S. financial system because of the U-Turn prohibition. In response to recent rumors that 

the Administration might be considering loosening this prohibition, President 

Obama made clear that the United States has no plans to do so. 19

The U-Turn rule is highly consequential for global financial institutions. Attempts 

to circumvent it have proven expensive and caused tremendous reputational damage, as shown by some of the big bank sanctions violations cases of the last decade. 20 The aggressive enforcement posture of U.S. financial officials in these cases 

has contributed to a tendency among foreign banks to aggressively avoid U.S. sanctions violations by refusing business with Iran, even when permissible under sanctions rules and when it could involve very small dollar amounts that may not need 

to be cleared through a U.S. financial institution. Banks’ so called derisking behavior, which has accelerated, not abated, even as nuclear tensions with Iran have receded somewhat, underscores the inaccessibility to Iran of the U.S. financial system. 

ln this context, anxiety about Iranian use of the U.S. dollar may be overstated 

in many instances and discussion of new dollar-related sanctions can distract from 

the grave and urgent need to focus more directly on Iran’s terrorism and regional 

destabilization activities. Furthermore, such new sanctions would not serve U.S. nuclear security interests if they are construed as seeking to disable Iran’s ability to 

use the international financial system and collapse the nuclear deal. Also, if new 

sanctions remove or restrict waiver authority for the President, it will make the 

sanctions less flexible, and less of a true bargaining chip for the Administration to 

use with Iran to coerce policy change from Tehran. Finally, introducing a chilling 

new restriction on dollar activity in the financial system may cause some global 

banks to shrink their footprint in U.S. jurisdiction to avoid exposure to threatening 

penalties. Over the long term this may have negative implications for U.S. financial 

system strength and the reach of sanctions. 

83 

The Key Leadership Role for Congress on Iran Policy 

Congress has a number of critical roles to play on Iran policy. A primary one is 

providing current and future oversight of the deal, ensuring that the IAEA is adequately funded to sustain its nuclear inspection and verification activities in Iran. 

Congress should fully support the office of the Coordinator for Iran Nuclear Implementation. Additionally, lawmakers should provide sanctions investigators, implementers, and enforcement officials at the Treasury and State Departments and in 

the intelligence community sufficient resources to carry out their activities related 

to the Iran deal as well as Iranian activities beyond the scope of the deal. In addition to these resource issues, Congress should continue to play an important role 

in helping to conceive of and prepare for additional sanctions measures related to 

Iran if it breaches the nuclear deal. This includes eventual reauthorization of the 

Iran Sanctions Act. 

Aside from sanctions measures, Congress has several other important responsibilities in the successful execution of an effective Iran policy. Through appropriations 

and authorizations processes it must ensure that the United States has adequate 

ballistic missile defense capabilities in the Middle East. It should also provide an 

oversight role to ensure that the United States makes available these capabilities 

to partners in the region and engages with them in robust partner capacity building 

and cooperation in counterterrorism activities and interdiction efforts to expose and 

halt Iran’s material support to Hezbollah, the Assad regime, and the Houthis in 

Yemen. Congress should also expand its support to Israel, a key ally in the Middle 

East, in intelligence-sharing and military aid arenas. 

Conclusion 

Iran sanctions are a powerful tool in the U.S. security arsenal and have delivered 

successful nuclear diplomacy and a historic deal. Even while many sanctions have 

recently been rolled back as part of this deal, the regime is still extensive and 

strong. Policymakers should continue to forcefully implement sanctions on Iran to 

address its destabilizing regional role and support for terrorism. But they must 

avoid undermining the availability of sanctions by diminishing the strength and 

reach of the U.S. financial system. As a tool of first resort, sanctions are an essential part of the U.S. security infrastructure, and policymakers must prioritize a sustainable approach to ensure the cogency and effectiveness of sanctions as a central 

part of U.S. policy toward Iran in the future. 

84 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR HEITKAMP 

FROM ELIZABETH ROSENBERG 

Q.1. What steps, if any, should Congress take to ensure the United 

States maintains sufficient authority to pressure Iran in non-nuclear areas? 

A.1. The array of authorities available to U.S. implementers and 

enforcers of sanctions covers a wide range of Iran’s illicit non-nuclear activity of concern, including support for terrorism, regional 

destabilization, human rights abuse, evasion of sanctions, and others. Additionally, statutory authorities, primarily including IEEPA, 

are available to enforcement officials to quickly and creatively target potential new Iranian activities of concern in the non-nuclear 

space. It is not necessary for Congress to create additional authorities to target illicit Iranian activity of concern given the broad 

scope of these combined current authorities. However, it is important and appropriate for Congress to closely monitor Iran’s malign 

activity to ascertain if and when a previously unforeseen need may 

arise to develop additional sanctions authorities to pressure Iran in 

the non-nuclear sphere. 

Q.2. What risks would the United States encounter if the Iran 

Sanctions Act is not reauthorized by the end of the year? 

A.2. A number of important sanctions authorities that have been 

used to target Iran are encompassed in the Iran Sanctions Act, including many that were waived pursuant to the JCPOA on Implementation Day in January. Reauthorizing the Iran Sanctions Act 

before its expiration at the end of 2016 may be useful to keep the 

sanctions authorities contained in this statute close at hand in case 

Iran violates its commitments under the nuclear deal and international leaders decide to reimpose sanctions. However, it is not 

necessary to reauthorize the Iran Sanctions Act in order to have access to all the same sanctions targeting capabilities. The IEEPA 

statute includes sufficient authority for Administration policymakers to move quickly to pressure Iran with sanctions even without the Iran Sanctions Act remaining part of U.S. law. Furthermore, to the extent that reauthorizing the Iran Sanctions Act may 

create ill will and negative political provocation with Iran and 

among P5+1 partners, it may undermine the nuclear deal. This in 

turn can be counterproductive to the important goal of advancing 

proliferation security though the nuclear deal.