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[Senate Hearing 111-780]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 111-780

             IRAN POLICY IN THE AFTERMATH OF U.N. SANCTIONS

=======================================================================

                                HEARING

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 22, 2010

                               __________

       Printed for the use of the Committee on Foreign Relations

  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html

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                COMMITTEE ON FOREIGN RELATIONS         

             JOHN F. KERRY, Massachusetts, Chairman        
CHRISTOPHER J. DODD, Connecticut     RICHARD G. LUGAR, Indiana
RUSSELL D. FEINGOLD, Wisconsin       BOB CORKER, Tennessee
BARBARA BOXER, California            JOHNNY ISAKSON, Georgia
ROBERT MENENDEZ, New Jersey          JAMES E. RISCH, Idaho
BENJAMIN L. CARDIN, Maryland         JIM DeMINT, South Carolina
ROBERT P. CASEY, Jr., Pennsylvania   JOHN BARRASSO, Wyoming
JIM WEBB, Virginia                   ROGER F. WICKER, Mississippi
JEANNE SHAHEEN, New Hampshire        JAMES M. INHOFE, Oklahoma
EDWARD E. KAUFMAN, Delaware
KIRSTEN E. GILLIBRAND, New York
                  David McKean, Staff Director        
        Kenneth A. Myers, Jr., Republican Staff Director        

                              (ii)        

                            C O N T E N T S

                              ----------                              
                                                                   Page

Burns, Hon. William J., Under Secretary for Political Affairs, 
  Department of State, Washington, DC............................     6
    Prepared statement...........................................     9
    Responses to questions submitted for the record by Senator 
      John F. Kerry..............................................    48
    Responses to questions submitted for the record by Senator 
      Richard G. Lugar...........................................    50
Kerry, Hon. John F., U.S. Senator from Massachusetts, opening 
  statement......................................................     1
Levey, Hon. Stuart, Under Secretary for Terrorism and Financial 
  Intelligence, Department of State, Washington, DC..............    12
    Prepared statement...........................................    14
    Responses to questions submitted for the record by Senator 
      John F. Kerry..............................................    53
    Responses to questions submitted for the record by Senator 
      Richard G. Lugar...........................................    54
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening 
  statement......................................................     4

                                 (iii)

  

 
             IRAN POLICY IN THE AFTERMATH OF U.N. SANCTIONS

                              ----------                              

                         TUESDAY, JUNE 22, 2010

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:33 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. John F. Kerry 
(chairman of the committee) presiding.
    Present: Senators Kerry, Feingold, Boxer, Menendez, Cardin, 
Casey, Webb, Shaheen, Kaufman, Gillibrand, Lugar, Risch, 
Barrasso, and Wicker.

             OPENING STATEMENT OF HON. JOHN KERRY,
                U.S. SENATOR FROM MASSACHUSETTS

    The Chairman. The hearing will come to order.
    I just wanted to take a minute as we start to respond to 
remarks made by General McChrystal and his staff in a magazine 
article. I had a conversation with General McChrystal about a 
half hour ago and emphasized to him that I think obviously, 
those are comments that he's going to have to deal with with 
respect to the Commander in Chief, his Vice President, and his 
National Security staff.
    I have enormous respect for General McChrystal, I think 
he's a terrific soldier, and this is a critical moment in 
Afghanistan. And as far as I am concerned, personally, the top 
priority is our mission in Afghanistan and our ability to 
proceed forward, competently.
    It will be up to the President of the United States, as 
Commander in Chief to make the decision as to whether or not he 
and his national security staff feel that they can do that. But 
my impression is that all of us would be best served by just 
backing off and staying cool and calm and, you know, not 
succumbing to the normal Washington twitter about this for the 
next 24 hours. We have troops on the front lines, we have a 
major mission that we're in the middle of and I think the 
priorities of that mission are best served by letting the 
President and his top general have their conversation and make 
a determination as to how we proceed forward.
    I want to thank you for coming this morning to discuss the 
next steps in America's policy toward Iran. This is as critical 
an issue as we could face. The potential of a nation securing a 
nuclear weapon when it behaves as outside of the norm of 
international behavior as Iran has chosen to behave, raises 
serious national security concerns, not just for the United 
States, but for many other countries.
    And I know that regionally, from my meetings with leaders 
throughout the region, they are deeply concerned about it. 
There is not a leader in the Gulf States or the Arab world who 
hasn't expressed concern about the potential of a nuclear Iran.
    Today, we are privileged to welcome two of the principal 
architects of our policy toward Iran: Ambassador William Burns, 
Under Secretary of State for Political Affairs; and Mr. Stuart 
Levey, Under Secretary of the Treasury for Terrorism and 
Financial Intelligence.
    This hearing comes at a crucial moment in our efforts to 
curtail Iran's nuclear ambitions. All of us understand the 
stakes: A nuclear-armed Iran would pose an intolerable threat 
to our ally, Israel, risk igniting an arms race in what is 
already the world's most dangerous region, and undermine our 
global effort, which we have just taken significant steps to 
underscore with the New START Treaty, to halt the spread of 
nuclear weapons.
    That's why, 2 weeks ago, the U.N. Security Council passed 
Resolution 1929, widening the scope and scale of international 
sanctions against Iran. It expands sanctions against the 
Revolutionary Guard Corps, subjects Iranian vessels to 
inspection on the high seas, bans most categories of arms sales 
to Iran, and restricts the kind of investments that are allowed 
in Iran.
    Resolution 1929 also contains a number of nonmandatory 
measures which give the Treasury and State Departments 
important new leverage to persuade financial institutions, oil 
companies, and other countries to divest from Iran. I want to 
congratulate all of those who have been involved in this 
impressive diplomatic effort. I know it took a lot of personal 
work, a lot of sitting down and working through the 
possibilities with many countries, and particularly, obviously, 
with the Perm-5, and among those, China and Russia.
    As we gather this morning, Congress is also finalizing 
legislation that contains a number of tough new economic 
penalties aimed at persuading Iran to change its behavior. 
Among other measures, it targets firms that sell refined 
petroleum to Iran or that deal with the Revolutionary Guard.
    These steps to increase pressure are necessary, not because 
we want to target Iran, but because Iran itself has decided to 
continue to defy the international community, the International 
Atomic Energy Agency, and the U.N. Security Council. Iran's 
publicly disclosed stocks at its Natanz enrichment facility now 
include more than 2,400 kilograms of reactor-grade low enriched 
uranium. I think I am correct in saying that, at the time that 
the original deal was offered for taking the enrichment out of 
Iran, there were somewhere around 1,600 or 1,700 kilograms. So, 
there's been a growth in the amount of available nuclear fuel 
that they have, and that growth narrows the window with respect 
to their ability to break out in terms of nuclearization.
    That is enough feedstock, the 2,400 kilograms, is enough 
feedstock for two nuclear weapons, though it's important to 
note that Iran, in order to achieve that, would have to first 
expel inspectors, and then enrich that materiel to the much 
higher level required for weapons purposes, and cross separate 
weaponization hurdles after they've done that. So, it is 
especially troubling that Iran has recently begun enriching 
small quantities of uranium to a concentration of around 20 
percent, crossing yet another nuclear threshold.
    If Iran continues much further down this path--and there is 
reason through its prior actions to believe that it intends 
to--then a later move to produce bomb-grade uranium would be 
significantly easier and faster.
    Given Iran's dangerous progress, some will argue that 
engagement has been wasted. Well, we all wish Tehran's response 
had been different. But, frankly, our ability to secure a new 
resolution at the United Nations, and our ability to persuade 
allies to go still further in pressuring Iran came about 
because we were prepared to engage and show our willingness to 
have engagement over some period of time. And it is the 
exhaustion of patience with that effort to engage, that has, in 
fact, helped to bring a reluctant China and Russia to the 
table.
    In the end, though, the true test of our policy will not be 
pressure applied, but behavior changed. Recent experience 
suggests that neither sanctions nor engagement alone will 
convince Iran to abandon its nuclear program. Only by combining 
both pressure and diplomacy into a comprehensive and 
coordinated strategy will we have a chance at altering Iran's 
behavior.
    Now, there's no guarantee that Iran will not continue to 
reject our diplomatic overtures. And that will present an 
opportunity to turn the pressure even higher. But given the 
stakes involved, if there is an opening, we must be willing to 
explore it. When I was recently in Syria, President Assad 
talked to me about the possibilities for that kind of an 
opening, and for the possibilities of even building on Iran's 
initial offer. I know the administration will look at any 
opportunity to legitimately try to do so.
    But the current situation brings us to the heart of the 
questions at today's hearing. Given the failure of the previous 
three U.N. Security Council resolutions to deter Iran, the 
pregnant question is, How will this one be different? How much 
time do we have and how long will it take for these sanctions 
to have an impact? What are the real redlines for the Iranian 
nuclear program and what consequences are we willing to impose 
if Iran crosses those redlines?
    We need to articulate an end state that is rigorous enough 
from a nonproliferation standpoint, but also has some prospect 
of being acceptable to both parties. America and our allies 
have put proposals on the table. The June 2008 proposal by the 
P5+1 to Iran, endorsed by both the Bush and Obama 
administrations, was reiterated this month as an annex to 
Resolution 1929. Last October's proposal to take 1,200 
kilograms out of Iran for further enrichment for the Tehran 
Research Reactor held a lot of promise. But Iran failed to 
provide a concrete response until the eleventh hour, on the eve 
of new U.N. sanctions, even while continuing to enrich uranium 
to 20 percent, and having already grown the amount that it had 
to that 2,400 kilograms. So, we look forward to hearing from 
our witnesses today on the status of each of these initiatives.
    We also need to understand how our efforts play into Iran's 
volatile domestic politics. We need to take care that efforts 
to deter Iran's nuclear program don't come at the expense of 
the Iranian people, who may yet emerge as a force for 
moderation within Iran. We recently passed the 1-year 
anniversary of Iran's flawed Presidential elections. In the 
unrest that followed, Iranian security forces were responsible 
for widespread violence and for abuse against their own people. 
Dozens of democracy activists were killed and thousands more 
thrown in jail without due process.
    Three American citizens, Josh Fattal, Sarah Shourd, and 
Shane Bauer, remain in prison 11 months after being jailed for 
straying onto Iranian soil and the whereabouts of Robert 
Levinson remains unknown more than 3 years after he went 
missing in Iran. So, we will continue to speak up for the 
rights and well-being of the Iranian people, but also, of those 
Americans being held in Iranian custody.
    In the interest of time, I'm not going to recite the long 
and impressive resumes of our witnesses, other than to note 
that they are two of the best public servants that we have in 
government today.
    And before I introduce them, I want to say one other word 
about Iran. Any history, any reading of the history of Iran has 
to elicit from the United States some statement of 
responsibility for the events that took place in the early 
1950s with the CIA's involvement in a change of government 
effort there. And that is a longlasting and deep memory in the 
Iranian people, it's something we don't always think about.
    In addition to that, the Iranian people have an 
extraordinarily accomplished, long, long, history in terms of 
civilization, a lot longer than the United States of America. 
And their contributions to civilization in so many things, in 
science and art, in discoveries, are quite extraordinary. It 
would be wonderful if we could move beyond the repression of 
this current administration to embrace that history and to see 
Iran take a more legitimate and rightful place in the context 
of that global history.
    I think Ambassador Burns and Mr. Levey both understand 
that, but their task is to hold the process accountable in 
these days. And Ambassador Burns' sustained diplomacy over the 
course of many months, working closely with Ambassador Susan 
Rice in New York, was absolutely instrumental in securing the 
passage of the U.N. Security Council Resolution 1929.
    And Mr. Levey's efforts have been very significant. The 
Treasury Department is not as well known in its engagement, 
here, but it's a very, very significant one. And their ability 
to be able to dissuade international banks and businesses from 
doing business with Iran has had a significant impact, and 
shown some significant results already.
    So, gentlemen, we welcome the both of you, we thank you for 
your work and your appearance here today and look forward to 
your testimony.
    Senator Lugar.

          OPENING STATEMENT OF HON. RICHARD G. LUGAR,
                   U.S. SENATOR FROM INDIANA

    Senator Lugar. I thank you, Mr. Chairman, for holding this 
important hearing on United States policy toward Iran. Today, 
our examination occurs against the backdrop of several 
significant developments.
    First, the U.N. Security Council adoption of Resolution 
1929 on June 9 added incrementally to three previous rounds of 
U.N. sanctions against Iran. This was followed on July 17 by 
the European Union's announcement of new sanctions, most 
notably a ban on investment by companies in Iran's oil and gas 
industry.
    In addition, June 12 marked the 1-year anniversary of 
Iran's disputed Presidential elections and the brutal 
repression of the protests that ensued. I would just say the 
anniversary serves as a reminder of the values we Americans 
hold dear and to which Iranian citizens aspire: freedom of 
expression, freedom of assembly, and the freedom to choose our 
government through transparent, fair elections.
    As we debate as to how most effectively to constrain Iran's 
nuclear ambitions, it is important to keep in mind those who 
continue to pay a personal cost for expressing their opposition 
to the Iranian regime.
    Iran represents a direct threat to United States national 
security, as well as to the security of Israel and that of our 
other friends in the region. It has long provided materiel and 
financial support to terrorist organizations, such as Hezbollah 
in Lebanon and Hamas in the Gaza Strip. Concerns about this 
activity were augmented earlier this year by reports of Iran's 
transfer of long-range rockets to Hezbollah via Syria.
    The exact status of Iran's nuclear program and the degree 
of progress it has made toward a potential nuclear weapon 
continue to be debated. But Tehran clearly is not complying 
with international nonproliferation regime. The latest report 
of the Director General of the International Atomic Energy 
Agency pointed to ``Iran's continued failure to comply with its 
international obligations,'' and noted its ``sustained lack of 
cooperation with the IAEA.'' The revelation last year of Iran's 
clandestine enrichment facility was but one case in point.
    Restraining Iran's nuclear program requires significant 
cooperation with allies and partners, most of whom have 
commercial interests with Iran and independent views about the 
Tehran regime. The progress this month toward broader 
international sanctions was welcome, but a sanctions strategy 
is likely to require much more work. For example, as additional 
countries in Europe, Asia, and elsewhere expand sanctions, what 
efforts are being made to persuade other nations--particularly 
China--to forgo the opportunity to substitute their own 
investment and trade for that which is being withdrawn? Greater 
international unity is vital, not only to materially inhibit 
Iran's nuclear program ambitions and raise the costs of Iran's 
noncompliance, but also to demonstrate international resolve 
that can help deter other states from violating NPT commitments 
and pursuing nuclear weapons.
    While the administration was engaged in negotiations over 
international sanctions, Congress has deliberated on 
legislation that would expand unilateral U.S. sanctions toward 
Iran. Although we are grateful for the briefings on this matter 
by administration officials, including Under Secretary Bill 
Burns, one of our witnesses today, it is past time for the 
administration to weigh in with a concrete response to this 
legislation. What provisions are supported or opposed by the 
administration, and what changes does it recommend? How would 
additional U.S. unilateral sanctions affect the ongoing 
campaign to construct a more comprehensive system of 
international sanctions?
    The administration is conducting a review of existing 
United States sanctions on Iran. What lessons from this review 
can be applied to the new measures? I have my own reservations 
about certain provisions of this legislation, but I look 
forward to hearing from our witnesses today on the 
administration views.
    Beyond sanctions, I am hopeful that the witnesses will shed 
light on the administration's broader strategy. At what point 
will President Obama's offer of engagement reach the end of its 
shelf-life? What will become of the P5+1 track? Is the 
administration considering steps to further isolate the regime 
in Tehran? To what extent has the need to isolate Iran been 
elevated on the bilateral agenda with countries that remain 
friendly with Tehran?
    I look forward to hearing our witnesses' views. To the 
extent that some of these discussions would be more 
appropriately held in a classified setting, I would also 
welcome that opportunity at a future date.
    We thank you for coming, and I thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Lugar. I think 
that, together hopefully we have framed the questions and the 
backdrop for the hearing today if, indeed, as it could easily 
be that some of questions wind up taking us to a place that is 
classified. We'll just sort of set those aside, mark them, but 
we would like to go into a classified session, then, because I 
would like to make sure we make that part of the record.
    So, we welcome your testimony, again. Your full testimonies 
will be placed in the record as if read in full.
    We look forward to any summary you would like to make.
    Secretary Burns, why don't you lead off?

    STATEMENT OF HON. WILLIAM J. BURNS, UNDER SECRETARY FOR 
     POLITICAL AFFAIRS, DEPARTMENT OF STATE, WASHINGTON, DC

    Ambassador Burns. Thank you very much. Chairman Kerry, 
Senator Lugar, and members of the committee, good morning and 
thank you very much for the opportunity to appear before you 
today.
    The passage of United Nations Security Council Resolution 
1929, 2 weeks ago established the most comprehensive 
international sanctions that the Government of the Islamic 
Republic of Iran has ever faced. It reinforces the 
determination, not only of the United States, but of the rest 
of the international community to hold Iran to its 
international obligations and to prevent it from developing 
nuclear weapons.
    At this critical moment as we vigorously implement 
Resolution 1929 and use it as a platform upon which to build 
further measures by the European Union and other partners, it 
is important to take stock of what's at stake and where we go 
from here. Let me start with the obvious. A nuclear-armed Iran 
would severely threaten the security and stability of a part of 
the world crucial to our interests, and to the health of the 
global economy. It would seriously undermine the credibility of 
the United Nations and other international institutions, and 
seriously undercut the nuclear nonproliferation regime at 
precisely the moment we are seeking to strengthen it. These 
risks are only reinforced by the wider actions of the Iranian 
leadership, particularly its longstanding support for terrorist 
groups, its opposition to Middle East peace, its repugnant 
rhetoric about Israel, the Holocaust, and so much else, and its 
brutal repression of its own citizens.
    In the face of those challenges, American policy is 
straightforward: we must prevent Iran from developing nuclear 
weapons; we must counter its other destabilizing actions in the 
region and beyond; and we must continue to do all we can to 
advance our broader interests in democracy, human rights, and 
development across the Middle East.
    President Obama has made clear repeatedly--including in his 
statement on the adoption of Resolution 1929--that we will 
stand up for those rights that should be universal to all human 
beings, and stand with those brave Iranians who seek only to 
express themselves freely and peacefully. We'll also continue 
to call on Iran to release immediately Shane Bauer, Sarah 
Shourd, and Josh Fattal, and all other unjustly detained 
American citizens, and we continue to call upon Iran to 
determine the whereabouts and ensure the safe return of Robert 
Levinson.
    We've pursued out broad policy goals over the past 18 
months through a combination of tough-minded diplomacy, 
including both engagement and pressure, and active security 
cooperation with our partners in the gulf and elsewhere. We've 
sought to sharpen the choices before the Iranian leadership. 
We've sought to demonstrate what's possible if Iran meets its 
international obligations and adheres to the same 
responsibilities that apply to other nations and we've sought 
to intensify the cost of continued defiance and to show Iran 
that pursuit of a nuclear weapons program will make it less 
secure, not more secure.
    Last year, we embarked on an unprecedented effort at 
engagement with Iran. We did so without illusions about whom we 
were dealing with or the scope of our differences over the past 
30 years. Engagement has been both a test of Iranian 
intentions, and an investment in partnership with a growing 
coalition of countries deeply concerned about Iran's nuclear 
ambitions. We sought to create early opportunities for Iran to 
build confidence in its intentions. In Geneva, last October, we 
supported--along with Russia and France--a creative proposal by 
the International Atomic Energy Agency to provide fuel for the 
production of medical isotopes at the Tehran research reactor. 
Unfortunately, what appeared to be a constructive beginning in 
Geneva was later spurned by the Iranian leadership. Instead, 
Iran pursued a clandestine enrichment facility near Qom, 
announced plans for 10 new enrichment facilities, flatly 
refused to continue discussions with the P5+1 about 
international concerns about its nuclear program, provocatively 
expanded enrichment to near 20 percent, in further violation of 
U.N. Security Council resolutions, and drew new rebukes for the 
IAEA in the Director General's most recent report a few weeks 
ago.
    Iran's intransigence left us no choice but to employ a 
second tool of diplomacy--economic and political pressure. 
Passage of Resolution 1929 is the essential first step in that 
effort. The provisions of 1929 go well beyond previous 
sanctions resolutions. For the first time, it bans significant 
transfers of conventional weapons to Iran. For the first time, 
1929 bans all Iranian activities related to ballistic missiles 
that could deliver a nuclear weapon. For the first time, it 
imposes a tough framework of cargo inspections, to detect and 
stop Iran's smuggling and acquisition of nuclear materiels and 
other elicit items. It prohibits Iran from investing abroad in 
sensitive nuclear activities such as uranium mining. It creates 
important new tools to help block Iran's use of the 
international financial system to fund and facilitate nuclear 
proliferation. For the first time, it highlights, formally, 
potential links between Iran's energy sector and its nuclear 
ambitions, and it targets, directly, the role of the Islamic 
Revolutionary Guard Corps in Iran's proliferation efforts, 
adding 15 specific IRGC entities to the list of designations 
for asset freezes.
    Resolution 1929 provides a valuable new platform, and 
valuable new tools. Now, we need to make maximum use of them. 
My colleague, Bob Einhorn, will lead this effort for the State 
Department. He'll work closely with Under Secretary Levey, 
whose own leadership on these issues for a number of years has 
been extraordinarily effective. Already, the European Union has 
acted strongly to follow up 1929. Its leaders decided last 
Thursday to take a series of significant steps, including a 
prohibition of new investment in the energy sector, and bans on 
the transfer of key technology, as well as tough measures 
against Iranian banks and correspondent banking relationships.
    Australia has indicated similar resolve, and other partners 
will follow suit, shortly. Meanwhile, as Stuart will discuss in 
more detail, we continue to have success in persuading a whole 
variety of foreign companies that the risks of further 
involvement in Iran far outweigh the benefits.
    As all of you know very well, the administration has been 
working closely with the Congress to help shape pending 
legislation so that it maximizes the impact of the wider 
international sanctions that we are putting in place.
    The net result of this combination of economic pressures is 
hard to predict. It will certainly not change the calculations 
of the Iranian leadership overnight, nor is it a panacea. But 
it is a mark of their potential effect that Iran has worked so 
hard in recent months to avert action in the Security Council, 
and tried so hard to deflect or divert the steps that are now 
underway.
    Iran is not 10 feet tall, and its economy is badly 
mismanaged. Beneath all of their bluster and defiant rhetoric, 
its leaders understand that both the practical impact of 
Resolution 1929 and its broader message of isolation create 
real problems for them. That is particularly true at a moment 
when the Iranian leadership has ruthlessly suppressed--but not 
eliminated--the simmering discontent bubbled over so 
dramatically last summer. Millions of Iranians went to the 
streets last June, and in smaller numbers over the course of 
the ensuing months, with a simple but powerful demand of their 
leaders: That their government respect the rights enshrined 
within its own constitution, rights that are the entitlement of 
all people; to voice their opinions, to select their leaders, 
to assemble without fear, to live in security and peace. A 
government that does not respect the rights of its own people 
will find it increasingly difficult to win the respect that it 
professes to seek in the international community.
    Sanctions and pressure are not an end in themselves. They 
are a complement, not a substitute, for the diplomatic solution 
to which we and our partners are still firmly committed. We 
continue to acknowledge Iran's right to pursue civilian nuclear 
power, but with that right comes a profound responsibility to 
reassure the rest of the international community about the 
exclusively peaceful nature of its intentions.
    Facts are stubborn things, and it is a striking fact that 
Iran is the only NPT signatory in the world today that cannot 
convince the IAEA that its nuclear program is intended for 
purely peaceful purposes. The Foreign Ministers of the P5+1 
countries made clear in the statement they issued on passage of 
Resolution 1929 that we remain ready to engage with Iran to 
address these concerns. E.U. High Representative Ashton has 
written directly to an Iranian counterpart to convey this 
readiness. We've joined Russia and France in expressing to IAEA 
Director General Amano a number of concerns about Iran's latest 
proposal on the Tehran research reactor, and the TRR remains a 
potential opportunity in the context of the broader P5+1 
efforts to address Iran's nuclear program. The door is open to 
serious negotiation, if Iran is prepared to walk through it.
    The road ahead will not be easy, and the problems before us 
posed by Iran's behavior are urgent. But there is growing 
international pressure on Iran to live up to its obligations 
and growing international isolation for Iran if it does not. 
Resolution 1929 helps significantly to sharpen that choice. We 
will work very hard to implement and build upon it. We are 
absolutely determined to ensure that Iran adheres to the same 
responsibilities that apply to other nations. Too much is at 
stake to accept anything less.
    Thank you.
    [The prepared statement of Ambassador Burns follows:]

 Prepared Statement of Ambassador William J. Burns, Under Secretary of 
 State for Political Affairs, U.S. Department of State, Washington, DC

    Chairman Kerry, Ranking Member Lugar, distinguished members of the 
committee, thank you very much for inviting me to be here before you 
today.
    This hearing comes at a pivotal moment for U.S. policy toward Iran. 
Only 2 weeks ago, we adopted United Nations Security Council Resolution 
1929, the sixth such resolution on Iran, and the fourth which commits 
the international community to implementing the most comprehensive 
sanctions that the Iranian Government has ever faced. This resolution 
represents the culmination of months of concerted effort and the 
realization of a truly multilateral partnership focused on pursuing a 
diplomatic resolution to the threat posed by Iran's nuclear ambitions. 
The measures contained in this resolution underscore the determination 
of President Obama to prevent Iran from developing nuclear weapons and 
to reinforce global norms and institutions of nonproliferation--a 
resolve that today is shared by the international community.
    Resolution 1929 sends a clear, global message of what is expected 
from Iran, and the consequences for Iran's decision to shirk its 
responsibilities to the global nonproliferation regime. It strengthens 
existing U.N. sanctions by expanding the breadth and reach of those 
measures and breaks new ground with additional categories of sanctions. 
It provides a platform upon which states can build to advance the 
objectives of the resolution, as our EU and Australian partners did 
last week. Adoption of this resolution is only one milestone in 
international actions on this front. Secretary Clinton announced that 
senior State Department official Bob Einhorn will coordinate our 
vigorous efforts to work closely with our partners and allies to ensure 
these sanctions are fully enforced and built upon. And all our 
agencies--State, Treasury, and others--will continue to take action 
under our existing domestic authorities to sharpen Iran's choices, as 
Secretary Geithner did last week in imposing sanctions on 12 entities 
and four individuals under proliferation-related sanctions authorities.
    This is also an important time for those decisionmakers in Tehran 
who are in a position to shape the future of the Islamic Republic and 
its relationship with the rest of the world. Only a year ago, Iran was 
convulsed by massive public outrage and activism protesting election 
results. Millions of Iranians came to the streets last June and in 
smaller numbers over the course of the ensuing months with a simple but 
powerful demand of their leaders--that their government respect the 
rights enshrined within its own constitution, rights that are the 
entitlement of all people--to voice their opinions, to select their 
leaders, to assemble without fear, to live in security and peace. The 
government has been able to contain the public opposition, but only 
through the use of intense intimidation wielded against individuals and 
the burgeoning civil society that has struggled to survive under a 
repressive leadership. As a result, Iran's Government today is facing 
profound pressure on multiple fronts. Navigating these realities will 
require Iranian leaders to decide what kind of future they want for 
their country.
    A nuclear-armed Iran would have grave implications for vital 
American interests in the stability of the gulf region and broader 
Middle East. The concerns evoked by Iran's determined expansion of its 
nuclear capabilities are only underscored by the destabilizing 
character of its regional foreign policy--its longstanding financial 
and operational support to terrorist organizations such as Hezbollah, 
Hamas, and Palestine Islamic Jihad; its cultivation of militancy, 
instability, and violence in Iraq and Afghanistan; and its hate-
mongering rhetoric on Israel and the Holocaust. As President Obama said 
on June 9, ``actions do have consequences. And whether it is 
threatening the nuclear nonproliferation regime, the human rights of 
its own citizens, or the stability of its neighbors by supporting 
terrorism, the Iranian Government continues to demonstrate that its own 
unjust actions are a threat to justice everywhere.'' And therefore we 
will remain active in responding to these Iranian policies across the 
region, and through innovative programs, on advancing human rights and 
democracy and seeking to expand access to information within Iran. We 
will continue our efforts to coordinate with our allies on their own 
security, to promote more effective regional cooperation, and to 
buttress those states and political forces who are seeking to build a 
better more peaceful future for the region.
    Our policy seeks to prevent Iran from developing nuclear weapons, 
counter its other destabilizing actions, and advance our broader 
interests in democracy, human rights, and development across the Middle 
East. Over the course of the past 18 months, we took unprecedented 
steps to demonstrate to Tehran the possibilities available through 
cooperation and engagement. Iran failed to take advantage of any of 
these historic opportunities--Iran has left unanswered President 
Obama's outreach efforts, rejected a balanced and generous IAEA offer 
to refuel its Tehran Research Reactor (TRR), and has flatly and 
repeatedly refused to engage in negotiations to address international 
concerns regarding its nuclear program. Instead, Iran continues and 
expands its enrichment activities to include enriching uranium to 
nearly 20 percent, announces plans for the construction of new 
enrichment facilities, and continues to deny the IAEA full access and 
information regarding--among other places--the previously secret 
facility at Qom. Iran remains in noncompliance with its IAEA Safeguards 
Agreement; refuses to suspend all its uranium enrichment-related, 
reprocessing, and heavy water-related activities as required by the 
U.N. Security Council; and has yet to cooperate fully with the IAEA's 
ongoing investigation, including by answering questions regarding the 
possible military dimensions of its nuclear program. For these repeated 
acts of noncompliance with Iran's obligations, and as we had always 
foreshadowed, we demonstrated our seriousness about the second track of 
our two-track strategy.
    The sanctions imposed under UNSCR 1929 achieve two important 
priorities--they minimize the impact on average Iranians, while 
imposing real penalties on Iran's nuclear and destabilizing military 
programs and those who support them. At the same time, they also make 
it harder for Iran to continue its destabilizing activities and seek to 
inhibit its development of nuclear weapons capability and the means to 
deliver them. The scope and strength of 1929 speaks to the depth of 
international concern about Iran's path and is a testament to the 
genuinely constructive partnership we have developed with our P5+1 
partners. We believe that the resolution, and the close coordination 
among the international community to implement it, will send two vital 
messages to Tehran: that Iran's nuclear program does not enhance its 
security and comes at an ever greater cost, and the world is united 
around an effort to change Iran's calculus.
    Resolution 1929 enhances existing U.N. sanctions by expanding the 
breadth and reach of those measures and at the same time breaks new 
ground with additional categories of sanctions to further pressure Iran 
to comply with its international nuclear obligations. 1929 reinforces 
the Security Council's longstanding demand that Iran suspend its 
enrichment program and other proscribed nuclear activities, and it 
imposes measures in several broad categories:

   It reaffirms the necessity of Iranian compliance with its 
        IAEA obligations and its full cooperation with IAEA 
        investigations;
   It bans Iran's investment in sensitive, including uranium 
        mining, nuclear and ballistic missile-related activities 
        abroad;
   It imposes new binding restrictions on Iran's import of 
        eight broad categories of heavy weapons, and requires vigilance 
        and restraint in the transfer of all arms and related materiel 
        to Iran;
   It bans all activities related to Iran's ballistic missiles 
        capable of delivering nuclear weapons;
   In order to deter, detect, and stop Iran's smuggling and 
        acquisition of sensitive nuclear items and prohibited arms and 
        related materiel, the resolution calls upon all states to 
        inspect Iranian cargo, and notes that states may request 
        inspections on the high seas consistent with international law 
        and the consent of the flag state;
   It includes provisions to help block Iran's use of the 
        international financial system--particularly its banks--to fund 
        proliferation;
   It alerts states to the potential link between Iran's energy 
        sector revenues and energy-related technologies and its nuclear 
        and proliferation activities;
   It addresses the activities of the Islamic Revolutionary 
        Guard Corps, whose elements have been involved in proliferation 
        by sanctioning the largest and most significant enterprise 
        owned by the IRGC, the Khatam al-Anbiya Construction 
        Headquarters, and 14 other IRGC-related companies;
   It establishes a U.N. Panel of Experts to help monitor and 
        enforce sanctions implementation;
   The resolution also includes three annexes of specific 
        entities and individuals subject to targeted sanctions (asset 
        freeze/travel ban). The resolution more than doubles the number 
        of designated entities subject to an asset freeze and imposes 
        an asset freeze and travel ban on one individual. Thirty-five 
        additional individuals previously subject to ``travel 
        vigilance'' will now be subject to a travel ban. With the 
        adoption of this resolution, there are now 75 entities subject 
        to an asset freeze and 41 individuals subject to an asset 
        freeze and travel ban.

    Let me emphasize that sanctions are not an end in themselves. Our 
foremost objective--one that is shared by our international partners 
and our allies in the region--is a durable diplomatic solution to the 
world's concerns about the Iranian nuclear program and the broader 
issues at stake with Iran. U.N. Security Council Resolution 1929 offers 
Iran a clear path toward the suspension of existing sanctions. It is an 
unambiguous one: Iran must fulfill its international obligations, 
suspend its enrichment-related, reprocessing, and heavy water-related 
activities, and cooperate fully with the IAEA. The choice to reconsider 
its options and adopt a more constructive course is one that Tehran 
alone can make. As the P5+1 stated upon the adoption of resolution 
1929, we remain ready to meet immediately with Iran on its nuclear 
program, and on other issues of mutual concern. EU High Representative 
Cathy Ashton already has reiterated the offer to Iran to meet with the 
P5+1 for that purpose. We hope Iran will take advantage of this 
standing opportunity. Two weeks ago the United States, France, and 
Russia responded jointly to IAEA Director General Amano regarding 
Iran's proposal on the TRR, including our concerns with that proposal. 
The TRR proposal remains a potential opportunity in the context of the 
broader P5+1 efforts to address Iran's nuclear program.
    As we bear witness to the 1-year anniversary of Iran's disputed 
Presidential elections, we reaffirm our commitment to stand up for 
those who seek to exercise their universal rights. One year later, as 
the detentions and prosecutions proceed unabated, we will continue to 
call on the leaders of the Islamic Republic of Iran to meet their 
responsibilities to their people by respecting the fundamental rights 
afforded them. In fact, just this week, we joined 55 other nations in 
rebuking Iran for its atrocious human rights record at the Human Rights 
Council.
    In the wake of the Iranian Government's violent suppression of 
dissent, closure of opposition newspapers, and overwhelming use of 
intimidation and force to prevent free assembly, the United States has 
taken steps to facilitate the free expression of Iranian citizens. As 
part of that effort, the U.S. Government is pursuing ways to promote 
freedom of expression on the Internet and through other connection 
technologies. We are working around the world with over 40 companies to 
help individuals silenced by oppressive governments, and have made 
Internet freedom a priority at the United Nations as well. State and 
Treasury have worked to issue a general license that allows free market 
downloadable communications software--e-mail, chat, blogging--available 
inside Iran. Our programming is also focusing on allowing innovative 
projects that support free expression and access to information via the 
Internet.
    Let me note here our deep and continuing concern for the safety and 
well being of all American citizens currently detained or missing in 
Iran. We urge the Iranian Government to promptly release Shane Bauer, 
Sarah Shourd, and Josh Fattal, and all other unjustly detained American 
citizens so that they may return to their families. We also call upon 
Iran to use all of its facilities to determine the whereabouts and 
ensure the safe return of Robert Levinson.
    The Iranian Government will not change its course overnight. We 
have no illusions about the obstacles before us. But we and the best of 
the international community have renewed our determination to sharpen 
the choice before Iran's leadership. Addressing international concerns 
about its nuclear program and meeting its international obligations can 
open up important opportunities for Iran and its remarkable people. 
Continued failure to do so only makes Iran less secure, less 
prosperous, and more isolated.

    The Chairman. Thank you, Secretary Burns.
    Secretary Levey.

 STATEMENT OF HON. STUART LEVEY, UNDER SECRETARY FOR TERRORISM 
    AND FINANCIAL INTELLIGENCE, DEPARTMENT OF THE TREASURY, 
                         WASHINGTON, DC

    Mr. Levey. Chairman Kerry, Ranking Member Lugar, members of 
the committee, thank you for inviting me to be here today. It 
is an honor for me to be here with Under Secretary Burns, with 
whom I've worked closely on these issues and many others for 
the last few years, and for whom I have tremendous admiration.
    While he has described the overall strategy to address the 
threat posed by Iran, I will focus on the so-called ``pressure 
track'' that he mentioned of the administration's strategy.
    The adoption 2 weeks ago of UNSCR 1929 creates an 
opportunity for us to further sharpen Iran's choices. Our 
effort to hold Iran accountable for its failure to meet its 
international obligations has two major fronts. The first is 
governmental action, encompassing actions both by the United 
Nations, by other concerned governments around the world and 
our efforts to build upon the four Security Council resolutions 
that have sanctioned Iran.
    We have already begun discussions with other countries 
about the types of measures that should be taken to robustly 
implement U.N. Security Council 1929, and some governments have 
already acted.
    At the same time, we are working with countries to ensure 
that they take actions to fulfill, for example, the Financial 
Action Task Force's call for countermeasures against Iran. Iran 
remains the only country in the world subject for such a call 
for countermeasures.
    But perhaps as important as all of the governmental action 
is the second front of our strategy: the role of the private 
sector. As we have targeted Iran's illicit conduct, we have 
also taken public action and made an unprecedented effort to 
share the information that forms the basis of our actions with 
firms all over the world. We have made that evidence public, to 
the extent possible. That information demonstrates that Iran 
engages in illicit nuclear and ballistic missile transactions, 
supports terrorist groups, and that in order to conduct those 
activities, it engages in financial deception designed to evade 
the controls of responsible businesses that have no desire to 
participate in illicit activity.
    In response to this information, and to protect their own 
reputations, virtually all major financial institutions have 
either completely cut off or dramatically reduced their ties 
with Iran. We are now starting to see other companies, across a 
range of sectors including insurance, consulting, energy, and 
manufacturing, making similar decisions. The end result is that 
the voluntary actions of the private sector amplify the 
effectiveness of government-imposed measures.
    U.N. Security Council Resolution 1929 represents a new and 
key catalyst in this strategy. The resolution contains a number 
of significant provisions summarized in our written testimony, 
and which Under Secretary Burns also summarized. There are a 
few key financial provision which I would like to highlight, as 
well.
    In particular, under paragraphs 21 and 23 of the new 
resolution, states should prevent any financial services, 
including insurance and even including the maintenance of bank 
accounts for Iranian banks, if they have information that these 
services could--and I underscore could--contribute to Iran's 
nuclear missile industries. And, of course, as this committee 
knows, there is ample information in the public domain to 
establish that Iran uses its banks and abuses the financial 
services of other banks for precisely those illicit purposes. 
We have also repeatedly revealed the mechanisms by which 
Iranian banks seek to mask their misconduct. This includes 
stripping their names from transactions, disguising the 
ownership of assets on their books, and using nonsanctioned 
banks to stand in the shoes of sanctioned ones. Given this 
record, it would be nearly impossible for financial 
institutions and governments to assure themselves that 
transactions with Iran are not being used to contribute to 
nuclear missile industries.
    A perfect example of the types of thing I'm talking about 
is contained in the actions we took last week to begin to 
implement and build upon U.N. Security Council Resolution 1929. 
Among other things, we designated an Iranian bank, Post Bank, 
for facilitating Iran's proliferation activities. At one time, 
Post Bank did business almost entirely within Iran. But when 
some of Iran's largest state-owned banks were sanctioned for 
financing proliferation, Iran began to use Post Bank to 
facilitate international trade. Indeed, Post Bank stepped into 
the shoes of Bank Sepah, which is under U.N. sanctions, to 
carry out Bank Sepah's transactions and hide its identity. 
Banks that would have never agreed to deal with Bank Sepah have 
handled these transactions that they believe are really for 
Post Bank.
    In addition, last week we listed five front companies and 
more than 90 ships that Iran's national maritime carrier, IRISL 
has used to evade international sanctions. We designated, in 
addition, two individuals and four entities that are part of 
the IRGC, including two that are subsidiaries of Khatam al-
Anbiya, a major IRGC company. This action complements the 
designation of the 15 IRGC companies, as you've mentioned, Mr. 
Chairman, that are designated in the U.N. Security Council 
Resolution 1929. We have now designated 26 IRGC-related 
entities, including the IRGC's Kuds force for providing 
materiel support to the Taliban, Hezbollah, Hamas, the 
Palestinian Islamic Jihad, and others.
    We also identified last week 22 petroleum, energy, and 
insurance companies that are owned and controlled by the 
Government of Iran under our Iranian transaction regulations. 
Seventeen of those companies are located outside of Iran, and 
many are not easily identifiable as being Iranian. These 
identifications enable United States persons--and, importantly, 
others around the world who are choosing not to deal with 
Iran--to be able to recognize Iranian Government entities and 
protect themselves against the risk of doing business with 
them.
    As Under Secretary Burns pointed out, we know that 
officials in Iran have been anxious about this new round of 
sanctions. If the Iranian Government holds true to form, it 
will scramble to identify ``work-arounds''--hiding behind front 
companies, doctoring wire transfers, falsifying shipping 
documents and the like.
    We will continue to expose this deception, and thereby 
reinforce the very reasons why the private sector is 
increasingly shunning Iran. The overall result of these efforts 
is that Iran's choice will become increasingly clear: to choose 
the path offered by President Obama and the international 
community, or to remain on a course that leads to further 
isolation.
    Thank you very much. I look forward to your questions.
    [The prepared statement of Mr. Levey follows:]

 Prepared Statement of Stuart Levey, Under Secretary for Terrorism and 
Financial Intelligence, U.S. Department of the Treasury, Washington, DC

    Chairman Kerry, Ranking Member Lugar and distinguished members of 
the committee. With the adoption of United Nations Security Council 
Resolution (UNSCR) 1929 two weeks ago, the international community made 
clear that Iran's continued failure to meet its international 
obligations will have increasingly serious consequences. As President 
Obama said, the resolution demonstrates the growing costs of Iranian 
intransigence. My colleague, Under Secretary Burns, will describe the 
wide range of challenges posed by Iran, and will provide an overview of 
the administration's dual-track approach to addressing the Iranian 
threat. I will focus my testimony today on the so-called ``pressure 
track'' of that strategy. This track is intended to hold Iran 
accountable for its continued refusal to address the international 
community's concerns regarding its nuclear program, as well as its 
support for terrorism, suppression of domestic dissent, and abuse of 
the financial system.
    The adoption of Resolution 1929 marks an inflection point in this 
strategy, as it broadens and deepens existing sanctions programs on 
Iran and creates an opportunity for us to further sharpen Iran's 
choices. We also intend to not only fulfill the letter of the 
resolution's mandates, but also to live up to its spirit, by working 
together with our allies to impose measures that will affect Iranian 
decisionmaking.
    As you know, we have been working to address Iran's illicit conduct 
and to protect the international financial system from Iranian abuse 
for the past several years. Last week, the Treasury Department 
initiated a series of new actions to both implement and build upon 
UNSCR 1929 and its predecessor resolutions. In addition to last week's 
actions, we published today a financial advisory providing public 
guidance on steps that can be taken to protect against the risks of 
transactions with Iran. Before I review the details of UNSCR 1929 and 
the new obligations it creates, I would like to provide an overview of 
our strategy to hold Iran accountable to its obligations and, in 
particular, the role that the private sector is playing in that 
strategy.
                   strategy to hold iran accountable
    Our strategy to hold Iran accountable for its failure to meet its 
international obligations has two major fronts.
    The first front is governmental action, encompassing actions by the 
United Nations and concerned governments around the world. While we are 
working to encourage full implementation of the four U.N. Security 
Council sanctions resolutions containing binding legal measures, 
governments around the world are also considering what additional 
measures might be necessary to address the grave threat posed by Iran. 
We are also looking to international partners to implement the 
Financial Action Task Force's (FATF) call for countermeasures to 
address the risks that Iran poses to the international financial 
system. In February, the FATF issued its most recent of several 
statements regarding the risks posed by Iran's lack of an adequate 
antimoney laundering and counterterrorist financing (AML/CFT) regime. 
The FATF called once again for jurisdictions to impose countermeasures 
on Iran, and urged them to protect against correspondent relationships 
being used to bypass or evade countermeasures and risk mitigation 
practices. Iran is currently the only country in the world subject to a 
call for such countermeasures.
    Perhaps as important as government action is the second front: 
private sector action. The steps private sector firms around the world 
have taken in recent years to protect themselves from Iran's illicit 
and deceptive activity are extremely important. We have found that when 
we use reliable financial intelligence to build cases against Iranian 
actors engaged in illicit conduct, many members of the private sector 
go beyond their legal requirements regarding their interactions with 
these and other Iranian actors because they do not want to risk 
handling illicit business. This behavior is a product of good corporate 
citizenship and a desire to protect their institutions' reputations. 
The end result is that the voluntary actions of the private sector 
amplify the effectiveness of government-imposed measures. Thus, as we 
have taken action to target illicit Iranian conduct, we have shared 
some of the information that forms the basis for our actions with our 
partners in the private sector and, in response, virtually all major 
financial institutions have either completely cut off or dramatically 
reduced their ties with Iran. We are now starting to see companies 
across a range of sectors, including insurance, consulting, energy, and 
manufacturing, make similar decisions. Once some in the private sector 
decide to cut off ties to Iran, it becomes an even greater reputational 
risk for others not to follow, and so they often do. Such voluntary 
reductions in ties to Iran, beyond the requirements of U.N. and U.S. 
sanctions programs, in turn makes it even more palatable for foreign 
governments to impose restrictive measures because their countries' 
commercial interests are reduced. In the end, this dynamic can create a 
mutually reinforcing cycle of public and private action.
    The impact of these actions on Iran has been significant, and is 
deepening as a result of Iran's own conduct. As international sanctions 
on Iran have increased, Iran's response has been to attempt to evade 
those sanctions. For example, sanctioned Iranian banks have, as a 
standard practice, concealed their identity by stripping their names 
from transactions so their involvement cannot be detected. In addition, 
when Iranian assets have been targeted in Europe by international 
sanctions programs, branches of Iranian state-owned banks there have 
taken steps to disguise the ownership of assets on their books to 
protect those assets from future actions. Nonsanctioned banks also have 
stepped into the shoes of sanctioned banks in order to evade 
international sanctions. We have used this conduct to our advantage by 
exposing it and making it public, reinforcing the private sector's 
preexisting fears about doing business with Iran. In this way, Iran's 
own evasion and deceptive conduct is increasing its isolation.
            united nations security council resolution 1929
    Another key catalyst in this process is the adoption of Resolution 
1929, which is the fourth resolution in as many years imposing legally 
binding sanctions on Iran. UNSCR 1929 broadens the existing U.N. 
sanctions framework, and it is important to remember that each 
resolution builds upon earlier resolutions. Resolution 1929 enhances 
the international community's obligation to impose measures on Iran's 
financial sector, businesses owned or controlled by the Islamic 
Revolutionary Guard Corps (IRGC), and on elements of Iran's 
transportation sector that have been used to evade sanctions. It also 
prohibits Iran from acquiring an interest in any commercial activity in 
another state involving uranium mining, the production or use of 
nuclear materiels and technology, and ballistic missile technology. It 
also bans states from directly or indirectly supplying Iran with a 
range of heavy weapons, prohibits Iran from undertaking any activity 
related to ballistic missiles capable of delivering nuclear weapons, 
and prohibits states from providing bunkering services to vessels if 
they reasonably think these vessels are carrying nuclear or other 
materiel prohibited by Security Council resolutions. The resolution 
additionally imposes an obligation on states to take the necessary 
measures to prohibit the travel through their territories of 
individuals designated in this and previous Iran-related sanctions 
resolutions. The resolution also highlights the potential connection 
between Iran's revenues from energy production and funding for the 
development of its nuclear program. And the resolution designates key 
entities associated with Iran's proliferation sensitive nuclear 
activities and ballistic missile programs.
    As I mentioned, the Treasury Department today published a public 
advisory that explains the financial provisions of UNSCR 1929 and 
provides guidance on steps that can be taken to mitigate the tremendous 
risks underscored by the Security Council. Implementation of the 
financial provisions of the resolution and its predecessors will be 
consequential, provided that countries implement them robustly and 
faithfully. The implementation of these provisions will also assist 
financial institutions around the world to avoid the risks associated 
with business that supports the Iranian Government's proliferation 
activity and support for terrorism. In the coming weeks, the Treasury 
Department will continue to engage with finance ministries around the 
world and with financial institutions--not only to assure full 
implementation of the resolution, but also to assist the private sector 
in avoiding these serious risks. As described above, Resolution 1929 
contains a number of important provisions; there are a few that we 
think are important to discuss in greater detail:

   First, paragraph 21 of the resolution calls upon all Member 
        States to ``prevent the provision of financial services, 
        including insurance or reinsurance, or the transfer to, 
        through, or from their territory . . . of any financial or 
        other assets . . . if they have information that provides 
        reasonable grounds to believe that such services, assets, or 
        resources could contribute to Iran's proliferation-sensitive 
        nuclear activities, or the development of nuclear weapon 
        delivery systems.'' This provision is similar to one in UNSCR 
        1874 on North Korea, and it provides countries with the 
        broadest possible mandate to restrict financial ties with Iran. 
        As described above, there is a vast body of public information 
        demonstrating that many of Iran's banks are deeply involved in 
        facilitating its proliferation-sensitive activities and other 
        forms of illicit conduct. Over the last several years, we have 
        designated 15 Iranian banks under Executive Order (E.O.) 13382 
        for facilitating Iran's nuclear proliferation activities, and 1 
        bank under E.O. 13224 for providing support to international 
        terrorism. As we have done so, we have publicized the types of 
        illicit activities in which these banks engage in order to make 
        international financial institutions aware of Iran's illicit 
        conduct, and permit them to take appropriate countermeasures 
        against Iranian banks. Specifically, the designated banks have 
        provided a broad range of financial services to Iran's nuclear 
        and missile industries. Banks like Bank Melli have also 
        provided financial services to the IRGC, and Bank Saderat has 
        facilitated the transfer of millions of dollars to terrorist 
        groups. In the course of undertaking these transactions, Bank 
        Melli employed deceptive banking practices, like requesting 
        that its name be removed from financial transactions to obscure 
        its involvement from the international banking system. We 
        revealed similar information when we revoked Iran's ``U-turn'' 
        license in 2008. As a further example, Resolution 1929 
        highlights that Bank Mellat has facilitated hundreds of 
        millions of dollars in transactions for Iranian nuclear, 
        missile, and defense entities, and that Mellat owns First East 
        Export Bank. This information, highlighting the risks 
        associated with providing financial services to Iran, makes it 
        nearly impossible for financial institutions and governments to 
        assure themselves that transactions with Iran could not 
        contribute to proliferation-sensitive activities.
   Second, paragraph 23 of the resolution calls upon states to 
        prohibit ``in their territories the opening of new branches, 
        subsidiaries, or representative offices of Iranian banks, and 
        also [to] prohibit Iranian banks from establishing new joint 
        ventures, taking an ownership interest in or establishing or 
        maintaining correspondent relationships with banks in their 
        jurisdiction [and] to prevent the provision of financial 
        services if they have information that provides reasonable 
        grounds to believe that these activities could contribute to 
        Iran's proliferation-sensitive nuclear activities.'' Consistent 
        with this, governments are to take steps to be certain that 
        correspondent relationships with Iran cannot be used for 
        illicit conduct. Given the information described above 
        regarding Iranian banks' involvement in Iran's proliferation-
        sensitive activities, coupled with well-known information about 
        Iranian banks' use of a range of deceptive conduct--such as 
        concealing their identity by stripping their names from 
        transactions--it is nearly impossible for governments to ensure 
        that correspondent relationships with Iran are not abused for 
        illicit purposes. As I just noted, we have revealed this 
        deceptive conduct at numerous junctures in the past, and will 
        continue to do so as appropriate in the future. We expect the 
        private sector will respond to this new provision, and the 
        information we have revealed, by further reducing its exposure 
        to Iranian banks worldwide.
   Third, paragraph 22 of the resolution obliges ``all states 
        [to] require their nationals, persons subject to their 
        jurisdiction and firms incorporated in their territory . . . to 
        exercise vigilance when doing business with entities 
        incorporated in Iran or subject to Iran's jurisdiction, 
        including those of the IRGC and [Iran's national maritime 
        carrier, the Islamic Republic of Iran Shipping Lines] IRISL, 
        and any individuals or entities acting on their behalf or at 
        their direction, and entities owned or controlled by them, 
        including through illicit means, if they have information that 
        provides reasonable grounds to believe that such business could 
        contribute to Iran's proliferation-sensitive nuclear 
        activities'' or to violations of other Security Council 
        resolutions. To aid countries in this endeavor, the resolution 
        identifies three companies owned or controlled, or acting on 
        behalf of IRISL-Irano Hind Shipping Company, IRISL Benelux NV, 
        and South Shipping Line Iran. Significantly, the resolution 
        also identifies for sanctions Khatam al-Anbiya, an IRGC-owned 
        company involved in major construction and engineering 
        projects, as well as several of its subsidiaries. Khatam al-
        Anbiya subsidiaries were involved in the construction of Iran's 
        uranium enrichment site at Qom.
   UNSCR 1929 also seeks to avoid the violation or evasion of 
        sanctions by IRISL, as well as Iran Air's cargo division. 
        Paragraph 14 of the new resolution therefore expands the call 
        on countries to ``inspect all cargo to and from Iran, in their 
        territory, including seaports and airports, if the [s]tate . . 
        . has information that provides reasonable grounds to believe 
        the cargo contains items the supply, sale, transfer, or export 
        of which is prohibited'' by U.N. resolutions. Since January 
        2009, IRISL has been publicly implicated in multiple shipments 
        of arms-related materiel from Iran to Syria in violation of 
        U.N. Security Council Resolution 1747.
             implementing and building upon the resolution
    All elements of the administration have been working with our 
partners around the world and will intensify those efforts to ensure 
not only that the resolution will be implemented robustly, but also 
that it serves as a foundation on which to build further measures that 
will increase the pressure on Iran to comply with its international 
obligations.
    As part of this undertaking, we announced steps last week intended 
to reveal more of Iran's deceptive conduct, and to sanction actors 
engaged in the full spectrum of activity supporting Iran's nuclear and 
missile programs. The actions that the Treasury Department announced 
are also intended to reinforce the public sector-private sector 
mutually reinforcing dynamic that I described earlier. We designated 
more than a dozen entities and individuals under Executive Order 13382, 
the authority that targets those involved in WMD proliferation and 
their support networks. These include:

   Post Bank. Treasury designated Post Bank of Iran for 
        providing financial services to, and acting on behalf of, Bank 
        Sepah. Bank Sepah was designated in January 2007 pursuant to 
        E.O. 13382 for providing financial services to Iran's missile 
        industry, including two entities linked to Iran's ballistic 
        missile program. At one time, Post Bank's business was 
        conducted almost entirely within Iran. But when some of Iran's 
        largest banks were exposed for financing proliferation, Iran 
        began to use Post Bank to facilitate international trade. In 
        fact, Post Bank stepped into the shoes of Bank Sepah, which is 
        under United Nations sanctions, to carry out Bank Sepah's 
        transactions and hide its identity. International banks that 
        would never deal with Bank Sepah have been handling these 
        transactions that they think are really for Post Bank.
   IRGC. The IRGC was first designated by the Treasury 
        Department in 2007 for its efforts to procure sophisticated and 
        costly equipment that could be used to support Iran's ballistic 
        missile and nuclear programs. We also designated the IRGC's 
        Quds Force, the branch of the Revolutionary Guards that has 
        provided materiel support to the Taliban, Lebanese Hezbollah, 
        Hamas, Palestinian Islamic Jihad, and others. Last week we 
        supplemented these actions by designating additional branches 
        of the IRGC. We sanctioned its Air Force and Missile Command, 
        both of which have ties to Iran's ballistic missile program, as 
        well as Rah Sahel and Sepanir Oil and Gas Engineering Co, which 
        are owned by the IRGC's Khatam al-Anbiya construction company. 
        In addition, we designated Mohammad Ali Jafari, the Commander 
        in Chief of the IRGC, and Mohammad Reza Naqdi, who has served 
        as head of the IRGC's Basij Resistance Force since October 
        2009. With these actions, we have now designated 26 entities 
        and individuals connected to the IRGC for sanctions.
      We intend to continue to focus on the IRGC as an important part 
        of our strategy to hold Iran accountable for its actions 
        because of the central role that the organization plays in 
        Iran's most reprehensible and illicit conduct. In addition to 
        playing a key part in Iran's missile and nuclear programs and 
        providing support for terrorism, the IRGC has been involved in 
        the repression of internal dissent in Iran. It has also assumed 
        control over broad areas of the Iranian economy, including 
        through the use of no-bid contracts. The IRGC has gradually 
        increased its influence over the energy, defense, and 
        construction industries, and IRGC seeks to monopolize black-
        market trade of popular items. In so doing, it has deprived the 
        Iranian people of valuable economic opportunities. The IRGC and 
        its network of companies have no place in the world's 
        legitimate financial system, and we will continue to work to 
        prevent the IRGC and its companies from gaining access to it.
   IRISL. We also took action under 13382 to prevent IRISL from 
        carrying out activities to evade sanctions. We publicly 
        identified several IRISL front companies, including Hafiz Darya 
        Shipping Company, Soroush Sarzamin Asatir Ship Management 
        Company, Safiran Payam Darya Shipping Company and others, as 
        well as more than 90 names of ships in its fleet. Since we 
        designated IRISL for sanctions in 2008, it has desperately 
        attempted to evade those sanctions, setting up new front 
        companies and renaming and even repainting ships to hide their 
        true ownership. Despite its deceptive maneuvers, IRISL has had 
        to struggle to obtain insurance and other services. Our actions 
        last week further expose IRISL's deception and make it more 
        difficult for IRISL to carry out its illegal activities. One 
        way to determine if a ship is an IRISL ship is the 
        International Maritime Organization (``IMO'') registration 
        number, which, like the VIN number on a car, is a unique 
        identifier that cannot be reassigned to another ship, and 
        remains with the ship through the life of the vessel. The 
        Treasury Department published these numbers at the time of its 
        original designation of IRISL in 2008.
   Petroleum, Energy and Insurance Firms. We also identified 22 
        petroleum, energy, and insurance companies that are owned and 
        controlled by the Government of Iran under the Iranian 
        Transactions Regulations (ITR). Seventeen of these companies 
        are outside of Iran, and many are not easily identifiable as 
        belonging to the government. Americans have long been forbidden 
        from doing business with Iranian entities, but increasingly 
        companies around the world are deciding not to do business with 
        the Government of Iran because of its wide range of illicit 
        conduct, and because, as President Obama said recently, it is a 
        government that has brutally suppressed dissent and murdered 
        the innocent. These identifications enable U.S. persons and 
        others to recognize Iranian Government entities and protect 
        themselves against the risks posed by doing business with them.

    We will continue to take action to address the full range of Iran's 
illicit conduct, and to target the support networks that facilitate 
Iran's WMD proliferation activities and to expose Iran's deceptive 
conduct and abuse of the international financial system.
    As we have taken steps to implement and go beyond the resolution, 
so too have our allies. Last week, Australia announced its designation 
of Bank Mellat, IRISL, and IRGC General Rostam Qasemi. The European 
Union also announced its intention to impose further restrictions on 
Iran's financial sector and insurance industry, freeze additional 
Iranian banks, and impose restrictions on the Iranian transport sector, 
in particular IRISL. Additionally, the EU announced its intention to 
prohibit new investment, technical assistance and transfers of 
technology, equipment and services to key sectors of the gas and oil 
industry. The EU also announced its intention to impose new visa bans 
and asset freezes on the IRGC.
                               conclusion
    The adoption of UNSCR 1929 has enhanced a global effort to hold 
Iran accountable for its actions. The resolution adds important tools--
but it is up to the U.S. and its partners around the world to ensure 
that we use the tools available to us comprehensively, effectively, and 
collectively. We know that officials in Iran have been anxious about 
this new round of sanctions. If the Iranian Government holds true to 
form, it will scramble to identify ``work-arounds''--hiding behind 
front companies, doctoring wire transfers, falsifying shipping 
documents. We will continue to expose this deception, thereby 
reinforcing the very reasons why the private sector is increasingly 
shunning Iran. The overall result of these efforts is that Iran's 
choice will become increasingly clear--to choose the path offered by 
President Obama and the international community or to remain on a 
course that leads to further isolation.

    The Chairman. Thank you, Secretary Levey.
    Let me just follow up quickly with you on that. Are you 
satisfied, I mean, do you have the tools that you need, No. 1, 
and No. 2, do you feel you have confidence that our partners in 
this effort are going to help bring the hammer down 
sufficiently that all of these different cutout cardboards, 
phony shipping documents, et cetera, that will be able to 
really have an impact?
    Mr. Levey. Well, Mr. Chairman, I do think that we have a 
robust set of tools already that we have used aggressively, and 
we've also used just the power of persuasion. That said, as you 
saw the statement from the White House yesterday, we welcome 
the new bill that is making its way through Congress, as well.
    I think all signs are positive, at the moment, that our 
partners will take strong action to implement 1929 and 
counteract against evasion. The statement from the European 
Union was quite strong, of course we now hope to see that 
turned into action in the coming weeks. And the dynamic that I 
referred to in my statement about how the private sector is 
viewing this sort of evasion--what we've seen in the public 
domain in the last couple of years, especially, is such an 
overwhelming body of evidence of Iranian evasion and deceptive 
practices that the private sector really is getting the point 
that if they do business with Iran that they put themselves at 
enormous risk of being drawn into either illicit transactions 
or dealing with the IRGC. And they realize that that's both a 
reputational risk to them, but also may draw them into 
transactions that are actually illicit and that they really 
don't want to get involved in.
    The Chairman. Well, probably--I want to come back to some 
of that, but first I want to pursue sort of a larger couple of 
policy issues with you, Secretary Burns.
    First of all, as a threshold predicate to this entire 
discussion, to what degree is the administration convinced, and 
what is the evidence of it, that if Iran continues, other 
states in the region are going to go down the nuclear road? And 
is that the conviction of the administration?
    Ambassador Burns. Yes, sir, it is the concern of the 
administration and the conviction. I think the dangers of 
stimulating a regional nuclear arms race are quite serious, and 
it's one of the concerns that animates all of the efforts that 
we're making now to prevent Iran from developing nuclear 
weapons.
    The Chairman. So, what is the redline, here? What is the 
administration's--give us a sense of both timeline and redline, 
if you will, with respect to whatever the timeline is--what 
action would precipitate, conceivably, what by the allies? I 
mean, we've made these very public protestations--no nuclear 
weapons program. We've laid out, in some detail, the various 
threats that it presents to Israel, to us, to the region, and 
so forth, so where's--is there a clarity to that? Because I 
haven't sensed it, to date, through the last administration and 
up until now.
    Ambassador Burns. Well, Senator, that's probably the 
subject of a longer, closed conversation. But what I would say 
is that first, you know, this administration is deeply 
committed to preventing Iran from developing nuclear weapons. 
We want to work very closely through a combination of both 
diplomatic engagement, but also pressure, to sharpen the 
choices for the Iranian leadership.
    Iran claims that it doesn't seek nuclear weapons. The 
United States and the rest of the international community 
acknowledge the right of Iran and other states to pursue 
peaceful nuclear programs. It shouldn't be hard for Iran to 
demonstrate the exclusively peaceful nature of its intentions, 
but the track record over the last couple of decades is a very 
depressing one in this regard--a failure to address the very 
specific questions that the IEA has raised about past 
weaponization activities. The failure to meet not only the 
requirements of successive Security Council resolutions with 
regard to suspension of enrichment, but even to address, 
seriously, the creative ideas, the IEA and others have put 
forward to try to create some confidence, as we tried to do 
last October.
    So, we're going to keep at it because too much is at stake, 
otherwise. But, I think our concern is growing, and the concern 
of the rest of the international community is growing, too.
    The Chairman. Well, I do think that we need to--at the 
appropriate time, it may not be today--but we need to go into a 
classified briefing to go through some of the parameters of 
this.
    Can you share with us a sense of sort of what steps that 
Iran might take that might trigger a next adverse reaction from 
ourselves and our allies?
    Ambassador Burns. Well, Senator, I'll give one example. I 
mean, we've already seen a reckless step by Iran in increasing 
enrichment from 3.5-percent levels, to 19.75-percent, near 20-
percent levels. The pretext for that was that Iran claimed it 
needed to do that because it wasn't getting outside help for 
the Tehran research reactor, which requires fuel enriched to 
that level. I say pretext, because the Iranians don't have the 
capability to produce the finished fuel assemblies that you 
need to work that research reactor.
    But more to the point, we and our partners have made clear 
our willingness to contribute to the provision of that kind of 
fuel in a way that would build confidence for Iran. So, the 
fact that Iran has nevertheless chosen to take enrichment to 
near 20-percent levels, I think, is a reckless sign. And 
certainly, any effort not only to continue that, but to go 
beyond 20 percent would be an even more dangerous sign.
    The Chairman. I mentioned in my opening comments the need 
to expel the inspectors and go through a series of steps in 
terms of enrichment, et cetera. Is it possible that they could 
get so close to actual weaponization and/or the adequate level 
of development that there's a breakout capacity--could they do 
that without expelling the inspectors, in some clandestine way?
    Ambassador Burns. Mr. Chairman, at Natanz, which is the 
central nuclear facility where the IAEA conducts its 
inspections, you're absolutely right--the facility there would 
have to be reconfigured, as I understand it, to enrich to 
higher levels and move toward a breakout capacity, and that's 
something that the IEA could see and determine unless they were 
expelled from that site.
    Of course, the bigger concern--which is reinforced by the 
revelation of the clandestine facility near Qom in September, 
is that there are other facilities under construction. And 
that's why we support the IEA so strongly in trying to ensure 
greater transparency in what's going on inside Iran.
    The Chairman. Senator Lugar.
    Senator Lugar. Thank you, Mr. Chairman.
    Secretary Burns, I would like your comment on a front-page 
story that appeared yesterday in the Washington Times entitled, 
``Military in Iran Seen As Taking Control.'' The story begins, 
``Defense Secretary Robert N. Gates said Sunday that Iran's 
Government is becoming a military dictatorship, with religious 
leaders being sidelined and, as a result, new sanctions could 
pressure Tehran into curbing its illegal nuclear program. `What 
we've seen is a change in the nature of the regime in Tehran 
over the past 18 months or so,' Mr. Gates said on FOX News 
Sunday. `You have a much narrower based government in Tehran 
now,' he said. `Many of the religious figures are being set 
aside.' ''
    Furthermore, the article later points out that Mr. Gates 
said, ``added economic pressures on top of the militarization, 
`has real potential' of pressuring Iran into complying with 
international controls on its nuclear program.'' I had not seen 
that sort of analysis before concerning the evolution of Iran's 
Government, and furthermore the implication Secretary Gates 
thought with regard to the efficacy of sanctions. Do you have 
thoughts about that this morning?
    Ambassador Burns. Yes, Senator Lugar. I think it is a 
fact--as Secretary Gates and Secretary Clinton have also 
pointed out--that over recent years, I think, the Iranian 
leadership has become more closed, more dependent on the IRGC, 
whose role, not only in military affairs, but also in politics 
and in the economic sphere, has expanded over that time.
    What we've also seen, as that circle has become more 
closed, is greater fissures within the Iranian political elite, 
and within the clerical establishment, as well, and certainly a 
large fissure between the elite and much of the rest of the 
population, as we saw so dramatically last summer during and 
after the election.
    That's led us to try, in Resolution 1929, to very carefully 
target--and there's no perfect answer to this--but we've tried 
to target many of the measures that Under Secretary Levey and I 
have described, to focus on the IRGC, to focus on the 
leadership to try to reshape their calculus. And we will 
continue, as we implement 1929, as we work with the European 
Union and others, to focus those efforts as sharply as we can.
    Senator Lugar. These developments would mark quite a 
change, though, as most of us have not been thinking about Iran 
in terms of a military dictatorship in the country. We've had 
conflict between various religious leaders, with the military 
perceived to be more in the background. But it seems to me 
Secretary Gates was suggesting that the military is coming much 
more into the foreground. Furthermore, I think he suggested the 
possibility that as religious leaders are pushed aside, 
empowered military personnel could take a more pragmatic stance 
and realize that their security is more, rather than less, 
endangered by going forward with their nuclear program.
    Ambassador Burns. Senator Lugar, one thing I've learned is 
a certain amount of humility in making predictions about 
Iranian decisionmaking. But, I think it is a fact that--
particularly the role of the Islamic Revolutionary Guard Corps 
in the Iranian leadership has increased. It is a fact, in my 
view, that the circle has narrowed around the leadership, and 
that has led us to target our efforts as precisely as we can.
    As Secretary Gates said, I think there is a reasonable 
chance that those efforts--combined with the continuing 
possibility of diplomatic engagement--will have an impact on 
the Iranian calculus.
    Senator Lugar. Secretary Burns, as you are likely aware, 
the Conference Committee cochairs taked with resolving House 
and Senate differences in Iran sanctions legislation came to an 
agreement yesterday on draft joint text. The administration has 
diplomatically asserted that it wishes to work with the 
Congress on this issue. Now, as I understand it, at least 
according to analysis in the press, an ongoing point of 
contention between the Congress and the administration is that 
the legislation, as it is currently crafted, targets foreign 
companies and even foreign governments that do not comply with 
its provisions. Now, the legislation offers exemptions from 
sanctions on a case-by-case basis if certain criteria are met 
by the foreign party in question, but the administration would 
rather it provide blanket waivers for certain countries. In the 
administration's view, this would prevent a potential set of 
diplomatic problems with others who believe they have been 
working even harder at this business of sanctions that we have. 
Nevertheless, this is an extraterritorial feature of the 
legislation as some have suggested.
    What is your analysis, either one of you, as to the 
substance of this legislation as it currently stands?
    Ambassador Burns. Maybe I'll start, and then Under 
Secretary Levey can join me.
    Senator Lugar, first, as the White House made clear 
yesterday, the administration does support the broad aims of 
the legislation that the conference has reported on. We want to 
work with you to help shape that legislation so that it 
amplifies the impact of the international coalition that we 
built.
    It is no secret that our international partners contain 
their enthusiasm for extraterritorial applications of U.S. 
legislation, and that's why we continue to work closely with 
you and your colleagues to try to ensure that the measures are 
going to be targeted in a way that are going to maximize the 
impact on the goal, here, which is to constrain Iran's nuclear 
program, and change its calculus and give the President the 
flexibility that I think is useful to all of us in applying 
those measures, as well. And those are the areas that we're 
focused on. And we look forward to continuing to work with----
    Senator Lugar. Well, how is that advice going to be given? 
We're coming down to the final stages. Is the President, the 
Secretary, or someone else going to talk to Senator Dodd, 
Congressman Berman, or others who are guiding this along? It's 
one thing to talk in an advisory capacity, but what are the 
action steps that need to be taken at this point?
    Ambassador Burns. We certainly will be working very closely 
with the members of the conference as the conference members 
consider their report, to make clear the concerns we have and 
to make clear our interest in producing an outcome that serves 
the broad goals I just mentioned. So, we'll be working--and we 
have been working--intensively, we'll continue to do that over 
the coming days.
    Senator Lugar. Thank you very much.
    The Chairman. Thank you, Senator Lugar.
    Senator Feingold.
    Senator Feingold. Thank you, Chairman, for calling this 
hearing, and I thank our witnesses for joining us today. We 
face, obviously, significant challenges from Iran which has 
repeatedly shown its unwillingness to play a responsible, 
constructive role in the international community. By working 
with the U.N. Security Council, with the broader international 
community, the administration has sent a strong message to 
Iran--that it needs to address the very serious and urgent 
concerns about the nature and extent of its nuclear program. 
These sanctions, of course, must now be enforced and 
strengthened. At the same time, it's important to remember that 
sanctions are meant to be a tool toward the resolution of the 
Iranian nuclear problem, not an end in themselves. And I hope 
that this hearing will provide a, you know, a better picture of 
our broader strategy and the plans going forth.
    Under Secretaries Levey and Burns, I know you've touched on 
this, but how effective should we expect international and U.S. 
sanctions to be at limiting Iran's ability to further advance 
its nuclear program? First, in terms of the ability to enforce 
existing and previous sanctions--do the various sanctions 
regimes have strong enough enforcement tools in this regard and 
if not, what more should we do about those? And additionally, 
in terms of the ability of sanctions to slow down or curb 
Iran's ability to continue on with enrichment or to pursue 
weaponize efforts?
    Ambassador Burns. I'll start, just very briefly.
    Senator Feingold, U.N. Security Council Resolution 1929 
contains, for the first time, an extensive, comprehensive 
inspection regime modeled, in some ways, on Resolution 1874 as 
it applied to North Korea. I think with vigorous implementation 
of those measures, I think we're in a far stronger position as 
an international community to cut down and stop Iranian 
smuggling and efforts to acquire illicit items.
    I think what we've already seen, also, Senator, is a very 
firm commitment on the part of our partners to implement some 
of the other notable provisions of 1929, for example, the 
provision banning significant transfers of conventional weapons 
to Iran. Russia, for example, has confirmed to us that it will 
not deliver the S-300 missile system in accordance with the new 
Security Council resolution. So, I think that's one concrete 
example of a firm commitment on the part of our partners.
    Senator Feingold. Mr. Levey.
    Mr. Levey. The only thing I'd add to what Under Secretary 
Burns said is that the resolution also establishes a panel of 
experts to help with the enforcement. And while that sounds, 
maybe, like just a bureaucratic function, what we did see in 
the North Korea context was a very powerful report from a panel 
of experts about sanctions evasion. And those sorts of reports, 
then, enable us to do what I was referring to earlier, which is 
to use their evasion against them. Which is, to try to get at 
least the private sector around the world to recognize the 
Iranian evasive conduct and protect themselves against it by, 
frankly, not--choosing not to do business with Iran at all, so 
that we can try to use Iran's inevitable evasion--they will try 
to evade, if history is any guide--but try to use that to our 
advantage.
    Senator Feingold. Thank you.
    Under Secretary Burns, I want to get a little deeper into 
something that was already touched on--that our two-track 
effort appears to be focusing mostly on the sanctions track at 
the moment. But, given the need to prepare for various 
outcomes, does the administration have a plan for what we want 
to get out of negotiations, including our bottom-line demands, 
if Iran did come to the table?
    Ambassador Burns. Yes, sir, we do. And at the same time as 
Resolution 1929 was passed, the Foreign Ministers of the P5+1 
countries issued a statement that made clear that the door is 
still open to negotiations. Kathy Ashton, the E.U. High 
Representative, then wrote to her Iranian counterpart to repeat 
that offer directly.
    And we've also made clear that we have a number of concerns 
about the most recent Iranian proposals on the Tehran research 
reactor confidence-building proposal. But in the context of our 
wider P5+1 efforts, we're certainly prepared to pursue those, 
as well.
    So, we believe that it's only through a combination of 
pressure and engagement that we're likely to affect the 
calculus of the Tehran leadership.
    Senator Feingold. And, again Under Secretary Burns, can you 
comment on the relationship between Iran and our friends and 
our allies in the developing world? Particularly, to what 
extent does it have openings for influence in Latin America 
with its Venezuelan connection, and Africa, for example, Iran's 
been reaching out diplomatically to a number of countries in 
Africa, including Jabudi, Kenya, the Camorros, Senegal, Uganda, 
the Gambia, and according to press reports, stated that 
Tehran's growing relations with African countries were, ``A 
priority for Iran's foreign policy.'' What are we doing to 
reach out to our friends and allies in these regions to express 
our concerns about Iran's nuclear program, and are they being 
receptive to that?
    Ambassador Burns. Well, certainly in Africa, Senator, I 
think there is an understanding of the reality that Iran's not 
living up to its international obligations on the nuclear 
issue. It's striking that all three African members of the 
Security Council voted in favor of Resolution 1929 
notwithstanding a very intensive Iranian diplomatic effort to 
produce a different outcome.
    So, we take very seriously the concern you raised and we 
are staying in very close touch with our partners in Africa.
    The same is true in this hemisphere. We've designated one 
Venezuelan bank because of its connection to Iranian banks, and 
we watch very carefully Iran's relationship with Venezuela and 
its activities elsewhere in the hemisphere.
    Senator Feingold. Under Secretary Burns, the U.S.-Jordan 
Nuclear Cooperation Agreement that's currently being negotiated 
has brought up the problematic issue that other Middle Eastern 
countries are interested in developing their own enrichment and 
reprocessing capability, or E&R. How can we minimize the danger 
that Iran will perceive the development of any such 
capabilities as threatening, and insist on maintaining its own 
E&R as a result, given that Jordan does not seem to be 
interested in our offer providing it with nuclear energy 
assistance in exchange for any agreement to forgo E&R 
capabilities, and the nuclear supplier's group is not 
interested on a meaningful ban on E&R transfers, what is plan B 
for this situation?
    Ambassador Burns. Well, Senator, as you know, one of the 
broad initiatives we've strongly supported--and hopefully once 
we finalize the new 123 Cooperation Agreement with Russia we'll 
be in a better position to encourage this--is the idea of 
international assured fuel supply, international fuel banks, 
that would provide nuclear materiel to countries who forgo the 
pursuit, on their own, of enrichment and reprocessing 
activities. I think that's one promising initiative that we can 
do more to support.
    Senator Feingold. And finally, Under Secretary Burns, the 
GAO recently released a report indicating that Iran continues 
to successfully divert United States-made military and other 
controlled equipment and transfer--transship this equipment 
through such countries as the U.A.E. What has the United States 
done to identify and plug the loopholes in the export control 
regime that allow this to happen, and has the United Arab 
Emirates implemented the export control laws it's committed to 
implement?
    Ambassador Burns. I think, Senator, the record of the 
United Arab Emirates has improved considerably in recent years. 
We've worked very closely with them in the application of their 
own export controls and the sharing of information and law 
enforcement cooperation. So, I think their record is an 
impressive one, now, we want to work very closely with them to 
cut down and eliminate those loopholes.
    Senator Feingold. Thanks to both of you.
    Thanks, Mr. Chairman.
    The Chairman. Thank you, Senator Feingold.
    Senator Boxer.
    Senator Boxer. Mr. Chairman, thank you so very much for 
holding this hearing, very important, timely hearing and 
welcome to both Under Secretaries today.
    It is so important that we focus like a laser beam on 
Iran's reckless and dangerous refusal to cease Iranian 
enrichment in defiance of its own treaty obligations. I am so 
pleased that Congress is moving toward a final vote on the 
comprehensive Iran Sanctions Accountability and Divestment Act. 
I read that there's been agreement reached between the House 
and Senate--Senators Dodd and Berman--Congressman Berman--and 
so we may be voting on that this week.
    Countless experts agree that the way to really pressure 
Iran is to target its oil and gas sectors, and that's exactly 
what this sanctions bill will do.
    I was pleased that the U.N. Security Council approved a 
resolution imposing new sanctions on Iran, despite Iran's 
frantic attempt to derail the effort. And up until the last 
minute, they were trying to derail the effort. And I 
congratulate the administration for hanging in there and 
pushing back. I certainly would have liked to see a much 
tougher Security Council resolution. I'm hopeful that more 
countries are finally realizing what many of us have known for 
far too long--that Iran not only poses a grave threat to the 
security of the Middle East, but to the security of the entire 
globe. Not only could Iran use any weapon that it acquires, but 
it could proliferate nuclear materiel and technologies to 
terror groups and rogue regimes around the world. So, every 
effort must be made to stop this from happening. I know our 
President feels very strongly about this.
    Not only must we pass tough sanctions measures, but we must 
be sure that they're carried out and they're enforced to the 
fullest. And I'm going to ask you both about that in a minute.
    But, it means going after American firms who value a quick 
profit over the national security of the United States of 
America. This means closing loopholes, so that U.S. firms can't 
simply acquire foreign subsidiaries that set up shop and do 
business in Iran. And I can tell you that I know this has been 
done.
    The GAO conducted a narrow study and found that the U.S. 
Government awarded $880 million to seven companies between 
fiscal years 2005 and 2009 that were also doing business in 
Iran's energy sector, and some of them are working in Iran 
today. I understand that the comprehensive Iran Sanctions 
Accountability and Divestment Act that we will hopefully pass 
this week and send to the President for signature, includes a 
provision that requires companies bidding on a U.S. Government 
procurement contract to certify that they are not engaged in 
sanctionable conduct, and that means either directly or through 
a shell company.
    Can you assure us today, I would ask both Under 
Secretaries, that this provision--this provision which means 
that we're going to really look at these companies and their 
shell companies, that it will be enforced to the fullest extent 
possible? So that U.S. taxpayer dollars are not awarded to 
companies that are skirting United States sanctions laws and 
doing business with Iran?
    Ambassador Burns. Yes.
    Senator Boxer. Under Secretary Levey.
    Mr. Levey. Absolutely.
    Senator Boxer. OK, because we're going to have to hold you 
to it.
    By almost every account, the June 9 U.N. Security Council 
resolution is imposing another round of sanctions on Iran. It 
was not as comprehensive as we all had hoped for, the 
administration, those of us in Congress--in the end, 
concessions had to be made to obtain support from China and 
Russia when the resolution came to a vote. It was still--I 
don't want to, in any way, take away from the achievement, it 
was a great achievement, not tough enough, but we moved in the 
right direction with these other countries. I know that the 
administration did everything in its power to secure a very 
tough resolution, but I also know that China, in particular, 
didn't make it easy.
    So, my question is, why does China not see Iran as a grave 
threat to both regional and international security in light of 
the facts--and I'll just go through a couple of the facts--Iran 
continues to enrich uranium to higher and higher levels, it is 
continually throwing up roadblocks to prevent the IAEA 
inspectors from gaining access to both known and suspected 
nuclear facilities; just yesterday Iran banned two nuclear 
inspectors from working in Iran for filing what it has deemed 
false reports on its nuclear program, and earlier this year, 
the IAEA released a report stating that it had found extensive 
evidence of activities by Iran's military, ``Related to the 
development of a nuclear payload for a missile.''
    So, in your opinion, what additional evidence does China 
need, or is something else going on there?
    Ambassador Burns. Senator, I think China is increasingly 
aware of its own stake in effective international action 
against Iran and its nuclear ambitions.
    China obviously has a huge economic stake in the gulf and 
access to its energy resources, and I think is increasingly 
concerned about the dangers that Iran's nuclear ambitions poses 
to security and stability in the gulf.
    It had voted for the three previous sanctions resolutions; 
you're absolutely right--this was a very tough negotiation, but 
in the end it voted for a resolution which contains some 
important measures.
    The issue of China's continuing or potential investment in 
Iran's energy sector is going to remain a very important 
concern for us, an important priority in our bilateral dialogue 
with the Chinese, and we're going to continue to press that 
hard.
    Senator Boxer. So, let me just cut through what you said. 
So, you think that China does understand the threat, but still, 
in all, they push for weaker sanctions, so why is that?
    Ambassador Burns. Well, I think they increasingly 
understand the threat, I'm not sure they share the same sense 
of urgency that we and others do, and we're just going to have 
to keep pressing hard. And I think in many ways, Iran's failure 
to live up to its obligations makes the case for us.
    Senator Boxer. So, China's--I'm just pressing you on this, 
I don't want to make you feel uncomfortable, I know you can't 
speak for another nation's policies, but I'm just--it's so 
clear, the threat that Iran poses. And you're basically saying 
you're not sure they share the view that we do that it's that 
much of a threat at this time, and that we have to continue to 
make the case to them?
    Ambassador Burns. Well, I think, Senator, they increasingly 
share the concern that we, and many others, have, and that was 
reflected in their vote, after a tough negotiation.
    I don't want to pretend that they have exactly the same 
view of tactics, or the same sense of urgency, but I think 
that's why we need to continue to press this issue, we made 
progress.
    Senator Boxer. So, my last point, therefore, is that the 
administration is pressing China, continuing to tell them the 
truth about this threat and you're stating that unequivocally? 
That will not be abated?
    Ambassador Burns. Yes, absolutely.
    Senator Boxer. Thank you.
    The Chairman. Thank you, Senator Boxer.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    And thank you both for your testimony.
    As a member of the conference committee, I'm looking 
forward to voting for the strongest set of sanctions. I see 
Ahmadinejad, who's largely dismissive of Resolution 1929, and 
in part I think it's because we roar like a lion and bite like 
a puppy. We need to change that dynamic, in my mind.
    No matter what sanctions regime we have, there's really a 
real question of enforcement. A law is only good if it is 
enforced. I look at the U.N. resolution, and the financial 
sections in the resolution appear to be weak. For example, only 
one new bank was added to the list of sanction entities. Even 
here, in the United States, the sanctions announced last week 
added only one bank to the list of those sanctioned.
    Nineteen twenty-nine specifically notes the need to 
exercise vigilance over transactions involving the Central Bank 
of Iran. So, I'd like to ask you, was this based on evidence 
that the Central Bank has been involved in facilitating Iran's 
illicit nuclear program and its support for terrorism? And does 
the Treasury Department intend to designate the Central Bank of 
Iran as a supporter of Iran's proliferation activities?
    Mr. Levey. Senator Menendez, the current situation with 
respect to the Central Bank of Iran and the United States, as I 
think you know, is that already it is forbidden to do any 
business if you're a United States person with the Central Bank 
of Iran. Every financial institution in the United States would 
be violating our law--it would be a crime to do business with 
the Central Bank of Iran.
    With respect to the banking sanctions--and frankly with 
respect to all sanctions--we have, by far, the toughest 
sanctions regime of any country in the world.
    You're right, we did designate another bank last week, but 
that brings our list to 16 Iranian banks that we have 
designated--either for facilitating Iran's proliferation 
activities, in the case of 15 of them--or, terrorism in the 
case of one of them. So, we think that, you know, we will 
continue to enforce our sanctions regime very, very vigorously.
    Those financial institutions who have violated our 
sanctions laws have found themselves on the other end of very, 
very tough enforcement actions. But Lloyd's and Credit Suisse 
found themselves on the other side of fines of over $300 
million, in the case of Lloyd's and over $500 million in the 
case of Credit Suisse, for facilitating Iranian transactions 
among other sanctions----
    Senator Menendez. I understand about the interaction with 
the Central Bank. The question is, Does the Treasury Department 
intend to designate the Central Bank of Iran as a supporter of 
Iran's proliferation activities?
    Mr. Levey. I can't say right now whether we will do that.
    Senator Menendez. All right.
    Now, let me ask Mr. Burns--enforcement. On July the 9th of 
2008, you testified before the House Foreign Affairs Committee 
that the State Department was investigating Norway's Statoil 
for a possible violation of Iran's sanctions act. For the 
record, that company was fined $10 million by the Securities 
and Exchange Commission and the Justice Department for 
violating the Foreign Corrupt Practices Act by bribing Iranian 
Government officials in order to receive a contract. What was 
the result of that investigation from the State Department?
    Ambassador Burns. I'd just make two comments, Senator.
    First, it's important to note that Statoil announced 
shortly after that testimony that they were not going to engage 
in new investment in Iran and they began to wind down their 
operations there. So, I think that's an example of where, you 
know, the use--aggressive diplomatic use of the Iran Sanctions 
Act--has actually helped produce a result.
    On the broader issue of that kind of problematic cases that 
we talked about--we've talked about through the course of this 
administration, the State Department has completed its internal 
review of those cases. Secretary Clinton promised she would do 
this expeditiously at the start of the administration.
    There are probably--they are a number of cases, less than 
10, in which it appears that there may have been violations of 
the ISA. Most of those appear to involve activities that have 
stopped, in other words, involving companies that have pulled 
out of business in Iran, but there are a couple that appear to 
be ongoing.
    The next stage, after the State Department has completed 
its internal review, is, you know, in accordance with the 
delegation of authority to Secretary Clinton, is to consult 
with other agencies, which we will do expeditiously, about what 
actions are appropriate, here, and then the Secretary will make 
her determinations.
    So, just as Secretary Clinton promised, we're moving ahead 
vigorously in this administration----
    Senator Menendez. I respect that, except that we haven't 
sanctioned anybody.
    You know, we can't keep doing the review and the review and 
the review. We come to the problematic cases, and then we go 
through the problematic cases, and now you're telling me that 
there's a group of problematic cases that are still problematic 
because they seem to be still engaged in Iran. DOE has 
information about companies doing business in violation of the 
Iran sanctions. I don't understand how it is that the SEC can 
make these determinations, that the DOE has these 
determinations, but we don't seem to come to a conclusion at 
State Department for sanctions. Which makes me wonder whether 
we really have the desire to implement the law and enforce it. 
No wonder Ahmadinejad goes, ``Ho hum,'' to the resolutions; 
they mean nothing.
    Ambassador Burns. Well, Senator, it's a fair question. The 
proof will be in our actions. As I said, we've completed the 
internal State Department review, which is a significant step, 
and as the Secretary committed, we'll move forward quickly on 
those cases that appear to involve ongoing activity.
    Senator Menendez. Well, does the failure of the State 
Department result from a lack of manpower? Or, simply that 
you're not choosing to make a final determination for some 
political or diplomatic reason?
    Ambassador Burns. No, Senator, we're going to enforce the 
law. As I said, we have moved through and completed the 
internal review, it's not an issue of manpower. It is true, 
these are complicated issues because you've got to sift through 
a lot of information--some of it inaccurate because the 
Iranians have their own interest, sometimes, in exaggerating 
and broadcasting in the press stories about contracts that turn 
out, you know, not to be accurate in the end.
    So, as I said, the proof will be in our actions, and we're 
moving ahead expeditiously on this.
    Senator Menendez. Well, I hope we have a cop on the beat, 
not asleep at the switch.
    The Chairman. Thank you, Senator Menendez.
    Senator Isakson.
    Senator Isakson. Thank you, Mr. Chairman.
    And I deeply apologize for missing your testimony and 
arriving late. And if what I ask is redundant, you can just 
correctly correct me or sanction me, and we'll move forward. 
[Laughter.]
    Senator Isakson. I think all of us really recognize that 
the $64,000 question is the weaponization of nuclear materiel 
in Iran, and that's what has the clock running. Is there any 
timetable we're using as a date that we think they will 
actually have it weaponized? The Iranians? Other than just 
guesswork?
    Ambassador Burns. Well, Senator, I mean, I'd be glad to 
participate in a closed session to talk about this in more 
detail. I guess what I would do is stand by the testimony that 
the Vice Chairman of the Joint Chiefs offered a couple of 
months ago before a different committee, in which case he was 
asked a similar question. And what he said is, it would 
probably take a year from today, judging from the experience of 
other countries of low enriched uranium stockpiles, to 
produce--for the Iranians--to produce the amount of weapons 
grade materiel, highly enriched uranium that they'd need for 
one nuclear weapon. That's only the materiel, that's not the 
weapon. And he estimated, in public testimony, that it would 
take 3 to 5 years to produce an actual nuclear weapon. In other 
words, take that enriched materiel over the course of the next 
3 to 5 years and turn it into a weapon. That was his public 
estimate, and I'll stand by that.
    Senator Isakson. Well, taking that general information, the 
fuse is getting a lot shorter, which is why the sanctions issue 
is important, to try and get the Iranians to come to the table.
    Do you, in terms of the U.N. sanctions that recently passed 
the Security Council, what is the resolve of the Europeans in 
terms of being an enforcement mechanism, in terms of those 
sanctions? In your opinion--I know that's all that would be, 
would be your opinion.
    Ambassador Burns. Yes, sir. I think the best illustration 
of the strength of European resolve is what the European 
leaders decided last Thursday, which was to take Resolution 
1929 and not only implement it, vigorously, to the maximum 
extent possible, but also to accompany it with a number of 
important new measures, for example, a ban on new European 
investment in the oil and gas sector, a ban on the transfer of 
important technologies to that sector, including those related 
to LNG where European companies, Western companies play an 
exceptionally important role in terms of provision of that 
technology to any countries in the world. So, those are quite 
significant steps, and I think it's a mark of deepened European 
resolve now.
    Senator Isakson. Mr. Levey.
    Mr. Levey. I don't have anything to add to that, it sums it 
up very nicely.
    Senator Isakson. There is some movement in Congress on the 
sanctions bill, and one of the sanctions that I--it has always 
seemed to me--would be the one that might hit it the hardest--
would be the one over the importation of refined petroleum. Is 
that correct, or incorrect? In terms of the gravity of that 
sanction on the Iranians?
    Ambassador Burns. It is true that Iran is dependent, to a 
significant degree, on the import of refined petroleum products 
of gasoline for consumption, although over the last few years, 
as I understand the statistics, they managed to reduced their 
exposure. A few years ago, they depended for about 40 percent 
of their consumption of gasoline, refined petroleum products on 
imports. Now, I think the figures I've seen are closer to 25 
percent. So, they've anticipated, you know, their 
vulnerabilities, the kind of pressures that could be exercised 
against them, and tried to act accordingly. But, you know, 
there's still a significant exposure, there.
    Senator Isakson. Do we have any knowledge that they're--in 
addition to increasing their capacity--that they're actually 
storing it so they could ride out a ban?
    Mr. Levey. I think that's one of the measures that they are 
taking, Senator.
    But, if I might just add on this point that, while this is 
a vulnerability and that we think it's one that could be 
exploited, on the other hand, it's not really--we, it's our 
believe that it's not a silver bullet in and of itself, that we 
need to do all of the other things that we've talked about in 
this hearing, in addition to focusing on this. But that, one of 
the things--two of the things that they may do in order to 
anticipate this attempt to constrain their ability to import 
refined petroleum is either to cut rations, or to reduce the 
subsidies on petroleum. And both of those things are, 
politically, very, very difficult for them to implement within 
Iran at the same time as we've been discussing that they're 
losing the support of their people, and for many other reasons. 
And so, they're very resistant to taking those sorts of steps. 
So, it's for that reason why we think it's quite useful to 
target this, but not necessarily sufficient in and of itself.
    Senator Isakson. Well, we obviously have learned there's 
not really a silver bullet in this issue, but there may be a 
critical mass of weight that, when it finally all comes to 
bear, both U.N. sanctions as well as things that Congress does, 
we get to that critical point that they have to react, and 
that's where I think we need to be--if the window is 3 to 5 
years that you were referring to in the previous statement, if 
it is there, we need to be working now to get that critical 
weight sooner rather than later, to get them to the table, I 
think. Do you agree with that?
    Ambassador Burns. Yes, sir. Absolutely.
    Senator Isakson. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Isakson.
    Senator Webb.
    Senator Webb. Thank you, Mr. Chairman.
    Secretary Burns, I apologize for coming in late. I have 
followed a good bit of this hearing while we were going through 
meetings in my office, so I've been very interested to see some 
of the lines of questioning here.
    Let me start by asking if the administration has any 
position or further thoughts of pursuing possible alternative 
approaches, such as the one that was offered by Brazil and 
Turkey, toward resolving this crisis?
    Ambassador Burns. Senator, I mean, this goes back to the 
original proposal that the IEA put forth last October, and that 
we, Russia and France strongly supported and would have 
participated in.
    When the Iranians announced--just before the Security 
Council resolution was passed, along with the Brazilians and 
the Turks--their version of this proposal, we consulted with 
Russia and France and subsequently provided Mr. Amano, the 
Director General of the IEA a series of concerns about that, 
reflecting the fact that, you know, first the situation has 
changed, as Senator Kerry mentioned, before on the ground, in 
the sense that, you know, this is meant to be an important 
confidence-building measure, 1,200 kilograms of low enriched 
uranium last October would have been more than three-quarters 
of the then-stockpile that the Iranians had; now it would be 
less than half. The Iranians have since begun to enrich to 20 
percent. It's not logical for them to continue to do that if 
they're getting help from the outside on the TRR.
    It's a long way of saying that we put our concerns on the 
table. We're certainly prepared to engage with the IEA and 
others on that issue.
    Senator Webb. So, procedurally, it's not off the table--
those sorts of approaches.
    Ambassador Burns. It's not all off the table, no sir.
    Senator Webb. I was very interested to hear Senator Lugar's 
question about an article that appeared discussing the 
possibility of the emergence inside of the Iranian Government, 
more toward I think Senator Lugar said, a military 
dictatorship, but a larger direct role, as opposed to the more 
theocratic approach, as existed in the past. Do you have a 
comment on that?
    Ambassador Burns. Senator, just to say that I do believe 
that it's a fact that the role of the Islamic Revolutionary 
Guard Corps in the leadership calculation and its influence as 
expanded in recent years, I think the circle of leadership has 
gotten smaller in Tehran, and I think that has revealed 
fissures within the political elite, as well as between the 
elite and much of the rest of the population.
    Senator Webb. Would you say that has accelerated over the 
last 8 or 9 months? That evolution?
    Ambassador Burns. Yes, sir, I think it has since the 
elections last June.
    Senator Webb. I have a question about the use of sanctions. 
We spent a lot of time talking about sanctions and existing 
laws, but there have consistently been waiver provisions that 
seem to have overridden sanctions provisions in the past. Would 
you have a comment on the use of waivers up to now? How broadly 
they've been used?
    Ambassador Burns. Well, Senator, I guess what I'd say is 
that, you know, we share the objective of constraining Iran's 
nuclear program; it's one of the highest national security 
priorities of the United States. What we want to try to do is 
work with the Congress so that whatever new legislation gets 
passed in terms of implementing existing legislation, we're 
doing that in a way which carries out the law, but also 
amplifies the effect of the international coalition we put 
together. And in that sense, the kind of waiver authority that 
I know the conference is discussing now with regard to 
companies from countries that are closely cooperating would be 
a very valuable tool, I think, in all of our interests in terms 
of maximizing the pressure on the Iranian leadership.
    Senator Webb. And wouldn't it be fair to say that at least 
from the reading that I've been exposed to--the waiver 
provisions have been sort of the rule, rather than the 
exception, in terms of sanctions that now are in place?
    Ambassador Burns. Well, Senator, in response to an earlier 
question on the Iran Sanctions Act, I did state that the State 
Department has completed its internal review of a series of 
problematic cases--that's a significant step. And now we're 
going to be working with other agencies to consider appropriate 
actions, and that will lead Secretary Clinton to make 
determinations. And so, we're going to apply existing law 
vigorously, and we want to look carefully at the kind of 
flexibility that we think would help the President in future 
legislation to apply maximum pressure on the Iranian 
leadership.
    Senator Webb. Would you describe the main concern of the 
administration, with respect to the legislation that's now in 
conference, with the waiver provisions, or what other major 
concerns are there?
    Ambassador Burns. I think that's as significant a concern 
as I can think of. But we've been working very closely with the 
members of the conference, and we look forward to continuing 
that over these next few days.
    Senator Webb. OK. Thank you very much. Thank you, Mr. 
Chairman.
    The Chairman. Thank you very much, Senator Webb.
    Senator Risch.
    Senator Risch. Thank you, Mr. Chairman.
    The reservations that were expressed by Senator Menendez 
here are bipartisan. I thought he was kind and gentle. You 
know, we've been at this a year, and nothing's happened. 
Ahmadinejad mocks the attempts by us, he demeans them, and if 
the objective--which I guess it is--is to stop them from 
enriching, it has had, seemingly, the exact opposite effect 
because of the ineffective way that we've gone about this.
    So, I understand, and I've heard the arguments, up until 
recently, about how it was so delicate, what was going on in 
the U.N., and we can't act too aggressively, et cetera, but 
that's behind us now. And I've said this before, and I've said 
it again--the Israelis are not going to allow Iran to continue 
down this road. And they're going to get to a point where 
they're going to do something about it, and then everyone's 
going to wring their hands and say, ``Well, why didn't America 
do something?'' So, we're at that point where we really need to 
do something.
    This is a serious situation, I appreciate hearing you say 
that it is one of the highest priorities for the American 
Government, but I'll tell you, we've got to get better at this 
because we're going to have a real wreck on our hands and 
everybody's going to point back to us.
    Your comments, Mr. Burns.
    Ambassador Burns. Well, Senator, we--as you know, the 
President, Secretary, other members of the administration share 
absolutely that sense of urgency. We understand what's at 
stake, just as you do. I think there's an increasing number of 
countries in the international community who share that sense 
of concern. That's reflected, not just in the passage of a new 
Security Council resolution, but in the steps that the European 
Union has announced that it's going to take, the steps we 
expect other governments are going to take. We're going to work 
at this issue as vigorously as we can because, like you, we 
understand what's at stake, here.
    Senator Risch. The only problem with that, Mr. Burns, and I 
agree with you 100 percent, the only problem with that is, 
we're in the same position we were a year ago. What you just 
said was the position of the administration and the world 
community and everyone else a year ago, but nothing's happened 
except Iran has continued down the road, in fact, more robust 
than it ever has before, for the last year.
    Ambassador Burns. Well, the only thing I'd say, Senator--
and Stuart may want to add to this--is I think some things have 
changed. You're right, in terms of our collective frustration 
with Iran's intransigence. But I think what we tried to do was 
use an intensive period of engagement as an investment in 
partnership with other countries, and it has produced some new 
tools of pressure that I think--if we implement them 
effectively and systematically--do have a reasonable chance, as 
Secretary Gates said on Sunday, of having an impact on the 
Iranian calculus. And that's not just the Security Council 
resolution, it's what the European Union can do, it's what 
other governments can do, it's what we can do, as well. And, 
you know, to just add to my response to Senator Webb's question 
earlier about, you know, the implementation of the tools that 
we have, the Treasury Department, State Department and others--
as Treasury announced last Wednesday--have continued to 
implement U.S. authorities vigorously. And we'll continue to do 
that, and take advantage of new legislation, as well.
    Mr. Levey. Senator, could I just add one other comment, 
which is, I wouldn't be too overfocused on the bluster from 
President Ahmadinejad. We do know that the Iranian leadership 
is quite concerned about these new sanctions, not just from the 
fact that they tried so hard to keep them from being enacted, 
but from other indications, as well, and that we've already 
seen indications from within Iran from economists and so forth 
that are quite concerned about the effect of these new 
sanctions.
    And I share your sense of urgency and in some sense, 
concern, about this issue. But now I would say we're at the 
beginning of pursuing this path of accountability. And we do 
have new tools.
    So, on the one hand, you say that the one--the only thing 
that's changed is they've increased their stockpile of low 
enriched uranium. But, we now have new tools, and that's 
something that has changed, also. This Security Council 
resolution does give us a good platform to build on.
    It targets exactly the right target. We were talking 
earlier about refined petroleum, I'd say that the focus in the 
Security Council resolution and around the world on the IRGC is 
an excellent target for sanctions, for all of the reasons that 
I think have been discussed. This is a part of the Iranian 
leadership that's taking opportunities away from the Iranian 
people, it's participating in the repression of Iranians, and 
it's the perfect target for sanctions, if I might. Because it's 
hard to imagine the Iranian leadership rallying the people 
around the IRGC as we target them for sanctions. That's one of 
the most significant provisions of the new resolution, that 
it's targeted not only 15 companies--the number's not what's 
important, quite frankly--but the largest of these companies is 
significant.
    I'm not saying it's going to be easy, but I think that 
we're at the beginning of this process, and we intend to pursue 
it intensively.
    Senator Risch. Well, Mr. Levey, I hope you're right. My 
problem is that when people express this great concern and 
hand-wringing that Iran seems to have, they don't do anything 
about it. They keep enriching uranium that they don't need, and 
all they've got to do is stop and all of this stuff goes away. 
So, they can't be too concerned.
    Anyway, thank you very much.
    Thank you, Mr. Chair.
    The Chairman. Thank you very much.
    Senator Kaufman.
    Senator Kaufman. Mr. Chairman, I want to thank you for 
holding these hearings. I think that anyone who is interested 
in Iran can look at the series of hearings that you've been 
holding and gain a great deal of information about what's going 
on and what's happening over there. It's been comprehensive, 
it's covered all of the different areas, and I think it's a 
kind of a tour-de-force in how the Senate Foreign Relations 
Committee can do its job.
    And I want to thank the two of you who are, I think, 
exemplary Federal employees. And I think you exemplify all 
that's good about what's going on, I think the American people 
are lucky to have you here.
    I also think that, you know, we tried 8 years of yelling at 
the Iranians. And that, I mean, this is not something that 
happened in the last year. We've known about what's been going 
on in Iran for a long time. And I don't think yelling at them 
did a whole lot of good. I think that this is very, very 
frustrating to all of us. It's obviously frustrating to Senator 
Risch, it's frustrating to me, it's frustrating to everybody.
    But it's a frustrating world out there. I mean, it isn't 
just Iran--what about North Korea? I'm frustrated about them, 
I'm frustrated about lots of different things that are going 
on, and these are just very difficult problems.
    And I believe--I'm not going to apologize for the 
administration, but I think we have made progress in terms of 
the fact that we have got Russian more involved. And what we're 
doing, we've got China on these resolutions, I think the stuff 
that Under Secretary Levey's doing with regard to the financial 
pressure being brought to bear on the Iranians, which he talked 
about in his opening testimony is really quite impressive in 
gathering all of the world and going after them financially. 
This is a tough, tough fight.
    But I do share Senator Risch's frustration, and I do think 
that we are on a short fuse, but I couldn't think of two better 
people to have working on this.
    Now, that out of the way, Secretary Levey, could you talk a 
little bit about cooperation you're getting from the Gulf 
States in terms of what we're trying to do?
    Mr. Levey. Well, thank you, Senator, and thank you for the 
kind words.
    I'd say that, as others have commented here and as the 
chairman commented in his opening statement, the concern about 
a potentially nuclear-capable Iran--nuclear weapons-capable 
Iran--is felt just as deeply in the gulf as it is anywhere.
    I do think that we certainly have the indications that 
we'll get strong cooperation. We're in much, much better shape 
now that we have a U.N. Security Council resolution. To be 
candid about it, I think that was something which our gulf 
allies wanted very much to see. They feel much more comfortable 
cooperating under the umbrella of a U.N. Security Council 
resolution. And so, we're going to pursue that right now. I 
think there are indications that we'll get good cooperation.
    Senator Kaufman. Secretary Burns, you mentioned in your 
testimony about the U.N., the Russian decision not to transfer 
S-300 surface-to-air missiles to Iran. How significant is that?
    Ambassador Burns. I think it's a significant illustration 
of Russia's commitment to the full implementation of the new 
resolution. I think it's significant that Russia had shown 
restraint in the period of years before the new resolution. And 
I think it's a good example for other countries as they look at 
implementing all of the provisions of 1929.
    Senator Kaufman. Secretary Levey, Senator Boxer went 
through a good series of questions about China, and China's 
involvement. Clearly, China signing on the sanctions is 
significant for us, but what are the chances that China is 
going to use this as an opportunity to do business in Iran, now 
that other Europeans are starting to cooperating with us, and 
other nations are cooperating with us, that China can move into 
this vacuum and pick up some of this business?
    Mr. Levey. I'd also invite Secretary Burns on this, but I'd 
say that this is a significant challenge that we face and that 
we intend to make this a very, very high priority to use the 
U.N. Security Council resolution in the first instance to--
which we have every reason to expect that China will faithfully 
execute, and they have historically executed U.N. Security 
Council resolutions that they--that have been passed. But, the 
key point is to try to make sure that they don't backfill from 
business opportunities that others are forgoing, and that's 
going to be a very high priority that we really push and urge 
them on.
    Senator Kaufman. Under Secretary Burns.
    Ambassador Burns. No, I'd just echo the same thought.
    It's going to remain a high priority for us in our dialogue 
with China.
    Senator Kaufman. Secretary Burns, I noticed in your 
statement you talked about the Justice Week, 55 other nations 
joined and rebuked Iran for its atrocious human rights record 
in the Human Rights Council. Can you talk a little bit about 
how this and the 1929 Resolution indicates some change in the 
U.N.'s approach to Iran?
    Ambassador Burns. Well, I think since last June you have 
seen, as you know very well, Senator, a rising concern of the 
international community about the repression of Iranian 
citizens about the denial of rights that really ought to be 
universal for Iranians. And I think the administration, 
President Obama, has spoken out clearly about that, will 
continue to do it. And I think it is notable that 55 other 
countries joined us in this joint statement at the Human Rights 
Council. They came from a variety of regions of the world, and 
I think they do reflect growing concern. And that's something 
we're--I think the United States is certainly not alone in 
highlighting, and we will continue to work with others to 
amplify that.
    Senator Kaufman. Under Secretary Levey, can you just kind 
of go through--kind of from Iran's view--what's happening to 
them financially around the world?
    Mr. Levey. I'd be happy to, Senator.
    If you were to rewind the clock to 2005, say, Iran was 
doing business openly like a quote-unquote ``normal'' country 
all over the world, and had access to the financial system, 
including all of the leading financial institutions in the 
world, and they were doing an enormous amount of business 
everywhere except in the United States, where we already had 
sanctions on Iran.
    But, when we started to expose the way Iran was using the 
financial system for its proliferation activities and for 
terrorism, the financial institutions around the world looked 
at the information that we were providing and the actions that 
we were taking, and the deceptive conduct that Iran was 
engaging in, and they decided almost unanimously to 
dramatically cut off their business with Iran, or dramatically 
cut it back. That has left Iran isolated financially, and that 
has had real impact; it makes it harder for them to do trade, 
they have a very difficult time obtaining letters of credit 
from financial institutions around the world. They find it very 
difficult to obtain financing for the major infrastructure 
projects. One of the things that you asked earlier was about 
the risk of backfill as others pull out of projects in Iran. 
The truth is that already the major European companies are 
avoiding that business, in part because they don't want to do 
the business with Iran, partly because of urging from the 
United States, but in part because there's no financing 
available, because big financial institutions just will not 
finance deals in Iran.
    This has real impact. It's also part of the reason why, I 
think, they are concerned about this new set of sanctions, and 
the potential implementation by governments around the world.
    Senator Kaufman. Thank you. Thank you, both, for your 
service.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Shaheen. Senator Wicker, excuse me.
    Senator Wicker. Thank you very much, I appreciate your 
testimony, gentlemen.
    What do you say to the charge that the U.N. sanctions have 
been so watered down and so weakened that they're relatively 
meaningless? What do we have to give up in order to get Russia 
and China on board with this U.N. resolution?
    Ambassador Burns. Well, Senator Wicker, I think first, two 
points. Security Council Resolution 1929 does go well beyond 
previous sanctions resolutions, and I think the provisions in 
it are significant. I'd just cite a couple of examples: the ban 
on significant transfers of conventional arms; Russia's 
subsequent decision that it will not deliver S-300 missiles to 
Iran in accordance with that resolution; the ban in the new 
resolution on all ballistic missile activity connected with 
missiles that could carry nuclear weapons; the range of 
provisions in the financial sector that Under Secretary Levey 
has already talked about. I think all of those provisions 
provide a stronger platform than we've ever had before 
internationally.
    And that's my second point. I think we can build on that 
platform, as the European Union announced it was going to do 
last Thursday, in ways which further strengthen the impact on 
Iran of those kind of measures. And I think that's a 
significant advance on where we've been before.
    Senator Wicker. Then the second part of my question--what 
do we have to give up, as compared to what we wanted--in order 
to get the Russians and the Chinese on board at the Security 
Council?
    Ambassador Burns. Well, it's like, Senator, any negotiation 
anyplace. I mean, we didn't get everything that we wanted in 
that resolution, but nor did the other parties get everything 
that they wanted. And I think what we produced in the end, 
collectively, especially amongst the permanent members of the 
Council, was a significant step forward----
    Senator Wicker. Was there a draft proposal that we 
submitted that specifically listed some proposals that were 
taken out in the final version? I guess that's my question.
    Ambassador Burns. Well, sure. As I said, Senator, we didn't 
get everything that we, the United States, would have liked, if 
we were just writing the resolution ourselves, but----
    Senator Wicker. And, what might those have been?
    Ambassador Burns. Sir, I don't want to go into all of the 
backing and forthing of a negotiation, but, you know, there 
were certainly provisions that if we were just doing this 
ourselves, you know, we would have preferred. But, I think at 
the end of the day, we were able to produce, collectively, a 
very significant set of sanctions. Which puts us on a very good 
position to build on them, with the E.U., with steps the United 
States can take, steps Australia and other countries can take.
    Senator Wicker. Does it surprise you, Secretary Burns, that 
Russia has criticized the announced United States sanctions and 
the E.U. sanctions?
    Ambassador Burns. No, Senator, it didn't surprise me. 
Russia has been quite consistent and quite clear in its concern 
about measures that go beyond those in the U.N. Security 
Council resolution.
    Senator Wicker. And so, would you say it's fair to 
characterize their opposition as being more to the forum of the 
sanctions, rather than to the specifics--the specific effects 
of those sanctions?
    Ambassador Burns. Well, you know, the Russians can speak 
for themselves on this--I think there is concern about measures 
that go beyond the forum of the U.N. Security Council. I think 
there's also concern that's shared--it's not only a Russian 
concern, it's shared by our European partners, too, about 
extraterritorial application of other countries' national 
measures. So, it's a variety of concerns that produced that.
    Senator Wicker. OK. With regard to Turkey and Brazil voting 
no. Again, I'm asking you to characterize someone else's point 
of view. But, is it their contention that--that we sort of 
pulled the rug out from under them, that we had asked them to 
go forward with these negotiations with President Lula and 
President Ertigan, and--and they felt that they didn't get 
enough communication from the State Department. Is that a fair 
characterization of their viewpoint?
    Ambassador Burns. I don't think, Senator, there was any 
lack of communication on this issue. I think the Turks and 
Brazilians, while they share the same goals strategically, 
they're firmly opposed, both of them, to a nuclear armed Iran. 
We had differences over timing and tactics, and, you know, we 
expressed our disappointment in the votes that they chose to 
take, but we've also taken note of the fact that both Turkey 
and Brazil have made clear that they intend, as members of the 
United Nations, to implement fully the Security Council 
resolution that was passed.
    Senator Wicker. Do you think this is a flap between the 
United States and Turkey and the United States and Brazil, that 
we're going to get past fairly quickly? Are there going to be 
any long-term ramifications of this decision on their part?
    Ambassador Burns. Well, as I said, Senator, you know, we've 
made clear our disappointment over those votes. We also 
recognize the number of areas, for example, with Turkey, where 
we have common concerns. One recent example has to do with the 
PKK, a terrorist group, where the United States has cooperated 
closely with Turkey in support of its efforts to protect its 
own security. And that's an area in which we're going to 
continue to work together.
    So, you know, these are complicated relationships with 
countries that matter in lots of important ways, and we'll have 
to try to work through our differences. But they were real 
enough over the Security Council resolution.
    Senator Wicker. Thank you very much.
    The Chairman. Thank you, Senator Wicker.
    Senator Cardin.
    Senator Cardin. Thank you, Mr. Chairman.
    Let me thank both of our witnesses for the work their 
doing. Clearly getting the next U.N. sanction resolution passed 
was a major step forward, and we really do applaud your efforts 
in that regard.
    But I must tell you, I think that the United States 
sanction legislation is critically important. Just by way of 
analogy, historically what happened with South Africa--there 
was a lot of angst about the United States moving forward with 
sanctions against the apartheid Government of South Africa. 
They said we can depend upon the international community, and 
quite frankly, it was United States leadership that provided 
the impetus for the economic pressure on South Africa to 
changes its apartheid government.
    And I do remember the arguments at the time, people saying, 
gee, it's going to hurt the people of South Africa and result-
wise, it was part of the strategy that brought about the 
transition of that country in a less bloody way that otherwise 
it would have happened. And, you look at economic sanctions 
working, of the Jackson-Vanik law, which was instrumental in 
freeing a lot of immigrants from the Soviet Union. And Iran may 
give its own assessments of this, but clearly the economic 
sanctions need to be strengthened. And the work that you did 
within the United Nations is a very positive step.
    The legislation, which I hope we will approve this week, is 
strong, putting the United States in the forefront dealing with 
refined oil products. And, I understand the historic 
relationship between the executive and legislative branch. On 
foreign policy, we're usually together. But I think it's 
important that we speak with a very strong voice, and you can 
always point to the independence of Congress as you try to 
negotiate with our friends around the globe.
    I want to get to the enforcement issues of the U.N. 
resolutions. I know you've talked about that, but, you know, I 
am concerned as to how we will be monitoring the work within 
the United Nations on enforcement of its own resolution, and 
how the United States will provide the international support 
that's going to be needed to provide the intelligence 
information as to whether the sanctions, in fact, are being 
complied with.
    Can you just go into a little bit more detail as to how 
this will be handled as a priority within our government to 
make sure these sanctions are enforced at the highest levels?
    Ambassador Burns. Yes, Senator, I'd be glad to start. I 
mean, first, Secretary Clinton has appointed Bob Einhorn, one 
of her senior advisors, to be the full time coordinator in the 
State Department of implementation, exactly the kind of 
challenges that you talked about, working with Under Secretary 
Levey, our colleagues throughout the administration, and the 
intelligence community, and importantly, working with foreign 
governments to make sure that there's vigorous implementation 
of these measures. Because as significant as the new measures 
are, they're only as good as the implementation.
    Second, as Stuart mentioned before, we do have in 
Resolution 1929, the creation of a so-called panel of experts. 
The Iran sanctions regime has, up until this point, been the 
only U.N. sanctions regime without such a panel, which is aimed 
at enforcing accountability. It will consist of eight members, 
including one from the United States, and that gives us another 
tool in the U.N. system to try to hold people accountable for 
implementing the new resolution.
    Senator Cardin. But as I understand it, a lot depends upon 
having reliable information as to whether there's reasonable 
cause to believe that a vessel contains elicit products. That 
information most likely will be coming from sources that the 
United States has interest in. How is that coordinated with the 
United Nations effort?
    Ambassador Burns. Well, sir, the comprehensive inspection 
regime set up in Resolution 1874 in North Korea, is in some 
ways a good model from this, and we've learned a lot from that 
experience and had some successes. And, we will work, you know, 
very closely with our friends and allies with this new panel of 
experts at the U.N. to ensure that information is passed 
quickly, and that we can use it to identify suspect cargos and 
then take advantage of the new provisions of the resolution.
    Senator Cardin. Are there any additional resources that the 
United Nations needs in order to carry this out, or do you 
think they have adequate resources devoted to this?
    Ambassador Burns. Well, it's certainly something, Senator, 
we'll keep a careful eye on and stay in close consultation with 
the U.N. Secretariat on, but I think this new panel of experts 
is an important new tool.
    And then--what Bob Einhorn's efforts and his coordination 
of, you know, the efforts of not only the State Department but 
others in the administration, I think is also an important new 
tool. We just need to plug the two together and I think that 
can produce real results.
    Senator Cardin. Once the United States has completed its 
bilateral sanction improvement, the one we sign when the 
conference board is completed--which we hope will be this 
week--can you just tell whether other countries are looking at 
the United States to perhaps follow our lead and enhance the 
sanctions in addition to the United Nations?
    Ambassador Burns. Yes, sir, the European Union, last 
Thursday when its leaders met, took a very significant step in 
announcing a series of measures that not only implement to its 
fullest, Resolution 1929, but accompany it with steps such a 
flat ban on new investment in the oil and gas sector, a flat 
ban on the transfer of certain important technology to the 
energy sector in Iran, a range of other measures which build on 
the new Security Council resolution. Australia has announced 
similar kinds measures. We know Canada is considering a similar 
set of provisions, and we're in touch with a range of other 
governments about steps that they could take as well.
    Senator Cardin. Well, I think that's important. I think 
it's important to show that this, again, beyond just the United 
Nations. That sets the framework, but it really does depend 
upon those who are concerned what Iran is doing, coming 
together with creative ways to make these economic sanctions 
really work. And then we can learn from each other, get the 
best practices, which will strengthen the U.N. effectiveness of 
its resolutions, but also help us figure out ways that we can 
close any gaps in the intended economic pressure.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Casey. Thank you, Mr. Chairman.
    I want to thank both of you for being here and for your 
testimony and for your service at a tough time in our Nation's 
history. I do want to thank Ambassador Burns for mentioning, 
and Chairman Kerry for mentioning, the three hikers, one of 
whom, Josh, is a Pennsylvanian, and Sarah and Shane. And I know 
that our government has taken a lot steps to try to secure the 
release that has not happened yet. We're coming up on a year, 
but we're grateful for the work and we look forward to 
continuing to work with you on that.
    And in that vein, with regard to freedom and human rights 
and Internet freedom and freedom of expression, I want to--I 
was noting from Under Secretary Burns, the reference on page 
eight, page seven onto page eight, where you state, ``State and 
Treasury have worked to issue a general license that allows 
free market, downloadable communication software available 
inside Iran.'' And I know you may have already addressed this, 
but two things. One is, what you can you tell us, in terms of 
an update--and again, this may be redundant from what you've 
testified to earlier--an update on how that effort is 
proceeding. And second, what if anything the Congress can do to 
help the administration in this area. I know we've passed the 
Voice Act, we've done a number of things, but is there a gap or 
a hole or a strategy that we haven't acted that we can be 
helpful to the administration with?
    Ambassador Burns. Thanks, Senator Casey. No, we admire very 
much the efforts that you and your colleagues in Congress have 
made to highlight the importance of free access to information 
on the part of Iranians, which is a universal right. You 
highlighted, sir, one of the specific steps we've taken, along 
with Treasury, in issuing a general license to make more 
accessible kinds of software, whether it's for e-mail or blogs 
that we think are very useful. The truth is that there are at 
least 25 percent of the Iranian population that is online 
regularly, and it's an extremely important way of people 
communicating with one another.
    We've taken another step, which is to issue a specific 
waiver for a kind of technology that helps avoid jamming, which 
is a--certainly a tool that the Iranian Government has used to 
cut down on the free flow of information. We applauded the 
Voice Act, we'll try to take full advantage of the kind of 
provisions that are in that act, and look for other creative 
ways in which we can help Iranians have access to information, 
just like any other society ought to have.
    Senator Casey. When you say the waiver, explain how that 
works. When you said the providing waiver, tell me how that 
works.
    Ambassador Burns. Well, it's just under the--I'll probably 
get some of the details wrong, but under the current 
strictures, you know, that the U.S. Government applies to any 
kind of commercial interchange with Iran, there were 
proscriptions on, you know, certain kinds of equipment, and 
this would actually make an exception in that case.
    Senator Casey. Thank you. I know that Under Secretary Levey 
has been part of the effort to keep the heat on the regime as 
it relates to sanctions. I know we're--we meet here principally 
to focus on what the United Nations has done. And in that vein, 
I want to ask as well about some of the congressional action on 
this, but I was looking at your testimony as well. On page six 
where you talked about the--the Islamic Revolutionary Guard 
Corps being designated by Treasury in 2007, and you want to--
you go on from there, and I guess it's second or--I think it's 
the third sentence, about what happened last week, the actions 
taken to supplement those actions. And in the end of the 
paragraph, you talk about the 26 entities now that have been so 
designated.
    What if--let me ask you first, what if anything is left 
there, in terms of work to be done on putting pressure, 
particularly on the Revolutionary Guard Corps, is there 
anything more that you would hope the Congress would do or do 
you think the sanctions that are being worked on now, by way of 
a conference committee, whether or not that's going to be 
sufficient to provide the kind of pressure, in particular, on 
the Guard Corps.
    Ambassador Burns. I'd make two points, Senator. One is 
that, as I understand the bill that is being considered, it 
does have IRGC provisions that would expand our authorities in 
this respect and that would provide the authority to restrict 
U.S. business with entities that are doing business with IRGC. 
But, perhaps most important, is the implementation--I mean, it 
comes back to the implementation of the U.N. Security Council 
resolution, because the designation in the Security Council 
resolution of Khatam al-Anbiya, which is the umbrella company 
that does all the--that does a lot of this business, and then a 
lot of it's subsidiaries and affiliate companies, that it's--
it's frankly hidden behind, since we designated it ourselves in 
2007. To have that be a global implementation of those 
restrictions will be very powerful, even in their most 
important industry, which is of course their energy industry.
    Because they can't attract investment, they are turning 
over projects to IRGC affiliated companies. One knows that if 
those companies were capable of doing those--handling those 
projects, that's how they would have handled it in the first 
place. They need to contract out, outside of Iran, and those 
companies have a history of contracting out with companies 
around the world, including in Europe, to do the projects that 
they're given as sole-source contracts from the government.
    So, we think that implementing that provision of the 
resolution, the designation of the IRGC companies, is a very, 
very powerful--a very, very powerful step.
    Senator Casey. And I know we don't have--we have not 
completed the conference work that will lead to final passage 
of the legislation. But, let me conclude with this. There are a 
lot of people who will say to me, ``Well, it's great you guys 
are going to pass something in Congress to provide more 
authority for the President for administration.'' Some 
authority, of course, will relate, as Senator Brownback and I 
worked on the divestment, so we have other levels of 
government, pension funds, and local government and State 
governments helping us, but in terms of the new authority for 
this President, this administration and succeeding 
administrations, I would urge both of you to be a very strong 
voice, to use the power that's granted. I know it's I know it's 
unilateral, I know it's--there's discretion involved to a 
substantial extent, but we need to keep the heat on this regime 
and we don't want to pass legislation where it just sits on the 
shelf. So, I know you have strong feelings as well about this, 
but I urge you to be a strong voice for the use of those 
enhanced authorities.
    Thanks very much.
    The Chairman. Thank you very much, Senator Casey.
    Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman.
    And thank you both for being here. I had a meeting recently 
with a representative from a large corporation who was 
expressing some concern about how they might be affected by the 
further Iran sanctions resolution at the U.N. and the action 
that we're taking here in Congress. And, they were expressing 
concern in a way that indicated some question about whether 
they thought this was really necessary.
    And, I wonder if you can tell me how we're dealing with 
American corporations who we hope and expect to comply with the 
sanctions resolution and the action that we're taking, and are 
we educating them, are we--I mean, what surprised me, frankly, 
was that he didn't view this as his patriotic duty and that he 
didn't seem to recognize the very real threat that Iran poses.
    Mr. Levey. obviously I don't know which company you're 
referring to, but, Senator, I, and I know Secretary Burns and 
others at the State Department do a lot of the sorts of 
discussions like this, to the extent that I'm talking to a 
company that's not American company, I make the point that our 
companies have been voting with their, you know, putting their 
money where their mouth is for a generation.
    We have largely forsworn the economic opportunities of 
doing business with Iran through our unilateral sanctions for a 
long time, and so when I get push back from other governments 
I'm quick to point that out.
    When it comes to U.S. companies, this is a very, very small 
and frankly, you know, it gets a lot of attention, but it's a 
very small amount of business in absolute terms, but we are 
very--very vigilant with respect to making sure that we enforce 
our law as it stands, which is that if you're a U.S. company 
and you have a subsidiary abroad, you can not use that 
subsidiary to evade the sanctions, and if you do, we'll take 
enforcement action against you. What frankly happens a lot of 
times is when we start to investigate the business of the 
foreign subsidiary, we get a public announcement that they're 
going to stop doing the business, and then we say that's great. 
And that's maybe a good outcome.
    But we take this very seriously, and as I indicated to 
other Senators, when people violate our sanctions, we're very 
tough, as we were with the two major financial institutions 
that violated our sanctions in the last couple of years, and 
imposed multiple hundred million dollar fines on both of them.
    Senator Shaheen. Thank you. Can you also talk about the 
reaction to the Financial Actions Task Force's recommendations 
and--I guess they're more than recommendations, they're 
countermeasures--and how responsive the international community 
has been to that.
    Mr. Levey. Well, thank you for asking that, because this is 
something which--which the Financial Action Task Force, which 
is the standard setting body on money laundering and terrorist 
financing issues, and it has the buy-in of almost every 
country, major country in the world has--only one country that 
they have called out for countermeasures, and this is not done 
for political reasons, this is a technical assessment of the 
risks posed by elicit finance within each country. And Iran is 
the only one that opposes such a risk, that they've asked 
countries to impose countermeasures.
    We frankly intend to use that call for countermeasures and 
the combination of the financial provisions of the U.N. 
Security Council resolution to seek very robust countermeasures 
on Iran, and the indications, at least initially from the 
Europeans, as Under Secretary Burns said, their statement is at 
least a political statement in the right direction, we've now 
got to turn it into action.
    Senator Shaheen. And you mentioned the Europeans, the 
Australians, is there anybody that we've been talking to who we 
are concerned will not go along with those countermeasures? 
Either one of you.
    Mr. Levey. The issue about the countermeasures is that's 
there no prescribed--there's no prescription about exactly what 
countries have to do, and so we have to work with them to make 
sure that the countermeasures that are imposed are robust 
enough. And so, the direct answer to your question, is no one 
will say, no, we're not taking it seriously. My concern and 
what I intend to work on very hard to make sure that what they 
do impose is strong enough and isn't just a statement of 
concern, but rather some real teeth in these countermeasures.
    Senator Shaheen. Under Secretary Burns, you talked about 
Turkey and--Turkey and Brazil having--supporting the underlying 
goals of the resolution, but thinking there were other ways to 
get there is that were more effective. Should I assume from 
that that they share our very real concern about the threat 
that Iran poses?
    Ambassador Burns. I think they do, Senator. I certainly--I 
think they share the strategic goal here, which is to ensure 
that Iran doesn't develop nuclear weapons, Turkey in 
particular, is a close neighbor and has as big a stake as 
anyone in the security and stability of that part of the world.
    Senator Shaheen. And, can you also elaborate a little bit 
on how that action at the U.N. has affected Turkey's 
relationship with Israel?
    Ambassador Burns. Well, the relationship between Turkey and 
Israel, as you know, has been a complicated one for, you know, 
for reasons that go beyond simply the issue of the resolution 
in New York, and certainly the incident effecting the recent 
Gaza flotilla was a source of real friction between them.
    In the past, Turkish-Israeli relationship I think had been 
one of the, you know, more encouraging developments in the 
region. Turkey played a very significant role, as Senator Kerry 
knows, in 2008 in facilitating an indirect exchange between 
Syria and Israel, and I think that was reflection of the kind 
of role that Turkey can play on a range of important Middle 
East issues.
    Senator Shaheen. And finally, what impact on Iran's 
position within the Middle East have these sanctions had, or is 
it too soon to tell? So, have they increased some of the other 
countries within the Middle East who might--like Syria--who 
might have been more supportive of Iran, or have they decreased 
their commitment to Iran?
    Ambassador Burns. Well, I think the passage of the 
resolution--it's, you know, it's not a magic cure, but it does 
reinforce the isolation of Iran in the international community. 
I think it reinforces in the region, I think, the concerns of, 
you know, our partners not only in gulf but elsewhere. There 
are concerns about Iran's nuclear ambitions and about its 
behavior in lots of other areas, its support for terrorist 
groups, its efforts to undermine efforts of Middle East peace.
    So, I think in that sense the Security Council resolution 
has a constructive impact in highlighting what the real problem 
is here today, and the real problem is Iran's unwillingness to 
live up to its international obligations.
    Senator Shaheen. Thank you.
    The Chairman. Thank you, Senator Shaheen.
    Mr. Secretary, I know you want to try to get out of here 
around 11:30, we'll try to get you right out of here 
momentarily, just a couple of quick questions, if I may.
    How much international cooperation, Secretary Levy, do you 
anticipate for the nonbinding measures?
    Mr. Levey. I have very high hopes and I think that our 
indications so far are quite positive. And these nonbinding 
measures, I think, I have two reasons for optimism. One is that 
we have had prior consultation with a lot of our allies about 
exactly what they needed to do the things that we want them to 
do. And my second reason for optimism is that the overwhelming 
information that is already in the public domain about--that 
the resolution calls for countries to meet before they can take 
action.
    So, as I mentioned earlier, governments are asked to cut 
off all financial services and corresponding banking if they 
have reason--if they have enough information to believe that 
this could be used for Iran's nuclear missile enterprises. 
Well, the information that is in the public domain already is 
overwhelming, and in fact, even in the resolution itself, one 
of the criticisms of the resolution that I heard was that 
there's only one bank listed. And it is a bank that's a small 
bank that is owned by Bank Mellat, which is a large Iranian 
bank.
    But the description in the resolution of what bank--of Bank 
Mellat, is that it moves hundreds of millions of dollars for 
Iran's nuclear and missile and other military enterprises. So 
there you have, even in the resolution itself, already the 
information that is necessary for governments to take strong 
action against Bank Mellat. And so, we can use that, I think, 
to get some strong response.
    The Chairman. And what are the most significant provisions 
in 1929 that you think are going to bring real economic and 
financial pressure on Iran?
    Mr. Levey. Perhaps the most important one is the simplest 
one, it's the IRGC designations, because that is a very 
significant and it's a larger part of the economy, as we've 
discussed. But I would again point to the restrictions--in 
terms of economic issues, I would point to the restrictions on 
any kinds of financial services, including banking, insurance, 
et cetera, that governments are called upon to cut off if 
there's any basis for believing that it could help Iran's 
nuclear missile enterprises.
    The combination of all that, plus just the vigilance and 
the encouragement to stop doing business with IRISL, their 
shipping line, and the IRGC. I think you put all of that 
together, it can have a strong impact, but the three provisions 
that are most important, I think, would be the IRGC provision, 
as well as its paragraphs 21 and 23 about financial services.
    The Chairman. And once we've got the rules in place et 
cetera, what do you--what is the key to ensuring that these new 
sanctions are going to be as effective as possible? What do 
you, both of you, most----
    Mr. Levey. You know, I think that there's----
    The Chairman [continuing]. Just track and push.
    Mr. Levey. There--well, what we've learned over time, I 
think, is that you've--this is in some ways a labor intensive 
process. You know, there is no, in my view, there is no 
substitute from, you know, showing up over and over again to 
talk about these issues. We have made a lot of progress by 
doing that, discussing, you know, sharing this information, 
showing up with the information, discussing it again. We have 
made that our priority to do over the last few years. Now with 
the appointment of Bob Einhorn to coordinate these efforts of 
the State Department, we'll be able to follow through and do 
that in a very concerted way. I think the more people 
understand that this is a high priority for the United States, 
the more likely they are to cooperate and----
    The Chairman. You talked earlier about one bank shifting 
off to another bank once that bank gets, sort of, the hammer 
come down on it. Can they simply do that again, just shift off 
to yet another bank or create a bank to shift off to? Don't 
they have significant amount of flexibility in that?
    Mr. Levey. Well, we've now designated 16 of their banks.
    The Chairman. How many do they have?
    Mr. Levey. They've got more, but the point is that--we're 
trying to use this evasion--you know, you could go the other 
way, but our view is that you use the evasion by pointing it 
out and getting people to see exactly how they're behaving so 
that they can take action themselves to not do business with 
Iran's banks. If we just issued an edict that said, you know, 
all of Iran's banks, you know, are in this category, it 
wouldn't have the effect because we wouldn't have the publicly 
available information to substantiate our concerns.
    So, it's our view that the most effective way to do this is 
the way we have been doing it, to sort of--you point out 
exactly the elicit conduct, make it public, confront people 
with it so that they can take steps on their own.
    The Chairman. Now I understand we pay Iran $100 million a 
day for oil. Is that accurate?
    Mr. Levey. I'm not sure what you're referring to, Mr. 
Chairman.
    The Chairman. I'm trying to figure it out. I have seen the 
ads on television and recent reports in news media referring to 
$100 million that goes to Iran, in terms of America's 
dependence on foreign oil. Can you speak to that?
    Mr. Levey. I think I'd have to sit down with whoever is 
making those calculations and see what they're referring to. 
There's no--it's impermissible to directly purchase from Iran 
by any United States person, but----
    The Chairman. Do you have any sense of how indirectly that 
money is getting to Iran? Obviously it's indirect, I understand 
that.
    Mr. Levey. I don't want to speculate. I mean, it's possible 
that people are saying this is fungible product, and so the 
amount that we buy raises the prices to a certain extent, but 
I--that's a pure speculation. I don't know.
    The Chairman. Have you not looked at that tracking, I mean, 
aren't there some joint oils fields shared? Don't the Qataris 
have a joint oil field in the gulf?
    Mr. Levey. I believe that's a gas field, but you're 
correct.
    The Chairman. And do we buy from them? Does some of that 
proceed go to Iran?
    Mr. Levey. I don't know, but I do know that it's 
impermissible to buy directly from Iran by any United States 
person.
    The Chairman. To what degree will our sanctions have the 
ability to deal with the indirect support structure, which if 
it is true, results in $100 million a day, is kind of 
counterproductive?
    Mr. Levey. You know, I don't want to say--I feel like we 
have a premise that we haven't really----
    The Chairman. All right.
    Mr. Levey [continuing]. Established yet.
    The Chairman. We'll get the premise to you more directly. I 
was wondering whether you had any--if you could shed any light 
on that, because I've just seen that in these last days, and I 
wanted to try to----
    Mr. Levey. Let me look into further and see if can get back 
to you.
    The Chairman [continuing]. Focus in on it. Fair enough.
    Let me thank both of you very much.
    Senator Lugar, do you have any additional questions?
    Senator Lugar. Well, thank you, Mr. Chairman, I do, but I 
will submit them to the witnesses for the record, and if you 
would respond swiftly, we'd appreciate it.
    The Chairman. Senator Lugar, we'll leave the record open 
until the end of the week, for colleagues, and in addition, 
there are questions we do need to ask in classified session. 
And if we could get you back, I could--I think you could sense 
from the participation of the committee here, the level of 
interest that obviously exists. We could try to do that, I hope 
in the near-term, we'll try to work that out with your staffs.
    Thank you very much for being here today, very interesting 
and very helpful. We appreciate it.
    We stand adjourned.
    [Whereupon, at 11:48 a.m. the hearing was adjourned.]
                              ----------                              

              Additional Material Submitted for the Record

 Responses of Under Secretary William Burns to Questions Submitted for 
                  the Record by Senator John F. Kerry

    Question. In your testimony you mentioned the three American hikers 
detained by Iran, Shane Bauer, Josh Fattal, and Sarah Shourd.

    a. What steps are being taken to help bring about their release?
    b. Do we have knowledge of their well-being?
    c. Recent reports suggested they may have been arrested by Iranian 
border guards on Iraqi soil. Is that your assessment as well?
    d. Another American who went missing in Iran is Robert Levinson. 
What do we know about his whereabouts?
    e. What steps are being taken to find him and bring him home?

    Answer. (A) The three hikers have been detained for nearly a year 
without official charges or access to their attorney. The Department is 
committed to ensuring fair and humane treatment for all U.S. citizens 
detained overseas, and we stand ready to assist detained citizens and 
their families within the limits of our authority in accordance with 
international law. In the case of the hikers, we are using a variety of 
diplomatic tools to ensure that Iran understands the U.S. Government's 
concern for the welfare of these three Americans. We are raising our 
concerns bilaterally, through the Swiss protecting power, and through 
third parties.
    (B) We understand the three have not been physically harmed, 
although their psychological well-being is a major concern. The Swiss 
have been granted consular access on three occasions: September 29, 
2009; October 29, 2009; and April 22, 2010. The hikers' mothers were 
able to visit them on May 20 and May 21, 2010. Although the Iranian 
Government has not permitted Sarah, Shane, and Josh to sign a Privacy 
Act Waiver, the families have released information on their welfare and 
well-being to the press. Through these reports we understand that Sarah 
Shourd has been in a cell by herself since her detention on July 31, 
2009, and has serious preexisting medical conditions. We have asked the 
Iranian Government to share her medical records with us. The Iranian 
Government has yet to provide the results of medical tests she has 
undergone while in detention.
    (C) The Department is unable to corroborate reports that the hikers 
were arrested by Iranian border guards on Iraqi soil.
    (D) We continue to seek information regarding Mr. Robert Levinson, 
who disappeared on March 9, 2007, while on a business trip to Kish 
Island, Iran. In December 2007, Mr. Levinson's family traveled to Iran 
and met with Iranian officials. The officials expressed a willingness 
to share information about their investigation into Mr. Levinson's 
disappearance; however, the Iranians have yet to provide this 
information.
    (E) The Department uses every opportunity to raise its concerns 
over Mr. Levinson's disappearance--both bilaterally, through the Swiss 
protecting power, and through third parties. The United States 
continues to call on the Government of the Islamic Republic of Iran to 
assist in providing any information on Mr. Levinson's whereabouts and 
following through on its promise to share the results of its 
investigation with the Levinson family or the Swiss Embassy in Tehran.

    Question. In the wake of U.N. Resolution 1929, countries are taking 
``national measures'' to increase the pressure on Iran. What do you 
expect will be the impact of the ``national measures'' taken by U.S. 
allies in the wake of U.N. Resolution 1929--both on Iran's economy and 
on its decisionmaking?

    Answer. Already, the European Union has acted strongly to follow up 
UNSCR 1929, announcing in its June 17 European Union Council 
Declaration the plan to adopt EU-wide regulations, which we expect to 
occur at the July 26 Foreign Affairs Council meeting. Its leaders have 
decided to take a series of significant steps, including bans on the 
transfer of key technology, and tough measures against Iranian banks 
and correspondent banking relationships, and additional designations to 
include banks. Canada and Australia have indicated similar resolve, and 
other partners will follow suit shortly. Meanwhile, we continue to have 
success in persuading a variety of foreign companies that the risks of 
further involvement in Iran far outweigh the benefits.
    The net result of this combination of economic pressures is hard to 
predict. It will certainly not change the calculations of the Iranian 
leadership overnight, nor is it a panacea. But it is a mark of their 
potential effect that Iran has worked so hard in recent months to avert 
action in the Security Council, and tried so hard to deflect or divert 
the steps that are now underway. Iran's leaders understand that both 
the practical impact of Resolution 1929 and its broader message of 
isolation create real problems for them and their pursuit of nuclear 
weapons.

    Question. Europe's supply of refined petroleum to Iran is 
declining. Where is Iran getting its refined petroleum?

    Answer. Major gasoline suppliers to Iran have included companies 
from India, China, Turkmenistan, the Netherlands, France, Singapore, 
Kuwait, Russia, and the United Arab Emirates. Exports from European 
companies have been in decline, due in large part to U.S. pressure; 
however, exports from Asian companies and wholesalers have increased to 
meet Iranian gasoline demand.
                                 ______
                                 

 Responses of Under Secretary William Burns to Questions Submitted for 
                 the Record by Senator Richard G. Lugar

    Question. Please describe, in a classified format if necessary, the 
administration's diplomatic efforts with gulf allies to counter the 
threat of a nuclear Iran.

    Answer. As allies in the region potentially affected greatly by 
Iran's nuclear program, the United States works closely with members of 
the Gulf Coordination Council (GCC) both bilaterally and in the context 
of the GCC, to counter this threat to regional stability. Most 
recently, we have been working with the gulf states on the 
implementation of United Nations Security Council Resolution 1929. We 
continue to work with our GCC partners to enhance counterproliferation 
authorities and interdiction capabilities through activities such as 
the Proliferation Security Initiative (PSI). All GCC members have 
endorsed the PSI, and the United States engages our gulf allies with an 
active PSI program that includes the biannual PSI Exercise LEADING 
EDGE, issue-specific workshops, and bilateral training opportunities. 
Furthermore, the United States works closely with the United Arab 
Emirates--the largest transshipment hub in the region--through a 
bilateral Counterproliferation Task Force. Through this dialogue, we 
work together on a full range of counterproliferation issues including 
export controls.
    We have worked closely in bilateral discussions with GCC countries 
on the need to fully and robustly implement obligations under existing 
UNSCRs and to consider imposing supplemental measures, in particular 
targeting Iran's ability to finance procurement of prohibited equipment 
through entities in gulf states.

    Question. Please lay out, in a classified format if necessary, 
administration concerns about the potential for a nuclear arms race in 
the region, were Iran to obtain nuclear weapons. Likewise, how does the 
administration view the status of conventional arms races since the 
Gulf Security Dialogue began?

    Answer. Our security strategy toward the Persian Gulf vis-a-vis 
Iran is to enhance bilateral and multilateral security relationships 
while deterring a conventional arms race. We believe our strategy has 
been successful. The Gulf Security Dialogue (GSD) is the State 
Department's primary security coordination mechanism with the Gulf 
Cooperation Council (GCC) countries. The GSD includes regular 
bilateral, interagency (State, NSC, OSD, JS, CENTCOM) consultations 
with the GCC states on the breadth of security issues affecting the 
gulf. For a number of years, through the construct of the GSD, we have 
worked with the countries of the Arabian Peninsula as well as other 
partners in the region to develop a common architecture that includes 
bilateral and multilateral security defenses, shared early warning 
systems, counterterrorism and counterpiracy programs, programs to build 
partner capacity and efforts to harden and protect our partners' 
critical infrastructure. In fact, we currently have missile defense 
assets in a number of gulf partner nations. CENTCOM maintains a robust 
exercise schedule in the region and a sizeable force presence which 
reaffirms our commitment to our partners.
    We also maintain a full schedule of bilateral and multilateral 
engagement going up to the highest levels. In the last 2 months alone, 
Secretary of Defense Gates and Chairman of the Joint Chiefs Admiral 
Mullen have both traveled to the region. Strengthening the capacities 
of vulnerable states in the region is a vital avenue for countering 
destabilizing Iranian activities, and we believe we are seeing some 
results.

    Question. The Conference Report on H.R. 2194 contains language 
authorizing appropriations necessary to implement provisions of the 
act. What additional resources will the State Department require?

    Answer. Implementation of the act will require additional personnel 
having a variety of specializations in several State Department 
bureaus. Requirements for open source and classified data collection, 
technical and legal analyses and reporting will be considerably in 
excess of needs under the 1996 act. We expect that a portion of our 
personnel needs will be met, in the short term, through the hiring of 
contractors with specific skill sets not previously required. U.S. 
Embassies will be tasked with the responsibility to engage local 
governments and businesses on issues raised by the 2010 act and to 
investigate potentially sanctionable activities. Nevertheless, travel 
by U.S.-based personnel also will be substantially expanded. We are 
currently working up approximate cost figures for the expanded effort 
needed to implement the 2010 act. We will provide those to you as soon 
as possible.

    Question. Please explain in greater detail the responsibilities 
that Ambassador Einhorn will have with respect to Iran sanctions.

    Answer. Secretary of State Clinton has asked Bob Einhorn, Special 
Advisor for Nonproliferation and Arms Control, to take on the added 
role of our government's coordinator for the implementation of 
sanctions related to Iran and North Korea.
    He will lead U.S. efforts with partners and allies around the 
world--including foreign governments, private industry and the United 
Nations--to strengthen multilateral and national measures to address 
Iranian proliferation activities. He will direct U.S. efforts to ensure 
full and effective implementation of all U.N. Security Council 
resolutions related to Iran, including most recently UNSCR 1929.
    As part of these efforts, Bob Einhorn will work closely with the 
National Security Council, Treasury Department, Department of Defense, 
intelligence community and other agencies to ensure full and effective 
coordination of U.S. efforts for implementation of sanctions related to 
Iran and North Korea. Bob Einhorn's new responsibilities will further 
strengthen State Department's already close cooperation with other 
agencies on addressing Iran's compliance with its international 
obligations.

    Question. How does the Department plan to implement the provisions 
relating to sanctions to be imposed on certain persons who are 
responsible for or complicit in human rights abuses committed against 
citizens of Iran or their family members after the June 12, 2009, 
elections in Iran?

    Answer. The State Department's Bureau of Human Rights, Democracy, 
and Labor closely monitors human rights violations in Iran as reported 
and documented by human rights defenders and watch groups. As we do 
with our annual Country Report on Human Rights Practices in Iran, we 
will engage in consultations with and seek input from a range of 
sources that document human rights abuses in Iran in order to identify 
the appropriate persons to place on this list. Upon identifying these 
individuals, the Department will promptly notify Congress and, in 
accordance with the legislation, will publish the list of designees on 
the State Department Web site. We will then work with our colleagues in 
the Treasury Department to implement applicable sanctions under the 
International Emergency Powers Act, while our Consular Affairs Bureau 
implements visa restrictions on the designated human rights violators.

    Question. Please share the results of the internal review of 
existing sanctions you mentioned during the hearing. What lessons has 
the administration learned from this process that can be applied going 
forward?

    Answer. As I mentioned in my testimony, we have identified a few 
firms, less than 10, which may have violated the 1996 act. We have been 
in contact with these firms and relevant governments, often repeatedly, 
in order to establish the precise nature of their economic activity in 
Iran--both past and present. In most cases, we have good reason to 
believe that the firms of concern have wound down their activities in 
Iran. However, a few appear to be continuing their work there. 
According to the President's delegation of the 1996 act, the State 
Department is now required to consult with other agencies about 
appropriate next actions. Upon the completion of that set of 
consultations, the Secretary will make a determination about possible 
sanctions and/or waivers of the subject firms.
    Looking forward, we are satisfied that we have put in place a 
robust system to review instances of possible violation of the 1996 
act. An important part of our effort has been to make use of our 
embassies in the field, as well as our intelligence resources, to 
differentiate between actual activity in violation of the act and 
claims of activity made by the Iranian Government or its proxies. Those 
analyses are sometimes complicated by the reluctance of firms to 
publicly contradict statements by the Iranian Government, particularly 
if a company has a financial exposure in Iran. However, we have gone to 
pains to build credibility among energy firms, and many have shown 
sufficient confidence in our discretion so as to share commercial 
information with us. Finally, our work with many governments over 
recent months has permitted us to develop our understanding about which 
local institutions and individuals are helpful for the implementation 
of the act.

    Question. How does/will the administration measure the success of 
its Iran policy, not only with respect to sanctions, but also to other 
aspects of its broader policy?

    Answer. U.S. policy toward Iran is straightforward. We have sought 
to engage the Islamic Republic in dialogue in order to: (1) Prevent 
Iran from developing nuclear weapons; (2) counter its other 
destabilizing actions in the region and beyond; and (3) advance our 
broader interests in democracy, human rights, and development across 
the Middle East.
    President Obama has made clear repeatedly, including in his 
statement on the adoption of Resolution 1929, that we will stand up for 
those rights that should be universal to all human beings, and stand 
with those brave Iranians who seek only to express themselves freely 
and peacefully.
    We have pursued our broad policy goals over the past 18 months 
through a combination of tough-minded diplomacy--including both 
engagement and pressure--and active security cooperation with our 
partners in the Persian Gulf and elsewhere. We have sought to clarify 
the choices before the Iranian leadership, which has so far been unable 
to respond to President Obama's offers of outreach. Those offers have 
unsettled the leaders of the Islamic Republic, who now find their empty 
anti-American slogans completely discredited.
    We have sought to demonstrate what's possible if Iran meets its 
international obligations and adheres to the same responsibilities that 
apply to other nations. And we have sought to intensify the costs of 
continued defiance, and to show Iran that pursuit of a nuclear weapons 
program will make it less secure, not more secure. The choice is 
Iran's: whether it will choose to comply with its obligations, or be 
further isolated from the international community.

    Question. The House version of the Iran sanctions legislation 
contained language regarding Agreements on Civil Nuclear Cooperation 
(or ``123 Agreements'') which has since been dropped. Let me pose 
several questions regarding the 123 Agreement with Moscow, which 
Senator Kerry and I introduced legislation approving on June 21:

    a. How will the administration use entry into force of an agreement 
for civilian nuclear cooperation with Russia to influence Russian 
behavior on Iran?
    b. Has the Russian Federation executed a facility-specific 
safeguards agreement with the IAEA for the Bushehr nuclear power 
reactor?
    c. Last week, Secretary Gates stated in testimony before the Armed 
Services Committee that Russia has a schizophrenic pattern of behavior 
on Iran. Do you share this assessment, and what is the status of the 
joint Iranian missile threat assessment the United States proposed to 
conduct with Russia last year?
    d. This year the intelligence community concluded in an open 
assessment that ``at least in the past'' Russian entities had assisted 
Iran's ballistic missile program. If this is the case, then why did the 
assessment change from that given in previous years, which was that 
such assistance has continued?

    Answer. (A) Russia has been a strong partner within the P5+1 and in 
international efforts to prevent Iran from acquiring a nuclear weapons 
capability. The administration has determined that the level and scope 
of Russia's cooperation with us were sufficient to justify resubmitting 
the 123 Agreement to Congress for review. We continue to work closely 
with the Russian Government to further our shared nonproliferation 
goals and to prevent Iran and other countries of concern from 
developing WMD and their means of delivery. The decision to move 
forward with the Agreement--a legal framework for enabling bilateral 
civil nuclear commerce--was made on its own merits: There are clear 
benefits with entry into force of the Agreement to promote our broader 
nonproliferation goals, such as joint research and development of 
international nuclear fuel cycle services as well as civil nuclear 
energy technologies that would limit proliferation and security risks.
    (B) It is incumbent on the country where a safeguardable facility 
is located, not the country providing assistance to that facility, to 
have a safeguards agreement with the IAEA, and Iran has such an 
agreement with the IAEA that covers Bushehr. Russia has, in addition, 
engaged in a lengthy negotiation with Iran to secure very important 
nonproliferation measures in the Russia-Iran agreement, namely ``just 
in time'' fuel delivery and spent fuel take-back. These measures have 
gone a long way toward satisfying the immediate nonproliferation 
concerns we had with the Bushehr project. Russia has made clear to Iran 
that IAEA safeguards are a requisite part of reactor operation.
    (C) Russia shares the United States concerns regarding Iran's 
nuclear and missile programs. To that end, it has supported all four 
United Nations Security Council resolutions imposing sanctions on Iran. 
With respect to the Joint Threat Assessment (JTA), we have met with 
Russia three times to exchange our views on the Iranian and North 
Korean missile programs. We have proposed another meeting in the near 
term to continue our discussions and hope to complete a written report 
to our respective leaderships by the end of this year that will 
describe the results of our discussions.
    (D) We defer to the intelligence community, as it is better suited 
to substantively respond to this assessment.
                                 ______
                                 

  Responses of Under Secretary Stuart Levey to Questions Submitted by 
                         Senator John F. Kerry

    Question. During the hearing, I raised the question of the 
strategic impact of America's dependence on foreign oil on Iran and its 
behavior. The Center for American Progress Action Fund and the 
Massachusetts Institute of Technology, have found that capping carbon 
emissions would cost Iran up to $100 million a day in oil profits.

   a. Is there a connection between America's dependence on 
        imported oil and Iran's ability to pursue its nuclear program 
        despite international pressure?

    Answer. There is a limited potential connection between U.S. demand 
for imported oil and Iran's ability to pursue its nuclear program. The 
United States does not import Iranian oil, but U.S. demand has a large 
impact on international oil prices. Up to two-thirds of Iranian 
Government revenue comes from oil exports, according to data from the 
International Monetary Fund. Iran views its nuclear program as a 
strategic priority, and while a decline in revenue from lower oil 
prices would hurt the Iranian Government's fiscal position, it is 
unclear whether that effect would cause a cut in spending on its 
nuclear program.

   b. Is there a connection between America's dependence on 
        imported oil and Iran's ability to sponsor terrorist groups 
        abroad?

    Answer. See response to (c) below.

   c. Can you comment on the nature of these linkages?

    Answer. This is a complicated issue, but what is clear is that 
American demand for imported oil has an impact on its overall market 
price, and thus an indirect impact on Iran's oil revenues.

    Question. In the wake of U.N. Resolution 1929, countries are taking 
national measures to increase the pressure on Iran.

   What do you expect will be the impact of the national 
        measures taken by U.S. allies in the wake of U.N. Resolution 
        1929--both on Iran's economy and on its decisionmaking?

    Answer. Following the adoption of Resolution 1929, the United 
States, the European Union, Norway, Canada, Australia, Japan, and South 
Korea, among others, have implemented national sanctions programs to 
implement the requirements of the resolution. These measures impose, 
inter alia, sanctions on Iranian financial institutions, other 
entities, and individuals that facilitate Iran's proliferation program, 
and impose broad systemic sanctions, such as prohibitions on the 
provision of insurance or export credits for business with Iran and 
prohibitions on certain activities in the energy sector. We expect that 
the growing coalition of countries that are imposing national sanctions 
as a means of implementing UNSCR 1929 will continue to put pressure on 
Iran, sharpening its choice between the path of engagement and the path 
of further isolation.

    Question. Europe's supply of refined petroleum to Iran is 
declining.

   Where is Iran getting its refined petroleum?

    Answer. In the past, major refined petroleum suppliers to Iran have 
included companies from India, China, Turkmenistan, the Netherlands, 
France, Singapore, Kuwait, Russia, and the United Arab Emirates. 
Passage of CISADA and the State Department's efforts to engage with 
these companies has had a strong effect on refined petroleum sales to 
Iran, as many of Iran's prior suppliers have decided not to sell 
refined petroleum products to Iran. As Under Secretary William Burns 
recently testified, open sources indicate that prior to last July, Iran 
imported roughly 130,000 barrels per day of refined petroleum products, 
and that in October, that figure had dropped by approximately 85 
percent to 19,000 barrels per day. Although Iran continues to import 
some refined petroleum products from countries in Asia and the Middle 
East, diminished imports have forced Iran to increase its domestic 
production of refined petroleum. The rapid conversion of petrochemical 
facilities to petroleum refining is not without costs, as it decreases 
petrochemical output.

    Question. Thanks in part to your work Iran is having an 
increasingly difficult time gaining access to international capital 
markets.

   a. Can you tell us more about where these efforts stand?

    Answer. U.S. sanctions with respect to Iran generally prohibit U.S. 
financial institutions and their foreign branches from engaging in 
transactions with Iran and with Iranian Government entities. In 
addition, U.S. sanctions generally prohibit U.S. financial institutions 
and their foreign branches from dealing with numerous Iranian entities, 
Iran-linked banks, and individuals that have been designated for their 
involvement in terrorism or WMD proliferation. Treasury regulations 
that implement section 104(d) of CISADA further prohibit the owned or 
controlled subsidiaries of U.S. financial institutions from knowingly 
engaging in transactions with or benefiting Iran's Islamic 
Revolutionary Guard Corps or its designated agents or affiliates. Iran 
and its designated persons are therefore unable to access U.S. and 
international financial markets and find it difficult to engage in 
transactions involving U.S. dollars and euros. Last, section 104(c) of 
CISADA gives Treasury authority to prohibit or severely restrict the 
U.S. correspondent accounts of foreign financial institutions that 
knowingly engage in certain transactions related to Iran. We have 
undertaken considerable outreach to financial market participants, both 
here and abroad, to educate them about Iranian sanctions and to inform 
foreign financial institutions about the risk that if they engage in 
sanctionable transactions, their own access to U.S. financial markets 
could be closed off.

   b. Can you provide details about Iran's ability to access 
        international markets?

    Answer. As a result of recent sanctions, the majority of Iran's 
state-owned banks are no longer able to conduct transactions with banks 
in most of the major financial centers in Europe, Asia, and the Western 
Hemisphere. Most of the world's most significant financial institutions 
refuse to do business with Iran because of ever-increasing reputational 
risk, international pressure, and concern that they themselves could 
lose access to U.S. financial markets. As a result, Iran is facing 
great difficulty gaining access to financial services, finding partners 
with which to engage in projects, and conducting financial 
transactions. Insurance companies are increasingly unwilling to insure 
Iranian cargo and shipping companies do not want to risk traveling to 
or from Iranian ports. This is especially manifesting itself in Iran's 
energy sector. Almost daily we receive reports of the world's major oil 
companies cancelling projects and drawing down their business with 
Iran. We also have seen governments around the world impose severe 
restrictions on government-backed export credits for projects in Iran, 
further reducing the incentive for the private sector to proceed with 
projects.
                                 ______
                                 

  Responses of Under Secretary Stuart Levey to Questions Submitted by 
                        Senator Richard G. Lugar

    Question. The Conference Report on H.R. 2194 contains language 
authorizing appropriations necessary to implement the provisions of the 
act. What resources will the Treasury Department require?

    Answer. At this time, we are not certain what resources will be 
required to carry out the provisions of the Comprehensive Iran 
Sanctions, Accountability, and Divestment Act of 2010. On August 16, we 
issued regulations implementing subsections 104(c) and 104(d) of CISADA 
and will work with the Office of Management and Budget to ensure that 
Treasury receives sufficient resources.

    Question. You referred in your testimony to voluntary actions by 
private sector companies to curtail their activities in Iran.

   a. Is the administration satisfied with the extent of such 
        voluntary curtailments?

    Answer. As I described in my testimony, the reaction of the private 
sector to Iran's illicit conduct and deceptive financial practices has 
played an important role in increasing the pressure on Iran to comply 
with its international obligations. To date, the private sector has 
responded to the inherent reputational risk of doing business with Iran 
by withdrawing from projects, financial relationships, and investments. 
However, as would be expected in the global market economy, there are 
always some actors that are willing to accept higher risk in exchange 
for profit. We will continue to engage the private sector around the 
world to underscore the obligations inherent in the existing sanctions 
framework, explain the potential consequences of CISADA, and encourage 
responsible corporate behavior from all those who might be otherwise 
inclined to continue doing business with Iran.

   b. What efforts are being made to persuade other countries, 
        particularly China, to forgo the opportunity to substitute 
        their own investment and trade for that which is being 
        withdrawn, and with what level of success?

    Answer. Treasury and State Department officials are engaged in an 
ongoing effort to persuade our counterparts around the world to 
robustly implement the requirements of UNSCR 1929.
    Since the adoption of UNSCR 1929, Treasury and State officials have 
traveled to Europe, the Middle East, Asia, and Latin America to discuss 
Iran sanctions implementation. We believe these engagement 
opportunities have been and will continue to be useful in underscoring 
the importance that the United States places on robust enforcement of 
the existing international sanctions framework and encouraging our 
partners all over the world to view the actions taken by the United 
States, the EU, Norway, Australia, Canada, Japan, and South Korea, 
among others, as examples of responsible implementation of this 
framework.

    Question. How does the Treasury Department measure the success of 
its efforts with respect to Iran sanctions enforcement?

    Answer. Some indicators are classified, but even public information 
shows that international sanctions programs have been having a 
pronounced impact on Iran in a number of different areas. First, many 
of the world's largest and most prestigious financial institutions are 
eliminating or dramatically reducing the business they do with Iran. 
This trend is in response to Iran's established history of using 
deceptive financial practices to mask the real nature of, or the true 
parties involved in, their transactions. The result is that Iran has 
been relegated to the margins of the international financial system, 
and is finding it increasingly difficult to access the large-scale, 
sophisticated financial services necessary to run a modern economy 
efficiently. Second, beyond the financial services sector, companies 
from many industries, including manufacturing, automotive, insurance, 
engineering, and accounting, have similarly announced the withdrawal of 
business from Iran. Many foreign energy companies have also withdrawn 
their investments in Iranian petroleum projects, and have pulled out of 
joint ventures with Iranian energy companies. Some European and Middle 
Eastern companies have even stopped providing jet fuel to Iran's 
national air carrier in Europe. Iran also is increasingly unable to 
secure the foreign investment, financing, and technology it needs to 
modernize its aging energy infrastructure, threatening its oil and gas 
production and export capacity over the long term. The Iranian economy 
depends on energy revenues, and the continued stagnation or decline of 
energy outputs could adversely affect Iran's economic stability.
    We believe that the speed, scope, and impact of sanctions have 
caught the regime by surprise. There are clear signs that the Iranian 
leadership is worried about the impact of these measures and is taking 
sanctions seriously. By sharpening the choice for Iran's leaders 
between integration with the international community and, 
alternatively, increasing isolation, sanctions are creating the 
leverage needed for effective diplomacy.

    Question. What are the annual quantifiable costs for U.S. business 
interests of existing Iranian sanctions? Please list the top five 
industry sectors that are affected.

    Answer. The Treasury Department has not undertaken such an 
analysis, which would require additional data and expertise from other 
U.S. Government agencies. Treasury and other appropriate agencies could 
potentially work with congressional staff to evaluate whether this 
would be feasible to undertake.

    Question. What is the estimated effect that current and proposed 
sanctions have on Iranian GDP?

    Answer. Because of many years of the Iranian Government's 
mismanagement of the economy, it is difficult to discern the causal 
relationships that exist between the state of Iran's economy and 
specific actions taken by the international community. We do know, 
however, that Iran is struggling to obtain investment in its oil and 
gas industry, which could ultimately affect Iranian oil production and 
therefore government revenues. Indeed, the head of Iran's oil ministry, 
Masoud Mir-Kazemi, has said that Iran aimed to attract at least $25 
billion per year in local and foreign investment in its oil/gas sectors 
over the next 5 years (2010-15). However, Iran had attracted only a few 
billion dollars in foreign investment each year in the previous 4 
years.
    Iran is poorly positioned to respond to the impact of sanctions 
and, as the leadership tries to formulate a response, it is faced with 
unappealing choices. As an example, in part because it is encountering 
difficulties in acquiring refined petroleum because of sanctions, the 
government is seeking ways to reduce domestic demand for gasoline. One 
obvious step would be to reduce the heavy subsidies on gasoline that 
now make the price at the pump about 37 cents per gallon. Iran recently 
announced that it would reduce subsidies on gasoline and other 
household and energy products by $20 billion. The government, however, 
appears to have hesitated in going forward with these subsidy cuts, 
potentially because of concern about popular backlash. They have even 
deployed security forces to try to enforce order, and President 
Ahmadinejad has threatened to severely punish businesses that raise 
prices of consumer goods in reaction to subsidy cuts. Additionally, 
fears that inflation could accelerate surrounding government 
implementation of subsidy reform, combined with increased barriers to 
Iranian banks and currency exchanges accessing dollars as a result of 
the implementation of recent sanctions, were likely the cause of the 
sudden near 20 percent depreciation of the Iranian rial on market 
exchanges in late September. The Central Bank of Iran was slow to 
respond to these pressures, and it took weeks of intervention to 
stabilize volatility in the rial market exchange rate.

    Question. My office has interacted with branch campuses of some 
U.S. universities located in the Middle East who would like to recruit 
Iranian faculty and students to their campuses. As you interpret 
existing law, are they restricted from such activity? Could they offer 
a recruiting trip to visit their campuses, for example? Could they 
offer financial assistance? How could such educational opportunities be 
encouraged without involving the U.S. Government in each step of such a 
process? What recommendations should I give these institutions?
    The application of Treasury's regulations to these activities is 
highly fact dependent, but it appears that certain activities 
identified in the question--e.g., recruitment of Iranian faculty and 
students to campuses of U.S. universities located in the Middle East 
and the provision of financial assistance, presumably to Iranian 
students--may be prohibited by USG sanctions on Iran unless authorized 
by OFAC. As a general matter, Treasury does not seek to discourage 
educational or cultural exchange programs designed to directly benefit 
the Iranian people and, in 2006, Treasury's OFAC issued a statement of 
favorable licensing policy to encourage applicants to seek 
authorization in the form of specific licenses for these types of 
programs, which are akin to academic exchange programs.
    If institutions seek your recommendations on these matters, please 
encourage them to approach OFAC for guidance on the applicability of 
OFAC's regulations
to the activities and, if necessary, seek formal authorization to 
engage in these activities.

                                  
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